Income Tax calculation and Filing of returns step by step

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MILITARY ACCOUNTS TRAINING INSTITUTE
WAH CANTT

Definitions and concepts related to the income
tax
Tax (from the Latin taxo; "I estimate") is to
impose a financial charge or other levy upon a
taxpayer (an individual or legal entity) by a
state or the functional equivalent of a state
such that failure to pay is punishable by law.

Income tax Law in Pakistan
Law concerning taxation of income in
Pakistan is stated in the Income Tax
Ordinance, 2001 (the Ordinance) and the rules
framed there under viz. Income Tax Rules,
2002 (the Rules). The Ordinance is a Central
statute and is, therefore, applicable to the
whole of Pakistan. Under section 4 of the
Ordinance, income tax is imposed for each tax
year at specified rates on every person who
has taxable income for the year.

Tax Year in Pakistan
•
Tax year is a period of 12 months ending
on 30th June and shall be denoted by the
calendar year in which the said date falls.

Direct & indirect taxes
Indirect Tax
An indirect tax collected by an intermediary
who bears the ultimate economic burden of the
tax .
Examples:- sales tax, a specific tax, value
added tax (VAT), or goods and services
tax (GST)

DIRECT TAXES
A direct tax is generally a tax paid directly to
the government by the person on whom it is
imposed.
Example:- Real and personal property,
livestock, crops, wages, etc

Income tax
An income tax is a tax levied on the
income of individuals or businesses
(corporations or other legal entities). When
the tax is levied on the income of companies,
it is often called a corporate tax, corporate
income tax, or profit tax.

sales tax
A sales tax is a consumption tax charged at
the point of purchase for certain goods and
services.
Taxable Income in Pakistan
It is the total income of a person for a tax
year reduced by the total of any deductible
allowances.

Total Income
It is the sum of a person's income under each of
the heads of income for the year.
Heads of Income in Pakistan
Salary
Income from property,
Income from business,
Capital gains
and Income from other sources.

SALARY
Salary means any amount received by an employee from
any employment, whether of a revenue or capital nature,
including —
 Any pay
 wages
 any other remuneration.
 leave pay
 overtime payment
 bonus/honorarium
 commission
 fees, gratuity

Continued………. SALARY
 Any perquisite, whether convertible to money or not.
 cost of living.
 Subsistence.
 rent.
 utilities.
 education.
 entertainment.
 expenditure incurred by an employee that is paid or
reimbursed by the employer.
 The amount of any profits in lieu of, or in addition to, salary
or wages.

Salary Sec 149,1st schedule
Taxable Income Rate of Tax
From to
6,00,000 0 %
600,000 1,200,000 2.5% on amount exceeding Rs.600,000
1,200,001 24,00,000 15000
plus
12.5% on amount
>Rs.12,00,000
2,400,000 3,600,000 165000 22.5% on amount > Rs.
24,00,000/-
3600,000 6,000,000 435000 27.5% on amount >
Rs.36,00,000/-
6,000,000 To onward 1,095,000 35% on amount > Rs.
60,00,000/-

Income from property
The rent received or receivable by a person, other than
rent exempted, shall be chargeable to tax under the head
“Income from Property”.
 “Rent” means amount received by the owner .
 Lease amount not included.
 An amount of amenities, utilities will not be charged under
this head.

Deductions.
 Deduction in respect of repair /maintenance.
 premium paid against the risk of damage or destruction.
 local tax charged to local authority .
 Any ground rent paid .
 profit paid by way of mortgage.
 property acquired by the House Building Finance
Corporation.
 interest paid on such mortgage.
 expenditure paid.

Continued…….. Deductions.
 Expenditure paid for legal services acquired .
 unpaid rent in respect of the property .
 Expenditure against the defaulting tenant.

Income from business
 The profits and gains of any business .
 income derived by any trade, professional or similar
association.
 income from the hire or lease of tangible movable
property;
 income from prospective business relationship .

CAPITAL GAINS
 gain arising on the disposal of a capital asset .
 arising on the disposal of immovable property
by a person in a tax year, shall be chargeable
to tax in that year under the head Capital
Gains at the rates specified.

Income from other sources.
 Dividend
 Royalty
 Profit on debt;
 Ground rent;
 rent from the sub-lease of land or a
building;
 Income from the lease of any building
together with plant or machinery;

Continued…….. Income from other sources.
 Any annuity or pension;
 Any prize bond, or winnings from a raffle,
lottery[, prize on winning a quiz, prize
offered by companies for promotion of
sale] or cross-word puzzle;
 any other amount received as
consideration for the provision, use or
exploitation of property, including from
the grant of a right to explore for, or
exploit, natural resources.

Some important terms
 Resident
 Tax Filing status
 Tax Deductions and tax allowances
 Penalties
 Tax credits
 Withholding tax

Adjustment of taxes
231A  Cash Withdrawal
231AA  Banking Transaction
231B  Registration of New Car/Jeep
234  Tax on motor vehicles
236  Telephone or Mobile users
236B  Advance Tax of Air Ticket (not mentioned in AI 03/2015)
236D  Advance tax on functions and gatherings
236I  Collection of advance tax by educational institutions.
Clause 2 of
Part III Vide
Finance Act
2007;
 25% rebate to full time teachers or Instructor

Adjustment of taxes
continued………….
12(7)
 If arrear results in taxation at higher rate, the
employee by notice in writing to the
Commissioner may opt for the amount to be
taxed at the rates applicable to the year to which
the salary relates. Option to be exercised by the
due date for filing the return.
Clause 61 of
Part I of
Second
Schedule.
 CHARITABLE DONATION.
Donation paid to charitable institutions' approved under the
Clause 61 of Part I of 2nd Schedule maximum 30% of Taxable
Income is allowed to be deducted directly from the total income.

Allowances are exempted from levying of tax:
Kit Allowance
Ration Allowance
CILB
Special Messing Allowance
SSG Allowance
Northern Area Compensatory Allowance
Special Pay for Northern Areas
Height Allowance

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