Professional Documents
Culture Documents
Salary: Income
Salary: Income
SALARY INCOME
In order to .ender an incomo chargeable under the head "Sala4/ the relationship of tne
enployee ard lho erDplrysr must xist bstwen the payer and th6 paye. The employer
may the cuftent, lormer or prospgclive.
EMPLOYMENT is the rendering ot seMcea by an employo against the remuneratjon
receivable lrom the employer. lt includos: [2(22)]
A direclorship or any olher otlico involvd in the management of a company;
A posilion which entitles its holder to a lix6d or asciainabl remuneralion; or
1.
2.
3.
S^LARY [12(2)
Salary is a reward or recompnse lor ssrvices pgdormed. In a more limited sense, a fixod
perlodical clmpensalion paid by an mployer tor the services randered by an emolovee
|s
lermod as salary. For the purpose of Income Tax, "Salan/ means any a;ount received by
qn dnploye from any employrnent. lt includ6 anla
'1. Pa)i
Wages;
2.
4.
7.
&.
10.
12.
13.
2.
4.
6.
Leave pay:
Overtime;
Bonus;
Gratuity;
Work conditions supptements (i.e., additional pay for unpleasant o, dangrous work)
Fees;
Commis8ion;
Allowances;
Perquisits;
Prolit in lieu ol dr in addition to the salary or wageg; and
Any other bnolit providd by the employg. to his empbyes.
9.
11.
PEROUTSTTES
[r3]
or othgr
Incldonlal prolito or benefits aflaching to an offica or pNition". Under thg lncome Tax Law
"Dorou19lis" includes:
1.
2,
3.
Any paymgnt by the smployef for the benslit of lh mployes, his spou9g or
depgndenl child. such as:
i)
Payment ot life insu.ancg, and
Paynont towards a contract ot annulty,
.
ll)
SJnopsit of Taxes
2.
3-
15-t r31
lncomes to which section 153 applios (i.e., supply ol goods, rendering ol sorvices or
excutaon of conaacb).
The Finance Act, 2007 inhoduced a new concpl of 'Group Taxalon'. Undgr this concept the
holding and subsidjary companies may opl lo be taxed as one fiscal unit. Provisions in this rcgard
ar sumrnadzed below:
1.
2.
3.
4.
5.
Holding companies and subsidiary companies of hundrsd per cent (100%) owned group
may opt lo b taxed as one fiscal unit.
The group as a whole besides consolidated group accounts (as are requirgd undr the
Companiss Ordinanco, 1984) shall makg computration ol income and tax payable.
The companies in the group shallgive irevocable option forlaxation as one fiscalunit.
The group taxation shall ba restrictod lo only such companies which ar locally
incoeorated und6rtheCompaniesOdinance, 1984.
Losses prior to fomation ol the group shall not bg ntitled to any reliel und6r group
laxalion,
6.
The option of group taxation shall be availabl to those group companies which comply
with the corporat governance requiremnts specified by the SECP and ar dsignated
as companies entitled to availgroup taxation.
Note: Federal Government has, so far, noi notified the Tax Bates and ils payrnent mod.
MINIMUM TAX ON LANO DEVELOPERS [1138]
Businsss income ol a land doJeloper from develophent and sal (incftding booking) ol
residsntial, commorcial and other plots shall bs subjecl lo minimum lax at the raies spcitiod
by ths Federal Govemment who shallalso spcifythe mode, manner and time of paymont of
sucn tau.
so lar, not nolitied tho Tax Bates and its payment mode.
Sl*ptb
4.
5.
6.
7.
Xf*"t
t^""^.
"*ARy
2.
0.
4.
5.
6.
7.
retalaonship;
fLy
any
SALARY INCOME
The lollowing incomes are chargeabl to tax undr the
hsad .salary":
1.
ii)
2.
anO
3,
i)
ii)
Erample:6.'l
Ahsan is an employee ol a company and draws an annualsalary of Rs. 750,000. As per
terms ol employmeill his employer has undertaken to pay the amounl of tax on his salary
income. Computo his tax liabilittlor the year assuming that he is liable to pay tax @ l0% ol
his taxable incom6.
N4r.
Answet:
received
Tax paid bythe Employer
Tolaltaxable salari incomo
Salary
Add:
(Rs.75O,OOO @
Rs. 750,000
1O%)
:Z!.000
825!000
Tax compulation
Totaltax liability lor tho year (RS.825,OOO @ 10%)
L6ss: Tax already'' paid (by thd employer on behatf of Mr Ahsan)
Nettax payable
Nole: For the simplicity ot the calcutations a tat raie of 10olo has been applied.
82,500
7!.000
-71@
In order to
compute the actual tax liabilily the rales specitied in ths First Schedule shall bo applied.
Example: 6.2 Compule the exact lax liability ol Mr. Ahsan under the Incoms Tax Ordinance,
200t by using the information ol Example 6 1
Angwer:
Rs. 750,000
Salary received
Add: Tax paid bythe Employer on Rs.750,000
Total taxablg salary income
17.500
702500
Tax computation
75O,OOO
10%
employr
payable
Tax on Rs.
Taxon Rs, 17,500 @
Loss: Tax paid by the
Not tax
17,500
1.750
19'2sO
17.500
1.?50
1.
lt may be included in total incoms ol tho smploye lor thg tax year in which it
recetvoo: oa
is
Slnopsit
2.
olTaxes
lncome
[6-117l
lt may be taxed as a sepaials block. The rate of tax applicable to such amount shall
be computed in accordanco with the lollowing tormula:
AIBAO
Whre:
lar.ble lncome
is tho employee's lotal laxable incom for the thre preceding lax years.
Note: In lhe abovs tormula total laxable income has besn useo, which depicts that while
compuling th6 applicabl6 tax rate, income ot the employee lrom all sources taxable
under NTR shall be taken into account.
ExamDle: 6.3
Mr. Hanif has a taxabls salary incoms ol Bs. 750,000 during the tax ysar. Al the end of lhe
ygar he opted to rslire unds a scheme announcd by .his employer and receivsd
Rs.2,500,000 as a golden handshake paymenl. Ths taxablo incomes and tax liabililiss of
Mr. Hanil lor lhe three immediately prceding tax yars wgre as blow:
Yeat
Tlxable income
1.
Bs. 500,000
600,000
700,000
2.
3.
Tax Llablliry
8s.5,000
10,000
15,000
Computs the tax liability tor lh currEnl tax year assuming that he optd that:
Tho golden handshake payment be taxod as a soparate block; and
The golden handshake pdyment be taxed togethEr with salary income.
1.
2.
Answer:
1,
aNicable
Year
1.
2.
3.
Total:
Tar Llability
Taxable lncome
Bs. 500,000
600,000
700.000
.L800l)00
Rs.
5,000
10,000
15.000
30-000
+ Taxablg income ol
1,800,000 X 100
1.67"h
last 3
yea.s X 100
Rs.750,000
2.500.000
3.250.000
17,500
41.750
59.250
ofTaxes
S)nopsir
2.
hrcome Tax
SaLlry
Income
t6-ltgl
Liabitv
liabitaty
362,500
56.250
4XtZ50
is lesser in a case where lho gotden handahake paymenr |s
t-he same.
1.
2.
3.
This rceipl has be6n included in the total incom forthe yoar in
which il is received: and
Example: 6.4
satary income o' Rs. 70,ooo per monrh. Durins rhe rax year
lllfl*:.:"^ol:y"9l-laxabt
zrruA
ne was pao a satary for 10 months. The sarary lor remaining
2 monihs was paro
alongwilh tho satary_ot th6 tax year 2008. Delermine the amount of tair"frnJ
oi U" p"yaor"
ror ne tax vsar 2008.
Answer
o@
N-l
Total Incohe
For Tax y6ar 2004
For Tax year 2OOB
N-2
Rs. 70,000 x 10
Rs. 70,000 x 14
700,000
980,000
Tax Li.billty
Tax Year 2004
Tax on Rs. 400,000
Ta( on balance ot Rs.
3OO,OOO @
5%)
15.000
15J00
Stnopsis
ofTar?t
l6-ll9t
17,500
23.000
Tai
!{1500
840,000
17,500
9.000
26.500
840,000
17,500
9.000
26.500
Stee3
Tax paid (i.e., withheld and deposited by employer)
(Rs. 15,090 + 40,500) -as per step-l
55,500
53.000
2.500
Altemate Trealment
It is p.osumed in ths abovg calculations that the employ. has deducted lax at source
while
mak,ng payment ol salary. As lhe tax dducted has already been depositd in rne
Uovernment treasury, so the retund is determined. lt may happen lhat lhg emplover has not
deducted lhe tax al source. Undr such a situation the tax tiabitjty tor tax year'2068
shatt Oe
detormined as below.
Total lax liabilityior both years on accruat basis (Rs. 26,500 + 26,500)
Less: Tax paid lof the tax year 200A (by employee on cash basis)
Tax payable for tax Vear 2O0B
Rs.53,000
15.000
38.000
002 discuss
F3(5)l
"liL.iT9ii
1,
2.
3.
4.
Bonus
Commission
20,000
30,000
The Employer ol Mr. Raza has atso provided the se.vjc6s of a drivar and a housekeeper.
Srnopsh of Tarcs
Income Tax
Salary In.ome
t6- r20l
Ths Co.pofation paid Rs. 4,000 p.m. to each ol these eniployees. Compule the laxable
incomo and tax liohility of Mr. Raza.
Anawer:
Taxable lncome
Fs.
240,000
Basic salary
Deamgss allowance
Cost ol living allowance
Bonua
Commission
Salaries of domostic ssrvanls:
Driver
18,000
24,000
20,000
30,000
=
=
(Rs.4,000 x 12)
Housekeeper (Rs.4,000x
12],
Taxablg Income
48,000
48.000
96.000
428-000
1.400
1-400
IlX
i)
ii)
iii)
iv)
Electricity;
Gas:
Wator; and
Telephone.
in cash. Under both thg cases any benefit provided by an employer to an smployee on
account ol ulililies shall be taxable and included in salary income of th employ.
Erample: 6.6
Furlh6r assume to the example 6.5 thal during lh year lollowing domostic bills of Mr. Raza
wero also paid by his employr:
1.
2.
3.
4.
Telephone
Water
Elechicity
r2,000
6,000
9,600
4.800
Gas
N,,lr.
32.400
Raza.
Anawgt:
Taxade hcome
Incomo as determined in Example 6.5
Add taxable utilities:
428,000
t6-r2ll
a)
b)
c)
d)
Telephone
Water
12,000
6,000
Electricity
Gas
9,600
4,800
Taxable income
32.400
460t00
Tax Lhbility
0
3.020
Lo20
a)
b)
2.
2OO2 (r.e..
For the lax years ne)d following tho tax year relerred atlove, the ratg lor gach
succes-stv year taken at one percent (l%) above ihe rate applicable
,or the
tmmotatety precedtng tiax year but not exceeding 10% por annum.
For tax
yelr 2013
Erample: 6.7
Take anorher assumption atongwith the dala ol examplg 6.6, i.e,, Mr.
Raza obtainod a toan
or its bw,uuu rrom hts mptoyer on lhe tirst day ol tax yar, which
romaingd unpaid till end
or ue yoar. Uompute taxable income and ta( liability in
each of the tollowing gitu;lrons:
The loan was interest-freo;
1.
2.
3.
Anawer:
1. lntereat-Free Loan
Incom aS delermined in Exafirie 6.6
Add: Taxable bengfit on account of inlgrest-frge loan
amount x Benchmark Rate (Rs. 600,000 x 106/.)
-'Loan
I axaolo tnmm6
460,400
_9!00q
520410
Sltropsis of Tares
16-t22t
2.
0
6.020
_6-020
10%)
8%)
460,400
60,000
12.000
{48.000)
472,400
3.
3.620
,3620
Taxable Incomg
Tolal tax lor tho year (as computd in example 6.6)
46tu40
3-020
lmportanl Note:
The Finance Act,2010, inserted a proviso lo sub-soclion (7) ol seciion '13 which is
roproduced below:
"Provided lhat this sub-section shall nol apply to such benefit arising to an
employs due to waiver of intergst by such employe on his accoont with lh
employsr."
'Note on Clauses" ol the Finance Aci,2010, issued by FBR at the time ol presentation of
Finance Bill, 2010 on this pfoviso describes as blow:
"This amendmant seeks to provide exmption to the benotit arising to an
employee due to the waiver ot his fight ot intrest.'
From the combined study of the proviso and its explanation given by FBR it may bo
conslrued lhal any notional benelit arising lo an employee due to waivor ol his right of
interest on his account with the employer shall be exempt kom lax.
LOAN FROM EMPLOYER USED FOR ACOU|S|TTON OF AN ASSET I13(8)l
Where an employoe has utilized a loan obl,ainod from his employer for lhe acquisition of any
asset or property lhe income of which is chargabls to tax undr any head ol income thon the
arnount of intresl on such loan (whther paid to lhe employe. or / and treatd as pequisitg) shall
be allowed as doduction against incomg lrom such asset. The arnount to bs allowed as doduclion
shall be determined as blow:
1.
Srnopsii
olTotes
a)
Incone
16_1231
b)
2.
Inco,neTar. Sabry
Er6mple: 6.0
fflil#.#i"fl1';ffi"1"i?fi,1'll':s.-t'"
iri._6rjooobi,iilffi ill,iri,::l]::Lr,re,
"r
Rohan rentsd out the
r"""
119lll
flli:llil:":""*tJ:*t 'n
1. The loan_kom employea
"".o,nr
"r
is interesl-rreo;
5 it33il3i3fi[i:t3:'itE:::l:tli:i::il??]i;*,
Answer;
Intorest
- No
Inrorest
@ A.h
200,000 2oo,ooo
Interest
OlS%
AnnualBenl
2oo,ooo
Less Allowable Deductions:
Repairs [N-11
l-- fi760 fT4.Ioo
T--Td-rnd
hlerest on toan from Emptoyer
[N.21
toratoeouclions
Taxabls income trom other sources
Notes:
t. While computrng lhe laxable incomo kom olhers sourcos
a deduclion on account ol
repars ot the machinery is allowd.
##ffi
I
'
at rhe
oBLtcATtoN OF AN
E""ao"aa ,^o
;;
TRANSFER oF
r"E
EMPLOYER tl3(10)l
or an oblisation ot the emplovee
,i-J;il;f"i:.::ionaccounl
n lhe satary income ot the emprovee
pRopa"r, o"
"r
carcurared as ber6w
sERVtcEs
ro E
shariudi"J-,iriii'ii""l"!i"#3?,iffi"t;$:
PLOYEE n 3(11)l
"'orov,
the amounr
xxx
(Xxx)
XXX
XXX
(XXX)
XXX
Example: 6.9
tax liability of
Usinq the data avatlable in gxampla 6.6, Computg the taxablg income and
Mr.R-aza, il the lollowing additional informalion is also providod'
1.
2.
The employer has waived ol a loan ol Rs.20'000 recivable fiom lvlr' Raza'
lnsurance premium of Mr. Raza amounting to Rs. 12,000 has boen paid by his
employer; and
3.
A car with fair ma*et valle ol Rs.4OO'OOO has been transferred to Mr' Raza against
Fls.300,000
Anawer
Total Income as dotermined in Exampls 6.6
Add: The value ot bone{its provided to Raza
Waiver of an amount payable by Raza
Insurance premium ol Raza paid by his employer
Fair market value ol tho
1.
2.
3.
car
Baza
460,400
20,000
12,000
400'000
(399BAg)
100.000
Taxabls income
132.000
592^4@
Tat Liability
Tax on Rs.400,000
Tax on bafanco oi Rs. 192,400 @ 51o
Total tax for the Year
9.620
9-620
1.
2.
3.
The truste ot a trust. Under such a silualion, the trustee may transfer lho shares to
the gmployee ol the company or an employeo of an associated company'
Wher6
it
provides
bengfit
to
its
1.
2.
Slnopsh of Tat.s
16-t251
the company may recsive some amount in addilion to the considgration rscsivod
agaanst the shares.
3.
issue
shares
any
"Salaq/
Less:
XXX
XXX
XXX
(xIX)
XXX
Er.mple: 6.10
On 14n August 2OOA, Sindh Limitsd has issued a schem undsr which every employee ol
the company as ontitled to acquire 2,000 ordinary shares ol lhs company. Considering the
following inlormalion, compute lhe amounl to b6 included in "Salary income'ol Mr. Riaz who
is one ol the omployees ol thg company:
Face valu6 of each share
Value of the right
Price lo b paid to the companyfor each share
Markel value of lhe shars
Rs. 10
Rs. 4
Bs. 20
Rs. 35
Also determine ihe valug ol shares in the hands ol Mr Riaz assumino that:
Th company has nol chargsd any amount lor granting lhe right / option to purchase
shares; or
A)
B)
An employeo has to pay Rs. 2 por share as a pric for obtaining the right to purchase
shares
Answer:
Al
B\
income
20)
2)
70,000
(40.000)
30^000
70,000
40,000
4,000 g4pgql
26.0@
A)
40,000
30.000
za,lqa
Rs. 35
S)noptis of Tates
8l
t6- t261
come
40,000
4,000
26.000
70^000
Rs. 35
Notea:
i)
The face value of the shares has no concern with lhe amounl lo be determind
under the Income Tax Ordinanc- lt is the fair ma*et value and the price paid
ii)
4.
which
determins the amountto be included in income ol the employee.
Undg. both options, ths fair market value ol the shares shall be the total cost ol
the shares acquired by an employo.
Whe.e the shares afe issuod with a restriction on iheir transfer thgn no amount shall
be included in an employs's incomo until the earlier ol the date when he has a lree
righl to lransfer the shares or the employeE has actually disposed ot the shares. Under
such a case the amount to be included shall be determinod as below:
Fair market valu6 at time the employeo has free right to transfer or has
actually disposed ol tho shares
Lss: Considemtion given lor shares
XXX
Amount paid for right or option, il any
Amount chargeablg to tax
XXX
XXX
Exrmple:
XXX
6.11
using tho data ol example 6.10, compute th amount to bs included in salary incomo ol
Mr. Riaz if the company has imposed a restriction that the employees will not be entitlod to
dispose ol the shares wilhin one year of ihe issue ol shares, i.o. l4rn August, 2OOB.
Th6 fair ma*et valu on 14-08-2008 is Rs. 37 pr share.
Angwr:
Al
Bl
Less:
74,000
40.000
34-000
74,000
4,000
40.000
44.000
30-000
EEmpl.:6.12
Assume that Mr Ftiaz, with the psrmission ol thg company, disposod ol tho shares on 23d
March 2008, when the lair market prica was Rs.32 pgr Share. Compulo lhs amount lo bo
lrcludgd In salary income of Mr. Riaz by using the data ol Examplg 6.10.
SJnogrit
olTat
Income
Tdr.
Salary
Incorn.
16_1271
Angweri
A)
B)
64,000
40.000
2)
Rs.2O)
z-000
64,000
4,OOO
+O.dOO
i)
[)
tlt)
6.
Bs. 32)
x Rs. 20)
Less:
_ .
5,
(2,OOO x
(2,OOO
44.000
20000
following
XXX
Amounl chargoablo to tax under ths h6ad salary (as dotmineal abov),
XXX
xxx
Wher6 an employee, instead of obtaining shares against a ,ight or option,
disDoses o, th6
righl, then an amount calcutated as betoi shal be iicl,rO"a in-nis
Consideration recoived against disposat ol thg right
L6SS| Any cost incurred in respect of lhe righl
""firvinio=,"5i---
XXX
XXX
XXX
Etample:6.13
i i"i"n*"i
'l2.
Answer:
1.
2.
8,000
Nil
8.000
8,000
4.000
4-000
VALUATION OF ACCOMMODATTON
[ts(12) & Rute4]
Wher an.employer has provided an accommodalion to hig omployeo,
lh valuE of guch
accornmodation Ehall be th6 amount that woutd havo ben p8l;
fiy fire empfoyee if lhe
accommodatlon was not provlded to him. This amount sha
be inctuded in tt .'"l"iv in"or"
ol tho emDlovse.
"
S!flopsL\ of
Tarcs
Incone Tat
'
Solary
Income
16'128)
l.
2,
uifo*"n""
1.
2.
SELF.HIRING OF A PROPERTY
(ie,.house' llat or
Whers an employee or his spouse is lhe owner ot any such building
provloeo me same
has
the
and
mployor
gven
on rent lo the employer
aoartmont) that ia
then il will
rent-fre
accommodation'
lor
a
his
entitlement
aqainst
oiirolno rd t'"
below
"rnplov"e
is
discussed
The
same
Tax
Law
lncome
the
hav do-lold etleit u;der
'1.
Propedy Income
Receipt ol rent ot building is chargable to lax under ths head- "lncome lrom
eroperty'. nny rent receiv;d by the mployee or his spouss shall be a property
income of ihe recipient and be treatd accordingly.
Salary Income
The building is provided by ths mployer to his employee as a. renl-lree
accommodaiion. li will b a perquisite and will b included in tho 'salary income'ol
the employee as per Income Tax Rules
2.
Partly for private uso of 5% ol lh cost to ihe omployer for acquiring the motor
the employee and Padly vehicle or ths fair markl value ot th vehicle al lhe
lor otficial use.
Not.:
tm "omployse" inclldes
SJnopsir
olTates
IGr29l
EXEMPTIONS
Exemptions kom tax and tax concessions or rgbatss in tax liability avaitable to a sahried
taxpayer are spcifiqd in va ous seclions ol thE Income Tax Ordinance aa woll as ill lhe
Second Schedulo. All rElvanl legal provisions are discussed in the chaptea "Exemptions
and Concssions'. For details, the reader may relerthe relovanl parl ot thal chapler.
R!.
XXX
XXX
XXX
XXX
XXX
XXX
Deamess allowance
Cosl ol living allowance (COLA)
Rs.
Commission
XXX
XXX
XXX
XXX
Telephon6
xxx
Gas
Compensatory allowance
Less: Exempt
xxx
xxx
XXX
XXX
XXX
xxx
XXX
XXX
XXX
xxx
xxx
XXX
0l
XXX
xxx
xxx
[N{l
XXX
XXX
Slnoptii otTaxes
Entrlainment
allowancg
16- r301
XXX
purposes
XXx
tund
'
treahnt
f(lnd
Exompt
Any olhor case
Less:
Bs.
XXX
XXX
XXX
etc.
Tobl
tlxlbl...lrry
incom.
?@,9@
XXX
XXX
XXX
XXX
XXX
exempt
[N-81
galary
exempt
Board
xxx
received)Xxx
Schomo
XXX
XXX
XXX
XXX
III
NOTES:
N-l
N-2
Theso amounts may bo included in the salary income lor tho tax yea. in whlch it lE
rccoaved or inay be treatod as a separats block and charged to lax al lhg Everago
rale tax based on lhreo immsdiately prceding tax yar8,
N.9 -whlch
Al tho option ol the taxpayor salary in arraar may b Includod in the tax yaar In
ll lg rgcoived or in lh tax year in which serv,ces wor6 renderad,
Slnopsis
ofTaxes
N-4
An amount equal to benchmark rate (i.., t0e/5 p.a.) shall be treatd aa Income.
Whre lhe interesl chargsd by the mploysr is lessEr than the bsrrhma* rat, the
differenca shall bs trsatsd as incom, Further. this bnefit wlll b taxablo It ihe ban
16l3ll
N-5
N-6
1+7
"Slhry" for
f|
deamaas allowanco.
N.E
N-e
Only the employr's contrlbuiion and Interest theron 8hall b3 laxable In tho yeaf ol
recgtpl,
N.10
N-11
'
18
Synopsi ol Tates
t7 -r321
CHAPTER-7
PROVIDENT FUND
DEFINITION
The provident fund is a Jund created by an employor tor the luturs welfare and benefits ol his
omployees. lJnder this scheme a certain percehlage of an smployee's salary is deducled
every monlh. Generally, lhe employei also contribules an equalamount. Contributjon of both
lhe employer and lho employee is handed over lo a fund known as Providont Fund. Th
amount
is invested in
lhe investment
is
proporlionalely credited lo the employees' accolnls. Upon retirgment lotal amount standing
to the credit ol an employee is paid to him. Thglinal payment ropresents the followings
1.
2.
3.
Flecognized provident tund means a provdenl fund, which has been recognized by the
Commissioner ol Incomo Tax in accordance wilh the rules, contained in Part-l ol the Sixth
Schedule.
RECOGNITION OF THE PROVIDENT FUNO
lRule 1 ol the Sixth Schedule & Bulo 91 ol the Income Tax Rules, 2002]
'Recognition
1.
2.
lt lhe accounts are kept oulside Pakislan, in which the local head quariers of the
employer ar situated.
The application lor recognilion ol the provident tund shall bo made by the emp|oyer
mainlaining lhe tund, sought to be rocognazed.
The application shall conlain the following informalion and be accompanied by the tollowing
oocumenls:
Name and particulars ol thg gmployer togther wilh ihe nature of the business and
pincipal place ol the business.
1.
2.
i)
ii)
3.
In Pakistan: and
Outside Pakistan.
The address ol the place where the accounts of lhe lund are being kept or shall be
kept.
Slnopsis
4
5
6.
7.
olTaxes
Incone
Tax
- pmviden!
Fund
I7
-1331
iii, i"r[,iiig",
The^ C_ommissionor
2.
3.
i)
ii)
i)
ii)
Note:
reason,
6.
7.
d.
if
tha
or oner Lnavoiaaiii
sr{aoDsh
olTotes
Income Tot
I7 -t341
Provident Fund
be eltective from the last day ot ths month in which the applicalion is submitted. Upon a
roquest ol ths employsr, lhe concerned Tax Authority may specify ths last day ol any latr
month in lhe sams financlal yar as sllgctlvo dato of lhe rcognltion
APPEAL AGAINST NON.RECOGNITION OR WITHORAWAL OF RECOGNITION
lRule 12 ot tho 6th SchEdule and Bule 94 ol the Rulsl
An employsr oblectlng an ordor ol ths Commissioner may appeal to the Foderal Board ot
Rvsnue, The order may be regarding disallowing tho recognilion ot the provident fund or
withdrawing iho rcognition alrady accorded. The appeal may be lilsd by fuffilling the
following conditions:
1.
2.
The appeal shall be filed within sixty (60) days ol th orders. The Board may oxlond
the tiling period.
Tho appal shall be liled in the Form specilied in Rule 94 ol lho Incoms Tax Rulos,
2002.
3.
1OO
paymenl.
'
'
1.
2.
3.
Ths provisions relatng lo the taxability ol lhe contributions made by the employee and the
gmployer, credit ol intrsst and rc6ipt ot accumulated balance al the time ol lermination of
service are tabulated heraundr:
Evnl
Govemment PF
Recognized PF
lJnrecognized PF
Employe6's
C,onlribution.
No Treatmenl
No Treatment
No Treatment
Exempt
Employer's
Contribution.
No
t.eatment
al
lhis
at
this
stag9.
Intre9t
Creditod during
$e year.
Exsmpt
No
slage.
of
ireatment
Income
Paymenl
ol
Exempl
TaJr
- Proyi.Lnl FuNl
Exempt
t7,r351
Totally exmpt it th fund
formed under tho
is
Accumulaled
Balance.
the
employt's
contribulion and interesl
thereon is taxable in the
year of rcipl.
Noigai
1,
2,
Ther6 will bs no ta( trealment for tho employee,s contribuiion towards the providnt
fund as ho has contributed this amount out ol his salary which has akady b6en
includsd in thg taxablE income.
Rulo 3(b) of Part-l ol Sixth Schedule specifies that .intrest creditsd on the batanco
to th credit of an emptoyee in so lar as it exceeds one third ot the salarv of the
smployee or is allowod at a rale excseding such rato as may be fixed by tnE feOerat
Gove.nment in this behatf shall b6lrsated to have been recelveC by the omptoyeo in
that yoar and sia be included in thg total income lor that year and shall be ti;bb to
incomo tax'. (Notification No. SRO-1097(|)/84, dated 27-12-.t984 spocities the rate
as 16%.)
From tho paragraph quoted above it is nol clear that either the tower or ths hioher of
'll3rd ot salary or the amount catcutated
@ 16% be allowed as Exemption.
It is a gsnerally accepted rule that where a provision can be inlerurld in more than
one way, the interprolation thafiavours th taxpayor shall prevail.
The principle lhat the benofit of ambiguity shoutd be given to th taxpayr has ben
decided in various l6gal cases. Somebf the cases ardquoted bslow: '
i)
ii)
iii)
iv)
By applying the atove rul6, thg highr ol 1/3rd of salary of amount of inrrst
calculatod @ 1670 shajl b6 iaken as exempt to the taxpayer. The exceding amount,
it any, sha bo inctuded in lhe totiat income and chargedio tax in the year in which it
is crodited.
3.
ol
,sahrf
Sfn,'.tit
olTotat
[? -1361
Blhnc! !t lhe
th.
Date ol Wlthdrawal
Thal pa.l of the total accumulated balancs receivsd by an mployee which is equal
to lh balance at the nd ol the tinancial vear o.ior to the datE of withdrawal of
recognilion 6 taksn as tax free.
2.
.