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 for money invested in the long term savings scheme?
12%
18%
19%
20%
Explanation:
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 %
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 %