January 19 , 2013
Average Tax Rate is the rate of income tax that you pay after all income and deductions are taken into account. So it is the ratio of total tax liability to taxable income.
Average Tax Rate = Total Tax Liability
In India, the higher your annual income, the higher your average tax rate. This is known as progressive taxation.
This is more of a 'good to know' number, but it is difficult to directly act upon. The other rate, viz. the marginal tax rate, is a much more useful investment decision making tool.