The concept of marginal relief is designed to provide relaxation from levy of surcharge to a taxpayer where the Total Income exceeds marginally above Rs.50 lakh, Rs.1 crore, Rs.2 crore, Rs.5 crore or Rs.10 crore, as the case may be.
Thus, while computing surcharge, in case of taxpayers (i.e. Individuals/HUF/AOP/BOI/Artificial Juridical Person) having a total income of more than Rs. 50 lakh marginal relief shall be available in such a manner that the net amount payable as income-tax and surcharge shall not exceed the total amount payable as income-tax on total income of Rs. 50 lakh by more than the amount of income that exceeds Rs. 50 lakh.
In other words, marginal relief ensures that the amount of increase in income tax should not be more than the amount of increase in income.

Marginal relief is available from surcharge in following manner-
1. In case where net income exceeds Rs. 50 lakh but doesn't exceed Rs. 1 Crore, the amount payable as income tax and surcharge shall not exceed the total amount payable as income tax on total income of Rs 50 Lakh by more than the amount of income that exceeds Rs 50 Lakhs.
2. In case where net income exceeds Rs. 1 crore but doesn't exceed Rs. 2 crore, marginal relief shall be available from surcharge in such a manner that the amount payable as income tax and surcharge shall not exceed the total amount payable as income-tax on total income of Rs. 1 crore by more than the amount of income that exceeds Rs. 1 crore.
3. In case where net income exceeds Rs. 2 crore but doesn't exceed Rs. 5 crore, marginal relief shall be available from surcharge in such a manner that the amount payable as income tax and surcharge shall not exceed the total amount payable as income-tax on total income of Rs. 2 crore by more than the amount of income that exceeds Rs. 2 crore.
4. In case where net income exceeds Rs. 5 crore, marginal relief shall be available from surcharge in such a manner that the amount payable as income tax and surcharge shall not exceed the total amount payable as income-tax on total income of Rs. 5 crore by more than the amount of income that exceeds Rs. 5 crore.

Marginal relief for companies
1. Where the total income of a domestic company is more than Rs.1 crore but does not exceed Rs.10 crore, a surcharge of 7% will be levied on the income tax payable.

Similarly, for foreign companies having total income more than Rs.1 crore but less than Rs. 10 crores, a surcharge of 2% will be levied on the income tax payable.

Marginal relief will only be provided to such companies having a total income of more than Rs.1 crore but less than Rs.10 crores i.e., the income tax payable (including surcharge) on the higher income should not exceed the income tax payable on Rs.1 Crore by more than the amount of income that exceeds Rs.1 crore.

2. Where the total income of a domestic company is more than Rs.10 crores, a surcharge of 12% will be levied on the income tax payable.

Similarly, for foreign companies having total income more than Rs.10 crores, a surcharge of 5% will be levied on the income tax payable.

Marginal relief will only be provided to such domestic companies having a total income of more than Rs.10 crores i.e., the income tax payable (including surcharge) on the higher income should not exceed the income tax payable on Rs.10 crores by more than the amount of income that exceeds Rs.10 crores.

Marginal relief for firms
Where the total income is more than Rs.1 crore, a surcharge of 12% will be levied on the income tax payable.
A marginal relief will be provided to such taxpayers having a total income of more than Rs.1 crore i.e., the income tax payable (including surcharge) on the higher income should not exceed the income tax payable on Rs.1 Crore by more than the amount of income that exceeds Rs.1 crore.
To simplify, if the total income of a firm is Rs.1.01 crores, it will have to pay an income tax inclusive of a surcharge of 12% on the tax computed i.e., total tax payable will be Rs.32,24,000. But, if the total income would have been only Rs. 1 crore, then the tax payable would have been Rs.31,20,000 only.
For earning an extra Rs.1,00,000, it will end up paying income tax of Rs.1,04,000.
Hence, the firm will get a marginal relief of the difference amount between the excess tax payable on higher income i.e (Rs.1,04,000) and the amount of income that exceeds Rs.1 crore i.e. (Rs.1,00,000, in this case). The marginal relief will be Rs.4,000 (Rs.1,04,000 minus Rs.1,00,000).

Cess
Health and Education Cess is levied at the rate of 4% on the amount of income-tax after adding surcharge.

Example: Mr Ashutosh is a businessman (aged 35 years). His total income for the year 2020-21 amounted to Rs.1,02,00,000. Will he be liable to pay a surcharge, if yes, then how much and will he get the benefit of marginal relief?
Surcharge is an additional tax levied on the amount of income-tax. In case of taxpayers (i.e. Individuals/HUF/AOP/BOI/artificial juridical person), surcharge is levied @ 10% on the amount of income-tax where the total income of the taxpayer exceeds Rs. 1 crore. In this case, the total income of Mr Amar exceeds Rs. 1 crore and hence he will be liable to pay the surcharge. Marginal relief is available in cases where the total income is slightly above Rs. 1 crore. The Computation of regular tax liability (i.e. liability without marginal relief) and tax liability under marginal relief (i.e. liability after marginal relief) will be as follows:
(1) Normal tax liability (i.e. without marginal relief)
Tax on total income before surcharge (*)	28,72,500
Add: Surcharge (@ 15% on the amount of income-tax of Rs. 28,72,500 )	4,30,875
Tax liability after surcharge (i.e., regular tax liability)	33,03,375
(*) The normal tax rates for the financial year 2020-21 applicable to an individual below the age of 60 years are as follows:
Nil up to an income of Rs. 2,50,000
5% for income above Rs. 2,50,000 but up to Rs. 5,00,000
20% for income above Rs. 5,00,000 but up to Rs. 10,00,000
30% for income above Rs. 10,00,000.
Apart from the above rates, a cess will be computed separately.
(2) Tax liability under marginal relief (i.e. after marginal relief)
Tax on Rs. 1 crore (at the above-discussed rates)	28,12,500
Add: Surcharge on income-tax @ 10% (if income is Rs. 1 crore)	2,81,250
Add: Income above Rs. 1 crore	2,00,000
Tax liability under marginal relief	32,93,750
Conclusion
Normal tax liability (i.e. without marginal relief) comes to Rs. 33,03,375 and tax liability under marginal relief comes to Rs. 32,93,750. It can be observed that tax liability under marginal relief is lower and, hence, Rs. 32,93,750 will be the tax liability before cess. Total tax liability will be computed as follows:
Tax liability after marginal relief (*)	32,93,750
Add: Health & education cess @ 4%	1,31,750
Tax liability	34,25,500