Tax term

Effective tax rate

Total modeled tax divided by a specified income amount.

An effective rate answers what share of a stated base went to tax, and the base has to be named, because one year’s tax yields several defensible percentages. This site’s calculator divides annual tax by gross annual income, meaning annualised salary plus the taxable bonus and allowances you entered. On Rs 1,800,000 the Rs 72,000 result is 4%. Remove Rs 100,000 of permitted deductions so taxable income becomes Rs 1,700,000 and tax becomes Rs 61,000, then compare against taxable income and you get 3.6%, while comparing against the original gross gives 3.4%. Use take-home pay as the base and the number changes again. The mistake is quoting one version to someone who used another and arguing about arithmetic rather than definitions. Record the base you divided by, keep the marginal rate beside it, and treat both as estimates for verification with FBR.

Check the legal meaning in context and against the relevant tax year.