As a salaried employee in Pakistan, it’s important to understand how your income is taxed and what benefits and perquisites make up a part of your salary. By optimizing your understanding of these benefits, you can minimize your tax liability and maximize your take-home pay. In this article, we’ll explore the tax deductible benefits and allowances that can make a significant difference to your net salary.
What are Tax Deductible Benefits?
Tax deductible benefits are the benefits or perquisites that an employer provides to an employee, which are deductible from the employee’s taxable salary. These benefits can be in the form of allowances, reimbursements, or any other payments made by the employer.
- Conveyance
If an employer provides a conveyance to an employee, the value of this benefit is taxable. If the conveyance is used partly for business and partly for personal use, it will be taxed at 5% of the cost of the vehicle or the fair market value at the commencement of the lease if the vehicle is taken on lease.
If the conveyance provided is used solely for personal purposes, it will be taxed at 10% of the cost of the vehicle or the fair market value at the commencement of the lease if the vehicle is taken on lease.
- Fully Taxable Amounts
The following amounts paid by the employer to the employee are fully taxable:
- Electricity, water, gas bills
- Leave fare assistance
- Salary of domestic servants
- Capital receipts on termination of employment
- Tax paid by employer
- Loans
Where loans are provided to an employee interest-free, the difference between the benchmark rate (currently 10%) and the rate charged to the employee is taxable. However, loans less than 1 million PKR are not taxable.
Any other loans paid by the employer on behalf of the employee or waived by the employer are also taxable as salary.
- Value of Accommodation
The value of accommodation provided to an employee by the employer is also taxable. This is calculated as the higher of:
- 45% of basic salary
- Fair market value of accommodation
House Rent Allowance is fully taxable.
- Any Other Benefits
Any other benefits received by an employee from an employer are taxable at the fair market value. This includes any gifts or incentives, like a company car or a club membership.
Optimizing Your Take-Home Salary
Understanding the tax deductible benefits and allowances provided by your employer is crucial for optimizing your take-home salary. By taking advantage of these benefits, you can reduce your taxable income and ultimately increase your net salary.
To ensure that you are not overpaying on your taxes, it’s important to keep a record of all your tax deductible benefits and allowances. This will help you to accurately calculate your taxable income and reduce your tax liability.
In conclusion, as a salaried employee in Pakistan, it’s important to understand the tax deductible benefits and allowances provided by your employer. By optimizing your understanding of these benefits, you can minimize your tax liability and maximize your take-home pay. Don’t forget to keep track of all your tax deductible benefits and allowances to ensure that you are paying the right amount of tax.
