Mr. John Smith earns Rs. 1,50,000 per annum as a tax-free income. He has also received Rs. 25,000 as salary for the post of the Vice-President of a company and Rs. 12,000 as rent from his house property. He also received Rs. 2,50,000 from a lottery. Calculate his gross total income.

The taxable income is the annual income minus the tax-free allowance.

$$\text{Annual Income} = \text{N}150,000.00$$ $$\text{Tax-Free Allowance} = \text{N}30,000.00$$ $$\text{Taxable Income} = \text{N}150,000.00 - \text{N}30,000.00 = \text{N}120,000.00$$

The tax is calculated progressively based on the taxable income.

• First N20,000.00 at 10%:

$$0.10 \times \text{N}20,000.00 = \text{N}2,000.00$$

Remaining taxable income: $\text{N}120,000.00 - \text{N}20,000.00 = \text{N}100,000.00$

• Next N20,000.00 at 12%:

$$0.12 \times \text{N}20,000.00 = \text{N}2,400.00$$

Remaining taxable income: $\text{N}100,000.00 - \text{N}20,000.00 = \text{N}80,000.00$

• Next N20,000.00 at 15%:

$$0.15 \times \text{N}20,000.00 = \text{N}3,000.00$$

Remaining taxable income: $\text{N}80,000.00 - \text{N}20,000.00 = \text{N}60,000.00$

• Next N20,000.00 at 18%:

$$0.18 \times \text{N}20,000.00 = \text{N}3,600.00$$

Remaining taxable income: $\text{N}60,000.00 - \text{N}20,000.00 = \text{N}40,000.00$

• Next N20,000.00 at 20%:

$$0.20 \times \text{N}20,000.00 = \text{N}4,000.00$$

Remaining taxable income: $\text{N}40,000.00 - \text{N}20,000.00 = \text{N}20,000.00$

• The remainder (N20,000.00) at 25%:

$$0.25 \times \text{N}20,000.00 = \text{N}5,000.00$$

$$\text{Total Income Tax} = \text{N}2,000.00 + \text{N}2,400.00 + \text{N}3,000.00 + \text{N}3,600.00 + \text{N}4,000.00 + \text{N}5,000.00$$ $$\text{Total Income Tax} = \text{N}20,000.00$$

The total income tax for Mr. Ade is:

$$\text{N}20,000.00$$