What is marginal relief and how it is computed? – An Analysis

The idea of limited relief is designed to provide relaxation from levy of additional charge to a taxpayer where the overall income surpasses partially above Rs. 1 crore, minimal relief shall be readily available in such a way that the net quantity payable as income-tax and surcharge shall not exceed the total amount payable as income-tax on total income of Rs. 1 crore by more than the amount of income that surpasses Rs.

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In case of a business, surcharge is levied @ 7% (2% in case of foreign business) on the quantity of income-tax if the overall earnings surpasses Rs. 10 crore, marginal relief will be computed as talked about above, however in the case of business having overall earnings above Rs. 10 crore limited relief is readily available in such a manner that the net quantity payable as income-tax and additional charge shall not surpass the total amount payable as income-tax and surcharge on total earnings of Rs.

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Illustration for better understanding

His total income for the year 2015-16 amounted to Rs. 1,01,00,00 0.

Surcharge is extra tax levied on the amount of income-tax. In case of taxpayers aside from business, surcharge is levied @ 12% on the quantity of income-tax where the overall earnings of the taxpayer exceeds Rs. 1 crore. In this case, overall earnings of Mr. Raja surpasses Rs. 1 crore and thus he will be accountable to pay additional charge. Limited relief is available in cases where the total earnings is slightly above Rs. 1 crore. The calculation of regular tax liability ( i.e. liability without minimal relief) and tax liability under marginal relief ( i.e. liability after marginal relief) will be as follows:

( 1) Normal tax liability (i.e. without minimal relief)

Tax on overall income before additional charge

28,55,00 0
Add: Additional Charge (@ 12% on the amount of income-tax of Rs. 28,55,00 0) 3,42,600
Tax liability after surcharge (i.e., typical tax liability) 31,97,600

The normal tax rates for the financial year 2014-15 relevant to an individual below the age of 60 years are as follows:

5,00,00 0

  • 20% for income above Rs. 5,00,00 0 but upto Rs. 10,00,00 0
  • 30% for earnings above Rs.

    Apart from above rates, cess will be computed separately.

    ( 2) Tax liability under limited relief (i.e. after limited relief)

    Tax on Rs. 1 crore (at the above gone over rates) 28,25,00 0
    Add: Earnings above Rs. 1 crore 1,00,00 0
    Tax liability under marginal relief 29,25,00 0

    Conclusion

    Normal tax liability ( i.e. without minimal– relief) concerns Rs. 31,97,600 and tax liability under marginal relief comes to Rs. 29,25,00 0. It can be observed that tax liability under marginal– relief is lower and, for this reason, Rs. 29,25,00 0 will be the tax liability before cess. Overall tax liability will be computed as follows:

    Rs.
    Tax liability after marginal– relief

    29,25,00 0
    Add: Education cess @ 2% 58,500
    Add: Secondary and higher education cess @ 1% 29,250
    Tax liability 30,12,750

    In this case, additional charge paid by Mr. Raja will be Rs. 70,00 0 computed as follows:

    1,01,00,00 0 after considering the arrangements of limited relief

    29,25,00 0 Tax liability (before cess) at typical rates on Rs. 1,01,00,00 0 if additional charge is not levied 28,55,00 0 Surcharge ( i.e. increase in tax liability) 70,00 0

    Illustration for much better understanding

    His overall income for the year 2015-16 amounted to Rs. 1,06,00,00 0.

    In case of taxpayers other than business surcharge is imposed @ 12% on the quantity of income-tax where the overall income of the taxpayer goes beyond Rs. In this case, overall earnings of Mr. Karan exceeds Rs. Marginal relief is offered in cases where the total income is slightly above Rs.

    ( 1) Regular tax liability (i.e., without marginal-relief)

    Tax on overall income before surcharge

    30,05,00 0
    Include: Surcharge (at 12% on the quantity of income-tax of Rs. 29,80,00 0) 3,60,600
    Tax liability after additional charge (i.e., typical tax liability) 33,65,600

    Tax rates are gone over in previous illustration.

    ( 2) Tax liability under marginal-relief ( i.e. after limited relief)

    Tax on Rs. 1 crore (at the rates gone over in previous illustration) 28,25,00 0
    Include: Income above Rs. 1 crore 6,00,00 0
    Tax liability under marginal-relief 34,25,00 0

    Conclusion

    Regular tax liability ( i.e. without marginal-relief) concerns Rs. 33,65,600 and tax liability under limited relief comes to Rs. 34,25,00 0. It can be observed that regular tax liability ( i.e. without marginal-relief) is lower and, hence, Rs. 33,65,600 will be the tax liability before cess. Overall tax liability will be computed as follows:

    Rs.
    Normal tax liability i.e. tax liability after additional charge of Rs. 3,60,600 33,65,600
    Include: Education cess @ 2% 67,312
    Include: Secondary and higher education cess @ 1% 33,656
    Tax liability 34,66,568
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