Marginal relief in income tax stops a small rise in income from causing a much larger rise in tax: the extra tax can never be more than the extra income above a limit. It works at two points, just above ₹12 lakh of taxable income in the new regime, where the rebate stops, and just above each surcharge limit such as ₹50 lakh or ₹1 crore.
Without it, a person earning ₹12,10,000 would owe ₹61,500 plus cess while a person earning ₹12,00,000 owes nothing. The relief closes that cliff. The figures below use the new regime slabs that apply to FY 2025-26 and to tax year 2026-27; see the full new regime slab table for the bands.
Quick facts
What it does
Limits the tax jump to the income above a thresholdRebate point
Taxable income just above ₹12,00,000, new regimeRelief ends near
₹12,70,588 taxable incomeSurcharge points
₹50 lakh, ₹1 crore, ₹2 crore, ₹5 croreWho gets the rebate version
Resident individuals in the new regimeClaim needed
No separate claim; it is part of the tax computationUnder the 2025 Act
Rebate now in section 156
What is marginal relief in income tax
Tax law has a few hard limits where a benefit switches off. The 87A rebate wipes out tax up to ₹12 lakh of taxable income in the new regime. Surcharge switches on above ₹50 lakh. If those limits worked like a light switch, one extra rupee of income could add tens of thousands of rupees of tax.
Marginal relief is the safety rail. At each limit, the law compares two figures: the tax with the full rule applied, and the tax at the limit plus the whole income above the limit. The person pays the lower figure. In plain terms, you never lose more than the extra money you earned above the limit.
Where the relief applies
| Limit | What switches on above it | Relief rule |
|---|---|---|
| ₹12,00,000 taxable income (new regime) | Loss of the full rebate of up to ₹60,000 | Tax capped at income above ₹12,00,000 |
| ₹50,00,000 | 10% surcharge | Tax plus surcharge capped at tax on ₹50 lakh plus income above it |
| ₹1 crore | 15% surcharge | Same test against tax and surcharge at ₹1 crore |
| ₹2 crore | 25% surcharge | Same test at ₹2 crore |
| ₹5 crore (old regime only) | 37% surcharge | Same test at ₹5 crore |
The old regime rebate of up to ₹12,500 for income up to ₹5 lakh has no marginal relief written into it. Someone at ₹5,10,000 in the old regime pays the full slab tax of ₹15,000 plus cess.
Worked example just above ₹12 lakh
Taxable income ₹12,10,000, new regime, resident individual.
- Slab tax: 5% of ₹4,00,000 is ₹20,000; 10% of ₹4,00,000 is ₹40,000; 15% of ₹10,000 is ₹1,500. Total ₹61,500.
- Income above ₹12,00,000 is ₹10,000.
- Marginal relief cuts the tax to ₹10,000, so the relief is ₹51,500.
- Cess at 4% on ₹10,000 is ₹400.
- Final tax: ₹10,400.
The relief fades as income rises. It ends where the slab tax equals the excess: ₹60,000 plus 15% of the excess equals the excess at about ₹70,588 above the limit. So from roughly ₹12,70,588 of taxable income, normal slab tax applies. For a salaried person with the ₹75,000 standard deduction, that is a gross salary of about ₹13,45,588.
Marginal relief on surcharge, with numbers
Taxable income ₹51,00,000, new regime, all normal income.
- Tax on ₹50,00,000: ₹3,00,000 on the first ₹24 lakh plus 30% of ₹26,00,000 (₹7,80,000) = ₹10,80,000.
- Tax on ₹51,00,000: ₹10,80,000 plus 30% of ₹1,00,000 = ₹11,10,000. Surcharge at 10% = ₹1,11,000. Total ₹12,21,000.
- Cap: tax on ₹50 lakh (₹10,80,000) plus the ₹1,00,000 above it = ₹11,80,000.
- Marginal relief = ₹12,21,000 minus ₹11,80,000 = ₹41,000.
- Cess at 4% on ₹11,80,000 = ₹47,200. Final tax ₹12,27,200.
The same test is run at ₹1 crore, ₹2 crore and, for the old regime, ₹5 crore. More detail on rates is on the surcharge page.
Who can and cannot use it
- Rebate relief: only resident individuals under the new regime. Non-residents, HUFs and firms get no 87A rebate, so no rebate relief.
- Special rate income: the rebate does not cover tax on gains under 111A or 112A, so relief at ₹12 lakh is worked on normal slab income only.
- Surcharge relief: open to every assessee that pays surcharge, including companies at their own limits.
- Cess: there is no relief on cess itself. Cess is 4% of whatever tax and surcharge remain after relief; see how cess is worked out.
What the 2025 Act changed
For income of tax year 2026-27 the rebate moved from section 87A to section 156 of the Income-tax Act, 2025. The slab bands, the ₹60,000 rebate cap and the relief just above ₹12 lakh carry over unchanged, since the Finance Act for tax year 2026-27 left them alone. Returns for FY 2025-26 income, filed in AY 2026-27, still quote 87A. The rebate guide covers both years side by side.
Errors people make and the fix
| Slip | Correction |
|---|---|
| Assuming tax jumps to over ₹60,000 the moment income crosses ₹12 lakh | Work the relief: tax is capped at the excess until about ₹12,70,588 |
| Including 112A gains in the ₹12 lakh test | Apply the rebate and its relief to slab income only |
| Expecting relief in the old regime at ₹5 lakh | The old regime rebate has no relief clause |
| Employer TDS ignores the relief | Claim it in your return; the e-filing utility computes it |
General information on how the relief is computed, not advice on your own return. Thresholds can change with each Finance Act, so a chartered accountant, or the help pages of the income tax website, should have the last word.
Sources we checked
- Income-tax Act, 1961, section 87A
- Income-tax Act, 2025, section 156
- Finance Act, 2025, First Schedule (surcharge)
Frequently asked questions
What is marginal relief in income tax in simple words?
It is a cap on the tax you pay just above a limit. The extra tax cannot exceed the extra income above that limit, so earning slightly more never leaves you poorer.
Is marginal relief available above ₹12 lakh in the new regime?
Yes, for resident individuals. Between ₹12,00,000 and about ₹12,70,588 of taxable income, tax before cess is limited to the amount by which income exceeds ₹12 lakh.
Does marginal relief apply in the old regime?
Not for the rebate. It does apply to surcharge in both regimes, at ₹50 lakh, ₹1 crore, ₹2 crore and, in the old regime, ₹5 crore.
Do I need to claim marginal relief separately in the ITR?
No separate form is needed. The tax computation in the return works it out, but check the figure before you submit.
Is cess charged after marginal relief?
Yes. Cess at 4% is applied to the tax and surcharge left after the relief.