Marginal Relief
A taxpayer pays income tax based on the slab they fall into. However, once they exceed a certain limit, a surcharge is applied—an additional tax burden computed as a percentage of the tax up to that stage. Sometimes, this additional tax burden can exceed the incremental income, which is a significant injustice to the unsuspecting taxpayer. The maximum tax burden should be limited to the incremental income and not exceed it. If this principle isn’t followed, the taxpayer will suffer because of the surcharge, nothing else.
How can this unique concern be addressed? Tax authorities do recognize such scenarios and provide relief to taxpayers who face a greater tax burden than their incremental income. This relief is known as "Marginal Relief," although there is no specific section reference in the Income Tax Act, 1961. Marginal Relief is outlined in the schedules of the Finance Act and aims to address the issue of applying surcharges. This relief ensures that when a taxpayer crosses the limit but has only a minimal increase in income, they are not unfairly penalized. Thus, lawmakers are attentive to and working to alleviate the inequities in tax law application.
By CA L.Muralidharan and CPA L.Mukundan
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