Question

In the financial year 2015-16, Sudhanshu's annual income is Rs. 7,10,000 (excluding house rent allowance). He deposits Rs. 9,000 monthly in General Provident Fund (G.P.F) account. He also deposits RS. 80,000 in his P.P.F account. Calculate the income tax paid by Sudhanshu while the maximum limit of rebate on saving is Rs. 1.5 lakh. Rates of income tax are as follows:
(i) Up to Rs. 2,50,000: Income Tax Nil.
(ii) From Rs. 2,50,001 to Rs. 5,00,000: 10% of income exceeding Rs. 2,50,00.
(iii) From Rs. 5,00,001 to Rs. 10,00,000: Rs.25,000 + 20 % of increase exceeding Rs. 5,00,000.
In addition to it 3% educational cess is charged on payable Income Tax.

Answer 1

Hint: First, subtract all the deposits from the annual income to find the taxable amount. If this taxable amount is greater than the maximum limit of rebate i.e., Rs.150,000, there will be no rebate. Now using the rates of income given, find the income tax. Then add the 3% educational cess which is charged on payable Income Tax to find the final payable income tax.

Complete step-by-step answer:

In this question, we need to calculate the income tax paid by Sudhanshu while the maximum limit of rebate on savings is Rs. 1.5 lakh.
We are given that:
Annual income = Rs. 710,000
Monthly deposit in General Provident Fund (G.P.F) account = Rs. 9,000
Deposit in P.P.F. account = Rs, 80,000
Now, we will find the taxable amount.
Taxable income = 710,000 − 9,000 × 12 − 80,000
710,000 – 108,000 – 80,000 = Rs.522,000
Since the taxable income is greater than the maximum limit of rebate i.e., Rs.150,000, hence, there is no rebate on tax.
Income tax = 25,000 + 20 % of Rs. 22,000 =
$25000+\dfrac{20}{100}\times 22000$$=25000+\dfrac{22000}{5}$$=25000+4400=29400$
Hence, the income tax is Rs. 29,400.
Now, we have to add the 3% educational cess which is charged on payable Income Tax.
Payable income tax = 29,400 + 3 % of 29,400
$29400+\dfrac{3}{100}\times 29400=29400+882=30282$
So, total payable amount = Rs. 30,282

Hence, Sudhanshu has to pay an income tax of Rs. 30,282.

Note: This is a very unique type of question. In this question, it is important to deduce that we have to subtract all the deposits from the annual income to find the taxable amount. Check carefully which case of income tax rates is applicable here. And do not forget to add the 3% educational cess is charged on taxable Income Tax.