a person earns Rs. 2000 per month over and above his salary as additional charge allowance. however 30% of this additional income will be deducted as additional income tax at source. If the person would deposit Rs. 1000 per month on a long term saving fetching 12% interest his tax liability on the additional allowance would reduce to 10%. What is the effective interest for this person or money invested in the long term saving scheme.
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Given: A person earns Rs. 2000 per month, 30% of this additional income will be deducted as additional income tax at source, 12% interest his tax liability.
To find: The effective interest for this person or money invested in the long term saving scheme.
Solution:
- Now we have given additional charge allowance as Rs. 2000
- Then Income-tax on charge allowance will be according to 30%, so:
2000 x 30/100 = Rs. 600
- Now it is given that by depositing Rs.1000 per month in long-term saving, additional tax is reduced by 10%
- So according to 10%, it will be:
600 x 10/100 = Rs. 60.
- So, person get:
= 60 + 12% (1000)
= 60 +1000 x 12/100
= 60 + 120
= Rs. 180
- So the effective interest on Rs.1,000 is Rs.180
- Then the effective interest on Rs.100 will be:
= ( 180 / 1000 ) x 100
= 18 %
Answer:
So the effective interest rate will be 18%.
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