MATH PROJECT 2: INCOME TAX

Introduction:
The origin of the word "Tax" is from "Taxation" which means an estimate. These were levied either on the sale and purchase of merchandise or livestock and were collected in a haphazard manner from time to time. The "tax net" refers to the types of payment that are taxed, which included personal earnings, capital gains, and business income. The rates for different types of income may vary and some may not be taxed at all. Capital gains may be taxed when realized or when incurred. Business income may only be taxed if it is significant or based on the manner in which it is paid. Some types of income, such as interest on bank savings, may be considered as personal earnings or as a realized property gain. In some tax systems, personal earnings may be strictly defined where labor, skill, or investment is required; in others, they may be defined broadly to include windfalls.

Why income tax is imposed?

Income tax is imposed in almost ever country. The reason why income tax is imposed is because the government needs money. The money is used for improvement for the country. This amount of money is needed for building of public facilities such as roads, trasportation, hospital etc. and for investments. In short the tax collected from the public is used for the well being of the public by the government. This would lead to more investors investing in the country and hence more jobs are created. This in turns benefits the people. The government has to tax income earner so that they have this money for construction and investment. In India, the percentage of charageable income increases with the

amount earned. This is because it would not be fair to ask a low-wage earner to give 30% of his income when he is having diffculity supporting his family even wih all his income. Hence, the richer are taxed more.

Who imposes this tax?

The Central Government has been empowered to levy tax on all income other than agricultural income. It imposes an income tax on taxable income of all persons including individuals, Hindu Undivided Families, companies, firms, association of persons, body of individuals, local authority and any other artificial judicial person. Levy of tax is separate on each of the persons. The levy is governed by the Indian Income Tax Act, 1961. The Indian Income Tax Department is governed by Central Board of Direct Taxes (CBDT) and is part of the Department of Revenue under the Ministry of Finance, Govt. of India. Income tax is a key source of funds that the government uses to fund its activities and serve the public. The Income Tax Department is the biggest revenue mobilizer for the Government.

Latest income tax slabs (2013-2014)

India Income tax slabs 2013-2014 for general tax payer and women

Income Slabs

Income Tax Rate

UptoRs. 2,00,000 Rs 2,00,001 to Rs 5,00,000 Rs 5,00,001 to Rs 10,00,000 Rs 10,00,001 and above

Nil 10% on the total income exceeding Rs. 2,00,000 Rs. 30,000 + 20% on the total income exceeding Rs. 5,00,000 Rs. 1,30,000 + 30% on the income exceeding Rs, 10,00,000

India Income tax slabs 2013-2014 for citizen below the age of 60 years

Income Slabs Upto Rs. 2,00,000 Rs 2,00,001 to Rs 5,00,000 Rs 5,00,001 to Rs 10,00,000 Rs 10,00,001 and above

Income Tax Rate Nil 10% on the total income exceeding Rs. 2,00,000 Rs. 30,000 + 20% on the total income exceeding Rs. 5,00,000 Rs. 1,30,000 + 30% on the income exceeding Rs, 10,00,000

India Income tax slabs 2013-2014 for age of 60-79 years

Income Slabs UptoRs. 2,50,000 Rs2,50,001to Rs

Income Tax Rate Nil 10% on the total income exceeding Rs. 2,50,000

5,00,000 Rs 5,00,001 to Rs 10,00,000 Rs 10,00,001 and above Rs. 25,000 + 20% on the total income exceeding Rs. 5,00,000 10,00,000 Rs. 1,25,000 + 30% on the income exceeding Rs,

India Income tax slabs 2013-2014 for age above 80 years Income Slabs UptoRs 5,00,000 Rs 5,00,001 to Rs 10,00,000 Rs 10,00,001 and above Income Tax Rate Nil 20% on the total income exceeding Rs. 5,00,000 Rs. 1,00,000 + 30% on the income exceeding Rs, 10,00,000

Condition-1: A mans gross annual income is 7 lakhs. He pays Rs. 75,000

premium in LIC and has 2 sons whose tuition fees are 20,000 per annum. He he will have to pay. ANS : Income 7,00,000

also has 30,000 money in his fix deposit timed 5 years. Calculate the Income tax

Exempted income under 80C premium + fees + bank fixed deposit scheme - 75,000 + 20,000 + 30,000 = 1,25,000/-

Net taxable income 7,00,000 1,25,000 = 575000/Rate of tax 20% Thus, income tax payable - Rs. 30,000 + 20% on the total income exceeding Rs. 5,00,000 Amount exceeding 5,00,000 = 75,000/Therefore , 30,000 + 20% of 75,000 30,000 + 15,000 = 45,000/Therefore, income tax paid by the man having imcome of 7 lakhs is Rs 45,000.

Description Annual Income Deduction Insurance Premiume exempted under 80C Tution Fees Net Taxable income Income Tax for less than 5 Lac income Income Tax for income above 5 Lac @ 20% On 80000/- (580000 500000) Total Income Tax Surcharge @ 2% + 1% Net Income Tax payable 30000 16000 75000

Amount 700000 20000 950000 580000

46000 1380 47380

Therefore, income tax paid by the man having imcome of 7 lakhs is Rs. 47380/-

Condition-2: A womans gross annual income is 6 Lakhs. She contributes 80,000 Rs. in her PPF account, pays 25,000 as premium in LIC and has 2 ANS: Income- 6 lakhs Exempted income under 80C- PPF amount + school fees + premium - 80,000 + 50,000 + 25,000 = 1,55,000/Net Taxable income 6,00,000 1,55,000 = 4,45,000 Rate of tax- 10% Thus, income tax payable- 10% of income exceeding 2 lakhs Amount exceeding 2,00,000 2,45,000 Therefore, 10% of amount exceeding 2 lakhs 10% of 2,45,000 24,500/Therefore, income tax paid by the woman having imcome of 6 lakhs is Rs 24,500/children whose school fees are Rs. 50,000. Find the income tax payable by her.

Condition-3: Mohan is a 63 year old person with a gross annual income of 12 lakhs. He has taken a housing loan, the EMI of which is rs. 5000 (rs. 60,000 annually). He paid stamp duties of 20,000 for the purchase of his house. He pays 10,000 for his daughters tution fees. He also pays Rs. 85,000 as premium in LIC. Find the income tax payable by Mohan.

ANS- Income- 12 lakhs Reduction under section 80c- housing loan + tution fees + premium + stamp duties 1,50,000 + 20,000 + 10,000 + 85,000 = 2,65,000/Net taxable income- 1200000 2,65,000 = 935000/Income tax rate- 20% Tax payable - Rs. 25,000 + 20% on the total income exceeding Rs. 5,00,000 25,000 + 20% of 4,35,000 25,000 + 87,000 = 1,12,000/Therefore, income tax paid by Mohan having imcome of 12 lakhs is Rs 1,12,000/-