INCOME TAX RATES,

REBATES & DEDUCTIONS

Tax rates for individuals and AOP for the Tax Year 2023:
[Tax rates are also called slab rates or progressive rates]

Category 1 (for individual non-salaried case i.e. where taxable salary is nil or up to 75%
of taxable income and for AOP)
Mr. A Mr.B Mr.C
Taxable salary 5,100,000 6,600,000 1,500,000
Other source 2,000,000 1,400,000 500,000
Taxable income 7,100,000 8,000,000 2,000,000

Non-Salaried case Salaried case Non-Salaried case

Category 1 Category 2 Category 1
Category
Taxable1: Non-salaried
income individual
of non-salaried individual 3,200,000
Taxable Income
Tax on Rs.3,000,000 Rate of Tax 405,000
1 Up
Taxtoon
Rs.600,000
Rs.200,000 @ 27.5% Nil 55,000
2 Total tax
600,001 liability
– 800,000 460,000Rs.600,000
5% of amount exceeding
3 800,001
Taxable–income
1,200,000
of non-salariedRs.10,000 + 12.5%
individual of amount exceeding
5,800,000
Rs.800,000
4 1,200,001 – 2,400,000
Taxable income Rs.60,000
of non-salaried + 17.5%
individual of amount exceeding
5,800,000
Rs.1,200,000
Tax on Rs.4,000,000 680,000
5 2,400,001 – 3,000,000 @ 32.5% Rs.270,000 + 22.5%
Tax on Rs.1,800,000 of amount exceeding
585,000
Total tax liability Rs.2,400,000 1,265,000
6 3,000,001 – 4,000,000 Rs.405,000 + 27.5% of amount exceeding
Applicable tax rate 32.5% Rs.3,000,000
7 4,000,001 – 6,000,000 Rs.680,000 + 32.5% of amount exceeding
Average tax rate = 1,265,000 / 5,800,000 = 21.81%
Rs.4,000,000
8 Over 6,000,000 Rs.1,330,000 + 35% of amount exceeding
Rs.6,000,000
Category 2: Salaried Individual i.e. where taxable
salary exceeds 75% of taxable income)

Taxable Income Rate

1 Up to Rs.600,000 Nil
2 600,001 – 1,200,000 2.5% of amount exceeding Rs.600,000

3 1,200,001 – 2,400,000 Rs.15,000 + 12.5% of amount exceeding

Rs.1,200,000
4 2,400,001 – 3,600,000 Rs.165,000 + 20% of amount exceeding
Rs.2,400,000
5 3,600,001 – 6,000,000 Rs.405,000 + 25% of amount exceeding
Rs.3,600,000
6 6,000,001 – 12,000,000 Rs.1,005,000 + 32.5% of amount exceeding
Rs.6,000,000
7 Over 12,000,000 Rs.2,955,000 + 35% of amount exceeding
Rs.12,000,000
Tax rate for a company 29%
39% for a banking company

No basic exemption for a company

What is rebate or tax credit?
Rebate or tax credit is a tax benefit whereby tax liability is reduced in specified situations
according to the specified percentage or formula such as donation given to an approved
charitable organization.

Tax credits and rebates are:

a) Full time teacher or researcher
b) Foreign tax credit
c) Tax credit on:
i) Charitable donations
ii) Approved Pension Fund
3.1 Tax reduction in case of full time teacher or researcher

A full time teacher or a researcher of a recognized non-profit educational or

research institution shall be allowed a reduction of 25% of tax payable.
The institution must be recognized by Higher Education Commission or a Board
of Education or a University recognized by Higher Education Commission
This additional tax reduction would be allowed on tax liability on taxable salary.
Other income, if any, would be excluded for this purpose.
Solution to Example 1A
Mr. B

Taxable salary as a full time teacher from

an approved non-profit organization 3,000,000
Taxable other sources 600,000
Taxable income 3,600,000

Tax liability (Salaried case)

Tax on Rs.3,600,000 405,000
Less: Full time teacher allowance (as per working) 71,250
333,750
Working of Full Time Teacher Allowance (FTTA)

Taxable salary 3,000,000

Tax on Rs.2,400,000 165,000

Tax on Rs.600,000 @ 20% 120,000
285,000

Full time teacher allowance 25% of Rs.285,000 71,250

Solution to example 1B
Mr. Z

Taxable salary as a full time teacher from

an approved non-profit organization 5,800,000
Taxable other sources 1,700,000
Taxable income 7,500,000

Tax liability (Salaried case)

Tax on Rs.6,000,000 1,005,000
Tax on Rs.1,500,000 @ 32.5% 487,500
1,492,500
Less: Full time teacher allowance (as per working) 238,750
1,253,750
Working of FTTA

Taxable salary 5,800,000

Tax on Rs.3,600,000 405,000

Tax on Rs.2,200,000 @ 25% 550,000
955,000

Full time teacher allowance 25% of Rs.955,000 238,750

Key point for FTTA:

Salary from NPO 2,400,000

Other income 1,200,000
Taxable income 3,600,000

The above case is non-salaried but for FTTA it is a salaried case

Foreign Tax Credit
a) Foreign source income derived by a resident is normally exempt in Pakistan under
tax treaty or if he is a short term resident or a returning expatriate.
However, if foreign source income is taxable in Pakistan despite the fact that the
taxpayer has already paid income tax in the foreign country then the resident taxpayer
shall be allowed a tax credit in respect of foreign income tax paid by him as lower of:

Foreign income tax paid; and

Pakistan tax payable in respect of foreign source income at average rate of
tax

Average rate of tax is A/B where A is the tax liability before foreign tax
credit and B is the taxable income
b) Example 2A:
Mr. A’s income for the tax year 20X8 is as under:
Taxable Pakistan source income:
Salary 3,600,000
Other source 2,000,000
Foreign source business
taxable in Pakistan 3,000,000
Tax paid in the foreign country @ 20% 600,000
Solution 2A:
Taxable salary 3,600,000
Taxable other source 2,000,000
Foreign source income 3,000,000
Taxable income 8,600,000
Tax liability (Non-salaried case)
Tax on Rs.6,000,000 1,330,000
Tax on Rs.2,600,000 @ 35% 910,000
2,240,000
Less: Foreign tax credit
(a) Pakistan average rate of tax
on foreign source income
2,240,000 / 8,600,000 x 3m 781,395
(b) Foreign income tax paid 600,000
Whichever is lower 600,000
Total tax liability 1,640,000
Solution:
Taxable salary 3,600,000
Taxable other source 2,000,000
Foreign source income 3,000,000
Taxable income 8,600,000
Tax liability (Non-salaried case)
Tax on Rs.6,000,000 1,330,000
Tax on Rs.2,600,000 @ 35% 910,000
2,240,000
Less: Foreign tax credit
(a) Pakistan average rate of tax
on foreign source income
2,240,000 / 8,600,000 x 3m 781,395
(b) Foreign income tax paid 800,000
Whichever is lower 781,395
Total tax liability 1,458,605
c) Example 2B:
Mr. Junaid’s income for the tax year 20X8 is as under:

Taxable Pakistan source income:

Salary 1,800,000
Other source 1,000,000

Foreign source business taxable in Pakistan 1,500,000

Tax paid in the foreign country @ 20% 300,000
Solution 2B:
Taxable salary 1,800,000
Taxable other source 1,000,000
Foreign source income 1,500,000
Taxable income 4,300,000
Tax liability (Non-salaried case)
Tax on Rs.4,000,000 680,000
Tax on Rs.300,000 @ 32.5% 97,500
777,500
Less: Foreign tax credit
(a) Pakistan average rate of tax
on foreign source income
777,500 / 4,300,000 x 1,500,000 271,221
(b) Foreign income tax paid 300,000
Whichever is lower 271,221
Total tax liability 506,279
Illustration:
Mr. C
Taxable salary 4,800,000
Taxable other source 1,300,000
Total income 6,100,000
Less: Zakat paid under Zakat Ordinance 50,000
Taxable income 6,050,000
Tax liability (Salaried case)
Tax on Rs.6,000,000 1,005,000
Tax on Rs.50,000 @ 32.5% 16,250
1,021,250
Less: Rebate on donation of Rs.200,000
(A ÷ B) × C = (1,021,250 ÷ 6,050,000) × 200,000 33,760
987,490
Less: Rebate on approved pension fund of Rs.300,000
(A ÷ B) × C = (1,021,250 ÷ 6,050,000) × 300,000 50,640
936,850
 3.3 Rebate on Donations – section 61
3.3.1 A person shall be entitled to a rebate on the donation in cash through
banking channel or in kind i.e. any property is given by the person to the following:
a) Any board of education or university in Pakistan established under any law
b) Any educational institution or hospital in Pakistan established or run by
government
c)Any non-profit organization approved by the tax authorities established for the
purpose of religious, education, charitable, welfare or for promotion of
sports.

d)Entities mentioned in 13th Schedule to the Income Tax Ordinance, 2001 such as
The Citizen Foundation and Pakistan Disabled Foundation
Tax credit shall be allowed at average rate of tax on the lower of the following:
i) actual amount of donation or FMV of property at the time it is given, or
ii) 30% of taxable income

Note: Rebate on donation is allowed at average rate of tax which is A/B where:
A is the tax liability before rebate on donation; and
B is the taxable income.
Example 3A
Mr. A
# Taxable salary Rs.4,000,000 from NPO as full time teacher
# Taxable other source Rs.1,020,000
# Cheque received under inheritance Rs.8,200,000
# Zakat paid Rs.148,000
# Donations to approved charitable organizations through banking channel
Rs.1,500,000
Answer

Working of FTTA
Taxable salary 4,000,000

Tax on Rs.3,600,000 405,000

Tax @ 25% on Rs.400,000 100,000
505,000

FTTA 25% of Rs.505,000 126,250

Name of Taxpayer: Mr. A
Residential Status: Resident
NTN: xxxx
Tax Year: 20X8
Computation of Taxable Income & Tax Liability
Rs.
Taxable salary 4,000,000
Taxable other source 1,020,000
Amount received through inheritance 8,200,000 exempt
Total Income 5,020,000
Less: Zakat 148,000
Taxable Income 4,872,000
Tax liability (Salaried case)
Tax on Rs.3,600,000 405,000
Tax on Rs.1,272,000 @ 25% 318,000
723,000
Less: Full Time Teacher Allowance 126,250
596,750
Amount eligible for rebate on donation: Lower of
Actual donation 1,500,000
30% of taxable income 1,461,600
Rebate on donation
596,750 / 4,872,000 x 1,461,600 179,025
Tax liability 417,725
Example 3B
Mr. F
# Taxable salary Rs.1,700,000 from NPO as full time teacher
# Taxable other source Rs.1,320,000
# Cheque received under inheritance Rs.5,000,000
# Zakat paid Rs.148,000
# Donations to approved charitable organizations through banking channel
Rs.900,000
Answer

Working of FTTA
Taxable salary 1,700,000

Tax on Rs.1,200,000 15,000

Tax @ 12.5% on Rs.500,000 62,500
77,500

FTTA 25% of Rs.77,500 19,375

Name of Taxpayer: Mr. F
Residential Status: Resident
NTN: xxxx
Tax Year: 20X8
Computation of Taxable Income & Tax Liability
Rs.
Taxable salary 1,700,000
Taxable other source 1,320,000
Amount received through inheritance 8,200,000 exempt
Total Income 3,020,000
Less: Zakat 148,000
Taxable Income 2,872,000
Tax liability (Non-Salaried case)
Tax on Rs.2,400,000 270,000
Tax on Rs.472,000 @ 22.5% 106,200
376,200
Less: Full Time Teacher Allowance 19,375
356,825
Amount eligible for rebate on donation: Lower of
Actual donation 900,000
30% of taxable income 861,600
Rebate on donation
356,825 / 2,872,000 x 861,600 107,047
Tax liability 249,778
3.3.2 Allowance for contribution to Approved Pension Fund (APF)
An individual Pakistani citizen deriving salary income or business income is
entitled to a tax credit on premium paid to APF at the average rate of tax on
the lower of:
i) total premium paid during the year; or
ii)20% of taxable income.
4. Deductions from total income to arrive at taxable income

4.1 Income is taxable under any of the five heads of income as under:

- Income from Salary;

- Income from Property;
- Income from Business;
- Capital Gain; and
- Income from Other Sources
4.2 Total income is the sum of all incomes under five heads of income.
The total income shall be reduced by the following amounts to arrive at taxable income:

– Education expenses
– Zakat paid under Zakat and Ushr Ordinance

4.3 Where the total deductions from total income exceed the amount of total income then
the excess shall not be carried forward to the next tax year.
4.4 Education Expenses
(a) An individual is entitled to a deductible allowance in respect of tuition fee paid provided
that his taxable income is less than Rs.1.5 million.
(b) Deductible allowance in respect of education expense shall be lower of the following:
- 5% of the tuition fee paid by the individual;
- 25% of taxable income;
- Rs.60,000 multiplied by the number of children of the individual.
(c) Deduction of education expense can be claimed by either of the parents making
payment of the fee on furnishing NTN or name of the educational institution.
Example 4
Determine the amount of deductible allowance that a resident individual can claim on account of
education expenses, if his taxable income for the year was Rs.800,000 and he paid monthly fee
of Rs.6,000 per child for his three children.

Answer
The deduction allowed on account of education expense is the lower of:
Rs.
– 5% of tuition fee paid Rs.6,000 x 12 x 3 x 5% 10,800
– 25% of taxable income Rs.800,000 x 25% 200,000
– Rs.60,000 multiplied by number of children 180,000

Therefore, the deduction allowed is Rs.10,800