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.
Example — 1.
(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 |
Example — 2.
(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 |
Example — 3.
(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:-
Example — 1.
(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.
Example — 2.
(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 |
Example —3. 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 |
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