How To Calculate Taxable Income?

Calculating your taxable income in Pakistan involves understanding your total income and subtracting deductible expenses. Here’s a breakdown of the steps:

1. Gather your documents:

  • Salary slips
  • Business accounts and financial statements (if applicable)
  • Investment statements and rental income documents
  • Bank statements
  • Receipts for medical expenses, children’s education, charity donations, and other deductible expenses

2. Calculate your total income:

  • Add up your income from all sources, including:
    • Salary
    • Business profits
    • Rental income
    • Investment income
    • Other income (interest, royalties, Prize Bonds etc.)

3. Identify deductible expenses:

  • Review the expenses allowed for deduction by the Federal Board of Revenue (FBR). Some common deductible expenses include:
    • Medical expenses (up to 10% of basic salary)
    • Children’s education fees (up to Rs. 5%) (if gross income is less than Rs. 1.5 million)
    • Tax Credit for Charitable donations (subject to certain conditions)
    • Tax Credit for Approved Pension Fund (subject to certain conditions)

4. Calculate your deductible expenses:

  • Add up the total amount of all deductible expenses.

5. Calculate your taxable income:

  • Subtract your total deductible expenses from your total income. This will give you your taxable income.

6. Apply tax slabs:

  • Refer to the current tax brackets for individuals and businesses in Pakistan. Calculate the tax amount based on your taxable income and the applicable tax rate.

Important notes:

  • This is a simplified guide, and specific rules and restrictions may apply to different income sources and expenses.
  • It’s always recommended to consult a tax professional for personalized advice and accurate calculations, especially if your financial situation is complex.
  • You can find the latest tax laws and regulations on the FBR website:

Here are some helpful tools to assist with your tax calculations:

  • Iris (FBR online tax filing platform):
  • Tax software: Several tax software options are available in Pakistan, offering guided calculations and filing assistance.
  • Tax calculators: Various online tax calculators can estimate your tax liability based on your income and deductions

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