The announcement of the 2025 Union Budget brought relief to many taxpayers, particularly those with an income of up to ₹12 lakh. However, confusion persists regarding the applicability of the new tax regime, the Section 87A rebate, and the concept of marginal relief. To clarify these aspects, CA V. Subramanian, a Chennai-based Chartered Accountant, breaks down the key takeaways.
Rebate Under Section 87A: Who Benefits?
Under the revised tax regime, individuals earning up to ₹12 lakh annually will not have to pay income tax, thanks to an increased rebate under Section 87A. Salaried individuals enjoy an additional benefit, as their exemption limit extends to ₹12.75 lakh due to the standard deduction of ₹75,000.
“The Finance Minister’s statement that no tax will be payable up to ₹12 lakh should not be misinterpreted as an increase in the basic exemption limit,” clarifies CA V. Subramanian. “Instead, this is due to a combination of factors, including the revised tax slabs and the enhanced rebate.”
For the financial year 2025-26, individuals with taxable income up to ₹12 lakh will receive a rebate of up to ₹60,000 under Section 87A. This means that if their tax liability is ₹60,000 or below, they will effectively pay no tax. However, this rebate does not apply to special rate incomes such as capital gains.
Marginal Relief: Addressing the ₹12.10 Lakh Dilemma
A significant debate has emerged on social media regarding a situation where an individual earning ₹12.10 lakh would face a tax liability of ₹61,500 under the new regime. Critics have questioned how an additional income of just ₹10,000 could result in such a high tax burden.
“This is where the concept of marginal relief comes into play,” explains CA V. Subramanian. “Marginal relief ensures that the additional tax burden does not exceed the extra income earned over ₹12 lakh.”
For instance, if a taxpayer earns ₹12.10 lakh, their tax liability before rebate would be ₹61,500. However, since the excess income over ₹12 lakh is only ₹10,000, the final tax payable will be the lower of the two amounts—₹10,000. The remaining ₹51,500 is adjusted through marginal relief.
“This means that instead of paying ₹61,500, the taxpayer will only pay ₹10,000, ensuring fairness and avoiding tax disproportionate to income earned,” says CA V. Subramanian.
Final Takeaway
The new tax regime brings significant relief to middle-class taxpayers, but it is crucial to understand its nuances. While the rebate under Section 87A ensures zero tax for income up to ₹12 lakh, marginal relief prevents undue tax burden for those slightly exceeding this limit.
“The government has taken a balanced approach,” concludes CA V. Subramanian. “Taxpayers must focus on informed financial planning to maximize their benefits under the revised structure.”