Marginal Relief

Definition

Marginal relief is a provision under the Income Tax Act of 1961 designed to ease the surcharge burden on taxpayers whose income slightly exceeds the threshold for higher tax rates. This relief aims to prevent a disproportionate tax increase when income surpasses specific limits.

For Individuals

• Applicability: Marginal relief applies to individuals whose income exceeds ₹50 lakhs.
• Calculation: It is granted up to the amount by which the excess tax payable (including surcharge) on income above ₹50 lakhs surpasses the excess income over ₹50 lakhs.

For Companies

• Applicability: Marginal relief is available to companies with a total income exceeding ₹1 crore but not exceeding ₹10 crores.
• Calculation: The relief ensures that the tax payable (including surcharge) on income beyond ₹1 crore does not exceed the tax payable on ₹1 crore by more than the amount of income exceeding ₹1 crore.

Purpose

• Equitable Taxation: By offering marginal relief, the tax burden is balanced, ensuring that taxpayers do not face an excessively steep increase in tax liability with minor increases in income.
• Encouraging Fairness: This provision promotes fairness in the tax system, benefiting those who would otherwise face significant tax jumps due to minor increases in their income.

By understanding marginal relief, individuals and companies can better manage their tax liabilities and ensure they benefit from available tax provisions.

Frequently Asked Questions (FAQ)

Q. How do I apply for marginal relief?

A. To apply for marginal relief, you need to include it in your income tax return. Ensure you correctly calculate the relief amount. You may need to provide supporting documents if required by the tax authorities.

Q. Are there specific exemptions or conditions under which marginal relief is not applicable?

A. Marginal relief is not applicable if your income does not exceed the specified thresholds. It also does not apply if your income falls below ₹50 lakhs for individuals or ₹1 crore for companies.

Q. How frequently are the income thresholds for marginal relief updated?

A. The income thresholds for marginal relief are updated annually in the Union Budget. Taxpayers should check for changes each year to ensure they apply the correct limits.