Marginal relief: the ₹12 lakh tax cliff that isn’t real

You cannot lose money by earning more. Not at ₹12 lakh, not at ₹50 lakh. The law contains a specific provision preventing it at both thresholds — and a surprising number of online calculators do not implement either one, so they show you a cliff that does not exist.

What the cliff looks like when it is wrong

Under the new regime for FY 2026-27, a rebate of up to ₹60,000 makes total income up to ₹12,00,000 tax-free. For a salaried filer the ₹75,000 standard deduction comes off first, so that is ₹12,75,000 of gross salary.

Now earn ₹5,000 more. A slab table that simply stops applying the rebate charges you the full amount on the whole income:

How the relief actually works

The proviso to Section 87A says the tax payable cannot exceed the amount by which your total income exceeds the threshold. Income of ₹12,05,000 is ₹5,000 over, so tax is capped at ₹5,000 — plus cess, giving ₹5,200.

The relief shrinks as income rises and disappears once the ordinary tax falls below the excess. In the table above that happens at about ₹13,50,000 gross. Past that point the naive figure and the real figure are the same, which is why this error is invisible unless you happen to sit in the band.

The same thing happens again at ₹50 lakh

Surcharge applies to the whole tax bill the moment income crosses a threshold, so without relief the first rupee over ₹50,00,000 would trigger roughly ₹1.1 lakh of surcharge. Surcharge marginal relief is a separate mechanism with its own rule: tax plus surcharge together cannot exceed what someone exactly at the threshold pays, plus the income earned above it.

Again: ₹5,000 more income costs ₹5,200 more tax, not ₹1,14,000 more. And again the relief runs out — by about ₹53,00,000 the two columns agree.

One cliff that is real

Under the old regime, the Section 87A rebate of ₹12,500 applies to total income up to ₹5,00,000 and there is no equivalent proviso. One rupee over that threshold forfeits the whole rebate. That cliff is genuinely in the law, not a calculator bug, and any page telling you marginal relief protects you there is wrong in the other direction.

Knowing which cliffs are real is the entire skill here.

Why calculators miss this

• The slab table is the easy part. Rebate, marginal relief, surcharge, surcharge relief and cess each apply in a specific order, and getting the order wrong changes the answer. A tool built from the slab table alone will be right for most incomes and badly wrong for the ones sitting in these bands.
• The bands are narrow. Roughly ₹12.75L–₹13.5L and ₹50.75L–₹53L for a salaried filer. Most test inputs miss them entirely, so the bug survives.
• Nobody complains. Being told you owe more than you do rarely generates a bug report.

What these figures assume

• FY 2026-27, new regime, salaried, with the ₹75,000 standard deduction and no other deductions. Thresholds apply to total income after that deduction, which is why the salaried bands start ₹75,000 higher than the headline numbers.
• Cess at 4% is charged on the relieved figure, not the original.
• Capital gains, business income and other heads taxed at special rates are not modelled here — they interact with surcharge differently.

Related: Old vs new regime for FY 2026-27 · Does prepaying cost you the ₹2 lakh tax break?

Educational content only — not tax advice. Figures are computed for the stated assumptions; your own return will differ. Verify with a qualified adviser before filing.