Budget 2025: Understanding Marginal Tax on ₹12.1 Lakh, ₹12.5 Lakh, and ₹12.75 Lakh

The Union Budget 2025 has raised the income tax exemption threshold to ₹12 lakh. This means individuals earning up to ₹12 lakh will not have to pay any tax. For salaried individuals, the limit effectively increases to ₹12.75 lakh due to a ₹75,000 standard deduction under the new tax regime for FY 2025-26.

This tax relief is possible due to revised tax slabs and an enhanced rebate of ₹60,000 under Section 87A. However, taxpayers earning slightly above ₹12 lahks, such as ₹12.1 lahks or ₹12.5 lakh, have raised concerns about how their tax will be calculated.

Marginal Relief for Those Earning Just Above ₹12 Lakh

For salaried individuals, the standard deduction provides direct tax benefits. Non-salaried taxpayers with an income slightly above ₹12 lakh can benefit from marginal relief. This ensures that individuals earning just over ₹12 lakh do not face a disproportionately high tax burden.

For example, a non-salaried individual earning ₹12.1 lakh would normally owe ₹61,500 in taxes based on standard tax slabs. However, due to marginal relief, their tax liability is reduced to just ₹10,000.

How Marginal Relief Works?

Marginal relief applies to individuals earning between ₹12 lakh and ₹12.75 lakh. If income exceeds ₹12.75 lakh, marginal relief no longer applies, and the taxpayer must pay the full tax amount as per the standard rates.

Tax Calculation Example for ₹12.1 Lakh Income

Without marginal relief, the tax for ₹12.1 lakh income is calculated as:

However, since income up to ₹12 lakh is tax-free due to the rebate, marginal relief is applied. The difference between ₹12.1 lakh and ₹12 lakh is ₹10,000, so marginal relief is calculated as:

Tax without relief (₹61,500) – Excess income (₹10,000) = ₹51,500 marginal relief

This reduces the final tax liability to just ₹10,000.

Rebate vs. Marginal Relief

• Rebate: If income is up to ₹12 lakh, tax is completely waived under Section 87A.
• Marginal Relief: If income is slightly above ₹12 lakh, the tax burden is reduced so that it does not exceed the additional income earned.

The government estimates that these tax changes will save taxpayers ₹1 lakh crore, increasing disposable income and providing greater financial flexibility.

Important Tax Changes in Budget 2025

• Income up to ₹12 lakh is tax-free for individuals eligible for a rebate.
• Salaried employees can claim a ₹75,000 standard deduction, making income up to ₹12.75 lakh tax-free.
• Marginal relief is only available up to ₹12.75 lakh income.
• Special rate incomes, like capital gains, are not eligible for the Section 87A rebate.

These changes aim to reduce the tax burden on middle-income earners while ensuring fairness for those earning slightly above the exemption threshold.

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