Marginal Tax Rate

The marginal tax rate is the percentage of tax you would pay on one additional rupee or dollar of income at your current level. Almost every country uses a progressive slab system, so your marginal rate is the rate of the highest bracket your income crosses into. This is the number that matters for most financial decisions — whether to max out 80C/401(k), take a bonus now vs next year, or prefer deductions vs credits — because those choices affect income at the margin, not on average.

In India under the new tax regime FY 2026-27, marginal rates are 0%, 5%, 10%, 15%, 20%, 25%, and 30% across bands, with surcharge (10–25%) and 4% cess stacking on top for high earners — pushing top marginal rates past 39%. In the US, federal brackets go 10/12/22/24/32/35/37%, plus state tax. Example: an Indian taxpayer earning ₹16 lakh under the new regime has a 25% marginal rate — ₹10,000 of incremental HRA exemption saves ₹2,500 (plus cess).

The marginal rate applies only to income in that slab, not to your entire income — the slab below it is taxed at the lower rate, and so on. This is why effective tax rate is always lower than marginal.

Our income tax calculator shows both the marginal and effective rate for any salary under both old and new regimes — essential for regime-choice decisions.