Income from salary (Sec 12)

Income from Salary Income from Salary [Section 12][Section 12]

Group Members Group Members

1. Hammad Hassan

2. Syed Fakhar Abbas

3. Gullam Abbas

4. Imran Farooq

M.COM-3rd Semester (Sec A) Federal Urdu University, Islamabad 1

IntroductionIntroduction

Income from salary is the first head or source of income mentioned under section 12 of income tax ordinance,2001.

Salary means fixed, weekly or monthly remuneration.


Features of Salary IncomeFeatures of Salary Income Amount must be received by an

employee from his present or past employer and relationship must exist among them.

Income paid by GOP, local authority, company, public body, or private employer in Pakistan excluding the

Salary earned is taxable whether received or not.

Salary received is taxable whether earned or not.

Arrears of salary will be taxable in the year of receipt, if these hove not

employer in Pakistan excluding the income received from foreign government.

Pension paid by past employer to employee after service.

Employee in case of company includes the managing director, director or an agent of the company.

the year of receipt, if these hove not been in the year in which the amount was earned.


Scope of Salary IncomeScope of Salary Income

1) Salary and wages.

2) Annuity, pension or gratuity.

3) Fees, commission or allowances.3) Fees, commission or allowances.

4) Perquisites.

5) Profits in lieu of or in addition to salary or wages.


Valuation of Perquisites, Valuation of Perquisites, Allowances and BenefitsAllowances and Benefits

Perquisites means facilities or benefits Perquisites means facilities or benefits provided by the employer to his employee.


Minimum of time scale of Basic salary

The amount from where the salary of the employee starts.

M.T.S of basic salary = 60000-1000-70000.

Basic Salary

It means the pay and allowances payable monthly.It means the pay and allowances payable monthly.

Salary

It includes basic salary, overseas allowance, dearness allowance, cost

of living allowance, bonus and commission.


Facilities Provided by EmployerFacilities Provided by Employer

The facilities provided by the employer will be taxable. The facilities are

1) Accommodation

2) Conveyance2) Conveyance

3) Medical charges, hospital charges or medical allowance

4) Entertainment

5) Loan to employee

6) Special allowance

7) Provident fund


AccommodationAccommodation

House Rent AllowanceIf an employer provided any accommodation allowance or house rent allowance, the whole amount is taxable.

Accommodation facility

1) The amount that would have been paid by the employer in case such accommodation was not provided.

2) 45% of the M.T.S of the basic salary.

Whichever 1 or 2 is higher, is taxable.


Accommodation facilities in the areas where house rent is admissible @ 30%

In areas other than big citied the house allowance admissible to government employees is 30% of MTS of basic salary.

The amount that would have been paid by the employer 1) The amount that would have been paid by the employer in case such accommodation was not provided.

2) 30% of MTS of basic salary.

Which ever 1 or 2 is higher


ConveyanceConveyance

Conveyance Allowance

If the employer provide conveyance allowance to his employee is taxable.

Conveyance provided by employer for personal use of employee

10% of the cost employer paid to acquire the motor vehicle will be included in taxable income of employee every year.


Conveyance provided by employer partly for personal and partly for official use

5% of the cost paid by the employer for acquiring the motor vehicle will be included in taxable income of employee

Employer acquire the conveyance on Employer acquire the conveyance on lease

1) The fair market value at the commencement of the lease will be ascertained.

2) 10% of fair market value

3) 5% of such value will be added in total income


Medical Charges, Hospital Charges or Medical Charges, Hospital Charges or Medical AllowanceMedical Allowance

In case an employee

1) Receives free medical treatment or hospitalization or both by the employer or receives reimbursement of the medical expenses under employer or receives reimbursement of the medical expenses under the term of employment whole such benefit will be exempt from tax. It is necessary, however that NTN of hospital or clinic is provided and the employer also certifies and attest the medical or hospital bill.

2) In case where the above benefit are not provided by the employer, 10% of basic salary of employee is exempted from tax.


EntertainmentEntertainment

1) Actual entertainment expenditure incurred by employee for entertainment on behalf of organization and the reimbursement to him by employer are not taxable.

2) If any employee is provided free tea, coffee at office premises during work are not taxable.premises during work are not taxable.

3) Free or subsidized food provided by employee of hotel or restaurant during duty hour are not taxable.

4) In all the remaining case, the entire entertainment allowance received by employee will be added in his total income for tax purpose.


Loan to EmployeeLoan to Employee

Where a loan is made on or after the 1st day of July by an employer to an employee and either no profit on loan is payable by the employee or the rate of profit on loan is lee than 10%, the amount chargeable to tax to the employee

1) The profit on loan computed at the rate of 10%, where no profit on loan is payable by the employee.loan is payable by the employee.

2) The difference between the amount of profit on loan paid by the employee in the tax year and the amount of profit on loan computed at the rate of 10%.

3) Loan is exempt up to Rs. 500,000 provided by the employer to employee. If exceed will be taxable.


Special AllowanceSpecial Allowance

Special allowance is exempt from tax granted to meet expenses incurred in the performance of official duties.


ProvidentProvident FundFund

It is maintained by many organization for the benefit of their employees.

Types of Provident FundTypes of Provident Fund

Government Provident FundIt is maintained by government or semi government organization. It is known as statutory provident fund.

Recognized Provident FundWhen the private organization fulfils the condition for recognized fund When the private organization fulfils the condition for recognized fund and commissioner of income tax grant recognized such fund.

Unrecognized Provident FundWhen private organization which has not grant by income tax authorities:

1) when condition prescribed in the law regarding the provident are not fulfilled.

2) No application for recognized has been made.

3) Application is turned down some technical grounds by the income tax authorities.


Treatment of Provident FundTreatment of Provident Fund

Items Government

Provident Fund

Recognized Provident

Fund

Unrecognized

Provident Fund

Employees Contribution Included in taxable income Included in taxable income Included in taxable income

Employer Contribution Not Included in taxable

income

Not included lesser of 10%

of the salary or 100,000. In

case of exceeds, the excess

Not Included in taxable

income


case of exceeds, the excess

amount is taxable.

Interest Credited Not Included in taxable

income

Not included if rate is 16%

and amount is less than 1/3

of salary, if excess will be

taxable.


income

Receipt of Accumulated

Balance


income


income

Included to the extent of

employer contribution and

interest there on.

Special Tax Rebate For Senior CitizenSpecial Tax Rebate For Senior Citizen

Relief in tax is granted to senior citizen. It is known as special tax rebate.

1) 50% is allowed to taxpayer of 60 year age or above.


2) Admissible only in case where the taxpayers taxable income, other than income on which the deduction of tax is final is up to Rs 10,00,000.

3) Allowed in addition to any other allowance admissible under the law.

Average ReliefAverage Relief

Government allows tax concession on some expenditure and investments. These are as follows

1) Donation for charitable purpose (Sec 61)1) Donation for charitable purpose (Sec 61)

2) Investment in shares or life insurance premium paid (Sec 62)

3) Contribution to approved pension fund (Sec 63)

4) Profit on debt (Sec 64)


Donation for charitable purpose (Sec 61)Donation for charitable purpose (Sec 61)

Established and run by Government or local authority in Pakistan are.

Any Board of Education, any university, any educational institution.

Any hospital

Any Relief fund approved

Any non-profit organization.

If any donation is given in kind, the value of such articles or goods donated would be ascertained by board.

If any donation is given in kind, the value of such articles or goods donated would be ascertained by board.

The total donation on which tax concessions may be granted should not exceed the following

• In case of company 20% of taxable income

• In case of individual or association of person 30% of taxable income

Note: All the donation given in cash will be entitled to tax concession only if the amount is paid by a crossed cheque drawn on a bank or fair market value of any property given as donation


Investment in shares or life insurance Investment in shares or life insurance premium paid (Sec 62)premium paid (Sec 62)

If resident person pays insurance premium to a life insurance company registered by SECP

A resident person purchases either new shares offered by a public company listed on stock exchange in Pakistan or listed shares sold by privatization commission of Pakistan.

A person should be original allottee of shares. A person should be original allottee of shares.

The amount of relief allowed will have to be surrendered by person if he sells or transfers these shares with in three years of purchase.

through an amendment in finance act 2012, the limited for eligible for relief up to 20% or Rs 10,00,000, whichever is less and holding period is two years.


Contribution to approved pension Contribution to approved pension fund (Sec 63)fund (Sec 63)

a) The person contributing should possess a valid NTN or CNIC.

b) The concession is available for contribution to only on approved employment pension or annuity scheme.

The amount eligible for relief will be restricted to 20% of taxable c) The amount eligible for relief will be restricted to 20% of taxable income.

d) If a person joins this scheme at the age of 40, one year or above the limit of 20% as mentioned in (C) above will be enhanced by 2% each year above 40 and should not be exceed to 50% of taxable income of last year.


Calculation of Average ReliefCalculation of Average Relief


Income from salary (Sec 12)

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Transcript of Income from salary (Sec 12)