Tax term

Marginal tax rate

The rate applied to the next unit of taxable income under a progressive schedule.

Attached to the band your next rupee falls in, the marginal rate is the percentage the salary schedule reports for you, and it is not the percentage charged on your whole pay. Under the 2026-27 salaried table, income of Rs 1,800,000 sits in the band pricing the excess over Rs 1,200,000 at 11%, while total tax is Rs 72,000, an effective 4%. Add a Rs 500,000 bonus taking the figure to Rs 2,300,000 and tax becomes Rs 136,000, so the increment is Rs 64,000, not 20% of the bonus, because part of the bonus is still priced by the lower bands. Errors come from both directions: readers fear a raise will consume itself, and a quick calculation multiplies all income by the top rate. Read the band formula in the enacted schedule, and verify the year’s rates with FBR before using them.

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