If you earn a salary in Pakistan, you must pay income tax on your earnings. Income tax is a direct tax that is paid to the government on your income, and the amount of tax you pay depends on your income level. In this article, we will discuss the tax treatment of income from salary in Pakistan, including the composition of salary income, income tax slab rates, and exemptions.
Composition of Salary Income:
Salary income is the amount received as consideration for services provided to an employer under the contract of employment, which may or may not include other benefits/perquisites. The tax treatment of these perks may vary according to the nature of the perk. Various perquisites are exempt as a whole, while some are partially taxable. The composition of salary income includes:
- Any benefits paid by the employer, whether in cash or in kind
- Any commission, bonus, overtime, work condition supplement
- Any amount which is reimbursed by the employer
- Any benefit to enter into or leaving an employment
- Any pension, gratuity, or any other supplement to these
- Any taxes paid on behalf of the employee
- Any benefit or arrears from past employment
- Shares bought under right option scheme
Income Tax on Salary – Slab Rates (Income Tax Ordinance 2001):
The following are the slab rates for calculating income tax on salary where salary income is more than 75% of the total taxable income of an individual:
- Where taxable income does not exceed Rs.600,000/-0%
2. Where taxable income exceeds Rs. 600,000 but does not exceed Rs. 800,000-5% of the amount exceeding Rs. 600,000
3.Where taxable income exceeds Rs. 800,000 but does not exceed Rs.1,200,000 -Rs. 10,000 + 12.5% of the amount exceeding Rs.800,000
4.Where taxable income exceeds Rs.1,200,000 but does not exceed Rs.2,400,000-Rs.60,000 + 17.5% of the amount exceeding Rs.1,200,000
5.Where taxable income exceeds Rs.2,400,000 but does not exceed Rs. 3,000,000 – Rs. 270,000 + 22.5% of the amount exceeding Rs.2,400,000
6.Where taxable income exceeds Rs.3,000,000 but does not exceed Rs.4,000,000 – Rs.405,000 + 27.5% of the amount exceeding Rs.3,000,000
7. Where taxable income exceeds Rs.4,000,000 but does not exceed Rs. 6,000,000 – Rs. 680,000 + 32.5% of the amount exceeding Rs.4,000,000
8.Where taxable income exceeds Rs.6,000,000 – Rs. 1,330,000 + 35% of the amount exceeding Rs.6,000,000
Exemptions:
Some perquisites are exempt from income tax, while others are partially exempt. The following are some of the exempt perquisites:
- House rent allowance (subject to limitations)
- Leave travel concession
- Medical expenses (subject to limitations)
- Utility bills
- Interest on loans (subject to limitations)
- Life insurance premium
- Gratuity
- Pension
- Commutation of pension
- Amount received on voluntary retirement
- Amount received on death or retirement
- Scholarships
Conclusion:
It is important to understand the tax treatment of income from salary in Pakistan to avoid any tax-related issues in the future. By following the income tax slab rates and understanding the exemptions, you can calculate the tax you owe on your salary income accurately. Remember to consult a tax professional if you have any questions or concerns regarding income tax on salary.
