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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.

PushDraft Team •

The Union Budget 2025 made the new tax regime effectively tax-free up to ₹12,00,000 of taxable income (₹12,75,000 including the standard deduction). But what happens if your taxable income crosses that threshold by just ₹100? Does your tax jump from zero to ₹60,000+? No — and understanding why requires knowing about marginal relief under Section 87A.

The Problem: A ₹62,400 Tax Cliff

Without marginal relief, here’s what would happen under the new regime:

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 you ₹62,400 in tax. That’s obviously broken — you’d be worse off earning ₹12,00,001 than ₹12,00,000. Economists call this a “tax cliff” and it violates the principle that higher gross income should never result in lower net income.

The Fix: Marginal Relief

Section 87A of the Income Tax Act provides marginal relief so that when your income slightly exceeds the ₹12L rebate threshold, 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 (because ₹100 falls in the 15% bracket, plus earlier slab tax)
  • Marginal relief = ₹60,000 − ₹100 = ₹59,900
  • 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 where marginal relief stops helping. Above roughly ₹12,75,000 taxable income, you pay the full slab tax.

When Does Marginal Relief Stop Applying?

Marginal relief applies until the point where the normal slab tax equals (or falls below) the excess income over ₹12L. For FY 2026-27, this happens at approximately ₹12,75,000 taxable income — because at that point, slab tax is ₹71,250 which is less than the ₹75,000 excess, so the marginal relief formula doesn’t reduce anything.

From ₹12,75,001 onwards, you pay normal tax as per slabs.

Why Most Calculators Get This Wrong

Many online CTC calculators — including popular ones from ClearTax, Groww, and Moneycontrol — missed this correction when it was introduced. If you enter a CTC that translates to taxable income between ₹12,00,001 and ₹12,75,000, you may see:

  • Incorrect result: Tax of ₹60,000+ (calculator ignores marginal relief)
  • Correct result: Tax of only the excess amount

Our CTC Salary Calculator applies marginal relief automatically — we rewrote the tax engine specifically to handle this edge case.

The Old Regime Cliff (Smaller But Real)

A similar — smaller — 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, rebate disappears and tax would jump to ~₹13,000

The old regime also has marginal relief, and our tax engine applies it. However, given that the old regime has much higher tax slabs, the cliff is smaller in relative terms.

Practical Implications

  1. Don’t fear the ₹12L boundary. If your income is near the threshold, crossing it by a small amount won’t devastate your tax bill.
  2. Salary negotiations matter more than ever at this bracket. A raise from ₹12L to ₹14L increases your take-home meaningfully, because marginal relief smooths the jump.
  3. Deduction planning under the old regime becomes less critical. With the new regime tax-free up to ₹12,75,000 (including standard deduction), many salaried employees no longer benefit from chasing 80C, 80D, and HRA deductions.
  4. Surcharge applies separately. Marginal relief at ₹12L is about the basic rebate. Separate marginal relief rules exist at higher thresholds (₹50L, ₹1Cr, ₹2Cr, ₹5Cr) where surcharges kick in.

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 of these thresholds has its own marginal relief rule ensuring that the additional surcharge doesn’t exceed the income increase that crossed the threshold. For example, if your income is ₹50,01,000, the surcharge cannot make your post-tax income less than someone earning ₹50,00,000.

Use Our Tools

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