Salary

Question 1

Tax treatment of amount received on termination of employment, including
compensation for redundancy or loss of employment and golden handshake is?

Answer 1

Either it is taxable in the year in which it is received
or he can elect for the amount to be taxed at following rate:-
A/B %
A is tax paid by employee on employee’s taxable income for past 3 years
B is the employee’s taxable income for past 3 year.

The above can be exercised by due date of furnishing return of income. commissioner may allow a longer period

Note. If there is a loss in one of last 3 years the we will take average of past 2 years.

Question 2

Tax treatment of [if the car is provided by the employer to employee] is?

Answer 2

• It will not be taxable if it has been provided for only performing official duties
• 5% of cost (in case employer has purchased car) or FMV (In case if it has been acquired on lease) if it has been acquired partly for performing official duties and partly for personal use
• 10% of cost (in case employer has purchased car) or FMV (In case if it has been acquired on lease) if it has been acquired only for personal use.

Question 3

Tax treatment of [if the Car, House, or other assets (laptop/oven/washing machine/ Fridge, etc) transferred/ sold/ gifted by the employer to employee] is?

Answer 3

FMV of asset at the time of transfer less amount paid by employee to employer is taxable

Question 4

Tax treatment of House provided to the employee by the employer?

Answer 4

Higher of

• 45 % of Basic Salary
• Amount that would have been paid if no accommodation had been provided.

Note: 1) If we select accommodation then till will be added to the Salary income
2) If the “amount that would have been paid by the employer had no accommodation been provided” is not given then we will compare 45% of basic salary with Fm rental of property (if it is given)

Question 5

Tax treatment of if (laptop/oven/ washing machine/ fridge etc.) is provided?

Answer 5

Fair market rent of asset for the year less amount paid by employee to employer
OR
Depreciation charged by employer in his books less amount paid by employee to employer.

Question 6

Tax treatment of if Gratuity fund is for Govt employees or it is approved by Commissioner?

Answer 6

Fully Exempt.

Question 7

Tax treatment of if Gratuity Fund is approved by Board?

Answer 7

Exempt upto Rs. 300,000 if scheme is applicable to all emplyees

Question 8

Tax treatment of unapproved Gratuity Fund is?

Answer 8

The Amount will be exempt upto the lower of following :

• 50% of amount received
• Rs. 75000.

Question 9

In what cases foreign source salary will be considered as exempt from tax..?

Answer 9

1. If employee has paid foreign tax on it to foreign country.
2. If citizen of Pakistan leaves Pakistan during a tax year and remain abroad till the end of year then foreign source tax will be exempt irrespective of the fact that where he paid foreign tax on it or not.

Question 10

Commutation of pension to Govt employees?

Answer 10

Exempt

Question 11

Commutation of pension if the scheme is approved by FBR?

Answer 11

Exempt.

Question 12

Commutation of pension if the scheme is unapproved?

Answer 12

The Amount will be exempt upto the lower of following :

• 50% of amount received
• Rs. 75000.

Question 13

when Exemption on Unapproved gratuity or commutation of pension will apply?

Answer 13

If applies if :

1. Payment is received in Pakistan;
2. Payment is received by a resident;
3. To gratuity received by an employee who has not received any gratuity from the same or any other employer; and
4. In case of the director, if payment is received by him being a regular employee;

Question 14

Can Salary be taxed at receipt base?

Answer 14

YES.
Where any salary is paid to person in arrears due to which person is charged at higher rate of tax as compared to tax that would have been applicable to the person in the tax year in which he rendered the services,
Such person may by writing notice to commissioner elect the rate applicable in the year in in which he earned salary.
The above option can be exercised by due date of furnishing the return. commissioner may allow a longer period.

Question 15

What is the tax treatment if an “employee uses the loan obtained from the employer for producing any other head of income”

Answer 15

• Then for Salary, rate will be calculated in normal way
• But for that income it will be assumed that person paid interest equal to benchmark rate. However if person pay interest more then benchmark rate, then actual interest will be taken
  (e.g., if interest paid 2,3,5,7,9 for that head assumed 10 is paid,
  but if interest paid 11, 12 then actual 11,12 deduct from income)

Question 16

Tax treatment of where [property is transferred or services are provided by an employer to an employee}..?

Answer 16

• Fair market value of property at the time of transfer less amount paid by employee to employer
• Fair market value of services at the time it is provided less amount paid by employee to employer.

Question 17

aaa

Answer 17

1. Valuation of accommodation
2. self hiring a property
3. Employee share scheme (only remaining)
4. Remaining of all funds (pension, benevolent, Annuity, leave encashment, allowances to outsider, wppf)

Question 18

Employer’s Contribution from recognized provident fund:

Answer 18

(Exempt upto lower of)
Rs. 75000
1/10th of salary

Question 19

Interest Calculation from recognized provident fund:

Answer 19

(Exempt up to higher of)
Interest calculated at @16%
1/3th of salary

Question 20

Employee’s Contribution from recognized, Unrecognized, and Government provident funds:

Answer 20

No treatment as amount is paid from Salary

Question 21

Accumulated Balance from recognized and Government provident funds:

Answer 21

Exempt.

Question 22

Employer’s contribution and Interest Calculation from Government provident fund and unrecognized provident fund?

Answer 22

Exempt.

Question 23

Accumulated Balance from Unrecognized provident fund?

Answer 23

Whole of employer’s contribution to date along with interest will be taxable.
(Final Amount – whole employee’s contribution)

Question 24

Value of right or option to acquire share under employee share scheme?

Answer 24

is not chargeable to tax

Question 25

Where in a tax year, an employee disposes of a right or option (to acquire share under an employee share scheme), the amount chargeable under the head “Salary” shall include?

Answer 25

A-B
Where, A is the consideration received for the disposal of right or option; and
B is the employee’s cost in respect of right or option.

Question 26

Where shares are issued to an employee under an employee share scheme (including as a result of the exercise of an option), which amount is chargeable?

Answer 26

The FMV of shares at the date of issue less consideration given by employee for the shares and for rights or options.

Question 27

Where shares are issued to an employee under the scheme and there is restriction on transfer nothing will be added in the income until employee a free right to transfer, the salary shall include?

Answer 27

• The FMV of shares at the time the employee has a free right to transfer the shares less consideration given by employee for the shares and for the rights or options.

Question 28

if employee disposes off the shares before getting free right to transfer the shares, the Salary shall include?

Answer 28

The FMV of shares at the time the employee disposes of the shares less consideration given by the employee for the shares and for rights or options.

Question 29

Cost of share (for computing Tax credit / Capital gain at the time of disposal) shall be sum of:

Answer 29

The consideration given by the employee for the shares;
The consideration given by the employee for the grant of right or options; and
The amount chargeable under the head “Salary”.