GOVERNMENT OF PAKISTAN

REVENUE DIVISION

CENTRAL BOARD OF REVENUE

*****

No.F.4(1 )ITP/2004-SAL

Islamabad, July 3, 2004

 

Circular No. 15 of 2004

(Income Tax)

 

Subject:         DEDUCTION OF TAX FROM SALARY FOR THE TAX YEAR COMMENCING ON 1ST JULY 2004.

 

The tax liability of salaried taxpayers where salary constitutes more than 50% of the total income from all sources for the tax year 2005 shall be computed in accordance with the provisions of sections 12, 13 and 14 of Income Tax Ordinance, 2001 read with rules 3 to 9 of Income Tax Rules, 2002.

 

2.                 The taxpayers would be entitled to the following relief:

 

a.       exemption of basic threshold of Rs.100,000;

 

b.       reduction in tax liability as provided in clause (1) (1) of Part­-III of the Second Schedule to the Income Tax Ordinance, 2001, as per following schedule:

S No. Income Slab Reduction in Tax liability
   
1. Where income exceeds Rs.60,000 but

does not exceed Rs.80,000

70%
2. Where income exceeds Rs. 80,000 but

does not exceed Rs.100,000

60%
3. Where income exceeds Rs.100,000

but does not exceed Rs.150,000

50%
4. Where income exceeds Rs. 150,000

but does not exceed Rs.200,000

40%
5. Where income exceeds Rs.200,000

but does not exceed rs,300,000

30%
6. Where income exceeds Rs.300,000

but does not exceed Rs.500,000

20%
7. Where income exceeds Rs.500,000

but does not exceed Rs.1,000,000

10%
8. Where income exceeds Rs.1,000,000 5%

 

 

c.       further reduction of 50% of tax available to the senior citizens aged 65 years or more and earning income upto Rs.300, 000/- under clause (1A) of the said schedule shall also be applicable to salaried persons; and

 

d.       additional reduction of 50% in tax liability in case of a full time teacher or researcher employed in a non-profit education or research institution, including Govt. training or research institution , duly recognized by a Board of Education or a university or University Grants Commission under clause (1)(2) of the said schedule

 

3.     TAXATION OF PERQUISITES AND ALLOWANCES WHERE SALARY INCOME EXCEEDS RS.600000.

 

The method of valuation of perquisites and benefits under Income Tax Rules, 2002 with respect to salary income is the same as explained in circular No.12 of 2002 dated August 9, 2002. However, in case of salaried taxpayer whose income is Rs.600,000 or more, the house rent allowance received in cash upto 45% of the minimum of the time scale or where there is no time scale upto 45% of basic salary subject to maximum of Rs.270,000 shall not be included in his taxable income. Principles of taxation of other perquisites in case of such taxpayers remain the same.

 

4.     INCREASE IN BASIC THRESHOLD.

 

The basic threshold has been raised to Rs.100,000 w.e.f. tax year 2005. The tax slabs have also been revised accordingly. These slabs shall, however, be applicable for tax withholding purposes in respect of salary paid on or after first day of July 2004. The revised slabs are as under:­-

 

S.No. Taxable income Rate of tax
(1) (2) (3)
1. Where taxable income does not exceed Rs.100,000 0%
2. Where taxable income exceeds Rs.100,000 but does not exceed Rs.150,000 7.5% of the amount exceeding Rs.100,000.
3. Where taxable income exceeds Rs.150,000 but does not exceed Rs.300,000 Rs.3,750 plus 12.5% of the amount exceeding Rs.150,000.
4. Where taxable income exceeds Rs.300,000 but does not exceed Rs.400,000 Rs.22,500 plus 20% of the amount exceeding Rs.300,000.
5. Where taxable income exceeds Rs.400,000 but does not exceed Rs.700,000 Rs.42,500 plus 25% of the amount exceeding Rs.400,000.
6. Where taxable income exceeds Rs.700,000. Rs.117,500 plus 35% of the amount exceeding Rs.700,000.

 

5.       The following examples illustrate the computation of tax of salaried persons for the tax year 2005 and tax shall accordingly be deducted under section 149(1) of the Income Tax Ordinance, 2001 by the employers w.e.f. July 1, 2004.

 

Example1.

(Figures in Rupees)

          Time Scale (12400 — 615 — 24700)

  Total Income Exempt Income Taxable Income
       
Basic Pay @ 18550 per month 222600 Nil 222600
House rent allowance 30996 30996 Nil
Conveyance allowance 4080 4080 Nil
Spl. Addl. Allowance 18600 18600 Nil
Over time 4500 Nil 4500
Spl. Relief allowance @ 15% through 33390 Nil 33390
Finance Division’s OM No.1(4)lmp/2003 dated June 30, 2003.Ad-hoc Relief allowance @ 15% through Finance Division’s OM No.1 (8)lmp/ 2004 dated July 1, 2004.

 

33390 Nil 33390

TOTAL

347556 53676 293880

 

Tax on Rs.150,000(on the amount exceeding Rs.100,000) @7.5%.

 

3,750

Tax on remaining amount of  Rs.143880 @ 12.5%

 

17,985

Total Tax

21,735

 

 

Less: 30% reduction as per clause (1) of Part-Ill of 2nd Schedule.

 

6,520

Tax payable

 

15,215

Tax deductible per month.

1,268

 

Example2.

(Figures in Rupees)

          Time Scale (16305 —1070 — 31285)

  Total Income Exempt Income Taxable Income
       
Basic Pay @ 27005 per month 324060 Nil 324060
Qualification pay 9000 Nil 9000
Senior Post allowance 9600 Nil 9600
Entertainment allowance 5400 Nil 5400
Rent ceiling paid by the employer Rs.155664 (Restricted to 15% of          salary). 48609   48609
Conveyance provided by the employer = (for business use only). Nil Nil Nil
Spl. Addl. allowance  = 24456 24456 Nil
Orderly allowance     = 22800 Nil 22800
Spl. Relief. allowance =

@ 15% through Finance Division’s OM No.1(4)lmp/ 2003 dated June 30, 2003.

48609 Nil 48609
Ad-hoc Relief allowance =

@ 15% through Finance Division’s OM No.1(8)lmp/ 2004 dated July 1, 2004.

48609 Nil 48609
TOTAL 541143 24456 493887

 

Tax on Rs.150,000(on the amount exceeding Rs.100,000) @7.5%. =

 

3,750

Tax on next Rs.150,000 @12.5% =

18,750

Tax on next Rs.100,000 @20%

 

20,000

Tax on remaining amount of Rs.93,887 @ 25% =

23,472

Total Tax =

65,972

 

Less: 20% reduction as per clause (1) of Part-III of 2nd Schedule.

13,194

 

Tax payable

52,778

Tax deductible per month.

4,398

 

Example3.

(Figures in Rupees)

          Time Scale (16305 — 1070 — 31285)

  Total Income Exempt Income Taxable Income
       
Basic Pay @ 27005 per month 324060 Nil 324060
Qualification pay 9000 Nil 9000
Entertainment allowance 5400 Nil 5400
Un-furnished accommodation provided by the employer with plot area of 1000

Sq.Yd. at Islamabad (addition restricted to 15% of the basic salary).

48609   48609
Conveyance provided by the employer 3600   3600
Spl. Addl. allowance  = 24456 24456 Nil
Orderly allowance     = 22800 22800

TOTAL

437925 24456 413469

 

Tax on Rs.150,000(on the amount exceeding Rs.100,000) @ 7.5%.

 

3,750

Tax on next Rs.150,000 @ 12.5%

18,750

Tax on next Rs.100,000 @ 20%

 

20,000

Tax on remaining amount of Rs. 13,469 @ 25%

3,367

Total Tax

72,572

 

Less: 10% reduction as per clause (1) of Part-III of 2nd Schedule.

9,173

 

Tax payable

36,694

Tax deductible per month.

3,058

 

 

6.       Following examples illustrate the determination of threshold of Rs.600,000:-

Example1.

(Figures in Rupees)

          Time Scale (17440 — 1250 — 34940)

  Total Income Exempt Income Taxable Income
       
Basic Pay @ 34940 per month 419280 Nil 419280
Conveyance provided by =

employer partly for private use.

3600 (as per Rule 6C) Nil 3600
Spl. Addl. Allowance  = 18600 18600 Nil
Sr. Post Allowance = 12000 Nil 12000
Entertainment Allowance = 9600 Nil 9600
Orderly Allowance = 25584 Nil 25584
SpI. Relief allowance =

@ 15% through Finance

Division’s OM No.1(4)lmp/

2003 dated June 30, 2003.

62892 Nil 62892
Ad-hoc Relief allowance =

@ 15% through Finance

Division’s OM No.1(8)lmp/

2004 dated July 1, 2004.

62892 Nil 62892
Total = 614448 18600 595848

 

The Salary chargeable to tax determined after allowing admissible exemptions in the above example is less than Rs.600,000. Hence the taxpayer would be entitled to valuation of perquisites as per rule 3 — 8 for aforesaid treatment.

 

 

Example2.

(Figures in Rupees)

          Time Scale (20000 — 2000 — 40000)

  Total Income Exempt Income Taxable Income
       
Basic Pay @ 34000 per month 408000 Nil 408000
Furnished accommodation provided by the employer = 104820 (15% + 10% of basic salary, as per rule 5A & 5B) Nil 104820
Conveyance provided by =

employer partly for private

use.

3600 Nil 3600
Entertainment Allowance = 9600 Nil 9600
Concessional loan of Rs.2.0 million obtained @ 2% per annum (Bench mark rate 7%

Duff:   i.e. 7-2 = 5%)

100000 Nil 100000
Total 626020 Nil 626020

 

 

Since salary chargeable to tax determined after allowing admissible exemptions exceeds Rs.599,999, valuation of perquisites and benefits shall be made as per rule 9 of the Income Tax Rules, 2002, which is as under:-

 

(Figures in Rupees)

Time Scale (20000 — 2000 — 40000)

  Total Income Exempt Income Taxable Income
       
Basic Pay @ 34000 per month 408000 Nil 408000
Furnished accommodation

provided by the employer =

with land area of 1000 Sq

yards, Rule 9(1)(a).

370000 Nil 370000
Add. 15% of Rs.270,000

under rule 9(1)(b)          =

55500   55500
conveyance provided by =

employer partly for private

use. Cost of vehicle 1 million

(assumed) Rule 9(5)(b).

50000   50000
Entertainment Allowance = 9600

Nil

9600
Concessional loan of  =

Rs.2.0 million obtained

@ 2% per annum

(Bench mark rate 7%

for tax year 2005

Diff:    i.e. 7-2 = 5%)

100000

Nil

100000
Total = 993100

Nil

993100

 

Tax on Rs.150,000 (on the amount exceeding Rs.100,000)

@7.5%.

3,750

Tax on next Rs.150,000 @12.5%

18,750

Tax on next Rs.100,000 @ 20%

20,000

Tax on next Rs.300,000 @25%

75,000

Tax on remaining Rs.293,100 @ 35%

102,585

Total Tax 

220,085

 

Less: 10% reduction as per clause (1) of Part-III of 2nd Schedule.

22,008

 

Tax payable

198,077

Tax deductible per month.

16,506

 

 

Example3.          Taxation of income of Rs.600,000 or more where house rent allowance is paid in cash.

(Figures in Rupees)

Time Scale (40000 — 5000 — 75,000)

  Total Income Exempt Income Taxable Income
       
Basic Pay @ 55000 per month 660000 Nil 660000
House rent allowance =

received in cash

240000 216,000 [@ 45% as per rule 9(2)] 240000
conveyance provided by = employer partly for private

use. Cost of vehicle 1 million

(assumed) Rule 9(5)(b).

50000   50000
Entertainment Allowance = 9600

Nil

9600
Concessional loan of  =

Rs.2.0 million obtained

@ 2% per annum

(Bench mark rate 7%

for tax year 2005

Diff:    i.e. 7-2 = 5%)

100000

Nil

100000
Total = 1059600

216000

843600

 

Tax on Rs.150,000 (on the amount exceeding Rs.100,000)

@7.5%.

3,750

Tax on next Rs.150,000 @12.5%

18,750

Tax on next Rs.100,000 @ 20%

20,000

Tax on next Rs.300,000 @ 25%

75,000

Tax on remaining 143,600 @ 35%

50,260

Total Tax 

167,760

 

Less: 10% reduction as per clause (1) of Part-III of 2nd Schedule.

16,776

 

Tax payable

150,984

Tax deductible per month.

12,582

[copyrightsThis]