Under the Income-tax Act, certain categories of income are taxed at the Maximum Marginal Rate (MMR) rather than the normal slab rates or other rates otherwise applicable to the assessee. The concept was introduced as an anti-avoidance measure to prevent high-income taxpayers from reducing their tax liability by splitting income among multiple entities, such as private trusts, Associations of Persons (AOPs), or Bodies of Individuals (BOIs), that could otherwise benefit from lower tax rates.
By taxing such income at the MMR, the Act seeks to maintain tax neutrality and curb tax avoidance, particularly where the beneficiaries' or members' shares are indeterminate or where the legislature considers taxation at the highest rate appropriate.
