Chapter 7: Income Tax

Example 2 :- Miss Priyanka is working in an Insurance company. Her annual income from the salary is 2,96,000. She contributes Rs. 2500 per month to P. F. and pay an annual LIC premium of Rs. 50,000. She donates Rs. 10,000 towards the Prime minister Relief fund (eligible for 100% deduction). If Rs. 1100 per month is deducted from her salary as income tax for the first 11 month. Calculate her taxable income and the income tax to be paid by her in the last month.

Assume the following for calculating the income tax:

  1. Exemption on saving: Saving up to 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. Rate of Income Tax:
    Taxable Income Rates
    1. Upto Rs. 1.35 lakh
    2. More than Rs. 1.35 lakh to Rs. 1.5 lakh
    3. More than Rs. 1.5 lakh to Rs.2.5 lakh
    4. Education than Rs. 2.5 lakh
    		Nil
    10%
    20%
    30%
  4. Education Cess: 2% on tax payable.

Solution : Salary Income Rs. 2,96,000

Saving:

  1. Contribution to PF      = Rs. (2,500 X 12)
                                           = Rs. 30,000
  2. LIC premium               = Rs. 50,000
                                Total  = Rs. 80,000

Savings:     = 2,96,000 - 80,000

                     = 2,16,000

Donations:

To prime minister Relief fund   = 100% of Rs. 10,000

                                                        = Rs. 10,000

Taxable Income = Salary - (Saving + Donations)

= 2,96,000 - (80,000 + 10,000)

= 2, 96,000 - (90,000)

= 2,96,000 - 90,000

= 2,06,000

Computation of Income tax:

  1. Tax on first = Rs. 1.35 lakh = Nil
  2. Tax on next = Rs. (1,50,000 - 1,35,000)
                         = 10% of Rs. 15,000
                         = Rs. 10/100 X 15,000
                         = Rs. 1,500
  3. Tax on next = Rs. (2,06,000 - 1,50,000)
                         = 20% of Rs. 56,000
                         = Rs. 20/100 X 56,000
                         = Rs. 11,200

Tax Payable = 11,2000 + 1,500

                      = 12,700

Education cess = 2% of Rs. 12,700

                              = Rs. 2/100 X 12,700

                              = Rs. 254

Net Tax Payable = Tax Payable + Education cess

= 12, 700 + 254

= 12,954

Tax deducted at source = Rs. (1100 X 11)

= Rs. 12,100

Tax to be paid in the last month = Rs. 12,950 - Rs. 12,100

= Rs. 850

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Subjects Maths (Part-1) by Mr. M. P. Keshari
Chapter 1 Linear Equations in Two Variables
Chapter 2 HCF and LCM
Chapter 3 Rational Expression
Chapter 4 Quadratic Equations
Chapter 5 Arithmetic Progressions
Chapter 6 Instalments
Chapter 7 Income Tax
Chapter 8 Similar Triangles