Question

In a country’s income tax system, an individual can earn Rs. 20,000, before paying taxes. The marginal rate of tax is 25% on income up to Rs. 50,000 and 50% on income greater than that. How much tax will an individual pay if she earns Rs. 1,00,000?

• A. 25,000
• B. 7,500
• C. 32,500
• D. 50,000

Answer 1

The correct option is C

32,500

First, Rs. 20,000 is tax-free.

Then, on the next Rs.30,000, she pays 25% tax = Rs. 7,500

On the remaining Rs. 50,000, she pays 50% tax = Rs. 25,000

So the total tax paid by her is Rs. 25,000 + Rs.7,500 = Rs. 32,500