Income Tax Rates, Rebates & Deductions Flashcards
As per Division I,Part 1 of First Schedule ,what is the criteria to categorize an individual as Salaried or Non-Salaried Individual?
Salaried Individual
- Taxable salary exceeds 75% of total taxable income.
Non-Salaried Individual
- Taxable salary is nil; or
- up to 75% of total taxable income.
As per Division II,Part 1 of First Schedule , what are the income Tax Rates for Companies?
- Small Company: 20%
- Banking Company: 39%
- Any Other Company: 29%
What are the allowable tax credits and rebates?
The following tax credits and rebates are allowable:
a) Full-time teacher or researcher allowance – Clause 2, Part III 2nd Schedule.
b) Tax credit on profit on Bahbood Savings Certificates or Pensioners’ Benefit account and Shuhada Family Welfare Account maintained with National Saving Centres – Clause 6 Part III 2nd Schedule and Clause 36A Part IV 2nd Schedule.
c) Foreign tax credit (also called Unilateral relief or Cross Border Transaction Relief) – Sec 103.
d) Tax credit on:
i. Charitable donations – sec 61
ii. Approved Pension Fund – sec 63
What is the tax reduction available for full-time teachers or researchers?
A full time teacher or a researcher of a recognized non-profit educational or research institution including government research institutions shall be allowed a reduction of 25% of tax payable.
This additional tax reduction would be allowed on the tax liability on taxable salary. Other income, if any, would be excluded for this purpose.
What are the requirements for an institution to qualify for the full-time teacher or researcher tax reduction?
The institution must be recognized by Higher Education Commission or a Board of Education or a University recognized by Higher Education Commission.
Who is excluded from the full-time teacher or researcher tax reduction?
This rebate shall not apply to teachers of medical profession who derive income from private medical practice or who receive share of consideration from patients.
What does Para 43(d)(iii) of FBR Circular 6 of 2013 explain about full-time teachers and researchers?
- A full-time teacher means a person employed purely for teaching and not performing any administrative or managerial jobs (e.g., principals, headmasters, directors, vice-chancellors, chairmen, controllers, etc.).
- A full-time researcher means a person purely employed for research job only in a research institution, and such an institution is purely performing research activities.
What are the key points for the full-time teacher or researcher allowance?
- If salary income of full-time teacher or researcher from NPO is up to Rs.600,000 included in taxable income, then full-time teacher or researcher allowance shall not be calculated; or
- Every scenario will be a “salaried case” for full-time teacher or researcher allowance.
Tax credit for profit on Bahbood Savings Certificates or Pensioners’ Benefit account or Shuhada Family Welfare Account – Clause 6 Part III 2nd Schedule and Clause 36A and 103 of Part IV 2nd Schedule
(a) Profit on Defence Savings Certificates issued by, or accounts maintained with, National Savings Centres is taxable (as a separate block of income) at 15% fixed tax rate and therefore normal slab rates do not apply on such profit. Withholding tax shall also be deducted by the National Saving Centres at the time of payment of profit on debt.
(b) Profit on Bahbood Savings Certificates issued by, or Pensioners’ Benefit account or Shuhada Family Welfare Account maintained with, National Savings Centres (such profit) is not subject to withholding tax and normal slab rates apply on such profit.─ Clause 36A Part IV 2nd Schedule
However, tax rate shall not exceed 5% of such profit which means that if average rate of tax on income including such profit is more than 5% then tax credit on such profit would apply to reduce the tax on 5% on such profit.
[Average rate of tax is A/B where A is the tax liability before tax credit for profit on Bahbood Certificates etc and B is the taxable income]
Foreign Tax Credit (also called Unilateral Relief or Cross Border Transaction Relief) – Section 103
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 such 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.]
Note for students: Foreign tax credit is not applicable for foreign source salary earned by a resident person as the same is exempt in Pakistan if the tax on that salary is paid in the foreign country.
b)Foreign income tax is to be paid in the foreign country within a period of 2 years from the end of the tax year. If not paid within 2 years then tax credit allowed in Pakistan shall be treated as tax payable by the person.
c)The foreign levy paid on the foreign income may be regarded as a foreign income tax if the following conditions are satisfied:
- the levy is a tax;
- the tax is substantially equivalent to the income tax imposed by the Income Tax Ordinance, 2001 on the related foreign income;
- A foreign levy is a tax if it requires a compulsory payment pursuant to the authority of the foreign country to levy taxes other than penalty or fine.
