Chandrakant asked:
Sir, Tell something about rebate u/s 87A
Professor said:
Rebate is a tax benefit provided to middle to low-income earners. It is provided only to resident individuals, earning income within 10% slab rate.
Rs. 60,000 rebate is allowed for income within Rs. 12 lakh under the new regime and Rs. 12,500 for income earned within Rs. 5 lakh under the old regime
Ashok was looking excited! He asked
Sir, what is then marginal relief?
Professor replied:
Marginal relief in income tax is a benefit provided to taxpayers when their income slightly exceeds a tax-free limit, ensuring they do not pay an excessively high tax compared to their income increase. For FY 2025-26, the tax-free income limit is Rs.12 lakh. If a taxpayer’s income exceeds this limit marginally, marginal relief reduces the tax burden to make it more reasonable.
Key Difference: A rebate completely waives off tax up to a certain limit, while marginal relief reduces the additional tax burden for those whose income slightly exceeds the threshold.
Professor was continuing… now do know about cess. Cess is a form of tax charged/levied over and above the base tax liability of a taxpayer. A cess is usually imposed additionally when the state or the central government looks to raise funds for specific purposes.
He then said: students, please look at this comparative chart to clearly understand how rebate affects tax calculation
Comparative chart: Old vs New Tax Regime on Rs.12 Lakh Income
| Particulars | Old Tax Regime | New Tax Regime (2025) |
| Gross Annual Income | Rs.12,00,000 | Rs.12,00,000 |
| Standard Deduction | Rs.50,000 | Rs.75,000 |
| Income after Standard Deduction | Rs.11,50,000 | Rs.11,25,000 |
| Other deductions (80C, 80D, HRA etc.) | Assumed Rs.1,50,000 | Not Applicable |
| Taxable income | Rs.10,00,000 | Rs.11,25,000 |
| Tax before rebate | Rs.1,12,500 approx | Rs.56,250 approx |
| Section 87A rebate | Not Available | Available up to Rs.12 lakh |
| Final tax payable | Rs.1,12,500 + cess | Rs.0 |
| Applicable for | People with high deductions | Most salaried individuals |
The students were deeply focused on the tax calculation procedure. The professor then said, Now, go through the example of marginal relief to understand how the tax burden is rationalised when income slightly exceeds the threshold.
Marginal Relief
Based on the new income tax regime for FY 2025-26 (Assessment Year 2026-27) as per Budget 2026, an income of Rs.12,70,000 qualifies for marginal tax relief.
- Total Tax (Before Relief): Rs.20,000 + Rs. 40,000 + Rs.10,500 = Rs.70,500
Marginal relief ensures that the tax payable on income above Rs.12 lakh does not exceed the extra income earned.
Excess Income over Rs.12 Lakh: Rs.12,70,000 – Rs.12,00,000 = Rs.70,000
Marginal Relief: Tax before Relief – Excess Income = Rs.70,500 – Rs.70,000 = Rs.500
Final Tax Payable
Tax Payable (Before Cess): Rs.70,500 – Rs.500 (Relief) = Rs. 70,000
Add: Health & Education Cess (4%): Rs.70,000 * 4% = Rs 2,800
Total Tax Payable (AY 26-27): Rs.72,800
Professor, let’s take an Example with Surcharge
A surcharge is an extra income tax to be paid by the taxpayers earning a higher income. Surcharge is calculated at a certain % percentage of income tax already payable by the taxpayer.
Suppose, Sobhit has a total income of Rs.51 Lakhs in a FY 2025-26 (net income after all possible deductions), which is more than the Rs. 50 Lakhs limit but does not exceed Rs.1 Crore. Therefore, Sobhit will have to pay a surcharge on the income tax computed at the rate of 10%. According to the Income-tax provisions, a marginal relief will be provided to Sobhit up to the difference between the excess tax payable (including surcharge) and the excess income over Rs.50 Lakhs.
- Step 1 (as per old tax regime) He will have to pay taxes inclusive of a surcharge of 10% on the tax computed i.e., total tax payable will be Rs. 14,76,750 (excluding cess).
- But, if Sobhit had earned only Rs.50 lakhs, then he would have to pay only Rs.13,12,500, which means earning an extra Rs.1 Lakh gets him to pay extra income tax of Rs.1,64,250.
- Sobhit will get a marginal relief of the difference amount between the excess tax payable on higher income i.e. (Rs.14,76,750 minus Rs.13,12,500 = Rs.1,64,250) and the amount of income that exceeds Rs. 50 Lakhs i.e. (Rs.51,00,000 minus Rs.50,00,000 = Rs.1,00,000).
- Sobhit will receive a marginal relief will be Rs.64,250 (Rs.1,64,250 minus Rs.1,00,000) i.e. excess tax minus excess income over Rs. 50,00,000.
- Hence, income tax liability on income of Rs. 51,00,000 will be Rs.14,69,000 (14,76,750- 64,250) = Rs.14,12,500 +4% cess = Rs.14,69,000
As the bell rang, the students said with confidence, ‘Sir, now the concept is clear.’ The professor left the class with a satisfied smile.