Income Tax - 1 (XAT-2011)

Answer questions 1 and 2 based on the following information:

Income-Tax rates for the financial year 2009-10
Individual & HUF below age of 65 Years	Women below age of 65 Years	Tax Rates
Income upto Rs. 1,60,000/-	Income upto Rs. 1,90,000/-	Nil
Rs. 1,60,001/- to Rs. 3,00,000/-	Rs. 1,90,001/- to Rs. 3,00,000/-	10%
Rs. 3,00,001/- to Rs. 5,00,000/-	Rs. 3,00,001/- to Rs. 5,00,000/-	20%
Above Rs. 5,00,001/-	Above Rs. 5,00,001/-	30%

Total income tax payable is obtained by adding two additional sur charges on calculated income tax.

Educational Cess: An additional sur charge called “Educational Cess” is levied at the rate of 2% on the

amount of income tax.

Secondary and Higher Educational Cess: An additional sur charge called “Secondary and Higher Educational Cess” is levied at the rate of 1% on the amount of income tax.

Q1) Sangeeta is a young working lady. Towards the end of the financial year 2009-10, she found her total annual income to be Rs. 3,37,425/-. What % of income is payable as income tax? (1 Mark)

(1)5.64             (2)6.82             (3)7.38             (4)8.10             (5) None of the above

Q2) Mr.Madan observed his tax deduction at source done by his employer, as Rs. 3,17,910/-. What was his total income (in Rs.) if he neither has to pay an additional tax nor is eligible for any refund? (2 Marks)

(1)13,48,835/- (2) 14,45,522/- (3) 14,47,169/- (4) 15,70,718/- (5) None of the above

Solution follows here:

Solution:

These two are straight forward problems. The only difficulty we face here is of a bit complex calculation.

Q1)

Sangeeta’s income = Rs. 3,37,425/-

Tax on first Rs. 1,90,000 = 0

Tax on income from Rs. 1,90,000/- to Rs. 3,00,000/- =  10%

= 10% on (3,00,000 - 1,90,000) = 10% on 1,10,000/- = Rs. 11,000/-

Tax on income from Rs. 3,00,000/- to Rs. 5,00,000/- =  20%

= 20% on (3,37,425 - 3,00,000 ) = 20% on (37,425) = Rs. 7,485/-

Net tax = 11,000 + 7,485 = 18,485/-

Given that “Educational Cess” is 2% and “Secondary and Higher Educational Cess” is 1%

=> total cess = 3% on income tax = 3% on 18,485 ≈ Rs 555

Total income tax = 18,485 + 555 = Rs. 19,040/-

% of tax on income = (19040 / 337425) * 100 ≈ 5.64%

Answer (1)

Q2)

Let Madan’ income be x.

Tax on first Rs. 1,60,000 = 0

Tax on income from Rs. 1,60,000/- to Rs. 3,00,000/- =  10%

= 10% on (3,00,000 - 1,60,000) = 10% on 1,40,000/- = Rs. 14,000/-

Tax on income from Rs. 3,00,000/- to Rs. 5,00,000/- =  20%

= 20% on (5,00,000 - 3,00,000 ) = 20% on (2,00,000) = Rs. 40,000/-

14,000 + 40,000 = 54,000, this is less than the Madan’s tax of Rs.  3,17,910 => Madan’s income is greater than Rs. 5,00,000/-

So, if we go a step further,

Tax on income more than Rs. 5,00,000/- = 30%

= 30% of (x - 5,00,000)

Net tax = 14,000 + 40,000 + {30% of (x - 5,00,000)}

To find final total tax, 3 % of cess shall be added to this

=> Total tax = 1.03 * [14,000 + 40,000 + {30% of (x - 5,00,000)}] = 3,17,910

On simplifying, we get x ≈ 13,48,835/-

Answer (1)