Income from salary (Sec 12)

Income from Salary
[Section 12]
Group Members
1.
2.
3.
4.

Hammad Hassan
Syed Fakhar Abbas
Gullam Abbas
Imran Farooq

M.COM-3rd Semester (Sec A)
Federal Urdu University, Islamabad

1

Introduction
Income from salary is the first head or
source of income mentioned under
section 12 of income tax ordinance,2001.



Salary means fixed, weekly or monthly
remuneration.




2

Features of Salary Income
Amount must be received by an
 Salary earned is taxable whether
employee from his present or past
received or not.
employer and relationship must exist
among them.
 Salary received is taxable whether
earned or not.
 Income paid by GOP, local authority,
company, public body, or private
 Arrears of salary will be taxable in
employer in Pakistan excluding the
the year of receipt, if these hove not
income received from foreign
been in the year in which the amount
government.
was earned.




Pension paid by past employer to
employee after service.



Employee in case of company
includes the managing director,
director or an agent of the company.


3

Scope of Salary Income

1)
2)
3)
4)
5)

Salary and wages.
Annuity, pension or gratuity.
Fees, commission or allowances.
Perquisites.
Profits in lieu of or in addition to salary or
wages.


4

Valuation of Perquisites,
Allowances and Benefits
Perquisites means facilities or benefits
provided by the employer to his employee.


5



Minimum of time scale of Basic salary
The amount from where the salary of the employee starts.
M.T.S of basic salary = 60000-1000-70000.



Basic Salary
It means the pay and allowances payable monthly.



Salary
It includes basic salary, overseas allowance, dearness allowance, cost
of living allowance, bonus and commission.


6

Facilities Provided by Employer
The facilities provided by the employer will
be taxable. The facilities are
1)
2)
3)
4)
5)
6)
7)

Accommodation
Conveyance
Medical charges, hospital charges or medical allowance
Entertainment
Loan to employee
Special allowance
Provident fund


7

Accommodation


House Rent Allowance

If an employer provided any accommodation allowance or house rent
allowance, the whole amount is taxable.



Accommodation facility

1)

The amount that would have been paid by the employer in case such
accommodation was not provided.

2)

45% of the M.T.S of the basic salary.
Whichever 1 or 2 is higher, is taxable.

8

Accommodation facilities in the areas
where house rent is admissible @ 30%
In areas other than big citied the house allowance
admissible to government employees is 30% of MTS of
basic salary.
1)

The amount that would have been paid by the employer
in case such accommodation was not provided.

2)

30% of MTS of basic salary.
Which ever 1 or 2 is higher

9

Conveyance
Conveyance Allowance

If the employer provide conveyance allowance to his
employee is taxable.
Conveyance

provided by employer for
personal use of employee
10% of the cost employer paid to acquire the motor vehicle
will be included in taxable income of employee every year.

10

Conveyance provided by employer
partly for personal and partly for
official use



5% of the cost paid by the employer for acquiring the motor vehicle
will be included in taxable income of employee

Employer acquire the conveyance on
lease



1)
2)
3)

The fair market value at the commencement of the lease will be
ascertained.
10% of fair market value
5% of such value will be added in total income

11

Medical Charges, Hospital Charges or
Medical Allowance
In case an employee
1)

Receives free medical treatment or hospitalization or both by the
employer or receives reimbursement of the medical expenses under
the term of employment whole such benefit will be exempt from
tax. It is necessary, however that NTN of hospital or clinic is
provided and the employer also certifies and attest the medical or
hospital bill.

2)

In case where the above benefit are not provided by the employer,
10% of basic salary of employee is exempted from tax.


12

Entertainment
1)

Actual entertainment expenditure incurred by employee
for entertainment on behalf of organization and the
reimbursement to him by employer are not taxable.

2)

If any employee is provided free tea, coffee at office
premises during work are not taxable.

3)

Free or subsidized food provided by employee of hotel
or restaurant during duty hour are not taxable.

4)

In all the remaining case, the entire entertainment
allowance received by employee will be added in his
total income for tax purpose.

13

Loan to Employee
Where a loan is made on or after the 1st day of July by an employer to
an employee and either no profit on loan is payable by the employee
or the rate of profit on loan is lee than 10%, the amount chargeable to
tax to the employee
1)

The profit on loan computed at the rate of 10%, where no profit on
loan is payable by the employee.

2)

The difference between the amount of profit on loan paid by the
employee in the tax year and the amount of profit on loan computed
at the rate of 10%.

3)

Loan is exempt up to Rs. 500,000 provided by the employer to
employee. If exceed will be taxable.

14

 Special Allowance
Special allowance is exempt from tax
granted to meet expenses incurred in the
performance of official duties.
 Provident Fund
It is maintained by many organization for the
benefit of their employees.

15

Types of Provident Fund


Government Provident Fund

It is maintained by government or semi government organization. It is
known as statutory provident fund.



Recognized Provident Fund

When the private organization fulfils the condition for recognized fund
and commissioner of income tax grant recognized such fund.



Unrecognized Provident Fund

When private organization which has not grant by income tax authorities:
1) when condition prescribed in the law regarding the provident are not fulfilled.
2) No application for recognized has been made.
3) Application is turned down some technical grounds by the income tax
authorities.

16

Treatment of Provident Fund
Items

Government
Provident Fund

Recognized Provident
Fund

Unrecognized
Provident Fund

Employees Contribution

Included in taxable income



Employer Contribution

Not Included in taxable
income

Not included lesser of 10%
of the salary or 100,000. In
case of exceeds, the excess
amount is taxable.

Interest Credited

income

Not included if rate is 16%
and amount is less than 1/3
of salary, if excess will be
taxable.

Receipt of Accumulated
Balance

income

income

income

income

Included to the extent of
employer contribution and
interest there on.


17

Special Tax Rebate For Senior Citizen


Relief in tax is granted to senior citizen. It is known as
special tax rebate.

1)

50% is allowed to taxpayer of 60 year age or above.

2)

Admissible only in case where the taxpayers taxable
income, other than income on which the deduction of
tax is final is up to Rs 10,00,000.

3)

Allowed in addition to any other allowance admissible
under the law.

18

Average Relief
Government allows tax concession on
some expenditure and investments. These
are as follows
Donation for charitable purpose (Sec 61)
2) Investment in shares or life insurance premium
paid (Sec 62)
3) Contribution to approved pension fund (Sec 63)
4) Profit on debt (Sec 64)
1)


19

Donation for charitable purpose (Sec 61)


Established and run by Government or local authority in Pakistan
are.

Any Board of Education, any university, any educational institution.
 Any hospital
 Any Relief fund approved
 Any non-profit organization.




If any donation is given in kind, the value of such articles or goods
donated would be ascertained by board.



The total donation on which tax concessions may be granted should
not exceed the following
In case of company 20% of taxable income
In case of individual or association of person 30% of taxable income

•
•

Note: All the donation given in cash will be entitled to tax concession only if the amount is paid by
a crossed cheque drawn on a bank or fair market value of any property given as donation

20

Investment in shares or life insurance
premium paid (Sec 62)


If resident person pays insurance premium to a life insurance company
registered by SECP



A resident person purchases either new shares offered by a public company
listed on stock exchange in Pakistan or listed shares sold by privatization
commission of Pakistan.



A person should be original allottee of shares.



The amount of relief allowed will have to be surrendered by person if he sells
or transfers these shares with in three years of purchase.



through an amendment in finance act 2012, the limited for eligible for relief
up to 20% or Rs 10,00,000, whichever is less and holding period is two years.


21

Contribution to approved pension
fund (Sec 63)
a)

The person contributing should possess a valid NTN or CNIC.

b)

The concession is available for contribution to only on approved
employment pension or annuity scheme.

c)

The amount eligible for relief will be restricted to 20% of taxable
income.

d)

If a person joins this scheme at the age of 40, one year or above the
limit of 20% as mentioned in (C) above will be enhanced by 2% each
year above 40 and should not be exceed to 50% of taxable income of
last year.


22

Calculation of Average Relief


23

Income from salary (Sec 12)

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