Chap 6: Tax Credits

Question 1

Sec 65F

List the persons or incomes that are allowed a tax credit equal to 100% of the tax payable. Specify the conditions/limitations required to be fulfilled for availing the said tax credit.

Answer 1

Income of the following taxpayers shall be allowed a tax credit equal to one hundred percent of the tax payable including minimum tax and final taxes upon fulfilment of certain conditions/limitations:
(i) Persons engaged in coal mining projects in Sindh supplying coal exclusively to power
generation projects;
(ii) A start-up [as defined in Clause (62A) of Section 2] for the tax year in which the startup is
certified by the Pakistan Software Export Board and for the following two years;

Following are the conditions:
(i) Annual return of income has been filed;
(ii) Tax required to be deducted or collected has been deducted or collected and deposited
in the government treasury;
(iii) Withholding tax statements for the relevant tax year have been filed, where the person is
a withholding agent; and
(iv) Monthly sales tax returns for the tax periods corresponding to the relevant tax year have
been filed.

Question 2

Sec 64D

Tax Credit for Point of Sale Machine

Answer 2

1. All Tier 1 retailers are required to integrate with Board’s Point of Sale online real time reporting
system. A tax credit for POS machine will be allowed to them.

**2. **The tax credit will be allowed for the tax year in which the point of sale machine is installed,
integrated and configured with the FBR’s computerized system, at the lower of:
i. amount actually invested in purchase of point of sale machine; or
ii. PKR 150,000/ machine

3.The term ‘point of sale machine’ is defined as a machine meant for processing and recording the sale transactions for goods or services, either in cash or through credit and debit cards or online payments (in an internet enabled environment).

Question 3

Full Time teacher Allowance

Answer 3

The tax payable by:
> a full time teacher or a researcher,
> who is employed in a non-profit education or research institution duly recognized by:
* Higher Education Commission,
* a Board of Education or
* a University recognized by the Higher Education Commission,
including government research institution, shall be reduced by an amount equal to 25% of tax payable on his income from salary.

[This clause shall not apply to teachers of medical profession who derive income from private medical practice or who receive share of consideration received from patients.]

25% reduction will always be calculated using Salaried case Table(table 2)

Question 4

Sec 60D

Deductible allowance for educational expenses

Answer 4

1. Every individual shall be entitled to a deductible allowance in respect of tuition fee paid if the taxable income of individual is less than Rs. 1,500,000.
2. The allowance allowed shall be lower of:
   a) 5% of the total tuition fee paid by the individual in the year;
   b) 25% of the person’s taxable income for the year; and
   c) an amount computed by multiplying 60,000 with number of children of the individual.
3. An allowance which is not able to be deducted shall not be carried forward to a subsequent year.
4. Allowance shall be allowed to either of the parents on furnishing NTN or name of the educational institution.
5. The allowance shall not be considered for calculating tax deduction under the head salary.

Question 5

Sec 61

Charitable donation

(A/B)*C
A is tax payable
B is taxable income
where C is lower of: ….. ?

Answer 5

C is lower of:
a) the amount of donations in the year, including the FMV of property given; or
b) where the person is:
 an individual or AOP, 30% of the taxable income;or
 a company, 20% of the
taxable income.

[If amount or property is donated by associate C shall be in the case of–
i. an * individual or AOP, 15%* of the taxable income ; or
ii. a company, 10% of the taxable income. ]

The FMV of property shall be determined at the time it is given.

Cash paid will only qualify for tax credit if amount is paid by a crossed cheque.

Question 6

Sec 63

Contribution to approved pension fund
(A/B)*C
A is tax payable
B is taxable income
where C is lower of: ….. ?

Answer 6

C is lower of:
 the premium paid by the person in the year; or
 20% of the taxable income of the eligible person’s for relevant tax year;

[However if he joins the pension fund at the age of 41 yrs or above he shall be allowed additional of 2% per annum for each yr of age exceeding 40yrs (upto 30th june,2019). The above figure shall also be compared with 30% of the taxable income of previous year]
40 y.o 20%
41 y.0 22%
42 y.o 24% …

Question 7

Sec 63

Who shall be allowed a tax credit in terms of Contribution to approved pension fund ?

Answer 7

An eligible person earning income from “Salary” or “Business” shall be alloweda tax credit for premium paid in approved pension fund under the Voluntary Pension System Rules, 2005.

“Eligible Person”, means an individual Pakistani who holds a valid National Tax Number or
Computerized NIC or NIC for Overseas Pakistanis issued by the NADRA.

“Approved pension fund” means Pension Fund approved by SECP under voluntary Pension System Rules, 2005.

Question 8

Sec 61

Who shall be allowed a tax credit in terms of Charitable Donations ?

Answer 8

A person is entitled to a tax credit for a tax year for amount paid or property given as a donation, voluntary contribution or subscription to:
¯ any board of education or any university in Pakistan established by, or under, a Federal or
a Provincial law;

¯ any educational institution, hospital or relief fund established in Pakistan by Federal, Provincial or a local Government; or

¯ any non-profit organization or any person eligible for tax credit under section 100C.

¯ Entities, organizations and funds mentioned in 13th schedule of the Ordinance.