Income From Salary Flashcards
Basis of taxation
Receipt basis
Deduction
No deduction are allowed under the head income from salary
Pay wages, leave pay, payment in lieu of leave, overtime payment, bonus, commission, fees, gratuity or work condition supplement
Fully taxable
Reimbursement of expenses to employee
Fully taxable. However expenses reimbursed to meet official duty are not taxable.
All cash allowance(other than medical allowance) e.g. education allowance, house rent allowance, utility allowance, subsistence allowance etc.
Fully taxable. However allowance paid to meet official duty are not taxable.
Amount paid to enter into employment relationship
Fully taxable
Amount paid to fulfil any condition of employment
Fully taxable
Amount paid on termination of employment
(Including golden hand shake receipts)
Two options
1- Treat in normal way as a part of calculation of taxable income
2- Tax this amount on the basis of last three years average tax rate
Amount paid as for agreeing against a restrictive convenant
Fully taxable
Employee contribution in recognized provident fund
No separate treatment
Employer contribution in recognized provident fund
Exempt upto lower of:
- 1/10th of basic salary + dearness allowance
- Rs. 150,000
Interest credited in recognized provident fund
Exempt upto higher of:
- 1/3th of basic salary + dearness allowance or
- interest calculated @16%
Receipt of accumulated balance from recognized provident fund
Fully exempt
Employee contribution in unrecognized provident fund
No separate treatment
Employer contribution in unrecognized provident fund
No treatment
Interest credited in unrecognized provident fund
No treatment
Receipt of accumulated balance from unrecognized provident fund
Employer contribution + Interest is fully taxable
Interest benefit in respect of interest free loan provided to employee
Interest calculated @ 10% is taxable
Interest benefit in respect of loan provided at interest rate which is lower than bench mark rate
Interest calculated @ 10% - interest rate charged by employer is taxable
Loan provided at interest rate which is equal to or greater than benchmark rate
No interest benefit arising so nothing is taxable
Conveyance provided to employee partly for personal and partly for official use
5% of cost or FMV of vehicle depending on whether it is purchased or taken on lease respectively
Conveyance provided to employee solely for personal use
10% of cost or FMV of vehicle depending on whether it is purchased or taken on lease respectively
Conveyance provided to employee solely for business use
No treatment
Service of house keeper , driver , gardener or other domestic assistant are provided to employee
Total salary paid to these persons by employer less amount paid by employee to employer for receiving these services is taxable
Utility services provided
Fair market value of utilities provided less amount paid by employee to employer for receiving these services is taxable
Waiver of loan payable by employee to employer
Amount of loan waived is taxable
Liability of employee toward any third party paid by employer
Amount paid by employer is taxable
Where employer transfer any property to employee (e.g. house , car, fridge etc).
FMV of asset transferred less amount paid by employee to employer
House provided / Accomodation provided
Higher of following amounts is added:
- 45% of basic salary or
- Amount that would have been paid had no accomodation been provided by employer
Pension
Fully exempt subject to the condition that person is citizen of Pakistan.
Where more than 1 pension is received by a citizen of Pakistan than higher amount of pension will be exempt
Government employees:
Gratuity
Commutation of pension
Fully exempt subject to certain conditions
Non Government employees:
Gratuity fund approved by commissioner or
Gratuity scheme approved by FBR
Approved by commissioner
- fully exempt
Approved by FBR
- Exempt upto Rs. 300,000 subject to certain conditions
Non Government employees:
Unapproved gratuity received or
Unapproved commutation of pension
Exempt upto lower of:
- 50% of amount received of
- Rs. 75,000
(Subject to certain conditions)
1- If payment is received in Pakistan
2- in case of director , if payment us received by him being a regular employee
3- if payment is received by a resident; and
4- to gratuity received by an employee who has not received any gratuity from the same or any other employer.
Free or concessional services provided by transporters , hotels , educational institutes and hospitals to its employees
Full exempt subject to certain conditions
Gain on disposal of rights acquired under an employee share
Following is taxable:
Consideration received against disposal of right - Cost paid to acquire right
Shares acquired under an employee share scheme without any restriction on transfer
Following is taxable:
FMV of shares at the date of acquisition of shares - cost paid to acquire shares - cost paid to acquire right
Shares acquired under an employee share scheme with restriction on transfer ( Shares are in the possession of employee till the date he has free right to transfer the shares)
Following is taxable:
FMV of shares at the date employee has free right to transfer the shares - cost paid to acquire shares - cost paid to acquire right
Shares acquired under an employee share scheme with restriction on transfer (Shares are disposed off by employee before the date he has free right to transfer the shares)
Fair market value of the shares at the time the employee disposes of the shares - cost paid to acquire shares - cost paid to acquire right
Foreign source salary received by a resident individual
Exempt
Foreign source salary earned by a citizen of Pakistan who leaves Pakistan during a tax year and remains abroad during that tax year
Exempt
Foreign source salary income derived if the person receiving this income is a returning expatriate i.e. a person remains abroad for last preceding 4 years
Exempt in the year in which he became resident and the following tax year only
