This article explains the scope and applicability of the Maximum Marginal Rate (MMR) under the Income-tax Act, especially where specified income is taxed at the highest applicable rate instead of normal slab rates. With the new tax regime becoming the default regime, a key question arises—should MMR be computed at 39% or 42.744%? It covers what MMR means, where it applies, including discretionary trusts, oral trusts, AOPs/BOIs, business trusts, Category-I and Category-II AIFs, and accreted income of registered NPOs. It also explains how the surcharge cap under the new regime generally keeps MMR at 39%, while the old regime may push it to 42.744% where the maximum surcharge of 37% applies. The article further highlights the special rule for AOPs and BOIs where a member-level higher rate may apply. The key takeaway is that taxpayers must first identify the applicable tax regime, entity type and surcharge threshold before determining the effective MMR.
