If you are a taxpayer in Pakistan, you may have come across the term “tax credit” at some point. Tax credits are an important part of the income tax system, as they provide relief to taxpayers by reducing their tax liability. In this article, we will provide you with a comprehensive guide on tax credits in Pakistan, including their definition, types, and how to claim them.
What is a Tax Credit?
A tax credit is a benefit given by the state to taxpayers who have already paid their taxes. It is a form of relief that reduces the tax liability of the taxpayer. Tax credits can take many forms, including a refund of taxes paid in the previous year, advance tax, withholding tax, rebates, or incentives for certain types of investments.
Types of Tax Credits in Pakistan
The Income Tax Ordinance 2001 allows for different types of tax credits. Section 60 to 65 of the ordinance addresses these tax credits. Let’s take a closer look at some of the most common types of tax credits in Pakistan.
1.Foreign Tax Credit
A foreign tax credit is a credit given for taxes paid on income earned outside Pakistan. This credit is given to avoid double taxation on the same income. To claim a foreign tax credit, you must provide evidence of taxes paid outside Pakistan.
2. Investment in Shares or Insurance Premium
If you have invested in shares or paid an insurance premium, you may be eligible for a tax credit. The tax credit is equal to a percentage of the amount invested or paid, subject to certain limits.
3. Profit on Debt on House Loan
If you have taken a loan to purchase or construct a house, you may be eligible for a tax credit on the profit paid on the loan. The tax credit is equal to a percentage of the profit paid, subject to certain limits.
Claiming Tax Credits in Pakistan
To claim a tax credit, you must file your income tax return with the Federal Board of Revenue (FBR) by the due date. You must provide evidence of the taxes paid or the investment made to claim the tax credit. If you have excess tax credits, you can carry them forward to the next tax year, subject to certain limits.
Tips for Claiming Tax Credits in Pakistan
Here are some tips to keep in mind when claiming tax credits in Pakistan:
- Keep accurate records of your taxes paid or investments made.
- File your income tax return on time to avoid penalties.
- Make sure you provide all necessary evidence to claim the tax credit.
- If you have any doubts, seek professional help from a tax consultant.
Tax credits are an important part of the income tax system in Pakistan. They provide relief to taxpayers by reducing their tax liability. By understanding the types of tax credits available and how to claim them, you can reduce your tax burden and keep more of your hard-earned money. Remember to keep accurate records and seek professional help if needed. Happy tax filing!