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1 With compliments from: Key Solutions, Chief Executive, Afzaal Ansari Tax, Software and Website Consultants Cell: , Website: Bsc, CA(Int) Life Member, Lahore Tax Bar Association Chairman, IT Committee, Lahore Tax Bar Association, & Chairman, Web updation Committee, Lahore Tax Bar Association, Approved programmer of Lahore Distributor Association Certified service provider of SMEDA This guideline has been prepared in the light of; Income Tax Ordinance 2001 and Income Tax Rules 2002 General Date of publication This guideline has been published on June 30, 2018 Disclaimer This is general guideline on the subject. Before taking any action, please refer to the Ordinance and rules made there under or take expert professional advice. No responsibility will be taken for any result arising from use of this guideline. TAX RATES FOR SALARIED PERSONNELCLAUSE-1A, Division I, PART-I OF 1 st SCHEDULE Where the income of an individual chargeable under the head SALARY exceeds fifty percent of his taxable income, the rates of tax to be applied shall be as set out in the following table namely: S. # Taxable Income Rate of tax Tax year 2018 From to Where the taxable income does not exceed Rs.400,000 0% 2 Where the taxable income exceeds Rs.400,000 but does not exceed Rs.500,000 2% of the amount exceeding Rs.400,000 3 Where the taxable income exceeds Rs.500,000 but does not exceed Rs.750,000 Rs % of the amount exceeding Rs.500,000

2 4 Where the taxable income exceeds Rs.750,000 but does not exceed Rs.1,400,000 Rs.14, % of the amount exceeding Rs.750,000 5 Where the taxable income exceeds Rs.1,400,000 but does not exceed Rs.1,500,000 Rs. 79, % of the amount exceeding Rs.1,400,000 6 Where the taxable income exceeds Rs.1,500,000 but does not exceed Rs.1,800,000 7 Where the taxable income exceeds Rs.1,800,000 but does not exceed Rs.2,500,000 8 Where the taxable income exceeds Rs.2,500,000 but does not exceed Rs.3,000,000 9 Where the taxable income exceeds Rs.3,000,000 but does not exceed Rs.3,500, Where the taxable income exceeds Rs.3,500,000 but does not exceed Rs.4,000, Where the taxable income exceeds Rs.4,000,000 but does not exceed Rs.7,000,000 Rs. 92, % of the amount exceeding Rs.1,500,000 Rs.137, % of the amount exceeding Rs.1,800,000 Rs. 259, % of the amount exceeding Rs.2,500,000 Rs. 359, % of the amount exceeding Rs.3,000,000 Rs.472, % of the amount exceeding Rs.3,500,000 Rs.597, % of the amount exceeding Rs.4,000, Where the taxable income exceeds Rs.7,000,000 Rs. 1,422, % of the amount exceeding Rs.7,000,000 Rates for withholding tax w.e.f S. # Taxable Income Rate of tax Tax year 2019 From to Where the taxable income does not exceed Rs.400,000 0% 2 Where the taxable income exceeds Rs.400,000 but does not exceed Rs.800,000 Rs.1,000 3 Where the taxable income exceeds Rs.800,000 but does not exceed Rs.1,200,000 Rs. 2,000 4 Where the taxable income exceeds Rs.1,200,000 but does not exceed Rs.2,400,000 5% of the amount exceeding Rs.1,200,000 5 Where the taxable income exceeds Rs.2,400,000 but does not exceed Rs.4,800,000 Rs. 60, % of the amount exceeding Rs.2,400,000 6 Where the taxable income exceeds Rs.4,800,000 Rs. 300, % of the amount exceeding Rs.4,800,000

3 DEFINITIONS (Sections-2) (22) Employment includes (a) a directorship or any other office involved in the management of a company; (b) a position entitling the holder to a fixed or ascertainable remuneration; or (c) the holding or acting in any public office; SALARY INCOME (Section-12) Any salary received by an employee in a tax year, other than salary that is exempt from tax under Income Tax Ordinance, 2001 shall be chargeable to tax in that year under the head Salary. Salary means any amount received by an employee from any employment, whether of a revenue or capital nature, including: Any pay, wages or other remuneration provided to an employee, including leave pay, payment in lieu of leave, overtime payment, bonus, commission, fees, gratuity or work condition supplements (such as for unpleasant or dangerous working conditions) Any perquisite, whether convertible to money or not; the amount of any allowance provided by an employer to an employee including a cost of living, subsistence, rent, utilities, education, entertainment or travel allowance, but shall not include any allowance solely expended in the performance of the employee s duties of employment; the amount of any expenditure incurred by an employee that is paid or reimbursed by the employer, other than expenditure incurred on behalf of the employer in the performance of the employee s duties of employment; the amount of any profits in lieu of, or in addition to, salary or wages, including following amounts received: As consideration for a person s agreement to enter into an employment relationship; As consideration for an employee s agreement to any conditions of employment or any changes to the employee s condition of employment; On termination of employment, whether paid voluntarily or under an agreement, including any compensation for redundancy or loss of employment and golden handshake payments; From a provident or other fund, to the extent to which the amount is not a repayment of contribution made by the employee to the fund in respect of which the employee was not entitled to a deduction; and As consideration for an employee s agreement to a restrictive covenant in respect of any past, present or prospective employment; As consideration for an employee s agreement to a restrictive covenant in respect of any past, present or prospective employment; Any Pension or annuity, or any supplement to a pension or annuity; and Any amount chargeable to tax as Salary under Section-14.

4 SALARY RECEIVED IN ARREARS SECTION-12 (7 & 8) Where: any amount chargeable under the head Salary is paid to an employee in arrears; and as a result the employee is chargeable at higher rates of tax than would have been applicable if the amount had been paid to the employee in the tax year in which the services were rendered, the employee may, by notice in writing to the Commissioner, elect for the amount to be taxed at the rates of tax that would have been applicable if the salary had been paid to the employee in the tax year in which the services were rendered. An election under sub-section (6) or (7) shall be made by the due date for furnishing the employee s return of income or employer certificate, as the case may be, for the tax year in which the amount was received or by such later date as the Commissioner may allow. VALUE OF PERQUISITES (SECTION-13) For the purposes of computing the income of an employee for a tax year chargeable to tax under the head Salary, the value of any perquisite provided by an employer to the employee in that year that is included in the employee s salary under section 12 shall be determined in accordance with this section. Where, in a tax year, the services of a housekeeper, driver, gardener or other domestic assistant is provided by an employer to an employee, the amount chargeable to tax to the employee under the heard Salary for that year shall include the total salary paid to [such housekeeper, driver, gardener or other domestic assistant] in that year for services rendered to the employee, as reduced by any payment made by the employee [to the employer] for such services. Where, in a tax year, utilities are provided by an employer to an employee, the amount chargeable to tax to the employee under the head SALARY for that year shall include the fair market value of the utilities provided, as reduced by any payment made by the employee for the utilities. VALUATION OF ALLOWANCES AND PERQUISITES UNDER INCOME TAX RULES-2002 VALUATION OF PERQUISITES, ALLOWANCE & BENEFITS (RULE-3) For the purposes of computing the income chargeable to tax under the head SALARY, the value of all perquisites, allowances and benefits provided by the employer to the employee shall be included in the said income in accordance with the rules 4 to 7 of Income Tax Rules VALUATION OF ACCOMMODATION (PROVIDED BY EMPLOYER (RULE-4) The value of accommodation provided by an employer to the employee shall be taken equal to the amount that would have been paid by the employer in case such accommodation was not provided. Provided that the value taken for this purpose shall, in any case, not be less than forty five percent (45%) of the minimum of the time scale of the basic salary or the basic salary where there is no time scale. Provided further that where House Rent Allowance is thirty percent, the value taken for the purpose of this rule shall be an amount not less than thirty percent of minimum of the time scale of basic salary or the basic salary where there is no time scale.

5 VALUATION OF CONVEYANCE (PROVIDED BY THE EMPLOYER (RULE-5) The addition on account of Motor Vehicle provided by the employer to the employee shall be calculated in the following manner: Where motor vehicle is used partly for personal and partly for official. In case the motor vehicle provided by the employer is used partly for personal and partly for official, the amount to be included in the salary on this account shall be 5%, of: The cost to the employer for acquiring the motor vehicle OR The fair market value of the motor vehicle at the commencement of the lease if the motor vehicle is taken on lease by the employer. Where motor vehicle is provided exclusively for personal or private use. In case motor vehicle provided by the employer is used exclusively for personal or private use, addition in income will be made as under: a) Where motor vehicle is owned by the employer; 10% of cost to the employer for acquiring the motor vehicle b) Where motor vehicle is taken on lease by the employer; 10% of fair market value of the motor vehicle at the commencement of the lease TAX REBATES SENIOR CITIZENS, CLAUSE (1B) OF PART-I OF FIRST SCHEDULE Where taxable income other than income on which the deduction of tax is final discharge of tax liability, does not exceed Rupees 1,000,000, in a tax year of a taxpayer holding NADRA s CNIC for disabled person or a taxpayer aged 60 years or more on the first day of that tax year, his tax liability on such income shall be reduced by 50%. FULL TIME TEACHER OR RESEARCHER (SECTION 149, CLAUSE-2 PART-III OF SECOND SCHEDULE) The tax payable by a full time teacher or a researcher, employed in a non profit education or research institution duly recognized by Higher Education Commission, a Board of Education or University recognized by Higher Education Commission, including government training & research institution, shall be reduced by an amount equal to 40% of tax payable on his income from salary.

6 TAX ADJUSTMENTS AND TAX Adjustment of tax collected/deducted on Tax collected on Cash withdrawals from banks (under Section 231A). Tax collected by Vehicle Registration Authority at the time registration of new Car/Jeep (under Section 231B). Motor vehicle tax collected under Section 234 in respect of motor vehicle registered in employees own name. Tax collected on the amount of electricity bill of domestic consumer (Section 235A). Tax collected through Telephone bill (under Section 236) (FBR s Circular No. 5 dated 5 th July, 2008). Tax collected through purchase of Air Ticket (Domestic) under Section 236B. Advance tax on sale or transfer of immovable property (under Section 236C). Advance tax paid for arranging functions and gatherings (Section 236D). Advance tax on sales to distributors, dealers and wholesalers (Section 236G). Advance tax on sales to retailers (Section 236H). Collection of Advance tax by educational institution (Section 236I) Tax collected on purchase or transfer of immovable property (Section 236K). Advance tax on purchase of International Air Tickets (Section 236L). Advance tax on banking transactions otherwise than through cash (Section 236P). Tax Credits on (Chapter III, Part X of Income Tax Ordinance, 2001); Donations to approved NPOS(Section-61) Investment in shares and Insurance (Section-62) Contribution to approved pension funds (Section-63) Profit on debt paid in respect of house loans etc (Section-64) DEDUCTIBLE ALLOWANCES The below mentioned allowances are deductible allowances to arrive at taxable income: ZAKAT (Under Section 60(1)&(3) of Income Tax Ordinance, 2001 Zakat paid under the Zakat and Ushr Ordinance 1980 is to be treated as a deductible allowance from the total income to arrive at taxable income. Any allowance or part of an allowance under this section for a tax year that is not able to be deducted under section 9 (Taxable Income) for the year shall not be refunded, carried forward to a subsequent tax year, or carried back to a preceding tax year. EXEMPTION FROM TOTAL INCOME MEDICAL ALLOWANCE PART-I CLAUSE-139(B) OF SECOND SCHEDULE Medical allowance received by an employee who is not entitled to free medical treatment or hospitalization or reimbursement of medical or hospitalization charges under the terms of employment, such employee is entitled for exemption not exceeding 10 % of the basic salary for the year (effective from 1 st July, 2003).

7 PENSIONS PART-I, CLAUSE-8, OF SECOND SCHEDULE. In case one gets more than one pension, the exemption applies to higher of the pensions received. PENSION OF GOVT. & ARMED FORCES EMPLOYEES PART-I CLAUSE-9 OF SECOND SCHEDULE. Any Pension: (effective from 1 st July 2006): Received in respect of services rendered by a member of the Armed Forces of Pakistan or Federal Government or a Provincial Government. Granted under the relevant rules to the families and dependents of public servants or members of Armed Forces of Pakistan who die during service. ENCASHMENT OF LPR As per provision of clause-19, Part-I of Second Schedule to the Income Tax Ordinance, 2001 Leave Preparatory to Retirement (LPR) is exempt from deduction of income tax. FILING OF RETURN OF INCOME - SECTION 116 (1)(AB) every person (other than a company) whose taxable income for the year exceeds the maximum amount that is not chargeable to tax under this Ordinance for the year FILING OF WEALTH STATEMENT - SECTION 116 (1)(2) & (3) 1. The Commissioner may, by notice in writing, require any person being an individual to furnish, on the date specified in the notice, a statement (hereinafter referred to as the "wealth statement") in the prescribed form and verified in the prescribed manner giving particulars of a. the person s total assets and liabilities as on the date or dates specified in such notice; b. the total assets and liabilities of the person s spouse, minor children, and other dependents as on the date or dates specified in such notice; c. any assets transferred by the person to any other person during the period or periods specified in such notice and the consideration for the transfer; d. the total expenditures incurred by the person, and the person s spouse, minor children, and other dependents during the period or periods specified in the notice and the details of such expenditures; and e. the reconciliation statement of wealth. 2. Every resident taxpayer being an individual filing a return of income for any tax year shall furnish a wealth statement and wealth reconciliation statement] for that year along with such return: Provided that every member of an association of persons shall also furnish wealth statement and wealth reconciliation statement for the year along with return of income of the association. 3. Where a person, who has furnished a wealth statement, discovers any omission or wrong statement therein, he may, without prejudice to any liability incurred by him under any provision of this Ordinance, furnish a revised wealth statement along with the revised wealth reconciliation and the reasons for filing revised wealth statement, at any time before the receipt of notice under sub-section (9) of section 122, for the tax year to which it relates.

8 DATE OF FILING OF RETURN OF INCOME / STATEMENT- SECTION 118 (2A) Where salary income for the tax year is five hundred thousand rupees or more, the taxpayer shall file return of income electronically in the prescribed form and it shall be accompanied by the proof of deduction or payment of tax and wealth statement as required under section (b) For salary persons : On or before the 30th day of September next following the end of the tax year to which the return relates Any suggestions, corrections or relevant material may please be sent to us so that this guideline may further be developed. Best Regards For Key Solutions Afzaal Ansari Tax, Software and Website Consultants Cell: , Website: afzaal68@gmail.com Bsc, CA(Int) Life Member, Lahore Tax Bar Association Chairman, IT Committee, Lahore Tax Bar Association, & Chairman, Web updation Committee, Lahore Tax Bar Association, Approved programmer of Lahore Distributor Association Certified service provider of SMEDA

TAXATION OF INCOME FROM SALARY TAX YEAR 2018 (JULY 01, 2017 TO JUNE 30, 2018)

CIRCULAR NO. 9 OF (INCOME TAX) TAXATION OF INCOME FROM SALARY TAX YEAR 2018 (JULY 01, 2017 TO JUNE 30, 2018) The Circular on taxation of Income Salary is being updated as under:- The Computation of Tax