SALARY (CONTROL SHEET) PREPARED BY SIR TARIQ TUNIO THE TAXMAN 2nd EDITION FOR MARCH 2023 ATTEMPT
2nd EDITION FOR MARCH 2023 ATTEMPT ONLY
GENERAL POINTS
Charge of Any salary received by an employee in a tax
Tax on Salary year, other thanexempt, is chargeable to tax in
that year under the head “Salary”
Revenue/ Capital Salary means any amount received by an
Nature employee from anyemployment, whether of a
revenue or capital nature
Basis of Charge Received basis
Receipt of (a) actually received by the person;
Income (b) applied on behalf of the person, at the
instruction of the personor under any law; or
(c) made available to the person.
When is Salary An amount or perquisite is treated as paid if it is
Treated as Paid? paid or provided:
 by employer, an associate of the employer, or by
3rd party underan arrangement with employer
or associate of the employer.
 to employee, or an associate of employee or
3rd party under anagreement with employee or
Deductions
an associate of the employee.
 by past or prospective employer
 No deductions are allowed for any expenditure
Definitions  Employee means any individual engaged in
employment
 Employer means any person who engages and
remunerates an employee
 Employment includes (a) a directorship or any
other office involved in the management of a
company; (b) a position entitling the holder to a
fixed or ascertainable remuneration; or (c) the
holding or acting in any public office
EXEMPTIONS
Free medical MEDICAL BENEFITS: Benefit representing free
Treatment, medical treatment, hospitalization or both, or
Hospitalization reimbursement of medical charges/hospital
or Both
Reimbursement
charges or both are provided by employer is
exempt subject to following conditions:
of Medical  Benefit is provided in employee’s terms of
Charges, employment
Hospital  NTN of the hospital or clinic is given &
Charges, or  employer certifies and attests the medical/
Both hospital bills
Exemption for following perquisites received by an employee are
Food, exempt:
Education,  free or subsidized food provided by hotels and
Medical restaurants toits employees during duty hours;
Treatments, etc.  free or subsidized education provided by an
educationalinstitution to the children of its
employees;
 free or subsidized medical treatment provided
by a hospital ora clinic to its employees; and
 any other perquisite or benefit for which the
employer does nothave to bear any marginal
cost, as notified by the Board.
Foreign-Source  FS salary received by resident individual is
Salary exempt if he paid foreign income tax on 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.
Full-Time  25% reduction in tax payable on salary if employed
Teacher / in non-profit education or research institution
Researcher recognized by HEC, Board of Education, University
recognized by HEC, Govt Training or research
institution.
 CORE AMOUNTS
Pay, wages or other remuneration provided to employee, leave pay,
Fully
payment in lieu of leave, overtime payment, bonus, commission, fees, work
Taxable
conditions supplement (e.g unpleasant or dangerous working conditions)
 ALLOWANCES
Amount of allowance provided by employer to employee including
cost of living, dearness allowance, subsistence, rent, utilities,
Fully
education, entertainment or travel allowance. Note: any
allowance solely expended in the performance of the employee’s Taxable
duties of employment is not included in employee’s Salary.
Explanation: The allowance solely expended in the performance of
employee’s duty does not include (i) allowance which is paid in
monthly salary on fixed basis or %age of salary; or (ii) allowance Taxable
which is not wholly, exclusively, necessarily or actually spent on
behalf of the employer. [Example: Special Allowance]
Medical Allowance: Medical allowance received by employee, if
free medical treatment or hospitalization or reimbursement of Exempt upto
medical or hospitalization charges are NOT provided for in the 10% of Basic
terms of employment. Salary
 PERQUISITES
Accommodat-  Amount that would have been paid if accommodation was not
ion 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 thetime
of commencement of lease (lease case).
 Full personal use:
Domestic
10% of Cost of vehicle (owned) or FMV of vehicle at the time of
commencement of lease agreement (lease case).
Where services of house keeper, driver, gardener or other
servant 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 Waiver/Payment: Amount paid/waived by employer
Transfer of FMV of property determined at the time of transfer, as reduced byany
property 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  Amount equal to bench mark rate (in case no interest is charged by
/ employer)
Interest- free  Difference between interest charged by employer and the interest
Loan 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. 1,000,000/-
Residual Residual perquisites (i.e. other perquisites not mentioned above)
FMV of the perquisites determined at the time they are provided by
employer reduced by any payment made by employee to employer
for the perquisite
Gratuity or  Govt. employees: Exempt if received by employee of Govt. (Federal/Provincial/Local), Statutory body, or Govt. corporations in accordance with rules & condition
Commutation of of employee’s service  Approved Gratuity Fund: Fully exempt  Approved Gratuity Scheme: Exempt upto Rs. 300,000/-  Others: Lower of 50% of the
pension on 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
retirement 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.)
 REIMBURSEMENT OF EXPENDITURE
Expenditure incurred for employee’s own benefit Fully Taxable
Expenditure incurred in performance of duties of employment Not Taxable
 SPECIAL AMOUNTS
Golden handshake  Taxable in the year of receipt at current tax rates, or
(or amounts given  Taxable at the average rate of three preceding tax years
on termination  Option to be filed with CIR by the due date for filing of
of employment) return ofthe tax year in which salary in arrears is received.
 Mere right or option is not taxable
 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
determinedat date of issue reduced by consideration given
Employee Share for the shares and right/option by employee
Scheme  Value of shares (With Restriction): FMV of shares determined
S atearlier of:
 time when employee has free right to transfer the shares
 time of disposal of shares
A reduced by consideration given for the shares and right/option
byemployee
Amount of any profit given to employee instead of salary
Profits
L Agreement to enter
into employment
or inaddition to salary is taxable.
Amounts received as consideration for agreement to enter
intoemployment are taxable
A Agreement to
Conditions
Amounts received as consideration for conditions of
employmentor changes thereof is taxable.
Amounts received as consideration for agreement to
Restrictive
R covenant
restrictive covenant for past, present or prospective
employment.
 Taxable in the year of receipt at current tax rates;
Y Salary in arrears
 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 ofthe tax year in which salary in arrears is received.
Tax on tax  Amount of tax paid by employer is to be grossed up.
 RETIREMENT BENEFITS
Provident (1) Statutory Provident Fund (for Govt Employee) → Employee’s &
Fund 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)
Pension  Pension received by citizen of Pk from former employer is
exempt
 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
Leave → Taxable
Encashment →Exempt for employees of Federal Govt., Provincial Govt., or Armed
Forces when it is received preparatory to retirement.