A bill of ₹4,000 includes ₹500 worth of items on which a 5% levy is not charged; the levy is charged at 5% on the rest of the bill. The levy works out to what per cent of the whole ₹4,000 bill?

The levy is charged on 4,000 - 500 = ₹3,500, so it comes to 5% of 3,500 = ₹175. Against the whole bill that is 175/4000 = 0.04375 = 4.375%. 5% is the rate, but it belongs to the ₹3,500 base, not to the ₹4,000 bill - whenever part of a base is left out, the effective rate on the whole must be lower. 5.71% charges 5% on the full ₹4,000 and then divides by ₹3,500, using the wrong base twice over. 0.625% is the levy the exempt ₹500 escaped, as a share of the bill.