Fewpal
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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? 

(a) 12% (b) 18% (c) 19% (d) 20%

2 Answers

+2 votes
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Best answer

Correct option is (b) 18%

Additional charge allowance = Rs. 2000

Income-tax on charge allowance = Rs. 2000 x 30/100 = Rs.600

By depositing Rs.1000 per month in long-term saving,additional tax is reduced by 10%,i.e., the income is reduced by Rs.60.

In this way the person concerned get

= Rs.60 + 12% of Rs.1000

= Rs.60 +1000 x 12/100 = Rs.60 +Rs.120

= Rs.180

Effective interest on Rs.1,000 = Rs.180

Effective interest on Rs.100 = Rs.180/1000x100=18

Hence,effective interest rate = 18%. 

+1 vote
by (137k points)

The Right option is : (b) 18%

by (10 points)
+1
Can you explain with the steps sir
by (10 points)
+1
Please explain this ans sir

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