Budget 2026 Keeps Marginal Tax Relief Unchanged

The Union Budget 2026 has left marginal tax relief unchanged under the new income-tax regime. Thus, it retained a provision that limits the tax burden for resident individuals whose income exceeds ₹12 lakhs by a small margin. The continuity was confirmed by tax experts after the Finance Bill 2026 carried forward existing slabs and reliefs without modification.

What Is Marginal Tax Relief?

Marginal tax relief is a provision in the income-tax law that protects you from paying a disproportionately high tax when your income crosses the rebate threshold by a small amount.

Under the new income-tax regime, resident individuals with an annual income up to ₹12 lakhs need not pay any tax. However, problems may arise when income goes slightly above this level. Without marginal relief, normal slab rates apply on the excess income. This can push the total tax quite high. This even if there is a small increase in your income.

Marginal tax relief addresses this gap. It ensures that the additional tax payable does not exceed the additional income earned over ₹12 lakhs.

Working Of Marginal Tax Relief

Let us understand the process of marginal tax relief with an example. Suppose you earn ₹12.10 lakhs annually. Tax without marginal relief works out to ₹61,500. This includes 5% tax on ₹4 lakhs, 10% on the next ₹4 lakhs, and 15% on the remaining ₹10,000.

However, since your income exceeds the rebate limit by only ₹10,000, the tax payable after marginal relief is restricted to ₹10,000. The relief amount in this case is ₹51,500. It is the difference between the computed tax and the excess income.

Note that marginal relief under the new regime is available only to resident individuals. The relief also applies only when your taxable income crosses ₹12 lakhs marginally. It does not apply if your taxable income goes beyond ₹12.75 lakhs.

No Broader Shift In Personal Taxation

Tax experts said the unchanged stance reflects the government’s preference for stability ahead of the new Income Tax Act 2025. While this act is expected to simplify compliance, Budget 2026 does not alter the basic design of slabs, rebates, or reliefs.

What It Means For Taxpayers?

For those earning a little above ₹12 lakhs, the continuation of marginal tax relief offers predictability. It can help reduce the risk of sudden tax shocks due to small income increases.

Sources:

Economic Times

PIB

Economic Times