If a businessman is exempted from income tax up to Rs. 4,50,000 out of annual income, the income tax is levied at the rate of 10% from Rs. 4,50,001 to Rs. 5,50,000 and at the rate of 20% from Rs. 5,50,001 to Rs. 7,00,000, how much income tax should the businessman earning Rs. 6,75,000 annually have to pay?
Answer (1)
To determine the income tax the businessman has to pay, we need to calculate the tax liability based on the given tax brackets and the annual income of Rs. 6,75,000.
First Income Bracket (Up to Rs. 4,50,000) :
The income up to Rs. 4,50,000 is exempt from tax.
Therefore, no tax is paid on this portion.
Second Income Bracket (Rs. 4,50,001 to Rs. 5,50,000) :
The next Rs. 1,00,000 (from Rs. 4,50,001 to Rs. 5,50,000) is taxed at 10%.
Tax for this bracket: (5,50,000 - 4,50,000) \times 0.10 = 1,00,000 \times 0.10 = Rs. 10,000 \
Third Income Bracket (Rs. 5,50,001 to Rs. 7,00,000) :
The income from Rs. 5,50,001 to Rs. 6,75,000 falls under this bracket, which amounts to Rs. 1,25,000.
This portion is taxed at 20%.
Tax for this bracket: (6,75,000 - 5,50,000) \times 0.20 = 1,25,000 \times 0.20 = Rs. 25,000 \
Total Tax Calculation :
Add the tax amounts from the second and third brackets to find the total tax owed.
Total income tax: Rs. 10,000 + Rs. 25,000 = Rs. 35,000 \
Therefore, the businessman has to pay a total income tax of Rs. 35,000 on his annual income of Rs. 6,75,000.
