What Is the Meaning Of Marginal Relief & Its Importance

Duration: 4-6 minutes

Marginal Relief Definition

Marginal relief, in simpler words, is an income-tax act that offers organizations and working individuals a form of relief, thereby reducing the burden of surcharge.

Most HR managers get confused or stuck between tax terminologies. One such term is marginal relief.

It benefits both employees and companies.

Let''s dive in and learn all there is about this important concept.

Marginal Relief for Individuals

Marginal relief for individuals is a fiscal policy that authorities introduce from time to time in order to offset the possibly adverse effects of sharp increases in tax liability concurrent with an increase in an individual''s income level into a new threshold. Higher levels of income are exposed to tax rates that are higher in absolute terms under many progressive tax regimes. An individual''s tax burden can, however, go up disproportionately if an income threshold applies to any of his income.

These are what marginal relief mechanisms are all about within a tax structure. Basically, the primary aim will be to smoothen transition into higher tax brackets; in other words, that one is allowed a reduction or relief on the surplus income falling in the higher tax bracket.

In simple words, it prevents a person from suddenly being thrown into an inordinately steep increase in his overall tax liability by crossing a threshold of his income.

Marginal relief is thus provided by governments worldwide while ushering in more comprehensive reforms to taxation, as they seek to retain progressive taxation regimes that would also contribute to growth in economies.

This approach would ensure a fine balance between generating revenue and the need for incentives for growth, in that it would reduce the impact of sharp changes in tax rates, more so in cases of wholesale reform.

In other words, it makes sure that people are not deterred from earning more by disproportionate increases in the amount of tax that they must pay, delivering functionality and equilibrium to a system that is best described as progressive.

Marginal Relief for Organizations

Marginal relief for companies shall be applicable to every company whose total income falls within a certain bracket, which exceeds limits specified under this sub-section, but is ordinarily in excess of Rs.1 crore and does not exceed Rs.10 crore.

Basically, the provision lays down that the income tax payable plus surcharge on total income at the rate of 30 percent plus surcharge in excess of Rs.1 crore shall not exceed the total income tax payable on a total income of Rs.1 crore by an amount exceeding such total income by Rs.10 lakh.

Hence, for companies falling within this bracket of income, an inbuilt safeguard automatically works to keep the incremental increase in percentage terms of tax burden within limits that are manageable and promote an equities approach to taxation.

For instance, if the total income of a company is higher than Rs.1 crore but does not exceed Rs.10 crore, then the relief machinery would take over and limit the extra tax payable on the higher income.

It is thus the case that the careful and precise use of marginal relief speaks to the granular nature that characterizes corporate taxation as an exercise that will not stunt growth by exposing growing businesses to disproportionately high tax liabilities, and that will therefore be functional in promoting fairness and a congenial fiscal landscape.

There you go!

We now hope that the concept of marginal relief is very clear to you and how it works for working individuals and organizations.