Direct Taxation
Marginal and effective tax
Does moving into a higher bracket change the tax on every rupee?
In a simple graduated system, each rate applies to the slice of taxable income in that bracket.
Effective rate = total tax ÷ taxable income
The effective rate spreads the total liability across all taxable income. In this fictional schedule, tax is 10% × ₹50,000 = ₹5,000, then ₹5,000 ÷ ₹150,000 ≈ 3.33%.
In a fictional schedule, the first ₹100,000 is exempt and the next slice taxed at 10%. At ₹150,000, liability is ₹5,000, or 3.33%.
The effective rate spreads the total liability across all taxable income. In this fictional schedule, tax is 10% × ₹50,000 = ₹5,000, then ₹5,000 ÷ ₹150,000 ≈ 3.33%.
At ₹170,000 under this fictional schedule, how much tax is owed?