New Tax Regime: The Tax Game Changes the Moment Your Income Crosses ₹12 Lakhs—Understand the Full Math..

Under the new tax regime, an income of up to ₹12 lakh qualifies for a rebate, effectively reducing the tax liability to zero. However, the moment one's income crosses this threshold—even slightly—tax calculation comes into play. This is precisely where confusion arises for many salaried individuals, particularly when a marginal salary increment appears to result in a disproportionately higher tax burden.

₹13.4 Lakh vs. ₹13.5 Lakh: A Small Difference, a Big Impact
If two individuals earn salaries of ₹13.4 lakh and ₹13.5 lakh, the actual difference in their income is merely ₹10,000. However, due to the mechanics of tax calculation, their respective tax liabilities diverge significantly. After accounting for a standard deduction of ₹75,000, the taxable income for the individual earning ₹13.4 lakh stands at ₹12.65 lakh, while for the one earning ₹13.5 lakh, it amounts to ₹12.75 lakh.

According to the current tax slabs, income up to ₹4 lakh attracts a 0% tax rate; income between ₹4 lakh and ₹8 lakh is taxed at 5%; income between ₹8 lakh and ₹12 lakh is taxed at 10%; and income exceeding ₹12 lakh is taxed at 15%. Based on this structure, the tax liability for an income of ₹13.4 lakh works out to ₹69,750, whereas for an income of ₹13.5 lakh, it amounts to ₹71,250.

What is Marginal Relief, and When is it Applicable?
Marginal relief is a form of tax concession granted when your calculated tax liability exceeds the actual amount of your income that falls above the ₹12 lakh threshold. The primary objective of this provision is to ensure that you do not end up paying more in taxes than the additional income you have earned.

In the case of the individual earning ₹13.4 lakh, the income exceeding the ₹12 lakh threshold amounts to ₹65,000; however, the calculated tax liability stands at ₹69,750. Under these circumstances, the government caps the tax liability at ₹65,000, thereby providing the taxpayer with a relief of ₹4,750.

Why is this Benefit Not Available at the ₹13.5 Lakh Income Level? With a salary of ₹13.5 lakh, your additional income amounts to ₹75,000, whereas the tax liability works out to ₹71,250. In this scenario, your additional earnings exceed the tax payable; therefore, Marginal Relief does not apply, and you are required to pay the full tax amount.

**A Safety Net for the Middle Class**
According to tax experts, Marginal Relief serves as a protective shield that safeguards middle-income earners from a sudden surge in their tax burden. However, as income levels rise, this relief gradually phases out. This example clearly demonstrates that even a modest salary increment can have a significant impact on one's tax liability. Therefore, when undertaking tax planning, it is crucial to not only consider your income but also to thoroughly understand the applicable tax slabs and the regulations governing Marginal Relief.

Disclaimer: This content has been sourced and edited from TV9. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.