Marginal Relief is a provision in the Indian income tax system designed to protect taxpayers—especially individuals and businesses—from a sudden spike in tax liability when their income slightly exceeds the threshold for a higher surcharge or tax slab.
In simple terms, it ensures that the additional tax payable due to crossing a specified income limit does not wipe out the benefit of the extra income earned. This typically applies to high-income individuals or entities where surcharge rates are involved, such as those earning above ₹50 lakh, ₹1 crore, ₹2 crore, or ₹5 crore, depending on the applicable financial year.
For instance, if someone’s total income just barely crosses a surcharge threshold, without Marginal Relief, their total tax liability could increase disproportionately—sometimes even more than the extra income earned. Marginal Relief corrects this by capping the tax increase, making sure it's not higher than the income that triggered the surcharge.
Why is it relevant?
Marginal Relief plays a crucial role during income tax return filings, especially for professionals, business owners, or companies dealing with large earnings. It ensures fair taxation and prevents undue tax burdens from small excesses in income. Understanding this provision is important for accurate tax calculations, compliance, and financial planning.
At FinTax24, we help individuals and businesses navigate such income tax nuances, ensuring they claim every benefit they are entitled to—including Marginal Relief where applicable.
This concept reflects the income tax department’s effort to maintain equity and fairness in the tax system while avoiding tax penalties for small income increases.