How The Marginal Tax Relief Works?

There have been articles circulating in social media that there is zero tax liability up to Rs 12 lakhs (excluding standard deduction) and if the income increases by one rupee, tax liability shall be greater than Rs. 60,000 resulting in less money in the hands of the taxpayer. However, this interpretation is misleading and incorrect.

The following table illustrates how this provision works:

Pre-tax Income

Tax calculated as per tax slabs

Marginal Tax Relief

Tax after marginal tax relief

Post-tax Income

(A)

(B)

(C)

(D) = (B) – (C)

(A) – (D)

12,00,000

12,00,000

12,10,000

61,500

51,500

10,000

12,00,000

12,20,000

63,000

43,000

20,000

12,00,000

12,30,000

64,500

34,500

30,000

12,00,000

12,40,000

66,000

26,000

40,000

12,00,000

12,50,000

67,500

17,500

50,000

12,00,000

12,60,000

69,000

9,000

60,000

12,00,000

12,70,000

70,500

500

70,000

12,00,000

12,75,000

71,250

71,250

12,04,750

As can be seen for all income levels, the post-tax money in hand never goes below Rs 12 lakhs due to the marginal relief of taxes provided under the Income Tax Act.

By: Vishal Shah, SEBI Registered Investment Advisor and founder of Bachhat

Feb 2, 2025

Disclaimer: This is not a financial advice and the readers should reach out to registered investment advisors for any financial advice.  Registration granted by SEBI, membership of BASL and certification from National Institute of Securities Markets (NISM) in no way guarantee performance of the intermediary or provide any assurance of returns to investors. Investment in securities market are subject to market risks. Read all the related documents carefully before investing.)

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