Chapter 7: Income Tax

Example 4:- The Income statement of a secretary is given below:

Basic Pay D. A. C. C. A Special allowance Savings:

Rs. 20,000 PM Rs. 5000 PM Rs. 1000 PM Rs. 5000 P.A

(i) Professional Tax (ii) P. F. (iii) L. I. C. (iv) NSCs

Rs. 4000 P. A. Rs. 5000 PM 35000 P. A. 5000 P. A

Calculate his taxable income and income tax to be paid by him in the last month.

Assume the following for calculating income tax.

1. Exemption on Savings: Saving up to Rs. 1 Lakh in specified in vestment will be deducted from the income before calculating the tax.
2. Exemption on Donations: Donation on income is allowed on certain specified donation.
3. Rate of Income Tax.

   Taxable Income	Rate
   Upto Rs. 1 lakh More than 1 lakh up to 1.5 lakh More than 1.5 lakh up to 2.5 lakh More than 2.5 lakh	Nil 10% 20% 30%

4. Education Cess: 2% on tax payable.

Solution:- Salary Income:

1. Basic Pay = Rs. 20,000 X 12        = Rs. 24,0000
2. D. A = Rs. 5,000 X 12                     = Rs. 60,000
3. CCA = Rs. 1000 X 12                     = Rs. 12,000
4. Special allowance                          = Rs. 5,000
                                                 Total    = Rs. 3,17,000

Saving

1. PF = 5000 X 12                    = Rs. 60,000
2. LIC                                         = Rs. 35,000
3. NSCs                                    = Rs. 5,000
4. Pofessional Tax                  = Rs. 4,000
                                        Total = Rs. 1,04,000

Taxable Income = Rs. 3,17,000 + Rs. 1,00,000

= Rs. 2,17,000

Computation of Income Tax:

1. Tax on first 1 lakh = Nil
2. Tax on Rs. (1.5 lakh - 1 lakh)
                     = 10% of Rs. 50000
                     = Rs. 5000
3. Tax on Rs. (2,17,000 - 1,50,000)
                     = 20% of Rs. 67000
                     = 20/100 X Rs. 67000
                     = Rs. 13,400

Payable = Rs. 5000 + 13,400

= Rs. 18,400

Education Cess = 2% of Rs. 18,400

= 368

Net Tax Payable = Tax Payable + Education Cess

= 18,400 + 368

= 18,768