Understanding Shift in Surcharge, Rebate, and Marginal Relief Provisions under New Income Tax [Old vs. New Income Tax Act Series - Article 5]

It condenses 47 chapters and 819 sections into 23 chapters and 536 sections, respectively. Through increased openness, decreased litigation, and easier filing, the new framework seeks to adopt a taxpayer-centric approach.

Although there are no major changes, the following analysis examines how the three key provisions relating to Rebate, Surcharge, and Marginal Relief have been reinterpreted under the new Act.

1. Understanding the Provisions

2. Key Differences

A. Rebate

Rebate reduces 100% of tax liability for eligible low-income residents, ensuring zero tax up to specified thresholds.

Section 156 (successor to old Section 87A) of the new Income Tax Act, 2025 establishes:

“(1) An assessee, being an individual resident in India, shall be entitled to a deduction of 100% of income-tax payable or ₹ 12500, whichever is less, from the income-tax (computed before allowing the deduction under this section) chargeable on the total income for any tax year if such total income does not exceed ₹ 500000.

(2) Where the total income of a resident individual assessee for any tax year is chargeable to tax under section 202(1), then from income-tax (computed before allowing the deduction under this section) following deductions shall be allowed, if-

(a) the income does not exceed twelve lakh rupees, 100% of the income-tax payable or ₹ 60000, whichever is less;

(b) the total income exceeds twelve lakh rupees and the income-tax payable on such total income exceeds the amount by which the total income is in excess of twelve lakh rupees, an amount equal to the amount by which the income-tax payable on such total income is in excess of the amount by which the total income exceeds twelve lakh rupees.

(3) The deduction under sub-section (2), shall not exceed income-tax payable as per the rates provided in section 202(1).”

Implications:

• More salaried individuals pay zero tax, and goes on to ease the middle-class burden

• Reduces filing errors by introducing software-handling, ultimately saving time

• Encourages compliance among first-time filers

B. Surcharge

Surcharge adds extra tax on high incomes above ₹50 lakh, with rates ranging between 10-37%.

Lower maximum rate is capped at 25% (for income > ₹2 Cr). This is a major advantage for HNIs

compared to the Old Regime's 37% potential top rate.

Section 202 (successor to old Section 115BAC) of the new Income Tax Act, 2025 provides for-

“(1) Irrespective of anything contained in this Act other than Chapter XVII-B but subject to Parts A, B, E and this Part of this Chapter, the income-tax payable by a person, being—

(a) an individual; or

(b) a Hindu undivided family; or

(c) an association of persons (other than a co-operative society); or

(c) an association of persons (other than a co-operative society); or

(d) a body of individuals, whether incorporated or not; or

(d) a body of individuals, whether incorporated or not; or

(e) an artificial juridical person referred to in section 2(77)(g),

(e) an artificial juridical person referred to in section 2(77)(g),

in respect of the total income for a tax year, shall, unless the person exercises the option in the manner provided under sub-section (4), be computed at the rate of tax given in the following Table:—

Implications:

• Simplifies audits with no cross-referencing of multiple sections

• Uniform application reduces disputes for firms vs. individuals

• Maintains revenue from the wealthy without hikes

C. Marginal Relief

Marginal relief limits extra tax when income marginally exceeds thresholds, using formula: Relief = (Tax + Surcharge) - (Income - Threshold)

Imagine Ms. Neha's taxable income under the New Regime is Rs. 12,00,100. Earning just Rs. 100

above Rs. 12 lakhs could mean losing the Rs. 60,000 rebate instantly, leading to a significant jump in tax.

The solution to this is Marginal Relief. If taxable income is Rs.12,00,100, the final tax payable (incl. cess) will be capped at Rs.104 (i.e., Rs.100 income increase + 4% cess).

Implications:

• Prevents ‘cliff effect,’ where earning just a little extra (like ₹10,000 over ₹50 lakh) leads to a huge tax jump

• Easier claims via portal examples, and fewer appeals

• Fairer for annual salary hikes, which in turn boosts morale

Conclusion

In conclusion, the Income-tax Act, 2025 does not seek to introduce dramatic rate changes, but instead focuses on improving clarity and ease of administration. By consolidating provisions on rebate, surcharge, and marginal relief into clearly demarcated sections, the new Act marks a pivotal simplification of the 1961 Act which helps taxpayers gain fairness and efficiency, leading to better participation.