Income Tax New Rule 2026:A slight increase in income can significantly alter how much tax you pay under the new tax regime. The confusion becomes more pronounced when earnings cross the Rs 12 lakh mark, where rebates stop eliminating tax liability and marginal relief begins to play a role. Under the revised tax structure, marginal relief is designed as a cushion for taxpayers who marginally exceed the Rs 12 lakh rebate threshold. However, not everyone above this limit qualifies.
Why Rs 12.75 Lakh Income Falls Outside Marginal Relief
The rule is simple but often misunderstood. Marginal relief is only applicable when the total tax payable exceeds the additional income earned above Rs 12 lakh. If the tax liability is lower than this extra income, the benefit does not apply.
This is why an income of Rs 12.75 lakh after deductions does not qualify for relief, even though it sits close to the threshold.
The Rs 13.4 Lakh vs Rs 13.5 Lakh Puzzle Explained
To understand the impact, consider two salary levels that differ by just Rs 10,000.
After applying the standard deduction of Rs 75,000, a salary of Rs 13.4 lakh results in a taxable income of Rs 12.65 lakh. Meanwhile, Rs 13.5 lakh translates to Rs 12.75 lakh taxable income.
Under the current slabs, tax is calculated progressively, with rates increasing across income brackets.
For Rs 13.4 lakh, the total tax comes to Rs 69,750. For Rs 13.5 lakh, it rises slightly to Rs 71,250.
Despite the small gap in salary, the tax treatment differs sharply due to marginal relief eligibility.
As explained by CA Chandni Anandan, Tax Expert at ClearTax, to Moneycontrol, “At a salary of Rs 13.40 lakh, your net income is Rs 12.65 lakh. Your tax is Rs 69,750, but you only earned Rs 65,000 more than the tax-free limit. Since the tax (Rs 69750) is higher than the extra income (Rs 65000), the law caps your tax at exactly the extra income earned. You save Rs 4,750.”
“Now, at a salary of Rs 13.50 lakh, your net income is Rs 12.75 lakh. Your tax is Rs 71,250, and your income above the threshold is Rs 75,000. Since your extra income (Rs 75000) is already higher than your tax (Rs 71250), you are no longer in the “cliff” zone. You pay the full tax as per the slabs.”
Why This Matters For Taxpayers
This calculation creates a counterintuitive outcome. A person earning Rs 13.4 lakh gets a tax break, while someone earning Rs 13.5 lakh pays the full tax, despite only a marginal increase in income.
The takeaway is clear. Even a small salary hike can push taxpayers out of marginal relief eligibility, increasing their effective tax burden. Understanding where this threshold lies can help individuals better plan their finances and avoid unexpected tax surprises.
