Chapter 7: Income Tax

Example 1 . Mr. Rajan has an annual income of Rs 3,74,500. He deposites Rs. 25,000 to his GPF fund, pays annual premium of Rs. 30,000 towards his LIC policies and purchases National Saving certificate for Rs. 40,000. Calculate income tax to be paid in the last month by Mr. Rajan if his earlier income tax deduction for the first 11 months were Rs. 3,000 per month.

Assure the following for calculating income tax

1. Exemption on Savings : - Savings upto Rs. 1 lakh in specified investments will be deducted from the income before tax is calculated.
2. Exemption on Donation : - Deduction on income is allowed on certain specified donations.
3. Rates of Income Tax :-

   Taxable Income	Rates
   Upto Rs. 1 lakh More than 1 lakh upto 1.5 lakh More than 1.5 lakh upto 2.5 lakh More than 2.5 lakh	Nil 10% 20% 30%

4. Education Cess :- 2% on tax payable

Solution : - Salary Income                                                                                                                                                          = Rs. 3,74,500

       Savings:

1. Contribution to GPF         = Rs. 25,000
2. LIC Premium                    = Rs. 30,000
3. NSC                                    = Rs. 40,000
   Total                                    = Rs. 95,000                                                                                                        =      (-) 95,000
   Taxable Income = Rs. 2,79,500                                                                                                                 = Rs. 2,79,500

Computation of Income Tax:

1. Tax on first Rs. 1,00,000                        = Nil                                                                                               =          Nil
2. Tax on next Rs. 50,000                           = 10% of Rs. 50,000
                                                                       = Rs. (10/100 X 50,000)
                                                                       = Rs. 5,000                                                                                  =     5,000
3. Tax on next Rs. 1,00,000                        = 20% of Rs. 1,00,000
                                                                       = Rs. (20/100 X 1,00,000)
                                                                       = Rs. 20,000                                                                                =  20,000
4. Tax on next Rs. (279500 - 250000)      = Rs. 29,500
                                                                       = 30% of Rs. 29,500
                                                                       = Rs. (30/100 X 29500)
                                                                       = Rs. 8,850                                                                                 = (+) 8,850
   Tax Payable = Rs. 33,850                                                                                                                            =    33,850

Education Cess = 2% of Rs. 33,850

                              = 2/100 X Rs. 33,850

                   Cess = Rs. 677.00                                                                                                                      Cess  =(+)       677 
  Net Tax Payable = Rs. 34,527                                                                                                                                =   34,527

Tax deducted at source = (Rs. 3,000 X 11) = Rs. 33,000

Tax to be paid in the last month = Rs. (34,527 - 33,000)

                                                          = Rs. 1,527