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How are you sir,
My question is in Tippletine March/June 2018 and Fubuki in Bpp revision kit.In the Fubuki Co, the subsidy benefit was multiplied 75% which means its an after tax figure.But on the Trippletine answer, the tax was not effected on subsidy benefit.
Again sir, Trippletine answer calculated the tax benefit lost on subsidised loan, this was not calculated on Fubuki.
I am bit confused sir, kindly assist.
The end result is the same in both cases and it doesn’t matter which way you show the workings.
Suppose the normal interest rate was 10%, the subsidised rate was 6%, and the tax rate is 25%.
The tax saving on the actual interest paid is 25% x 6% = 1.5%
The subsidy is saving interest of 10 – 6 = 4%
So the benefit of the two together is 1.5% + 4% = 5.5%Alternatively, the tax saving at the normal rate would be 25% x 10% = 2.5%.
The benefit of the subsidy after tax is 75% x (10 – 6) = 3%
So the benefit of the two together is again 5.5%
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