CONTROL SHEET OF SALARY

Prepared by Sir Tariq Tunio – The Taxman (ARTT 0332-2130867)

Charge of tax on salary Any salary received by an employee in a tax year, other than
GENERAL
exempt, is chargeable to tax in that year under the head “Salary”
POINTS
Revenue/ capital nature Salary means any amount received by an employee from any
employment, whether of a revenue or capital nature
Basis of Charge Received basis
Receipt of income (a) actually received by the person;
(b) applied on behalf of the person, at the instruction of the person
or under any law; or
(c) made available to the person.
When is salary treated An amount or perquisite is treated as paid if it is paid or provided:
as paid? ▪ by employer, an associate of the employer, or by 3rd party under
an arrangement with employer or associate of the employer.
▪ to employee, or an associate of employee or 3rd party under an
agreement with employee or an associate of the employee.
▪ by past or prospective employer
Deductions ▪ No deductions are allowed for any expenditure

Pay, wages or other remuneration provided to an employee, leave pay,

CORE Fully Taxable
payment in lieu of leave, overtime payment, bonus, commission, fees,
AMOUNTS
work conditions supplement (such as unpleasant or dangerous working
conditions)

Fully Taxable
ALLOWNCES The amount of any allowance provided by an employer to an employee
including cost of living, subsistence, rent, utilities, education,
entertainment or travel allowance.
Note: any allowance solely expended in the performance of the
employee’s duties of employment is not included in employee’s Salary.
Exempt
Special allowance/ Benefit: Any special allowance or benefit (not being
entertainment or conveyance allowance) or other perquisite specially
granted to meet expenses wholly and necessarily incurred in the
performance of duties of an office or employment
Medical allowance: medical allowance received by an employee, if free Exempt upto
medical treatment or hospitalization or reimburse ent of medical 10% of basic
or hospitalization charges is not provided for in the terms of employment. salary

PERQUISITES Accommodation ▪ Amount that would have been paid if accommodation was not
provided (i.e. alternative amount)
▪ Minimum value to be taken at 45% of MTS/Basic Salary.
Conveyance ▪ Partial personal use:
5% of Cost of vehicle (owned case) or FMV of vehicle at the
time of commencement of lease (lease case).
▪ Full personal use:
10% of Cost of vehicle (owned) or FMV of vehicle at the time of
commencement of lease agreement (lease case).
Domestic servant Where services of house keeper, driver, gardener or other
domestic assistant are provided: Total salary paid to such servant
in the year for services rendered to employee as reduced by
payment made by employee to employer for such services.
Utilities FMV of the utilities provided reduced by payment made by
employee for the utilities.
Waiver/payment of Amount paid/waived by employer
employees obligation
Transfer of property FMV of property determined at the time of transfer, as reduced by
any payment made by employee for the property
 Services FMV of services provided by employer determined at the time
services are provided as reduced by payment made by employee
for the services
Concessional/Interest- ▪ Amount equal to bench mark rate (in case no interest is charged
free Loan by employer)
▪ Difference between interest charged by employer and the
interest computed at bench mark rate e.g. 10% (in case interest
is charged by employer)
▪ No amount is to be added to salary in following situations:
▪ If employer has charged interest ≥ bench mark rate.
▪ If employee has waived interest on his account
maintained by the employer.
▪ If loan amount does not exceed Rs. 1 million
Residual perquisites FMV of the perquisites determined at the time they are provided
(i.e. other perquisites by employer reduced by any payment made by employee to
not mentioned above) employer for the perquisite

Golden handshake ▪ Taxable in the year of receipt at current tax rates, or

SPECIAL
(or other amounts ▪ Taxable at the average rate of three preceding tax years
AMOUNTS
given on termination ▪ Option to be filed with CIR by the due date for filing of return of
of employment) the tax year in which salary in arrears is received.
Employee share ▪ Mere right or option is not taxable
scheme ▪ Benefit from mere right/option is taxable if it is disposed, as
follows: Consideration received –Cost= Gain
▪ Value of shares (Without Restriction): FMV of shares determined
at date of issue reduced by consideration given for the shares
and right/option by employee
▪ Value of shares (With Restriction): FMV of shares determined at
earlier of:
▪ time when employee has free right to transfer the shares
▪ time of disposal of shares
reduced by consideration given for the shares and right/option by
employee
Reimbursement of Taxable except when the expenditure was incurred in the
expenditure performance of duties of employment.
Profits Amount of any profit given to employee instead of salary or in
addition to salary is taxable.
Agreement to enter Amounts received as consideration for agreement to enter into
into employment employment are taxable
Agreement to Amounts received as consideration for conditions of employment
Conditions or changes thereof is taxable.
Restrictive covenant Amounts received as consideration for agreement to restrictive
covenant for past, present or prospective employment.
Salary in arrears ▪ Taxable in the year of receipt at current tax rates;
▪ Taxable at the tax rates of the relevant tax year if opted;
▪ Option to be filed with CIR by the due date for filing of return of
the tax year in which salary in arrears is received.
Tax on tax ▪ Amount of tax paid by employer is to be grossed up.

Pension ▪ Pension received by citizen of Pk from former employer is

RETIREMENT
exempt
BENEFITS
▪ Pension is not exempt if employee continues to work for same
employer or associate of employer
▪ More than one pensions: Only higher pension is exempt
Pension of Govt. ▪ Pension received by employees of Federal Govt., Provincial
Employees Govt., and armed forces, as well as their families and
dependants, is exempt.
 Provident Fund (1) Statutory Provident Fund (for Govt Employee)
▪ Employee’s & Employer’s annual contribution and Annual
accretion of Interest are not taxable
▪ Payment of accumulated balance Exempt
(2) Recognized Provident Fund
▪ Employee’s annual contribution is not taxable
▪ Employer’s annual contribution: Amount exceeding lower of
1/10th of basic salary & dearness allowance or Rs. 150,000 is
taxed on annual basis.
▪ Annual accretion of interest: Amount exceeding higher of 1/3 of
basic salary & dearness allowance or interest amount
calculated @ 16% of accumulated amount is taxed annually
▪ Payment of accumulated balance is exempt
(3) Unrecognized Provident Fund
▪ Employee’s & employer’s annual contribution and annual
accretion of interest are not taxable
▪ Payment of accumulated balance is fully taxable (except
repayment of employee’s own contribution)
Gratuity or ▪ Govt. employees: Exempt if received by employee of Govt
Commutation of (Federal,Provincial,Local), Statutory body, or Govt.
pension on corporations in accordance with rules & condition of
retirement employee’s service
▪ Approved Gratuity Fund: Fully exempt
▪ Approved Gratuity Scheme: Exempt upto Rs. 300,000/-
▪ Others: Lower of 50% of the amount or Rs. 75,000/- is exempt
(This exemption is not available if gratuity is (a) received
outside Pakistan, (b) received by a NR individual, (c) received
by an employee who has already received a gratuity previously
from same or any other employer, & (d) received by a director
who is not a regular employee of Co.)
Leave encashment ▪ Taxable
▪ Exempt for employees of Federal Govt., Provincial Govt., or
Armed Forces when it is received preparatory to retirement.

Free medical Benefit representing free medical treatment, hospitalization or

EXEMPTIONS
treatment, both, or reimbursement of medical charges/hospital charges or
hospitalization or both are provided by employer is exempt subject to following
both or conditions:
▪ benefit is provided in employee’s terms of employment
Reimbursement of ▪ National Tax Number (NTN) of the hospital or clinic is given &
medical /hospital ▪ employer certifies and attests the medical/ hospital bills
charges
Exemption for Food, following perquisites received by an employee are exempt:
Education, Medical ▪ free or subsidized food provided by hotels and restaurants to
treatments, etc. its employees during duty hours;
▪ free or subsidized education provided by an educational
institution to the children of its employees;
▪ free or subsidized medical treatment provided by a hospital or
a clinic to its employees; and
▪ any other perquisite or benefit for which the employer does not
have to bear any marginal cost, as notified by the Board.
foreign-source salary ▪ Foreign-source salary received by resident individual is exempt
if individual has paid foreign income tax in respect of the salary.
▪ Foreign inc tax is treated as paid if tax has been withheld from
salary by employer and paid to the revenue authority of foreign
country in which the employment was exercised.