Question

Satish earns an annual salary of Rs 150000 and the standard deduction applicable to him is \(40 \%\) of the salary or Rs 30000, whichever is less. Then his net taxable income is (1) Rs 30000 (2) Rs 120000 (3) \(\mathrm{Rs} 60000\) (4) \(\mathrm{Rs} 90000\)

Short answer

Answer: Rs 120000

Step-by-step solution

Determine the standard deduction amount

Calculate 40% of Satish's annual salary: \(40 \%\) of Rs 150000 = \(0.4 \times 150000 = 60000\) Compare the calculated amount (Rs 60000) and Rs 30000. Choose the lesser amount for the standard deduction. In this case, the standard deduction applicable to Satish's salary is Rs 30000, as it is less than Rs 60000.

Calculate net taxable income

Subtract the standard deduction amount (Rs 30000) from the total annual salary (Rs 150000): Net taxable income = Total annual salary - Standard deduction = Rs 150000 - Rs 30000 = Rs 120000 The net taxable income for Satish is Rs 120000. Therefore, the correct option is (2) Rs 120000.

Key concepts

Standard Deduction

The standard deduction is a fixed amount that reduces the income that can be taxed. It is a tax benefit that helps individuals lower their taxable income. In the case of Satish, the standard deduction is determined as the lesser of 40% of his salary or Rs 30000.
Typically, this deduction accounts for general living expenses and is available to all taxpayers who opt not to itemize their deductions. By choosing the amount that is less, taxpayers like Satish can retain more of their income from being taxed, ultimately saving money by minimizing the portion of income that's eligible for tax.

Mathematics Problem Solving

Solving this problem involves applying logical steps to find the right answer. First, calculate 40% of Satish's salary to determine one potential option for the standard deduction. This calculation yields Rs 60000, then compare it with Rs 30000, which is the ceiling amount for the deduction.
You'll choose Rs 30000 because it is the smaller figure. Next, subtract this deduction from Satish’s total annual salary to arrive at his net taxable income. The key is to carefully follow each step without skipping, ensuring accuracy.

Percentage Calculation

Let's delve into percentage calculation, a mathematical process to determine a proportion of a number. To find what 40% of Satish's salary is, convert the percentage into a decimal by dividing by 100.

• This gives you: 40% = 0.4.
• Next, multiply this decimal by Satish's total salary: 0.4 × Rs 150000 = Rs 60000.

This process allows you to quickly convert a percentage into a tangible amount, an essential skill in evaluating deductions or discounts in financial calculations.

Income Tax Concepts

Income tax is levied on an individual's earnings, and calculating taxable income is a critical step before determining the tax owed.
By subtracting deductions, like the standard deduction, from gross income, individuals can lower their taxable income, reducing their tax liability.
For Satish, identifying the correct standard deduction and subtracting it from his earnings to reach Rs 120000 illustrates this concept well. Understanding these steps helps taxpayers plan their finances and ensure compliance with tax obligations effectively.