Today we discuss “Salary Income Under Taxation in Pakistan”. Is your income that comes from the salary head? Do you want to know what is a tax on such income? then it is the right place where you have come. Here, we will discuss everything about salary income in Pakistan.
As per law, all following benefits if taken by employees engaged in employment are subject to taxable including Salary, overtime, bonus, cost of living allowance, any prerequisite convertible to money or not, rent, utilities education, entertainment, travel allowance, and other allowances, except any allowance spent solely on the training of employees in order to perform duties or expansion in duties of the employees. 10% Tax exemption as medical allowance is also applicable only on a basic salary of employees.
Employees can take benefit of the tax credit when voluntary contribution or subscription is made by employees as per sections 61 and 63 Charitable donations and contributions to an approved pension fund respectively with the followings:
- Any university established under provincial and federal Law.
- Any hospital or relief fund established or run in Pakistan by the Provincial and Federal Governments.
- Any non-profit organization is eligible as per criteria set under section 100C of the income tax ordinance 2001.
- A person who is eligible to derive income chargeable to tax under the head of the salary shall be entitled to a tax credit in a tax year if any contribution and premium are paid in an approved pension fund under the voluntary pension systems rules 2005.
The following chart is for the calculation of every individual whose income is derived in Pakistan under Salary section 149 with the rates mentioned in division I of part I of the first schedule in the income tax ordinance 2001. The computation of income tax is under the salary head and you can check on our Tax Calculator.
|Serial Number||Taxable Income||Rate of Tax|
|1.||Where the taxable income does not exceed Rs.600,000.||Rs. 0|
|2.||Where the taxable income exceeds Rs.600,000 but does not exceed Rs. 1,200,000.||2.5% of the amount exceeding Rs.600,000.|
|3.||Where the taxable income exceeds Rs.1,200,000 but does not exceed Rs. 2,400,000.||Rs.15,000 + 12.5% of the amount exceeding Rs.1,200,000.|
|4.||Where the taxable income exceeds Rs.2,400,000 but does not exceed Rs. 3,600,000.||Rs.165,000 + 20% of the amount exceeding Rs.2,400,000.|
|5.||Where the taxable income exceeds Rs.3,600,000 but does not exceed Rs. 6,000,000.||Rs.405,000 + 25% of the amount exceeding Rs.3,600,000.|
|6.||Where the taxable income exceeds Rs.6,000,000 but does not exceed Rs. 12,000,000.||Rs.1,005,000 + 32.5% of the amount exceeding Rs.6,000,000.|
|7.||Where the taxable income exceeds Rs. 12,000,000.||Rs.2,955,000 + 35% of the amount exceeding Rs.12,000,000.|
Let us the brief difference between withholding tax and chargeability that will clear your tax scenario of how a tax on salary is paid and reported in the annual return to the Federal Board of Revenue.
Withholding tax is a responsibility of employers/companies imposed by FBR as per section 149 with a title of an agent collecting and depositing tax money on behalf of FBR as per the above slab rates. Salaries will be paid to employees after withholding tax deduction as per the above slab and the same deposited into the Government treasury within 7 days right after salaries disbursement. Withholding tax calculation is based on overall annual salary income and deduction of income tax on it made on a monthly basis or shorter period when salary payment is made.
Chargeability refers to a charge on your overall income at year-end at the time of filling an annual income tax return and adjusting the full charge with an advance income tax that has already been deducted during the year by employers/ companies.
Withholding tax and chargeability amount under salary section 149 are usually the same and adjusted against each other at year-end and no tax liability under salary head is payable by salary individual or employee.
There are the following advance tax challan collections made in advance during a year that must be obtained by salary individuals for annual income tax returns.
- Advance income tax under Salary (Withholding tax)
- Advance Income tax internet and mobile bills.
- Advance income tax is collected at the time of the transfer of property. (Buying and Selling)
- Advance income tax on transactions via credit cards.
In Conclusion, as we discuss “Salary Income Under Taxation in Pakistan“. Income tax on salary income is as per the above slab tax deducted by the employer/companies held responsible by the FBR at the time of distributing salaries to employees, and the same amount is deposited into the government account.
Employees are responsible to report their income in their annual tax return every year, adjusting and claiming all tax deducted at source by employees/companies or any other source after collecting paid challans from the above sources where tax deductions are made.