Deductions Allowed from Salary Income in Pakistan
To reduce your taxable income and, consequently, your tax liability, ensure your employer is aware of the following permissible deductions:
Medical Allowance:
- Up to 10% of your gross salary is tax-deductible.
Employer Loans:
- Loans from your employer up to Rs. 1 million are not taxable.
Provident Fund (PF) Interest:
- Interest earned on your PF contributions up to 16% is tax-exempt.
Food Expenses:
- Expenses incurred on meals at restaurants or food outlets that offer food at subsidized rates are tax-deductible.
- Educational expenses incurred at institutions that offer education at reduced rates are also deductible.
Educational Expenses:
- Educational expenses incurred at institutions that offer education at reduced rates are also deductible. Or Employer contributions towards educational fees is exempt.
Eligibility:
- Individuals with a taxable income less than Rs. 1.5 million can claim this allowance.
Deductible Amount:
- The deductible amount is the lesser of:
- 5% of the total tuition fees paid.
- 25% of the individual’s taxable income.
- An amount calculated by multiplying Rs. 60,000 by the number of children.
Taxpayer Claim:
- Either parent paying the tuition fees can claim the allowance.
- The claimant must provide their NTN or the educational institution’s name.
- Note: It can not be carried forward to next year.
Pension and Gratuity:
- Approved pension and gratuity payments are tax-exempt.
Motor Vehicle Expenses:
- Expenses related to a motor vehicle used exclusively for business purposes are deductible.
Note:
- It’s essential to maintain proper documentation for all deductions claimed.
- Ensure your employer is aware of these deductions and is reflecting them accurately on your salary slips.
- Tax laws may change, so it’s advisable to consult with a tax professional for the most up-to-date information.
By understanding and utilizing these deductions, you can significantly reduce your taxable income and maximize your savings.
Adjusting Taxes with Form 3: A Guide for Pakistani Taxpayers
IT Form 3 is a crucial tool for Pakistani taxpayers to adjust their tax liabilities throughout the year. It allows individuals to claim deductions, exemptions, or credits that may not have been fully accounted for in their initial salary tax calculations.
Key Points:
- Adjustable Taxes: Form 3 is used to adjust taxes that are subject to change or adjustment during the year. This includes:
- Withholding Tax (WHT): If you’ve paid excessive WHT on your income, you can claim a refund using Form 3 e.g on Internet and telephone bills, at time of sale/purchase of property etc.
- Deductible allowances: If you have paid educational expenses or zakat etc reduce tax liability by deducting the allowances.
- Tax Credits: If you’re entitled to any tax credits (e.g., for charitable donations, foreign taxes paid), you can claim them using Form 3.
- Process:
- Gather necessary documentation to support your claims.
- Submit Form 3 to your employer along with the supporting documents.
- Your employer will review your claim and make adjustments to your taxable income and WHT as applicable.
- Timeframe:
- Form 3 can be submitted at any time during the tax year to adjust your tax liabilities.
- However, it’s generally recommended to submit it before the end of the year to maximize its benefits.
Benefits of Using Form 3:
- Avoid Overpayment: By claiming deductions and credits, you can ensure that you’re not paying more tax than you owe.
- Optimize Tax Liability: Form 3 helps you optimize your tax position throughout the year.
- Simplify Year-End Tax Filing: By adjusting your taxes throughout the year, your year-end tax return process will be less complex.
Remember:
- It’s essential to keep accurate records of all deductions and credits claimed.
- If you have any doubts or questions, consult with a tax professional for guidance.
By effectively utilizing Form 3, you can ensure that your tax obligations are accurately reflected and avoid unnecessary tax burdens.
Lahore