Understanding Taxes on Income from Salary in Pakistan

This article explores practical ways to potentially reduce your taxable income in Pakistan. Remember, these are suggestions, and it’s always best to consult a tax professional for personalized advice.

1. Utilize Medical Allowance Exemption:

Pakistan’s tax law allows a 10% exemption on your basic salary for medical expenses. This means you can reduce your taxable income by this amount.

Example:

• Ali’s gross salary is Rs. 1 lakh per month.
• His basic salary is Rs. 50,000.
• He can claim a Rs. 5,000 exemption (10% of Rs. 50,000) on his taxable income.
• This reduces his taxable income to Rs. 95,000 per month.

Action Point:

• Discuss claiming the medical allowance exemption with your employer.
• Some employers may structure your salary slip to reflect the basic salary before allowances.

2. Manage Allowances Strategically:

While allowances are helpful, they are typically taxable. Consider suggesting alternative approaches to your employer:

• Fuel Card vs. Fuel Allowance: If you receive a fuel card billed to the company, it’s not considered part of your salary and therefore not taxable. Opt for this instead of a taxable fuel allowance.

Note: This may not be suitable for all companies due to potential increased fuel consumption and tax implications for the company.

3. Track and Adjust Advance Tax Payments:

If you’ve paid advance tax throughout the year, you can potentially reduce your monthly tax deductions.

Example:

• You estimate your annual tax liability to be Rs. 15,000.
• You paid Rs. 5,000 in advance tax during the year.
• Inform your employer about this advance payment.
• Your employer can then adjust your monthly tax deductions to reflect the remaining Rs. 10,000 liability spread throughout the year.

Action Point:

• Keep track of any advance tax payments you make.
• Inform your employer about these payments to potentially reduce your monthly tax deductions.

Additional Tips:

• Stay updated on changes to tax slabs and rates during the annual budget announcements.
• Consider consulting US for personalized advice based on your specific circumstances.

Remember:

These are just a few suggestions, and it’s important to comply with all tax regulations. Always act ethically and within the legal framework. By managing your income strategically, you can potentially reduce your tax burden and keep more of your hard-earned money.