Salary Income - Difference Provisions
Friday, April 5, 2013
| Sr # | Description | Taxablity | Remarks / Condition / Limit |
| 1 | Utility Allowance | Taxable | Includes water, gas, electricity allowance. |
| 2 | House Rent Allowance | Taxable | |
| 3 | Free accommodation | Taxable | 45% of B. Salary or FMV of rent whichever is higher |
| 4 | Leave Fare Assistance | Taxable | |
| 5 | Salary of domestic servant | Taxable | Includes house keeper, gardener, etc. |
| 6 | Capital Receipt on termination of employment | Taxable | |
| 7 | Tax Paid by the employer - Tax on tax | Taxable | Amount would be grossed up by tax paid by employer. |
| 8 | Interest free / concessional rate Loan | Taxable | Difference between bench mark rate (10%) and rate charged by the employer. |
| Interest free / concessional rate Loan | Not Taxable | a) When amount of loan is upto Rs.500,000/- | |
| b) Employee waives interest on his account with employer | |||
| 9 | Conveyance Allowance | Taxable | |
| 10 | Motor Vehicle | Taxable | Upto 5% of cost / FMV - Partly for Pvt. Use |
| (owned & maintained by employer) | Taxable | Upto 10% of cost / FMV - Wholly for Pvt. Use | |
| 11 | Waiver of loan by the employer | Taxable | |
| 12 | Discharge of debt by the employer | Taxable | |
| 13 | Transfer to assets / Property | Taxable | FMV of asset: Less consideration paid if any. |
| 14 | Employee Share Scheme | ||
| Value of Right / Option | Not Taxable | ||
| Disposal of Right / Option | Taxable | Difference b/w consideration and cost of right / option. | |
| Acquistion of Shares - without Ristriction | Taxable | Difference b/w FMV and cost of right / option. - At the time of acquition | |
| Acquistion of Shares - With Ristriction | Taxable | Difference b/w FMV and cost of right / option. - At the earlier of time of end of restriction or actual disposal of shares. | |
| 15 | Medical Allowance - without medical facility | Taxable | Exempt up10% of Basic salary |
| Medical Allowance - with Reimbursement | Taxable | No exemption | |
| 16 | Medical benefit / Reimbursement (in accordance with the terms of employment) | Exempt if | - NTN of the hospital / clinic is disclosed |
| - The employer certifies and attests the bills | |||
| 17 | Special Allowance | Exempt if | Given to meet expenses in performance of official duties |
| 18 | Employer's contribution to App. Provident Fund | Exempt | Lower of 10% of B.S. + Dearness allowance / Rs.100,000 |
| 19 | Employer's contribution to Non approved PF. | Exempt | and Taxable at the time of receipt of fund amount |
| 20 | Interest on approved provident fund | Exempt | |
| 21 | Gratuity / Superannuation / Communation of Pension - ( Received in Pak. by resident) | On Retirement / Death | |
| Exempt | Received from approved funds | ||
| Exempt | Upto Rs. 200,000/- if received from approved schemes | ||
| Exempt | Lower of 50% of amount received/Rs.75,000 - Other cases | ||
| 20 | Pension | Exempt | Where person does not continue work with same employer or an associate of the employer |
| Exempt | One of highest if received from more than one source. |
Labels: Income Tax, Salary, Salary income
posted @ 10:41 AM,
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Medical Allowance - Tax Treatment
Wednesday, April 3, 2013
According to Clause 139 of part 1 (Exemption from total income) of 2nd Schedule of Income Tax Ordinance, 2001
a) If Medical Facility or reimbursement of actual Medical expenses is provided:
- in accordance with terms of employment: The amount provided is fully exempt if NTN of medical practitioner and employer's attestation are available.
- Not in accordance with terms of employment: The amount provided is fully taxable
b) Medical Allowance provided: Tax Treatment is exempt upto 10% of Basic Salary
c) Medical allowance is provided in addition to medical facility or reimbursement in accordance with the terms: Tax Treatment is Medical allowance fully taxable and Facility / reimbursement is Fully Exempt if NTN of medical practitioner and employer's attestation are available.
d) Medical allowance is provided in addition to medical facility or reimbursement but NOT in accordance with the terms: Tax Treatment is Medical allowance is exempt upto 10 % of Basic Salary and Facility / reimbursement is Fully taxable.
Ref: Income Tax Ordinance, 2001
Labels: Medical Allowance, Salary income, Taxation
posted @ 10:56 AM,
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Salary - Definition
Thursday, March 28, 2013
Any amount received by an employee other than an amount exempt from tax, in a tax year from employment, whether the amount is in a capital or revenue nature, including arrears or amount received in advance, shall be chargeable under the head salary. Salary shall include:
i) any pay, wages or other remuneration including leave pay, overtime, bonus, commission, fees, gratuity, work condition supplements (such as for the un pleasant or dangerous working conditions);
ii) any perquisite whether convertible into money or not;
iii) any allowance provided to employee including cost of living, rent, utilities, education, entertainment, traveling etc. excluding allowance solely expended in the performance of duties of employment;
iv) any personal expenditure reimbursed by employer;
v) consideration received for entering into an employment agreement or for agreement to any condition of employment or changes to the employment conditions.
vi) amount received on the termination of employment.
vii) amount received from provident fund except for a contribution made by the employee in respect of which the employee was not entitled to a deduction.
viii) Consideration received for an employee’s agreement to a restrictive condition in respect of past, present or prospective employment;
ix) any pension or annuity or any supplement to a pension or annuity received / receivable from employer;
x) any amount of gain earned by employee on the issue of shares or on the disposal of any right or option to acquire shares under “Employee Share Scheme”;
xi) amount of tax chargeable on employee’s salary and paid by employer.
i) any pay, wages or other remuneration including leave pay, overtime, bonus, commission, fees, gratuity, work condition supplements (such as for the un pleasant or dangerous working conditions);
ii) any perquisite whether convertible into money or not;
iii) any allowance provided to employee including cost of living, rent, utilities, education, entertainment, traveling etc. excluding allowance solely expended in the performance of duties of employment;
iv) any personal expenditure reimbursed by employer;
v) consideration received for entering into an employment agreement or for agreement to any condition of employment or changes to the employment conditions.
vi) amount received on the termination of employment.
vii) amount received from provident fund except for a contribution made by the employee in respect of which the employee was not entitled to a deduction.
viii) Consideration received for an employee’s agreement to a restrictive condition in respect of past, present or prospective employment;
ix) any pension or annuity or any supplement to a pension or annuity received / receivable from employer;
x) any amount of gain earned by employee on the issue of shares or on the disposal of any right or option to acquire shares under “Employee Share Scheme”;
xi) amount of tax chargeable on employee’s salary and paid by employer.
Labels: Definitions, Salary, Salary income
posted @ 11:55 AM,
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Salary Income - Taxability
Tuesday, March 26, 2013
Taxability: Salary is taxable on "Receipt" basis.
Receipt: means if salary is
- actually received or
- made available to
- apply or contribute on behalf of the employee by any law or regulation
Question: Salary is taxable on Receipt basis. Is there any exception available in the Ordinance
Answer: Yes, Salary paid by private companies can be taxable on accrual basis;
Where, in any tax year, salary is paid by a private company to an employee of the company for services rendered by the employee in an earlier tax year and the salary has not been included in the employee’s salary chargeable to tax in that earlier year, the Commissioner may, if there are reasonable grounds to believe that payment of the salary was deferred, include the amount in the employee’s income under the head “Salary” in that earlier year
Where, in any tax year, salary is paid by a private company to an employee of the company for services rendered by the employee in an earlier tax year and the salary has not been included in the employee’s salary chargeable to tax in that earlier year, the Commissioner may, if there are reasonable grounds to believe that payment of the salary was deferred, include the amount in the employee’s income under the head “Salary” in that earlier year
Labels: Heads of Income, Salary income
posted @ 2:10 PM,
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FBR Likely To Raise Salaried Sector Tax To 25 Percent
Wednesday, April 27, 2011
This refers to the news item published on 25th April, 2011 in the Business Recorder with the heading ’FBR likely to raise salaried sector tax to 25 percent’. In the details this news item has been associated with the proposals given by the Institute of Chartered Accountants of Pakistan. This news item is based on Para 1.3 of the Budget Proposals of the Institute of Chartered Accountants of Pakistan which has been misunderstood and reported incorrectly resulting into a negative perception.
In fact, the Institute’s recommendation is not to increase the maximum tax rate applicable to Salaried Individuals (as reported) but to remove the disparity of the rates of tax on income of Non-Salaried Individuals by rationalizing the tax bands, enhancing the threshold of the maximum tax rate of 25% from Rs. 1,500,000 to Rs. 3,000,000 and to provide for the marginal relief as applicable in case of Salaried Individuals.
For your information a Corrigendum has been published by the Business Recorder today, for the rectification of the above as under:
This refers to the news item published in Business Recorder on April 25, 2011 titled "FBR likely to raise salaried sector tax to 25 percent". In the details this news item has been attributed to the proposals given by the Institute of Chartered Accountants of Pakistan (ICAP).
This news item is based on Para 1.3 of the budget proposals of the ICAP, which has been misunderstood and reported incorrectly.
In fact, the Institute's recommendation is not to increase the maximum tax rate applicable to salaried individuals but to remove the disparity of the rates of tax on income of non-salaried individuals by rationalizing the tax bands, enhancing the threshold of the maximum tax rate of 25 per cent from Rs. 1,500,000 to Rs. 3,000,000 and to provide for the marginal relief as applicable in case of salaried individuals.
It was incorrectly reported due to the misunderstanding of the ICAP budget proposals which in fact has recommended that the tax rate for non-salaried individuals should be rationalized to provide relief at par with that of the salaried individuals by increasing threshold for levy of maximum tax rate of 25 per cent from taxable income of Rs. 1,500,000 to Rs. 3,000,000 and to also provide marginal relief as in case of the salaried individuals. The original text of the ICAP proposals is reproduced hereunder:
"Discrimination of salaried and non-salaried persons by providing for separate tax rates is against the norms of personal taxation". "This clearly indicates that the law itself admits that non-salaried persons understate their income". "It is very odd that: A salaried person attracts the maximum tax rate of 20 per cent where the income exceeds Rs. 4,550,000 as compared to a non-salaried person who attracts the maximum tax rate of 25 per cent where the income exceeds Rs. 1,500,000; and a salaried person is allowed a marginal relief where the income marginally exceeds from a particular slab of income and tax thereon whereas a non-salaried person is not allowed any such relief.
Therefore, it is recommended that, "huge gap in maximum tax rate should be narrowed by expanding the non-salaried tax bands so that the maximum tax rate of 25 per cent starts at least from income above Rs. 3,000,000. "Non-salaried persons should also be allowed to claim marginal relief where the income marginally exceeds from a particular slab of income and thereon".
Labels: Salary income, Taxation
posted @ 9:44 AM,
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Income Tax Rates
Friday, April 9, 2010
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Labels: Income Tax Rates, Salary income
posted @ 9:51 PM,
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Taxation of Bonus Paid to Corporate Employees
Thursday, November 5, 2009
A proviso has been inserted in Clause (a)of sub section 2 of section 20 whereby any bonus paid or payable to corporate employees receiving salary income of Rs.One million or more (exculding bonus) shall be chargeable to tax at the rate of 30%. This is a one time levy and payable for the tax year 2010 only, so as to support the Internally Displaced People (IDP)for their rehabilitation.
Example # 1
Salary Income other than bonus = 1,000,000
Bonus amount = 300,000
Tax @ 9% at salary other than bonus = 90,000 (A)
Tax @ 30% at bonus = 90,000 (B)
Total Tax = 180,000 (A)+ (B)
Example # 2
Salary Income other than bonus = 900,000
Bonus amount = 100,000
Total Salary = 1,000,000
Tax @ 9% at salary other than bonus = 90,000 (A)
No Tax @30% at bonus as salary excluding bonus is less than one million (B)
Total Tax = 90,000 (A)+ (B)
Labels: Bonus, Salary income, Taxation
posted @ 1:32 PM,
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Tax Treatment of Salary
Thursday, February 26, 2009
Case from mszuberi_associates:
A Non Profit organization not deducted the tax from its' employees salary for several years.
Queries:
- Who is responsible? Organization, Employee, Or both?
- what is the panalty under Income Tax ordinance, 2001 and who would bear it.
Comment:
Section 149, Salary, of Division III, Deduction of Tax at Source of the Income Tax Ordinance, 2001 states that;
Every employer paying salary to an employee shall, at the time of payment, deduct tax from the amount paid at the employee’s average rate of tax computed at the rates specified in Division I of Part I of the First Schedule on the estimated income of the employee chargeable under the head “Salary” for the tax year in which the payment is made after making adjustment of tax withheld from employee under other heads and tax credit admissible under section 61, 62, 63 and 64 during the tax year after obtaining documentary evidence, as may be necessary, for
(i) tax withheld from the employee under this Ordinance during the tax year;
(ii) any excess deduction or deficiency arising out of any previous deduction; or
(iii) failure to make deduction during the year;
Sub Section (c) of Section 21 Decduction not allowed states that no deduction shall be allowed in computing the income of a person under head of income from business if that person any salary, rent, brokerage or commission, profit on debt, payment to non-resident, payment for services or fee paid by the person from which the person is required to deduct tax under Division III of Part V of Chapter X or section 233 of chapter XII, 1[unless] the person has 2[paid or] deducted and paid the tax as required by Division IV of Part V of Chapter X;
Conclusion:
According to above provisions of Income Tax Ordinance, 2001 it is clear that Organization (whether profitable or non profitable) is requied to deduct tax on salary at the time of payment and if it will not do so then its expense would be not allowed as admissible expense.
Labels: Query, Salary income, Taxation
posted @ 11:04 AM,
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