Answer :
To solve this problem, we need to calculate the total simple interest on the principal amount first, and then subtract the tax levied on that interest to find the net simple interest.
Step 1: Calculate Total Simple Interest
Simple interest can be calculated using the formula:
\[ \text{Simple Interest (SI)} = \text{Principal (P)} \times \text{Rate of Interest (R)} \times \text{Time period (T)} \]
Where:
- Principal (P) is the initial amount of money deposited, which is Rs. 10 lakh in this case.
- Rate of Interest (R) is the annual interest rate, 8.5% in this case.
- Time period (T) is the duration for which the money is invested or borrowed, which is 4 years in this case.
Let's plug in the values:
\[ \text{SI} = 1000000 \times \frac{8.5}{100} \times 4 \]
\[ \text{SI} = 1000000 \times 0.085 \times 4 \]
\[ \text{SI} = 85000 \times 4 \]
\[ \text{SI} = 340000 \]
Step 2: Calculate Income Tax on Interest
Now, we need to calculate the amount of tax that needs to be paid on the interest earned. The tax rate given is 5%.
Using the tax rate, we can calculate the tax on the interest:
\[ \text{Tax on interest} = \text{Total Simple Interest} \times \text{Tax rate} \]
\[ \text{Tax on interest} = 340000 \times \frac{5}{100} \]
\[ \text{Tax on interest} = 340000 \times 0.05 \]
\[ \text{Tax on interest} = 17000 \]
Step 3: Calculate Net Simple Interest
The net simple interest is the total interest earned minus the tax paid on it. We can calculate it as follows:
\[ \text{Net Simple Interest} = \text{Total Simple Interest} - \text{Tax on interest} \]
\[ \text{Net Simple Interest} = 340000 - 17000 \]
\[ \text{Net Simple Interest} = 323000 \]
Therefore, the total interest earned on Rs. 10 lakh at a rate of 8.5% simple interest in 4 years is Rs. 340000. And after deducting a 5% income tax on the interest, the net simple interest amount is Rs. 323000.
