Finance Bill: Marginal relief for income slightly over Rs 7 lakh

In the Finance Bill 2023, an amendment offering marginal relief for those with income slightly more than Rs 7 lakh was introduced. This will be applicable from next financial year.

Marginal relief is the difference between the excess tax payable and the amount exceeding the threshold. This implies that the tax liability cannot be more than the income that exceeds Rs 7 lakh.

In the Budget 2023, an increase in the tax rebate was proposed. With the increase in the rebate, an individual won’t have to pay any tax if the taxable income does not exceed Rs 7 lakh from FY24. The rebate is distinct from the basic exemption limit, which was also raised to Rs 3 lakh from Rs 2.5 lakh. Tax payer can claim rebate until the income is upto Rs 7 lakh.

However, a small increase in the income over Rs 7 lakh would make the entire amount above the basic exemption limit of Rs 3 lakh becomes taxable. This drastically increased the tax liability that has to be paid.

Now, with the introduction of marginal relief, the tax to be paid can not be more than the income that exceeds Rs 7 lakh. Marginal relief has existed since the implementation of surcharge. Income tax surcharge is an extra charge levied on the taxable amount paid when income exceeds a certain threshold