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Chapter 9- Tax Rates

Errors Rectified:
Page 67- last sentence (a) to be redrafted as:
a. The maximum tax rate of a natural person on his/her income from Disposal of Non Business
Chargeable asset is 10% subject to the following:
Page 68- 7th Line to be changed as:
Since the maximum tax rate for income from disposal of Non Business Chargeable Asset is 10%, there
shall be no additional 40% surcharge even when the balance taxable income exceed Rs. 25 Lakhs.
Page 68- Point (d) to be added after point (c):
In case a natural person carrying on operation of Special industry exports its products, the tax rate shall
be 11.25% instead of rates applicable to block of 15% and 25%, and 15.75% when the income is related
to the block where 35% is applicable.
Notes:
The rates of tax taken on this chapter are as applicable for IY 2072/73. Please note the same.
Question 1- Page 71
Provisions of Income Tax Act- facilities entitled to Mr. Ram
a. As he is handicapped, he is entitled to reduction of 50% of Basic Exemption Limit while calculating
Balance Taxable Income from Taxable Income.
b. Similarly, the rate of tax on export income on such income where rate of 25% is applicable is
15%,and since its export from the products of special industry, the effective rate instead of applicable
rate of 15% and 25% is 11.25% and that of applicable rate of 35% is 15.75% .
c. He is operating a special industry as defined by Clarification Clause of Sec. 11, thus, the rate of tax
on income from Special industry where rate of 25% is applicable is 20%.
d. Students should note that there are three methods of calculation of tax liability in this case. One
method benefits taxpayer, the other the tax receivers and the third method assumes the consumption
of deductions and reductions on proportionate basis. In this solution, the author has used the third
method that gives the result on trade off position.
e. Corrections in question, instead of 10 Million of export sales make it Rs. 100 Million.
Calculation of Taxable Income:
Assessable Income from Business
From Export Income:
From other Special Industry
Total Assessable Income
(as there is no information as to income from investment or employment)
Less: Allowable Deductions
Less: allowable Reductions
a. Reduction as a result of incapacitated person
(50% of 300,000- BEL for Couple as the question suggests)
Balance Taxable Income

Calculation of Balance taxable income attributable to export sales and local sales

10,000,000
15,000,000
25,000,000
Nil

150,000

24,850,000

Chapter 9- Tax Rates

Attributable to Export Sales= (Profit from Export included in Assessable income/ Total
Assessable income less NBCA Income * Balance Taxable Income excluding NBCA Income)=
10/25*24,850,000= 9,940,000
Attributable to Local Sales= (Profit from Local Sales included in Assessable income/ Total
Assessable income less NBCA Income * Balance Taxable Income excluding NBCA Income)=
15/25*24,850,000= 14,910,000

Calculation of Tax Liability:


1st Rs. 300,000
Next Rs. 100,000
15%
15,000
Next Rs. 2,100,000
20%
420,000
(Assuming the amount up to Rs. 25 Lakhs exhausted by other Business Income, not export income)
Next Rs. (24,850,000- 9,940,000-2,500,000)
28%
3,474,800
Balance Rs. 9,9400,000
15.75%
1,565,550
Total Tax Liability
5,475,350

Note: There are two alternative ways to calculate tax liability, and the answer is not final. Please have a
look at Example in Page 73-76 of the book for the same.
Question 2- Page 71
a. It is assumed that each of the individual is opted Couple assessment for the purpose of tax as per
Sec. 50.
1. Calculation of Tax Liability of Mr. A
Since the total taxable income is less than Rs. 300,000; there shall be no tax liability. Had he opted
individual for tax assessment, the tax liability would be 5% of Rs. 40,000 (i.e. 5% of 290,000 less Rs.
250,000).
2. Calculation of Tax Liability of Mr. B
Mr. B has taxable income attributable to gain on disposal of land and building with ownership more
than 5 years of Rs. 290,000 which is subject to maximum tax rate of 2.5%. The balance of Rs.
100,000 is assumed to be business income. As suggested by Supreme Court decision based on
minimum tax liability to tax payer, the tax liability would be:
1st Rs. 300,000
0%
Balance Rs. 90,000
2.5%
2,250
3. Calculation of Tax Liability of Mr. C
Mr. C has taxable income attributable to gain on disposal of listed shares of Rs. 290,000 which is
subject to maximum tax rate of 5%. The balance of Rs. 400,000 is assumed to be business income.
As suggested by Supreme Court decision based on minimum tax liability to tax payer, the tax liability
would be:
1st Rs. 300,000
0%
Next Rs. 100,000
15%
15,000
Balance Rs. 290,000
5%
14,500
4. Calculation of Tax Liability of Mr. D
Mr. D has taxable income attributable to gain on disposal of land and building with ownership less
than 5 years of Rs. 290,000 which is subject to maximum tax rate of 5%. The balance of Rs.
1,800,000 is assumed to be business income. As suggested by Supreme Court decision based on
minimum tax liability to tax payer, the tax liability would be:
1st Rs. 300,000
0%
Next Rs. 100,000
15%
15,000

Chapter 9- Tax Rates


Next Rs. 1,500,000
25%
375,000
Balance Rs. 290,000
5%
14,500
5. Calculation of Tax Liability of Mr. E
Mr. E has taxable income attributable to gain on disposal of unlisted shares of Rs. 290,000 which is
subject to maximum tax rate of 10%. The balance of Rs. 2,800,000 is assumed to be business
income. As suggested by Supreme Court decision based on minimum tax liability to tax payer, the tax
liability would be:
1st Rs. 300,000
0%
Next Rs. 100,000
15%
15,000
Next Rs. 2,100,000
25%
525,000
Next Rs. 300,000
35%
105,000
Balance Rs. 290,000
10%
29,000
Please note that there shall not be application of 40% surcharge in taxable income above Rs. 25
Lakhs in Gain on Disposal of Non Business Chargeable Asset. Sec. 1 (4) of Schedule 1 contradicts
with Sec. 1 (1) and Sec. 1 (2) of Schedule 1, as it does not mention application of surcharge of 40%
on taxable income above Rs. 25 lakhs in Gain on Disposal of NBCA while determining the maximum
tax rate for NBCA income to a resident natural person of 10%. Hence as per interpretation of law, the
40% surcharge is not applicable on NBCA income.
Question 3- Page 71
a. Since Mr. Mohit Shrestha is a natural person paying tax u/s 1 (13) of Schedule 1 of the Act, he is not
required to make detailed calculation of tax under Sec. 4 of the Act. Hence, the tax paid by Mr.
Shrestha against each vehicle is final tax liability.
The tax liability of Mr. Shrestha for IY 20X1/X2 is:
Vehicle
No. of Vehicles
Amount per vehicle
Total
Power Tiller
7
1,000
7,000
Tractor
11
1,000
11,000
Auto rickshaw
1
1,550
1,550
Micro bus
4
2,400
9,600
Car
8
2,400
19,200
Truck
4
3,000
12,000
Question 4- Page 71
Calculation of Total Assessable Income:
Assessable Income from Business
Assessable Income from Employment
Assessable Income from Investment
Assessable Income from Windfall Gain
Total Assessable Income
Statement of Taxable Income
Total Assessable Income
Less: Allowable Deductions:
a. Contribution to Approved Retirement Fund
b. Contribution u/s 12B
c. Donation u/s 12 (3)
d. Donation u/s 12 (1) & 12 (2)

5,000,000
1,000,000
8,000,000
14,000,000

14,000,000
-

Chapter 9- Tax Rates


Taxable Income
Statement of Balance Taxable Income
Taxable Income
Less: Allowable Reductions under Schedule 1
a. Reduction against residing in Remote Area
b. Reduction of Foreign Allowance
c. Reduction to a disabled Individual
(as he is divorcee, he has to opt individual for tax assessment)
d. Reduction against payment of Investment Insurance Premium
(Lower of Rs. 20,000 or actual Rs. 25,000)
e. Reduction against pension Income
(Lower of 25% of BEL, i.e. 25% of 250,000 or Actual Pension Income of Rs. 100,000)
f. Reduction against payment of Health Insurance Premium to a resident Insurance Co.
(Lower of Rs. 20,000 or actual amount of Rs. 50,000)
Balance Taxable Income

14,000,000

14,000,000
(125,000)
(20,000)
(62,500)
(20,000)
13,772,500

Statement of Tax Liability


Calculation is based on minimum tax liability to tax payer, there are other two alternatives to the solution
1st Rs. 250,000
1%
2,500
(as the employment income after deducting pension income and
reductions exceed Rs. 250,000. In this case, the 1% SST is taken at
maximum as the employer is bound to collect SST on any employment
income of Rs. 9 Lakhs paid to him)
Next Rs. 100,000
15%
15,000
Next Rs. 1,422,500
25%
355,625
(Rs. 2 million- other business income & employment income less amount
in 1% and 15% slab and reductions)
Next Rs. 727,500
20%
145,500
(Out of Rs. 2 million business income from special industry to make it Rs.
25 Lakhs)
Next Rs. 1,272,500
28%
356,300
(Income from Special Industry above 25L Taxable income)
Next Rs. 2,000,000
21%
420,000
(all export sales above Rs. 25L taxable income)
Next Rs. 1,000,000
2.5%
25,000
(Maximum tax rate of 2.5% for gain on disposal of land and building with
ownership exceeding 5 years)
Next Rs. 2,000,000
5%
100,000
(Maximum tax rate of 5% for gain on disposal of land and building with
ownership less than 5 years)
Next Rs. 3,000,000
5%
150,000
(Maximum tax rate of 5% for gain on disposal listed shares)
Balance Rs. 2,000,000
35%
700,000
(Investment income other than gain on disposal of NBCA attract highest marginal tax rate)
Total (Sum up the above)
Less: Tax Credits
Tax liability