The Union Budget for 2025-26, presented by Finance Minister Nirmala Sitharaman, introduces a significant change in income tax regulations with the implementation of marginal relief for incomes exceeding ₹12 lakh under the new tax regime starting in financial year 2026-27. This relief ensures that individuals whose incomes slightly exceed this threshold do not face an excessive tax burden. Specifically, the effective zero-tax threshold for salaried individuals is raised to ₹12.75 lakh after accounting for the standard deduction. For instance, a taxpayer earning ₹12.5 lakh would typically face a tax of ₹70,200, but with marginal relief, the tax is reduced to ₹50,000, effectively capping the tax liability at the amount that exceeds the threshold.

In the old tax regime, marginal relief applies to incomes above ₹50 lakh, where taxpayers may incur a surcharge. For example, an individual earning ₹51 lakh would see their tax liability increase disproportionately without this relief. Marginal relief in both regimes serves to protect taxpayers from significant tax increases on incremental earnings, maintaining a fairer tax structure.