update salary 09

8/14/2019 Update Salary 09

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TARIQ ABDUL GHANI & CO.Chartered Accountants

An Independent Member of

The International Group of Accounting Firms

Email: [email protected]: www.tag.com.pk

173-W, Block 2, P.E.C.H.S., KarachiTel: (92-21) 34322582-83, 34322606-07 Fax: (92-21) 34522492

2, Street 80, G-6/4, IslamabadPhone: (92-51) 8435504-06 Fax: (92-51) 8317181

An Update onTaxability of SalaryUnder the Income Tax Ordinance, 2001 & Income Tax Rules, 2002

(Applicable w.e.f.July1,2009)


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Table of contents

What this document aims at?

Summary of changes vide the Finance Act, 2009

Exempt allowances & benefits

Taxable allowances & benefits

Allowable deductions

Tax credits

Exemption limits

Tax rates

Treatment of marginal limits

Reduction in tax liability

Internally displaced persons (IDP) tax

Annual return & wealth statement

Worked examples Computation for the Tax Year 2010

Worked examples Computation for the Tax Year 2009


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What this document aims at?

The purpose of this document is to briefly summarize the concept ofcomputation of income from salary and computation of tax thereon.

The information and elaborations as contained herein are general innature and based on our interpretation of the applicable statute. As suchnothing contained herein should be taken as legal advice in a given case.

Summary of changes vide the Finance Act, 2009

R e l i e f M e a s u r e s

Basic ExemptionLimit for salaried taxpayers increased to Rs. 200,000from existing Rs. 180,000.

Basic exemption limit raised to Rs. 260,000 for salaried WomenTaxpayersfrom current threshold of Rs. 240,000.

Increase in base parameters from 40% to 50% of taxable income as wellas increasing the monetary threshold from Rs.500,000 to Rs. 750,000 forallowing Tax Credit for Profit on Debtfor construction or acquisition ofa house.

Increase in income threshold for Senior Citizens from existingRs. 500,000 to Rs. 750,000 for computing reduction in tax liability.

R e v e n u e M e a s u r e s

A new tax under the head Internally Displaced Persons Tax (IDPT)hasbeen imposed on corporate employees with taxable income ofRs. 1 Million or more at 5% of tax liability for the tax year 2009.

IDPT for tax year 2010 will be charged at 30% on bonus where taxableincome (excluding bonus) is Rs. 1 Million or more.

O t h e r M e a s u r e s

Salaried taxpayers with income of Rs. 500,000 or more are required tofile returns electronically along with the proof of tax deduction orpayment and the wealth statement.


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Taxable allowances & benefits (Contd.)

D e s c r i p t i o n R e m a r k s

Waiver of loan by the employer Fully taxable

Discharge of debt by employer Fully taxable

Transfer of assets or property To be included in income of the employee

at fair market value less value ofconsideration paid.

Employee share scheme Value of right/ option under anEmployee Share Scheme is notchargeable to tax until:

(a) the right/ option is disposed; or

(b) shares are acquired.

Amount taxable against disposal ofright/ optionis the difference between:

(a) consideration for right/ option; and

(b) cost in respect of said right/ option.

Amount taxable at acquisition ofsharesis difference between:

(a) fair value of shares; and

(b) sum paid against right/ option andthe shares.

If shares acquired are under restriction asto transfer, the amount is includable onlyat the earlier of:

(a) acquisition of transfer rights; or

(b) at the time of actual disposal ofshares.

Allowable deductions

D e s c r i p t i o n E l i g i b i l i t y C r i t e r i a L i m i t

Donations Paid to institutions,foundations, societies,boards, trusts and funds asper Clause (61) Part-I of2nd Schedule to the Income

Tax Ordinance

Up to 30% oftaxable income

Zakat Paid or deducted under theZakat and Ushr Ordinance

100% (i.e. the fullamount of zakat)

Tax credits

Certain tax credits are also available against specified items as per the followingformulae:

Tax before allowance of tax credit(s)ApplicableAmount*

XTaxable income for the tax year

Note1: Includes donations not covered under 2nd

Schedule if made to:

(i) local education boards/ universities established under Federal/ Provincial law,

(ii) educational institution/ hospital/ relief fund established/ run in Pakistan byFederal/ Provincial Govt. or local authority, or

(iii) approved non-profit organizations.

Charitable

donations - Note1

Investment in

listed shares -

Note2

Contribution to

approved pension

fund

Profit on debt on

loans for purchase

or construction of

house - Note4

Cost of acquisitionActual annual

contributionAmount paid

10% of taxable

income

20% of taxable

income - Note3

50% of taxable

income

10% of taxable

incomeRs. 300,000/- Rs. 500,000/- Rs. 750,000/-

Amount of donation

or fair value of

property donated

*ApplicableAmount(lower

Specified Items for Tax Credit


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update salary 09

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