Which rate should I use to decide about a deduction?

The marginal one. A deduction removes income from the top of the pile, so it saves tax at your top rate, not at your average rate.

Can the two ever be equal?

Only under a flat tax with no exempt band. Any tax-free threshold at all pulls the effective rate below the marginal rate.

Taxincome tax

Marginal vs Effective Tax Rate Calculator

The two rates that get confused with each other. The marginal rate decides what a raise is worth; the effective rate is what the year actually cost. Under any progressive schedule the second is always lower.

Also called: what is my effective tax rate, marginal tax rate calculator.

Effective rate

6.84%

You paid 6.84% of your income in tax while your top rate is 15%. The gap of 8.16% points is what a progressive schedule does, and the reason a bracket is a bad summary of a tax bill.

Marginal rate

15%

Gap between the two

8.16%

Tax on the next 1,000 you earn

₹150

Kept from the next 1,000

₹850

How this is calculated

Computed from the published rates for the tax year you selected, which is not necessarily the current year. A calculation, not tax advice, and it does not know anything about your circumstances beyond the figures entered.

Method and background

This is what the calculation gives for the numbers you entered. It is an estimate, not advice, and it knows nothing about your situation beyond those numbers. Rules for India change on a published schedule; the effective date is shown on every rule-based tool.

How this is calculated

A progressive system taxes each band of income at its own rate, so the top rate touches only the last slice. Divide total tax by total income and the result is an average across all the bands, which is the effective rate. Use the marginal rate to decide whether extra income or an extra deduction is worth it, and the effective rate to understand the bill.

effective = total tax / taxable income; marginal = the rate on the top band

total tax: Everything actually paid (currency)
income: Taxable income (currency)
r_top: The rate on the highest band reached (decimal)

Worked examples

Each of these is asserted on every build. If a change to the engine ever moved one of these answers, the build would fail before the page could print it.

fifteen lakh under the new regime

Taxable income: ₹14,25,000
Total tax paid: ₹97,500
Your top slab or bracket rate: 15%

Effective rate6.84%

97,500 / 14,25,000 = 6.842%, cross-checked against the income-tax calculator

Open this example

zero income has no effective rate

Taxable income: ₹0
Total tax paid: ₹0
Your top slab or bracket rate: 0%

Effective rate0%

degenerate case: no division by zero

Open this example

Method and limits

What it assumes

Both figures are for the same period and the same definition of income.

What it deliberately does not model

Region-agnostic on purpose: it works from figures you already have rather than from a rate table, so it is correct in any market and for any year.

Formula version 1.0.0 · definition 1.0.0 · India · Report a problem with this calculator

Frequently asked questions

Which rate should I use to decide about a deduction?: The marginal one. A deduction removes income from the top of the pile, so it saves tax at your top rate, not at your average rate.
Can the two ever be equal?: Only under a flat tax with no exempt band. Any tax-free threshold at all pulls the effective rate below the marginal rate.