Section 87A marginal relief explained (the ₹12 lakh cliff, worked out)

A common fear: "If I earn ₹1 more than ₹12 lakh, do I suddenly owe tens of thousands more in tax?" The honest answer is no — the law includes a specific mechanism, marginal relief, precisely to stop that cliff from happening. Here is exactly how it works, with the numbers our engine actually computes, not a simplified approximation.

Why people worry about a cliff at ₹12 lakh

Under the new tax regime (FY 2025-26 and FY 2026-27), Section 87A gives a full rebate on tax when taxable income (gross salary minus the ₹75,000 standard deduction) is at or below ₹12,00,000 — meaning zero tax. Without any special rule, someone earning taxable income of exactly ₹12,00,000 pays ₹0, while someone at ₹12,00,001 would owe tax on the entire amount under the normal slab structure — over ₹60,000 for one extra rupee of income. That would be a genuine cliff.

What marginal relief actually does

Marginal relief caps the tax you owe (before cess) at the amount by which your taxable income exceeds ₹12,00,000 — not the full slab-calculated tax. In other words:

• Taxable income ≤ ₹12,00,000: tax is fully rebated. You pay ₹0.
• Taxable income just above ₹12,00,000: tax payable = min(normal slab tax, income − ₹12,00,000). One extra rupee of income never costs you more than one extra rupee of tax.
• As income rises further above ₹12,00,000, the "excess over 12L" grows faster than relief can absorb, and relief phases out — you eventually pay ordinary slab tax with no rebate at all.

A worked example

Take taxable income of ₹12,50,000 — ₹50,000 above the ₹12,00,000 threshold. Under the FY 2026-27 new-regime slabs, normal slab tax on this amount works out to roughly ₹67,500 before cess. Without marginal relief, that's what you'd owe. With marginal relief, tax payable is capped at the ₹50,000 excess over ₹12,00,000 — so you pay approximately ₹50,000, not ₹67,500. Cess (4%) applies on top of whichever figure actually gets charged.

Push taxable income high enough above ₹12,00,000 and the "excess" figure eventually exceeds the normal slab tax — at that point relief no longer reduces anything, and you pay ordinary slab tax with no rebate. The relief band is narrow: it matters for incomes close to the threshold, not for high earners well above it.

Remember: this is taxable income, not gross salary

The ₹12,00,000 threshold applies to taxable income, which is gross salary minus the ₹75,000 standard deduction (new regime). That means the relevant gross-salary threshold is closer to ₹12,75,000, not ₹12,00,000 — a distinction that trips people up when comparing offer letters against this rule. Run your actual gross through the salary & tax breakdown calculator to see your exact taxable income and whether marginal relief applies to you at all.

Does this apply under the old regime?

The old regime has its own, separate Section 87A rebate — full tax rebate up to ₹5,00,000 taxable income, capped at ₹12,500. It does not use the same marginal-relief mechanism described above; the old-regime rebate is a flat threshold check, not a sliding cap. Compare both regimes explicitly with the old vs new regime calculator rather than assuming one rule applies to both.

For the full picture — regime choice, PF, and professional tax together — use the CTC → in-hand calculator, which applies this exact marginal-relief logic when computing your estimated tax.