What is Marginal Relief?
The surcharge on income tax is an additional tax that individuals or companies with higher incomes are required to pay. This surcharge is levied to ensure that wealthier taxpayers contribute more to the government compared to those with lower incomes. The surcharge rate typically ranges from 2% to 37%, depending on the income level.
Marginal Relief is a provision under the Income Tax Act to reduce the burden of surcharge on certain individuals and companies. The idea is to provide relief to taxpayers whose income exceeds the surcharge threshold, but not by a significant margin. The relief works as follows:
For individuals: Marginal relief ensures that the total tax payable (including the surcharge) does not exceed the tax payable on the income just below the surcharge threshold (Rs. 50 lakhs). The relief is the difference between the tax payable (including surcharge) on income exceeding Rs. 50 lakhs and the excess income itself.
For companies: Marginal relief is available to companies with a total income between Rs. 1 crore and Rs. 10 crore. In such cases, the income tax payable (including surcharge) on the higher income should not exceed the income tax payable on Rs. 1 crore by more than the excess income.
In simple terms, marginal relief ensures that taxpayers do not pay a disproportionately high tax due to the surcharge when their income is slightly above the surcharge threshold.