What is marginal relief and how it is computed?

Ans. The concept of marginal relief is designed to provide relaxation from levy of surcharge to a taxpayer where the total income exceeds marginally above Rs. 50 lakh, Rs. 1 crore, Rs. 2 crore, Rs. 5 crore or Rs. 10 crore, as the case may be.

Thus, while computing surcharge, in case of taxpayers (i.e. Individuals/HUF/AOP/BOI/artificial juridical person) having total income of more than Rs. 50 lakh marginal relief shall be available in such a manner that the net amount payable as income-tax and surcharge shall not exceed the total amount payable as income-tax on total income of Rs. 50 lakh by more than the amount of income that exceeds Rs. 50 lakh.

In case of a company, surcharge is levied @ 7% (2% in case of foreign company) on the amount of income-tax if the total income exceeds Rs. 1 crore but does not exceed Rs. 10 crore and @ 12% (5% in case of foreign company) on the amount of income-tax if total income exceeds Rs. 10 crore. Hence, in case of company whose total income exceeds Rs. 1 crore but does not exceeds Rs. 10 crore, marginal relief will be computed as discussed above, but in the case of company having total income above Rs. 10 crore marginal relief is available in such a manner that the net amount payable as income-tax and surcharge shall not exceed the total amount payable as income-tax and surcharge on total income of Rs. 10 crore by more than the amount of income that exceeds Rs. 10 crore.

Illustration for better understanding

Mr. Mukesh is salaried employee (age 40 years). His total income from salary for the year 2023-24 amount to Rs. 51,00,000. Will he liable to pay surcharge, if yes, then how much and will he get the benefit of margin relief?

**

Surcharge is additional tax levied on the amount of income-tax. In case of taxpayers (i.e. Individuals/HUF/AOP/BOI/artificial juridical person), surcharge is levied @ 10% on the amount of income-tax where the total income of the taxpayer exceeds Rs. 50 lakh. In this case, total income of Mr. Mukesh exceeds Rs. 50 lakh and hence he will be liable to pay surcharge. Marginal relief is available in cases where the total income is slightly above Rs. 50 Lakh. The Computation of normal tax liability (i.e. liability without marginal relief) and tax liability under marginal relief (i.e. liability after marginal relief) will be as follows:

(1)  Normal tax liability (i.e. without marginal relief)

Tax on total income before surcharge (*)	13,42,500
Add: Surcharge (@10% on the amount of income-tax of Rs. 13,42,500	1,34,250
Tax liability after surcharge (i.e., normal tax liability)	14,76,750

(*) The normal tax rates for the financial year 2023-24 applicable to an individual below the age of 60 years are as follows:

• • Nil upto income of Rs. 2,50,000
  • 5% for income above Rs. 2,50,000 but upto Rs. 5,00,000
  • 20% for income above Rs. 5,00,000 but upto Rs. 10,00,000
  • 30% for income above Rs. 10,00,000.

Apart from above rates, cess will be computed separately.

(2) Tax liability under marginal relief (i.e. after marginal relief)

Tax on Rs. 50 lakh (at the above discussed rates)	13,12,500
Add: Income above Rs. 50 lakh	1,00,000
Tax liability under marginal relief	14,12,500

Conclusion

Normal tax liability (i.e. without marginal relief) comes to Rs. 14,76,750 and tax liability under marginal relief comes to Rs. 14,12,500. It can be observed that tax liability under marginal relief is lower and, hence, Rs. 14,12,500 will be the tax liability before cess. Total tax liability will be computed as follows:

	Rs.
Tax liability after marginal relief (*)	14,12,500
Add: Health & education cess @ 4%	56,500
Tax liability	14,69,000

(*) In this case, surcharge paid by Mr. Mukesh will be Rs. 70,000 computed as follows:

	Rs.
Tax liability (before cess) on Rs. 51,00,000 after considering the provisions of marginal relief	14,12,500
Tax liability (before cess) at normal rates on Rs. 51,00,000 if surcharge is not levied	13,42,500
Surcharge (i.e. increase in tax liability)	70,000

Illustration for better understanding

Mr. Raja is businessman (age 35 years). His total income for the year 2023-24 amounted to Rs. 1,02,00,000. Will he be liable to pay surcharge, if yes, then how much and will he get the benefit of marginal relief?

**

Surcharge is additional tax levied on the amount of income-tax. In case of taxpayers (i.e. Individuals/HUF/AOP/BOI/artificial juridical person), surcharge is levied @ 10% on the amount of income-tax where the total income of the taxpayer exceeds Rs. 1 crore. In this case, total income of Mr. Raja exceeds Rs. 1 crore and hence he will be liable to pay surcharge. Marginal relief is available in cases where the total income is slightly above Rs. 1 crore. The Computation of normal tax liability (i.e. liability without marginal relief) and tax liability under marginal relief (i.e. liability after marginal relief) will be as follows:

(1) Normal tax liability (i.e. without marginal relief)

Tax on total income before surcharge (*)	28,72,500
Add: Surcharge (@15% on the amount of income-tax of Rs. 28,72,500)	4,30,875
Tax liability after surcharge (i.e., normal tax liability)	33,03,375

(*) The normal tax rates for the financial year 2023-24 applicable to an individual below the age of 60 years are as follows:

• • Nil upto income of Rs. 2,50,000
  • 5% for income above Rs. 2,50,000 but upto Rs. 5,00,000
  • 20% for income above Rs. 5,00,000 but upto Rs. 10,00,000
  • 30% for income above Rs. 10,00,000.

Apart from above rates, cess will be computed separately.

(2) Tax liability under marginal relief (i.e. after marginal relief)

Tax on Rs. 1 crore (at the above discussed rates)	28,12,500
Add: Surcharge on income-tax @ 10% (if income is Rs. 1 crore)	2,81,250
Add: Income above Rs. 1 crore	2,00,000
Tax liability under marginal relief	32,93,750

Conclusion

Normal tax liability (i.e. without marginal relief) comes to Rs. 33,03,375 and tax liability under marginal relief comes to Rs. 32,93,750. It can be observed that tax liability under marginal relief is lower and, hence, Rs. 32,93,750 will be the tax liability before cess. Total tax liability will be computed as follows:

	Rs.
Tax liability after marginal relief (*)	32,93,750
Add: Health & education cess @ 4%	1,31,750
Tax liability	34,25,500

Illustration for better understanding

Mr. Karan is a businessman (age 35 years). His total income for the year 2023-24 amounted to Rs. 1,07,00,000. Will he be liable to pay surcharge, if yes, then how much and will he get the benefit of marginal relief?

**

Surcharge is additional tax levied on the amount of income-tax. In case of taxpayers (i.e. Individuals/HUF/AOP/BOI/artificial juridical person) surcharge is levied @ 15% on the amount of income-tax where the total income of the taxpayer exceeds Rs. 1 crore. In this case, total income of Mr. Karan exceeds Rs. 1 crore and hence he will be liable to pay surcharge. Marginal relief is available in cases where the total income is slightly above Rs. 1 crore. The computation of normal tax liability (i.e. liability without marginal relief) and tax liability under marginal relief (i.e. liability after marginal relief) will be as follows :

(1)    Normal tax liability (i.e. without marginal relief)

Tax on total income before surcharge (*)	30,22,500
Add: Surcharge (@15% on the amount of income-tax of Rs. 30,22,500)	4,53,375
Tax liability after surcharge (i.e., normal tax liability)	34,75,875

(*) Tax rates are discussed in previous illustration.

(2) Tax liability under marginal relief (i.e. after marginal relief)

Tax on Rs. 1 crore (at the rates discussed in previous illustration)	28,12,500
Add: Income above Rs. 1 crore	7,00,000
Tax liability under marginal relief	35,12,500

Conclusion

Normal tax liability (i.e. without marginal relief) comes to Rs. 34,75,875 and tax liability under marginal relief comes to Rs. 35,12,500. It can be observed that normal tax liability (i.e. without marginal relief) is lower and, hence, Rs. 34,75,875 will be the tax liability before cess. Total tax liability will be computed as follows:

	Rs.
Normal tax liability i.e. tax liability after surcharge of Rs. 4,53,375	34,75,875
Add: Health & education cess @ 4%	1,39,035
Tax liability	36,14,910