Rate of Income Tax for Individuals (other than specified Individuals) and HUFs starts from Rs. 2,50,000/- @ 5% for the income from 2,50,001 to Rs. 5,00,000 and @ 20% for the income from Rs. 5,00,001 to Rs. 10,00,000 and for the income above Rs. 10,00,000 it is 30%. Though the tax on Rs. 5,00,000 is Rs. 12,500, rebate of (deduction from) 100% of the tax is given under section 87A for income up to Rs. 5,00,000 and hence the tax payable is NIL.
But once the income exceeds the threshold limit of Rs. 5,00,000 the income tax payable exceeds the income that exceeds Rs. 5,00,000 because the income tax rate is applicable from Rs. 2,50,000. For example, for the income of Rs. 5,10,000 the income tax payable is Rs. 14,500.
It does not seem to fair and equitable because income tax payable on the income that exceeds the income on which no tax is payable (i.e. Rs. 5,00,000) is more than the income that exceeds the non taxable amount of Rs. 5,00,000 due to rebate. This is against the principles of law and natural justice.
Marginal Relief is to be provided so as to limit the tax that is payable up to the income that exceeds Rs. 5,00,000. Up the taxable income of Rs. 5,15,620, the tax payable exceeds the income that exceed the non-taxable limit of Rs. 5,00,000. Hence marginal relief of limiting the tax payable up to the income that exceeds income of Rs. 5,00,000is to be provided for those assesses, whose income is up to Rs. 5,15,620.
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