What is marginal relief?

According to the Income-tax Act, 1961, a marginal relief is given to assesse whose taxable income is beyond the threshold limit after which surcharge is payable, but the total income above the threshold is less than the surcharge amount.

Example:  Total income above the prescribed limit Rs.35,000

Surcharge Amount  Rs.1,32,000 additional tax liability due to  total income exceed Rs.35,000 only

 

According the provision of Income Tax Act, 1961 all assesse

Individual,

Firm,

Co-operative society,

Hindu undivided family (HUF)

Artificial judicial person

Association of person (AOP)

Body of individual (BOI)

Domestic company

Foreign company

Limited liability partnership (LLP)

Are liable to pay surcharge if they exceed the prescribed limit of total income during the previous year of relevant assessment. Surcharge is additional tax on income tax amount.

Applicable surcharge rate for different assesse for financial year 2020-21 relevant assessment year 2021-22 are given below:

Tax payer	Total income limit	Surcharge rate on income tax amount.
Individual/HUF/BOI/AOP/ artificial juridical	Total Income exceeding Rs.50,00,000 but does not exceeding 1 Crore	10%
Individual/HUF/BOI/AOP/ artificial juridical	Total Income exceeding Rs.1 Crore but does not exceeding 2 Crore	15%
Individual/HUF/BOI/AOP/ artificial juridical	Total Income exceeding Rs.1 but does not exceeding 2 Crore	25%
Individual/HUF/BOI/AOP/ artificial juridical	Total Income exceeding Rs. 5 Crore	37%
Co-operative society/LLP/ Firm	Total Income exceeding Rs.1 Crore	12%
Domestic company	Total Income exceeding Rs.1 but does not exceeding 10 Crore	7%
Domestic company	Total Income exceeding Rs.10 Crore	12%
Foreign company	Total Income exceeding Rs.1 but does not exceeding 10 Crore	2%
Foreign company	Total Income exceeding Rs.10 Crore	5%

 

What is the marginal relief formula?

 

Example:

Mr. Sankhla aged 45 years whose total income for assessment year 2021-22 is Rs.50,65,000 calculate marginal relief

First we calculate Income Tax

Income Rs.	Calculation	Income Tax Amount Rs.
Up to 2,50,000	Nil	Nil
2,50,001 to 5,00,000	2,50,000*5%	12,500
5,00,001 to 10,00,000	5,00,000*20%	1,00,000
Above 10,00,000	40,65,000*30%	12,19,500
Total tax before  surcharge		13,32,000
Add: Surcharge	10%	1,33,200
Less: Marginal Relief	Calculated surcharge minus Higher income 1,33,200-65,000=68,200	68,200
Tax before cess		13,97,000
Add; Cess	4% on 13,97,000	55,880
Total Tax payable		14,52,880

 

When marginal relief is applicable for individual?

 

Marginal relief is available when assesse liable to pay surcharge amount exceeding income

Example:

Please see in above mention example where Mr. Sankhla  earned taxable total income RS.50, 65000 which is exceeding Rs. 65,000 from Rs.50, 00,000 and surcharge on it calculated Rs.1, 33,200

So that marginal relief is available to Mr. P RS. 68,200

 

What is maximum marginal rate?

Example:

Please see in above mention example where Mr. Sankhla earned taxable total income RS.50, 65,000 which is exceeding Rs. 65,000 from Rs.50, 00,000 and surcharge on it calculated Rs.1, 33,200

So that marginal relief is available to Mr. P  RS. 68,200

 

How is surcharge and cess calculated?

Example:

Mr. Sankhla aged 45 years whose total income for assessment year 2021-22 is Rs.50,65,000 calculate marginal relief

First we calculate Income Tax

Income Rs.	Calculation	Income Tax Amount Rs.
Up to 2,50,000	Nil	Nil
2,50,001 to 5,00,000	2,50,000*5%	12,500
5,00,001 to 10,00,000	5,00,000*20%	1,00,000
Above 10,00,000	40,65,000*30%	12,19,500
Total tax before  surcharge		13,32,000
Add: Surcharge	10%	1,33,200
Less: Marginal Relief	Calculated surcharge minus Higher income 1,33,200-65,000=68,200	68,200
Tax before cess		13,97,000
Add; Cess	4% on 13,97,000	55,880
Total Tax payable		14,52,880

 Conclusion:

According to Income Tax Act,1961 marginal relief is given to assessee where an assessee total income increase a prescribed limit by Rs.65,000 and his additional tax liability arises  as surcharge by Rs.1,33,200. So marginal relief  given to  assessee Rs.68,200