Ans. 2. Conceptually no deductions are allowed against salary and it is presumed that salary is taxable at gross. Nonetheless a couple of items may be taken as exemptions or deductions from salary taxation:

• Education fee paid by an individual having taxable income up to Rs. 1,500,000. This deduction of educational expenses from salary is restricted to the lower of 25% of taxable income or 5% of total tuition or No. of children x Rs. 60,000 and
• Zakat paid strictly in accordance with the conditions and manner of applicable Zakat and Usher Act(s).

Ans. 5. Section 12 of the Income Tax Ordinance 2001 defines salary as under:

“Salary means any amount received by an employee from any employment, whether of a revenue or capital nature, including:

(a) any pay, wages or other remuneration provided to an employee, including leave pay, payment in lieu of leave, overtime payment, bonus, commission, fees, gratuity or work condition supplements (such as for unpleasant or dangerous working conditions)
(b) any perquisite, whether convertible to money or not;

(c) the amount of any allowance provided by an employer to an employee including a cost of living, subsistence, rent, utilities, education, entertainment or travel allowance, but shall not include any allowance solely expended in the performance of the employee’s duties of employment;

Explanation. – For removal of doubt, it is clarified that the allowance solely expended in the performance of employee’s duty does not include –

• allowance which is paid in monthly salary on fixed basis or percentage of salary; or
• allowance which is not wholly, exclusively, necessarily or actually spent on behalf of the employer;”;

(d) the amount of any expenditure incurred by an employee that is paid or reimbursed by the employer, other than expenditure incurred on behalf of the employer in the performance of the employee’s duties of employment;
(e) the amount of any profits in lieu of, or in addition to, salary or wages, including any amount received:

(i) as consideration for a person’s agreement to enter into an employment relationship;

(ii) as consideration for an employee’s agreement to any conditions of employment or any changes to the employee’s conditions of employment;

(iii) on termination of employment, whether paid voluntarily or under an agreement, including any compensation for redundancy or loss of employment and golden handshake payments;

(iv) from a provident or other fund, to the extent to which the amount is not a repayment of contributions made by the employee to the fund in respect of which the employee was not entitled to a deduction; and

(v) as consideration for an employee’s agreement to a restrictive covenant in respect of any past, present or prospective employment;

(f) any pension or annuity, or any supplement to a pension or annuity; and

(g) any amount chargeable to tax as “Salary” under section 14.

Where an employer agrees to pay the tax chargeable on an employee’s salary, the amount of the employee’s income chargeable under the head “Salary” shall be grossed up by the amount of tax payable by the employer.

Ans. 6. If an individual earns income from more than one heads of income, salary tax rat shall be applicable when at least 75% of the total income is from salary.

Ans. 7. Every allowance received by any employee during the course of his employment in any tax year has unique treatment and here we shall cover most of the important allowances, perquisites and benefits individually.

Ans. 8. Interest or profit or share in rent on debt paid on loans obtained for house purchase or construction are not available as deduction from income from salary from tax year 2022 on wards.

Ans. 9. to answer this FAQs on Taxation of Salary Income, we first, need to understand that when employee shall be returning loan, the question of taxability of loan itself does not arise. However, interest or profit on loans or interest-free loans are dealt under the provisions of the Income Tax Ordinance 2001.

• Nothing will be added to salary income where the amount of loan is up to Rs.1,000,000
• Moreover, if an employee maintain accounts with employer waives interest on his account

In cases where no interest or interest lower than the benchmark rate is charged to the employee, the differential amount of interest shall be added to salary income of the employee. Current benchmark is 10%.

Any loan waived-off by the employer, in a tax year shall be included in the taxable income of the employee for that tax year.

Ans. 10. Leave encashments have no exemption and are fully taxable under the head salary. Leave fare assistance is also taxable under the Income Tax Ordinance 2001.

Ans. 11. This is false conception. Accommodation provided by employer to the employee is taxable to the extent that 45% of basic salary or FMV, whichever is higher, to be included in salary income whether the accommodation is furnished or not.

Ans. 12.Full Time teacher/researcher allowance is given in 2^nd Schedule Part -III. Tax payable in salary shall be reduced by 25% if following the individual is Full time teacher/researcher working in  non-profit education/research institution, duly recognized by Higher Education Commission (HEC), Board of Education, University recognized by HEC, Including in any Government training/research institute.

Ans. 13. This is termed as Self Hiring of Property and sub-section 5 of section 15 of the Income Tax Ordinance 2001 and Rule 4 of Income Tax Rule 2006 stipulates as:

• Rent received by the employee shall be treated as “Income from Property”.
• Accommodation provided by the employer to the employee shall be a perquisite and treated as described in value of accommodation described above.

Ans. 14.   Electric, gas, water charges i.e., utilities paid by employer is to be included in the salary income of the employee. Similarly, if employer pays salary of any servants of employee, like drivers, Gardner, other staff etc. that shall also be included in the taxable salary income of the employee.

Ans. 15. Where the person does not continue to work for the same employer or an associate of the employer the pension is fully exempt. Where person is earning more than one pensions from more than one source, the pension representing the highest amount would be exempt, balance taxable.

Ans. 16. No exemption is available for such allowances and house rent and conveyance allowances has to be added to the taxable salary income of the employee.

Ans. 17.   Yes, this is the most often question salary taxation and conveyance treatment. Here is the treatment of taxation of conveyance with respect to salary prescribed in summed up in table below:

*Conveyance allowance received in cash is fully Taxable under the taxation of head of income salary.

Ans. 18. Tax paid by the employer is fully taxable by grossing up the salary of the employee.

Ans. 19.  Tax credit available for investment in shares and Sukuks issued by listed companies has been withdrawn from the tax year 2023 i.e., financial year starting from July 1^st 2022 ending June 30^th 2023.

Ans. 20.  Such tax credits on life and health insurance premium have been withdrawn from the tax year 2023 i.e., financial year starting from July 1^st 2022 ending June 30^th 2023.

Ans. 21.  Donations to approved charitable institutions like:
(i) Federal or provincial education board or university in Pakistan
(ii) Federal, provincial or local govt. educational institution, hospital or relief fund
(iii) NPOs and
(iv) entities, organizations or any person eligible for tax credit under section 100C of the Income Tax Ordinance 2001 and “(d) entities, organizations and funds mentioned in the Thirteenth Schedule, subject to tax credit with restrictions. Presently donations are restricted to lower of amount of donation or the fair value of property or 30% of total taxable income.

Ans. 22. Yes; tax credit is allowed on voluntary contribution to pension funds. Tax credit shall be allowable only on lower of 25% of the taxable income or amount contributed.

Ans. 23. The amount of a person’s tax credit allowed for a tax year shall be computed according to the following formula, namely:

(A/B) x C
Where:
A is the amount of tax assessed to the person for the tax year before allowance of any tax credit under this Part;
B is the person’s taxable income for the tax year; and
C is the lesser of:
a) the total amount of the person’s donations, including the FMV of any property given; or
b) where the person is an individual or association of persons, thirty per cent of the taxable income of the person for the year;

Ans. 24. Rates of tax on salary income for the financial year (i.e., Salary rates for the tax year 2022) from July 1st 2021 to June 30th 2022 are as under:

Taxable income Rate of tax
Up to PKR 600,000 0%

However, New rates of tax on salary income for the tax year 2023 (i.e., financial year starting from July 1st 2022 to ending on June 30th 2023) shall be as under:

Ans. 25. Yes; you can calculate tax on salary income by yourself and submit the income tax return as well, but it is always advised to consult specialized tax advisors who can plan your tax and add lot of value to you against very reasonable fee.

Ans. 26. Here we have outlined a case study of a doctor, who can calculate his tax on salary income, prepare tax computations and submit online tax return at federal board of revenue IRIS portal.

Dr. Asifa Aamir is a Senior Registrar Surgery at a tertiary care hospital in Lahore. She received a basic Salary of Rs 1,00,000 per month, house rent allowance of Rs 30,000, special allowance of Rs 15,000 per month and non-practicing allowance of Rs. 5000 per month. Hospital has deducted. Hospital has deducted Rs. 56,000 tax out of her total salary for the whole year.

How to work out the tax on salary of a Dr. Asifa Aamir.

Ans. 27. Ans. Every person can file income tax return by logging in to FBR Iris login. This “Iris” is online portal where Income Tax Return is filed electronically. Every person is required to first register itself at iris portal to file income tax return. Income tax return can be file electronically by logging into IRIS login details.

Ans. 28. Salaried individual earning salary of Rs. 600,000 annually or above. AOP or business individual earning income of Rs. 400,000 annually and every company is required to file his income tax return in Pakistan.

Ans. 29. Yes: FBR has launched a mobile app in the name of “Tax Asaan App”. It is available on both play store and i-store.

Ans. 30. Last date or due date for filing of annual income tax return for individuals and association of persons, including salaried individuals, for the financial year from July 1st 2021 to June 30th 2022 also called tax year 2022 is 30th September 2022.

Ans. 31. Here are various scenarios of employee share schemes and the amounts to be included in salary income for tax purposes:
• If it’s just a value of right or option, nothing shall be added to the taxable income till the right or option is disposed of or shares are acquired;
• When right or option is disposed off the amount to be added to salary income shall be the difference of consideration for right/ option and any cost incurred to acquire the right or option;
• When shares are finally acquired the amount to be added to the salary income shall be the difference of fair value of shares and any sum paid for acquisition of shares:
• When there are certain restrictions in place on transfer of shares acquired the amount is taxable at the earlier of acquisition of transfer rights or at the time of actual disposal of shares.

Ans. 32. Dead line for filing of annual income tax return for individuals and association of persons is 30th September 2022

Ans. 33. You can login to FBR to file your return through link:
https://iris.fbr.gov.pk/public/txplogin.xhtml

Ans. 34. Federal Board of Revenue FBR has figures suggest that total of over 2,500,000 people have submitted / filed income tax returns

Ans. 35. How to check Active Taxpayer status ATL by SMS Type “ATL (space) 7 digits National Tax Number (NTN)” and send to 9966. Check AJ&K Active Taxpayer status by SMS through the following procedure: For Individual, type AJKATL (space) CNIC (without dashes). Send it to 9966.

Ans. 36. https://e.fbr.gov.pk/esbn/Verification#

Ans. 37. Taxpayers appearing on active tax payers’ list i.e., ATL are only required to pay half of withholding tax in comparison to the tax paid by the non-filers. A person no appearing on active tax payer list i.e., non-filer cannot own a property worth over PKR 50 lakh whereas people who regularly file tax returns can purchase any property.

Ans. 38. Association of person i.e., partnerships etc. and companies are few of the important source of income tax and the corporate income tax, contributing about 92 percent in direct taxes.

Ans. 39. To know little while computing tax on salary income we might need to know the answer to above FAQs on Taxation of Salary Income that Direct and indirect taxes are the two broad categories of taxes. Income tax under the Income Tax Ordinance 2001 is regarded as direct and Sales tax on goods under the Sales Tax Act 1998

Ans. 40. Electronic filing system in Pakistan is one the best systems of the world. Procedure to e-file ITR is quick, easy, and can be completed from the comfort of an individual’s home or office. Both Wizard view for common people and normal view for professionals is available at FBR iris portal. Self E-filing ITR can also help in saving money as you would not have to hire an individual to file ITR. Simultaneously you need to be watchful on saving pennies to skip any major credit or inadvertence therein. In nutshell it is advised to consult some professional in tax field to file the income tax return. One a major factor why you should hire a professional tax expert that it’s not only about filing electronic return of your business rather it’s about your wealth planning, where he can add you a lot of value.

Ans 41. The first step of filing your Income Tax Return is to register yourself with Federal Board of Revenue (FBR). Then submit your income tax return for each year regularly to stay on the ATL.Ans 41. The first step of filing your Income Tax Return is to register yourself with Federal Board of Revenue (FBR). Then submit your income tax return for each year regularly to stay on the ATL.