Marginal rate of tax

The marginal rate of tax refers to the rate of tax applied to the last or highest portion of a taxpayer’s income under a progressive tax system. It indicates the rate at which the next rupee of income earned will be taxed, highlighting how tax liability increases as income rises.

Key Points: It applies only to income in the highest tax bracket applicable to the taxpayer. The marginal rate is different from the average tax rate, which is the total tax paid divided by total income. It helps determine the impact of additional income on total tax liability.

Example (India): ₹3–6 lakh → taxed at 5%. ₹6–9 lakh → taxed at 10%. ₹9–12 lakh → taxed at 15%. Income above ₹12 lakh → taxed at 20%