Income Tax Planning: A Case Study

of Tax Saving Instruments in Pakistan

Izza
Komal
Zaid
wali
• Income Tax is the tax that an individual pay on his
income
• Under this Ordinance 2001, total income is the
sum of one's earnings under five heads i.e. salary,
• income from property,
• income from business,
• income from capital gains and
• income from other sources
• Tax evasion refers to the situation where a
person tries to reduce tax liabilities by non-
reporting and under-reporting.
• It involves submitting misleading documents,
suppression of facts and making false
statements and such acts are punishable
under the law.
• Tax evasion is illegal
1. Deductions and Tax credits allowed under
Income Tax Ordinance, 2001
• The Income Tax Ordinance, 2001 gives various
strategies that can be employed for efficient
tax planning.
• The Income Tax Ordinance provides different
deductions under each head of the income
which can be employed to minimize the
person’s income under that head which
eventually reduces the total income.
• Some of the provisions which can be employed to
effectively reduce the tax liabilities are
enumerated below:
• Zakat:
• Zakat is chargeable at a rate of 2.5% with the
Nisab.
• Ordinance, the taxable income of a person shall
be calculated after deduction of Zakat from the
whole earnings of the person for the tax year.
 Workers’ Welfare Fund & Workers’
Participation Fund
• 4 Fund (WWF) was to provide facilities such as residential
and other facilities to workers working in the industry.
• Under the Workers’ Welfare Fund Ordinance 1971, all the
industries which had an income of at least 100,000 were
required to deposit two percent of their income in the
Workers’ Welfare Fund.
• Under the Companies Profit Act’ 1968, it is mandatory for
a company to create a workers’ participation fund and
deposit five percent of its net profits in that fund every
year.
 Charitable Donations
• Tax credits are allowed to individuals who pay
any amount or give any of their property in the
year as a charitable donation to any university in
Pakistan or to any non-profit organization.
• The “non-profit organization” as defined includes
any person established for religious, charitable or
educational purposes, which is registered as a
non-profit organization and which does not
confer any private benefit on any other person.
• It is required that the donations be made via a
crossed cheque drawn on a bank.
• In case it is a property, its amount will be
determined as per its fair market value at the
time that it is given.