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hello sir.
i’d like to know in chapter 2 (income tax computation), example 7, why dividend of 2000 was calculated at 32.5 when that rate is for (31866-150000)?
similarly, the savings income have been first calculated at 6865 at 20%. Can you please tell me how did we calculate this figure of 6865?
thank you.
Have you worked through the OT notes and lectures leading up to this example?
The tax liability is computed by firstly taxing the non savings income, followed by the savings income and finally the dividend income.
As you will clearly see in the answer the non savings taxable income is 25,000 and therefore is taxed at the basic rate of 20%. This leaves 6.865 of the basic rate band to apply to the savings income and as the taxable savings income amounts to 12,000 that means that 6,865 is taxed at 20% with the remaining 5,135 being taxed at the higher rate of 40%. That means that all the taxable dividend income falls within the higher rate band and is therefore taxed at its relevant higher rate of 32.5%
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