chapter 16

Income Tax Exemptions, Rebate and Marginal Relief - meaning.The recent budget announced by the Finance Minister, Nirmala Sitharaman, brought significant reliefs concerning tax exemptions and rebates.   Now Some tax payers are in confusion and asking what is the difference between the tax Exemption limit of Rs. 4 lakh, what is meant by tax  is not payable upto the total income of Rs. 12 lakhs or tax rebate upto Rs. 60000 under Section 87A and what happens if income slightly crosses Rs. 12 lakh.This article is to explain the difference between the above terms  very clearly:(i) Tax Exemption limit :The tax exemption limit has been increased to Rs. 4 lakh from Rs. 3 lakh, only under new regime.  This means that any income up to Rs. 4 lakh is exempted from payment of tax. Individuals or Hindu Undivided Families (HUF) earning total income up to this threshold limit from various sources, such as salaries, capital gains, or investment income (e.g., long-term gains taxed at special rates like 12.5% or 15% or 20%), need not to pay any tax on the income upto this threshold limit of Rs. 4 lakh.(ii) Tax Rebate and Income Limits:For Salaried person no tax is required to pay on  total income up to Rs. 12.75 lakh after deducting Standand Deduction of Rs. 75,000  and applying a rebate of Rs. 60,000 under Section 87A .  Other Individuals and HUFs, for those with income sources other than salaries, excluding capital gains, need not pay any tax on income up to Rs. 12 lakh after the same rebate(iii) Requirement of mandatory filing of return of Income, even total income is less than Rs. 12.00 Lakh :  However, Despite not paying tax, those persons earning income over Rs. 4 lakh must file their income tax returns within the due date to avoid late fee of Rs. 1000 or Rs. 5000 as applicable. In case the return  couldn't  be filed before the due date, it  must  be filed at least on or before  31st December to claim refund or for availing any loan or applying  for  VISA for foreign travels.ln case if you wish to file return after 31st December, for the purpose of availing loans or VISA purpose, you can file only an updated return with payment of late fee, additional tax along with applicable interest. Without payment of tax, interest and additional Tax you can't file your updated return.Thus, while the new exemption and rebate measures ease the tax burden, taxpayers must file their returns if their income exceeds Rs. 4 lakh but falls within the limit of Rs. 12 lakhs(iv)  What happens if the taxpayers earning income slightly above the Rs. 12 lakh threshold limit for availing tax rebate :Taxpayers earning slightly above the Rs. 12 lakh threshold can face a substantial increase in their tax liabilities, as tax rebate of Rs. 60000 is not applicable.To address this issue, the government introduced to give "Marginal Relief"   aimed at offering some cushion for these taxpayers.Marginal relief under Section 87A ensures tax on income exceeding Rs 12 lakh doesn't exceed the incremental amount of income upto Rs 1270590/-Thus margin relief offers a certain degree of financial relief for individuals with incomes just above Rs. 12 lakh, aiming to prevent a steep tax increase as one crosses the threshold, as in old tax regime.Examples :Total           Tax              Tax           TaxIncome       Payable     Payable   Payable                     before       after         after                      Rebate      rebate     cess                                                                4%1200000      60000         nil            nil1210000      51500       10000    104001250000      67500       50000     520001270000       70500      70000     728001270590        70590      70590    73410As calculated above additional Income tax should not exceed your additional income as provided in the marginal relief. However,  Education cees @ 4% on the income Tax is to be paid.Further, this rebate under Section 87A and marginal relief is not available in respect of the income taxable at special rates of 12.5% or 20%  applicable on Capital gains on equitites,  mutual funds both on short and long term and long term capital gain on Properties.By introducing lower tax rates for income ranges above the threshold and providing rebates and marginal relief the budget intends to ease financial pressure on this segment while maintaining their obligation to file income tax returns and encouring the taxpayers to opt for new regime of Taxation.These measures, combined with the previously mentioned tax exemption limits and rebates, contribute to a more favorable taxation environment for middle-class earners.CA V. K. S. Shetty