Income Tax Rule: How Marginal Relief Brings Down Your Tax

According to the concept of marginal relief, if the amount payable as surcharge exceeds the income above Rs. 50 lakh or Rs. 1 crore, the surcharge will be applicable at a marginal rate.

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Income Tax Rule: How Marginal Relief Brings Down Your Tax

The concept of marginal relief is meant to provide relaxation from levy of surcharge to a taxpayer.

Income tax surcharge become applicable if the taxable income of an individual exceeds a specified limit. It is applicable on the basic tax (without inclusion of cess). For example, a surcharge of 10 per cent is applicable on those with taxable income between Rs. 50 lakh and Rs. 1 crore. And a 15 per cent surcharge on income above Rs. 1 crore. The concept of marginal relief is meant to provide relaxation from levy of surcharge to a taxpayer where the total income exceeds marginally above Rs. 50 lakh or Rs. 1 crore, as the case may be.

According to the concept of marginal relief, if the amount payable as surcharge exceeds the income above Rs. 50 lakh or Rs. 1 crore, the surcharge will be applicable at a marginal rate, which is 70 per cent of the incremental income above Rs. 50 lakh or Rs. 1 crore. (Incremental income above Rs. 50 lakh or Rs. 1 crore - 30 per cent of incremental income).

Scenario - 1 (where income exceeds Rs. 50 lakh marginally)


Suppose an individual's taxable income amounts to Rs. 51 lakh. Technically, the person has to pay a 10 per cent surcharge as income exceeds Rs. 50 lakh. But in this case, marginal relief comes into play and the surcharge he has to pay is not 10 per cent.  How?

The person's income above Rs. 50 lakh is Rs. 1 lakh (Rs. 51 lakh - Rs. 50 lakh). On Rs. 51 lakh, the person is supposed to pay tax of Rs. 13.42 lakh and surcharge of (@10%) Rs. 1.34 lakh for (AY 2018-19).  Since the surcharge (Rs. 1.34 lakh) is more than the income differential between (Rs.51 lakh and Rs. 50 lakh), the surcharge of 10 per cent will not be applicable. Thus, the person with taxable income of Rs. 51 lakh will pay tax of Rs. 13.42 lakh and surcharge of Rs. 70,000 ((70 per cent of incremental income of Rs. 1 lakh)  which comes to Rs. 14.12 lakh. Including cess (3%), it will come to Rs. 14.54 lakh.


If the marginal relief had not been applicable, the total tax liability would have been Rs. 15.20 lakh.

Scenario - 2 (where income exceeds Rs. 1 crore marginally)


Suppose an individual's taxable income amounts to Rs. 1.02 crore. Technically, the person has to pay a 15 per cent surcharge as income exceeds Rs. 1 crore. But in this case, marginal relief comes into play and the surcharge of 15 per cent is not applicable.  How?

The person's income above Rs. 1 crore is Rs. 2 lakh (Rs. 1.02 crore - Rs. 1 crore). On Rs. 1.02 crore, the person is supposed to pay tax of Rs. 28.72 lakh and surcharge of (@15%) of Rs. 4.31 lakh for (AY 2018-19).  Since the surcharge (Rs. 4.31 lakh) is more than the incremental income of Rs. 2 lakh (Rs. 1.02 crore - Rs. 1 crore), then the 15 per cent surcharge will not be applicable. Instead, a lower surcharge of Rs. 1.4 lakh (70 per cent of incremental income of Rs. 2 lakh) will be applicable as marginal relief comes into play.

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Thus the tax liability of the person with taxable income of Rs. 1.02 crore comes to Rs. 30.12 lakh (Rs. 28.72 lakh  plus Rs. 1.4 lakh). Including cess, it would come to Rs. 31.02 lakh crore.

Had marginal tax not come into play the total tax liability would have been Rs. 33.03 lakh and with cess Rs. 34.02 lakh.

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