How to calculate tax rate with base in Excel

In this article, we will learn How to calculate tax rate with base in Excel.

Scenario:

For Instance, Sometimes we need to calculate the tax amount on one condition i.e. there could be different possibilities based upon the amount. Here we will understand how to tackle the tax deduction problem. Let's understand more better with explanation and Formula syntax.

How to solve the problem?

For the solution of this problem, we will be using the IF function and Some basic mathematics sense. We are given the amount and condition. IF function checks the condition and returns value based on the result of the condition. 

Generic formula:

= IF ( amount<limit , amount * rate, rate *(limit-amount) + fixed )

amount : amount, where tax deduction is needed.

limit : Fixed limit amount

rate : rate of deduction

fixed : fixed base amount to add, if amount > limit 

 

Example :

All of these might be confusing to understand. So, let's test this formula via running it on the example shown below. Here we are given some amount values and tax deduction rate, fixed base amount & fixed limit. We will apply the condition on the required cell. Below is the formula to apply. Here we have 2 corresponding values in the result table. 

Use the formula:

=IF ( B5<F7 , F5*B5 , (F7-B5)*F5 + F6)

Explanation:

  1. IF function checks the condition here. Condition is If amount is less than limit.
  2. The formula returns F5*B5 value if condition stands True or else returns (F7-B5)*F5 + F6 value if condition stand False.

As you can see, the formula is applied on the first amount with criteria. Here the criteria states if 75 is smaller than 500, which is True. So the formula returns tax amount equal to 75 * 10% = 7.5 . Now Press Enter to get the result.

The above explanation stands True. The formula returns 7.5 value. Now firstly we will extract the amount for the rest of the values upto the 450$ amount. Which is simple, See below to view tax amount for different deductions.

Here are the amounts where tax is just 10% of the given amount. Now the formula can also get the value, if the amount is above the limit amount. But the formula will be (limit - amount)*rate+fixed, if this condition is True.

As you can see, all the results are tax amounts in tax amount column using the basic IF formula.

Here are all the observational notes regarding using the formula.

Notes:

  1. The formula returns the tax amount from the given amount.
  2. Make sure the formula works fine for the number values before using for all the other values..
  3. Do not forget to freeze the cell references as copying will give wrong results.
  4. You can also find the tax rate using the VLOOKUP function having different conditions.
  5. Use nested IF more than one condition is provided.

 

Hope this article about How to calculate tax rate with base in Excel is explanatory. Find more articles on IF condition formulas here. If you liked our blogs, share it with your fristarts on Facebook. And also you can follow us on Twitter and Facebook. We would love to hear from you, do let us know how we can improve, complement or innovate our work and make it better for you. Write to us at info@exceltip.com.

 

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