# Marginal Relief

## Concept

Marginal Relief is provided when the increase in tax (due to surcharge) exceeds the increase in income that triggered the surcharge. Without this relief, an assessee whose income crossed a surcharge threshold by a small amount would pay disproportionately more tax than the additional income earned.

Core idea: Tax should not exceed Income added beyond the threshold.

## When is Marginal Relief Available?

Marginal relief applies at every surcharge threshold:

Assessee	Thresholds where Marginal Relief Applies
Individual / HUF / AOP / BOI / AJP	₹50 lakh, ₹1 crore, ₹2 crore, ₹5 crore
Firm / LLP / Local Authority / Co-op Society	₹1 crore
Domestic Company	₹1 crore, ₹10 crore
Foreign Company	₹1 crore, ₹10 crore

## Steps to Compute Marginal Relief

Step 1: Calculate Tax on Original Total Income (Tax + Surcharge, without cess)

Step 2: Calculate Tax on the threshold amount (₹50 lakh / ₹1 crore / ₹2 crore / ₹5 crore / ₹10 crore as applicable), without cess and generally without surcharge or with lower surcharge.

Step 3: Compute Tax to be paid = Tax in Step 2 + Extra Income above threshold

Step 4: Marginal Relief = Step 1 − Step 3 (i.e., Original Tax − Tax to be paid)

Step 5: Final Tax Payable = Step 3 amount + Health & Education Cess @ 4%

## Key Points to Remember

Marginal Relief is calculated before adding Health & Education Cess.
It is available at every surcharge slab transition, not just the first one.
Between higher slabs (e.g., between 7% and 12% surcharge for companies), Step 2 uses the surcharge applicable to the lower threshold.

Worked example

### Example 1

Example 1 — Domestic Company crossing ₹1 crore

ABC Ltd. (Domestic Company), Total Income = ₹1,01,00,000, Turnover in PY 23-24 = ₹402 crore.

Step	Computation	₹
Step 1	Tax on ₹1,01,00,000 @ 30%	30,30,000
	(+) Surcharge @ 7% of tax	2,12,100
	Tax on Original Income	32,42,100
Step 2	Tax on ₹1,00,00,000 @ 30%	30,00,000
	(+) Surcharge	NIL
	Tax at threshold	30,00,000
Step 3	Tax to be paid = 30,00,000 + 1,00,000 (extra income)	31,00,000
Step 4	Marginal Relief = 32,42,100 − 31,00,000	1,42,100

Total Tax Payable = ₹31,00,000 + 4% cess

### Example 2

Example 2 — Individual crossing ₹50 lakh

Mr. Rohit, Total Income = ₹51,00,000

Step	Computation	₹
Step 1	Tax on ₹51,00,000 = 1,12,500 + (41 lakh × 30%)	13,42,500
	(+) Surcharge @ 10%	1,34,250
		14,76,750
Step 2	Tax on ₹50,00,000 = 1,12,500 + (40 lakh × 30%)	13,12,500
	(+) Surcharge	NIL
		13,12,500
Step 3	Tax to be paid = 13,12,500 + 1,00,000	14,12,500
Step 4	Marginal Relief = 14,76,750 − 14,12,500	64,250

### Example 3

Example 3 — Domestic Company crossing ₹10 crore

XYZ Ltd. (Domestic Company), Turnover in PY 23-24 = ₹450 crore, Total Income = ₹10,01,00,000

Step	Computation	₹
Step 1	Tax on ₹10,01,00,000 @ 30%	3,00,30,000
	(+) Surcharge @ 12%	36,03,600
		3,36,33,600
Step 2	Tax on ₹10,00,00,000 @ 30%	3,00,00,000
	(+) Surcharge @ 7% (lower slab)	21,00,000
		3,21,00,000
Step 3	Tax to be paid = 3,21,00,000 + 1,00,000	3,22,00,000
Step 4	Marginal Relief = 3,36,33,600 − 3,22,00,000	14,33,600

Note: At higher transitions (10 cr), Step 2 uses the surcharge of the lower band (7%), not nil.

⚠️ Common exam mistakes

Adding cess to Step 1 or Step 2 tax — Marginal Relief is computed BEFORE cess.
Using zero surcharge in Step 2 for higher thresholds (e.g., ₹10 crore for company). At ₹10 crore the lower-band surcharge (7%) still applies.
Forgetting that marginal relief is available at EVERY surcharge slab, not just the first.
Applying marginal relief to companies opting for section 115BAA/115BAB where surcharge is flat 10% — relief is not relevant there.
Confusing 'Tax to be paid' with 'Tax payable' — final tax payable still requires adding 4% cess.

Reference:

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