TAXATION

Taxation



Taxation

Question 1

The income tax which is charged to you is based on the tax slabs declared by the Government in its annual budget every year. The following table encapsulates the tax slabs applicable this year. (Financial Year 2010-2011)

Job 1

Taxable Income Slab

Tax Slab

Upto £. 1, 60,000Up to £. 1, 90,000 (for women) Up to £. 2,40,000 (for residents, 65 years or above)

Nil

£. 1, 60,001 - £. 5,00,000

10%

£. 5, 00,001 - £. 8,00,000

20%

£s. 8,00,001 and above

30%

Note: In addition, an education cess of 3% is charged on the entire tax amount.

Please note that the taxable income is arrived at after adding all your different sources of income and subtracting the deductions that you have taken advantage of under Section 80C to 80U.

Job 2

Heads

Amounts

Income from Salary

£. 425,000

Income from House Property(Section 24 Deduction for Home Loan Interest Repayment)

(-) Rs.80,000

Gross Total Income

£. 345,000

Less: Section 80C Deductions

Rs.100,000

NSC Investment

£. 50,000

 

Home Loan Principal Repayment

£. 60,000

 

Total

£. 110,000

 

Taxable Income

£. 245,000

Income Tax Calculations

Tax

Tax on Income upto £. 1,60,000

0%

Zero

Tax on the next £85,000(Slab £. 160,001 to £. 5,00,000)

10%

£. 8,500

Income Tax Due

£. 8,500

Education Cess @ 3%

£. 255

Total Tax Payable

£. 8,755

In Thomson's case, he has taken advantage of two options under the 80C deduction available to him, namely principal repayment of £. 60,000 on his home loan and an investment of £ 50,000 in NSC. However, these total up to £ 110,000, and as shown above he can only take a deduction up to the statutory limit of £ 100,000.

Question 2

Income

Weekly (£)

Mr Thomson - State Pension

£93.45

Private pension

£9.00

Attendance Allowance

£47.80

Pension Credit (Guarantee)

£83.77

Savings

£2.43

Total income

£236.45

Less Income Disregarded

£2.43

Plus Capital Charge

£0.00

Total Income

£234.02

Less Personal Living Allowance

£165.75

Less Allowable Housing Costs

£3.98

Less Disability related expenses

£3.15

Total outgoings

£172.88

Disposable Income

£61.14

The level of personal income is often monitored as one of the many crucial indicators used to gauge the overall state of the economy. Disposable income is important to households for several reasons. It is the money left after taxes for paying for mortgages, household bills and other regular outgoings (Cameron, 2001, 30). This money can also pay for essential travel and things like fixing cars and home maintenance. It is vital you have enough disposable income to pay your monthly home rental/mortgage bills or you can risk eviction from your home.

Question 3

NI = GDP + NR - IBT - CCNI = National incomeNR = + or - Net income from assets abroad (net income receipts)IBT = Indirect business taxesCC = DepreciationNI = 4'000 + 0 - 210 - 500 = 3'290NDP = GDP - CCNDP = Net domestic productNDP = 4'000 - 500 = 3'500PI = NI - corporate taxes - retained earnings - social security + transfer payments + net interestPI = Personal incomePI = 3'290 - 50 - 25 - 200 + 500 = 3'515DI = PI - Personal taxesDI = Disposable income

To calculate the benefit charge on free fuel for private use, the percentage figure will be multiplied against a set figure for the year. For the year 2003/04 the set figure will be £14,400, though for future years this figure may rise. Remember that the CO2 percentage figure will also increase ...