Skip to main content
PushDraft
← Back to Blog Finance

Section 87A Marginal Relief: ₹12L Tax Cliff (2026)

Why earning ₹12,00,001 doesn't cost you ₹60,000 in tax. Complete explanation of Section 87A marginal relief under India's new tax regime with worked examples.

•

The Union Budget 2025 made the new tax regime effectively zero-tax up to ₹12,00,000 of taxable income (₹12,75,000 once you factor in the standard deduction). But here’s the question most people ask when they hear this: what happens if your taxable income crosses ₹12 lakh by just ₹100? Do you suddenly owe ₹60,000+ in tax?

No. And the reason is marginal relief under Section 87A.

The Problem: A ₹62,400 Tax Cliff

Here’s what the math would look like without marginal relief:

Taxable IncomeNormal Tax (before rebate)87A RebateTax Payable
₹12,00,000₹60,000₹60,000₹0
₹12,00,001₹60,000.15₹0 (disqualified)₹62,400 (incl. 4% cess)

Earning one extra rupee would cost ₹62,400 in tax. You’d actually be worse off earning ₹12,00,001 than ₹12,00,000. Economists call this a “tax cliff” — and it violates a basic principle: higher gross income should never produce lower net income.

The tax code has a fix for this. It’s called marginal relief.

The Fix: Marginal Relief

Section 87A ensures that when your income crosses the ₹12L rebate threshold by a small amount, your total tax payable cannot exceed the amount by which your income exceeds ₹12L.

The Rule

If your taxable income is ₹(12L + X), your tax payable shall not exceed X.

Worked Examples

₹12,00,100 taxable income:

  • Excess over ₹12L: ₹100
  • Normal tax under slabs: ₹60,000.15
  • Marginal relief = ₹60,000.15 − ₹100 = ₹59,900.15
  • Actual tax payable: ₹100 (plus 4% cess = ₹104)

₹12,10,000 taxable income:

  • Excess over ₹12L: ₹10,000
  • Normal tax under slabs: ₹61,500
  • Marginal relief = ₹61,500 − ₹10,000 = ₹51,500
  • Actual tax payable: ₹10,000 (plus 4% cess = ₹10,400)

₹12,75,000 taxable income:

  • Excess over ₹12L: ₹75,000
  • Normal tax under slabs: ₹71,250
  • Since ₹71,250 < ₹75,000, marginal relief does not apply
  • Actual tax payable: ₹71,250 (plus 4% cess = ₹74,100)

This is the break-even point. Above approximately ₹12,75,000, normal slab tax kicks in without any marginal relief adjustment.

When Does Marginal Relief Stop Applying?

Marginal relief stops once the normal slab tax equals or falls below the excess income over ₹12L. For FY 2026-27, that happens at around ₹12,75,000 taxable income — at that point, the slab tax (₹71,250) is already less than the excess over ₹12L (₹75,000), so the relief formula doesn’t reduce anything further.

From ₹12,75,001 onwards, you pay full slab tax.

Why Most Calculators Get This Wrong

Many online CTC calculators — including well-known ones from ClearTax, Groww, and Moneycontrol — missed this correction when it was first introduced. If you enter a salary that translates to taxable income between ₹12,00,001 and ₹12,75,000, these calculators can show:

  • Incorrect result: Tax of ₹60,000+ (ignoring marginal relief)
  • Correct result: Tax of only the excess amount above ₹12L

Our CTC Salary Calculator applies marginal relief automatically. We rewrote the tax engine specifically to handle this — and added test cases to verify the boundary conditions before launch.

The Old Regime Cliff (Smaller, But Real)

A similar cliff exists under the old tax regime at ₹5,00,000 taxable income:

  • Rebate under Section 87A (old regime): ₹12,500 if income ≤ ₹5L
  • At ₹5,00,001, the rebate disappears and tax would jump to ~₹13,000

The old regime also applies marginal relief at this threshold. The cliff is smaller in absolute terms because the rebate is smaller, but the logic is identical.

Practical Implications

  1. Don’t fear the ₹12L boundary. A small salary increase that pushes you slightly above ₹12L taxable income won’t cause a tax disaster. Marginal relief smooths the transition.
  2. Salary negotiations near this bracket matter more than ever. A raise from ₹12L to ₹14L increases your take-home meaningfully — there’s no cliff to worry about between those two numbers.
  3. Deduction planning under the old regime becomes less compelling. With the new regime offering zero tax up to ₹12,75,000 (including standard deduction), many salaried employees no longer need to chase 80C, 80D, and HRA deductions to reduce their bill.
  4. Surcharge is a different story. The marginal relief at ₹12L applies to the basic 87A rebate. Separate marginal relief rules apply at surcharge thresholds (₹50L, ₹1Cr, ₹2Cr, ₹5Cr), where a similar logic prevents your net income from actually falling when you cross each threshold.

Surcharge Marginal Relief (Brief)

Surcharge levels on income tax for FY 2026-27:

  • Income > ₹50L: 10% surcharge
  • Income > ₹1Cr: 15% surcharge
  • Income > ₹2Cr: 25% surcharge (new regime max)
  • Income > ₹5Cr: 37% surcharge (old regime only)

Each threshold has its own marginal relief rule. If your income is ₹50,01,000, the 10% surcharge applied to that extra ₹1,000 cannot be larger than ₹1,000. You’re protected from cliff effects at every level.

Use Our Tools

Our CTC Salary Calculator applies marginal relief correctly at the ₹12L threshold — one of the few calculators that does. Use the Tax Regime Comparison to see whether the old or new regime saves more for your specific income and deductions. Most salaried employees under ₹15L taxable income benefit more from the new regime now — but the only reliable way to know is to calculate both.