Marginal Relief under Section 87A

Purpose:

• Section 87A provides a rebate on income tax for resident individuals whose total taxable income is close to the rebate limit.

• Marginal relief ensures that taxpayers just above the rebate threshold don’t lose the benefit entirely.

How it works

1. Rebate limit:

   • For FY 2025‑26 (AY 2026‑27, New Regime), rebate under Section 87A applies if taxable income ≤ ₹12,00,000.

   • Maximum rebate = ₹60,000.

2. Problem without marginal relief:

   • Suppose taxable income = ₹12,00,001.

   • Full rebate eligibility is lost → the individual may pay much higher tax on ₹1 extra.

3. Marginal relief:

   • Tax is reduced just enough so that the tax plus rebate doesn’t exceed the tax payable at the threshold income.

   • This smooths the “cliff effect” at the threshold.

Formula (simplified)

$$\text{Tax payable after rebate}=\text{Tax on total income}-\text{Minimum of (Rebate max, Tax on total income)}$$

• If your income slightly exceeds the threshold, marginal relief reduces tax proportionally instead of losing the full rebate.

Example (illustrative):

• Threshold for rebate = ₹12,00,000, max rebate = ₹60,000

• Tax on ₹12,00,000 = ₹2,00,000 (hypothetical)

• Income = ₹12,00,100 → tax on ₹12,00,100 = ₹2,00,010

• Marginal relief = min(₹2,00,010, ₹60,000) → reduces tax so that effective tax doesn’t jump abruptly