According to recent financial analysis, it is possible to achieve zero tax liability on a salary of ₹15.85 lakh under the new tax regime. This demonstrates how strategic salary structuring can significantly reduce tax burden beyond the standard zero-tax threshold. The key lies in understanding salary components beyond just CTC, including meal exemptions, employer PF contributions, standard deduction, and 80CCD(2) benefits that collectively bring taxable income below the ₹12 lakh limit.
According to the Union Budget for 2025-26, presented by Finance Minister Nirmala Sitharaman, starting from financial year 2026-27, there will be no income tax under the new regime on annual incomes of up to ₹12 lakh. For salaried individuals, this effective zero-tax threshold rises to ₹12.75 lakh after factoring in the standard deduction. As reported by Mint, tax is still calculated according to tax slab rates, but the rebate under Section 87A of the new regime offsets the liability up to the eligible income limit. For example, if income slightly exceeds the rebate limit by ₹5,000, taxpayers do not pay the full ₹60,000 tax on their income due to the rebate benefit.
Marginal relief ensures that taxpayers do not face disproportionately high tax burden when income marginally exceeds the rebate threshold. According to Mint, if income reaches ₹12.5 lakh, the tax liability as per new regime slab rates would be ₹70,200 (including 4% health and education cess), but after applying marginal relief, the tax payable gets restricted to ₹50,000, equal to the amount by which the income exceeds ₹12 lakh. For salaried individuals claiming the ₹75,000 standard deduction under the new regime, zero tax benefit is available up to a gross salary of ₹12.75 lakh. Marginal relief can continue to apply on slightly higher salaries, broadly up to around ₹13.5 lakh, after which normal slab taxation takes over.
Marginal relief under the old tax regime is applicable in relation to surcharge, meaning it is applicable on income exceeding ₹50 lakh on which a taxpayer is required to pay a surcharge. As reported by Mint, if an individual's income goes slightly above the surcharge threshold, and the extra tax is more than the extra income earned, marginal relief comes into play. For example, if income is ₹51 lakh (slightly more than ₹50 lakh but not exceeding ₹1 crore), without marginal relief, the total tax payable would rise to around ₹12.21 lakh compared to ₹10.8 lakh if the income remained at ₹50 lakh. The individual becomes eligible for marginal relief of ₹41,000, which is the difference between the additional tax payable and the additional income earned, bringing the final tax payable to around ₹12.27 lakh including 4% health and education cess.
The analysis highlights that most salaried employees only focus on CTC while smart employees focus on salary structuring. Key components that can reduce taxable income include meal exemptions, employer PF contributions, standard deduction, and 80CCD(2) benefits. As reported by Mint, earlier marginal relief was only applicable to surcharges under the old tax regime, but post-Budget 2024, this benefit is available in the new tax regime too. The benefit ensures fair taxation across all income levels and makes the tax burden more manageable for taxpayers earning slightly above the threshold limits under both tax regimes.
