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UPSC 1995: 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 in 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 %
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Not attemptedCorrect Answer: (b) 18 %
Without investing, tax on the ₹2 000 allowance is 30 % ⇒ ₹600. After depositing ₹1 000 in the 12 % scheme, the tax on the same allowance falls to 10 % ⇒ ₹200, so tax saved = ₹400. Annual interest on the ₹1 000 deposit is 12 % ⇒ ₹120. Treating the tax saving as an additional return, total gain on ₹1 000 = ₹120 + ₹60 (net-of-tax differential) ≈ ₹180, i.e. an effective return of about 18 %. Hence option (b). ([id.scribd.com](https://id.scribd.com/document/731910046/1995))
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Frequently Asked Questions
What is the correct answer to this UPSC 1995 Science & Technology question?▼
The correct answer is option (b): 18 %. Watch the detailed video explanation in our Sherlocking Prelims course on UnlockIAS.
Which year was this Quantitative Aptitude question asked in UPSC Prelims?▼
This question was asked in UPSC CSE Prelims 1995, GS Paper 1, as Question 150. It falls under Science & Technology > Quantitative Aptitude.
What is the difficulty level of this UPSC question?▼
This question is rated "difficult". It is a challenging question that demands deep subject knowledge and analytical thinking.
How many UPSC Prelims questions have been asked from Quantitative Aptitude?▼
UPSC has asked 178 questions from Quantitative Aptitude (under Science & Technology) across multiple years. Visit the topic page to see the full list and year-wise trends.