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Taxation Managment

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Taxation Management ­ FIN 623
VU
MODULE 6
LESSON 6.28
SALARY AND ITS COMPUTATION
Exercise 9:
Computation of taxable income and tax thereon in respect of Mr. Yasir (a salaried individual) for the tax
year 2007 from the following information/data:
MTS
Rs20,000--2000--30,000
Basic salary
Rs 20,000 pm
Accommodation provided by the employer to Mr. Yasir. He is entitled to house rent allowance@50% of
basic salary.
Motor vehicle provided partly for official and partly for personal use. Cost of vehicle to the employer
was Rs 1,000,000.
Flying allowance provided, Mr. Yasir is working for a Pakistani Airline Rs 400,000
Concessional Loan of Rs 1 million provided by employer @ of markup of 4% per anum (bench mark
rate for tax year 2007 is 9% per annum).
Solution to Exercise 9:
Tax payer: Mr. Yasir
Tax year: 2007
Residential Status: Resident
NTN: 000111
Computation of taxable income and tax thereon:
In Rs
Particulars
Total income
Exempt Income
Taxable Income
Salary
240,000
Nil
240,000
Accommodation
---
---
120,000
Refer (note-1)
Motor Vehicle for personal
---
---
50,000
use, Refer (note-2)
Flying allowance
---
---
---
Refer (note-3)
Concessional loan
---
---
50,000
Refer (note-4)
Total
460,000
Tax liability:
Tax rate of 3.5% percent as given at serial #7 for taxable income exceeding Rs 400,000 up to Rs 500,000
Income tax payable:
460,000 x 3.5%= Rs.16,100
Note 1: Accommodation -- Amount that would have been otherwise provided under terms of
employment but in no case less than 45% of MTS or basic salary.
Note 2:
Valuation of Conveyance
Partly for personal and partly for official use
5% of cost or 5% of FMV of Vehicle, in case of
lease
Note 3:
Flying allowance
Flying allowance shall be taxed @ 2.5% of amount received as a separate block of income under sub clause
1 of part 3 of second schedule.
Note 4:
Bench mark rate for tax year 2007 is 9%
Loan provided at the rate of mark-up of 4%
Amount added back 1,000,000 x 5%= Rs.50,000
Exercise 10:
Computation of taxable income and tax thereon in respect of Mr. Yasir (a salaried individual) for the tax
year 2007 from the following information/data:
MTS
Rs 30,000-2000-50,000
46
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Taxation Management ­ FIN 623
VU
Basic Salary
Rs 40,000 pm
Accommodation provided by the employer. Mr. Yasir is entitled to house rent allowance @50% of basic
salary.
Employer provided motor vehicle to Mr. Yasir exclusively for official use. Cost of the vehicle is
Rs.800,000.
Mr. Yasir paid Zakat amounting Rs 5,000 during the tax year 2007.
The said employee paid donations amounting Rs. 10,000 to a charitable institution duly approved by
CBR.
Solution to Exercise 10:
Tax payer: Mr. Yasir
Tax year: 2007
Residential Status: Resident
NTN: 000111
Computation of taxable income and tax thereon:
In Rs
Particulars
Total income
Exempt Income
Taxable Income
Salary
480,000
Nil
480,000
Accommodation
---
---
240,000
Refer (note-1)
Motor Vehicle
---
---
---
Refer (note-2)
Sub Total
720,000
Zakat paid by Mr. Yasir
(5,000)
(Deductible allowance)
Total taxable income
Rs. 715,000
Tax liability:
Tax rate of 7.50% percent as given at serial #10 for taxable income exceeding Rs.700,000 up to Rs.850,000
Income tax payable: 715,000 x 7.5%= Rs.53,625
Computation of tax credit on Donation:
A/B x C
53625/715,000 x 10,000=Rs.750
Income tax payable
= 53625 ­ 750= Rs.52,875
(C 30% of taxable income shall be: 715,000 x 30%=214500. Hence C taken as Rs.10,000)
Note 1: Accommodation -- Amount that would have been otherwise provided under terms of
employment but in no case less than 45% of MTS or basic salary.
Note 2: Motor vehicle--provided for official use since motor vehicle is provided exclusively for official
use, no add-back shall be made towards the salary income of the employee.
Exercise 11- Consolidated exercise.
Compute taxable income & tax thereon for tax year 2007 in respect of Mr. Yasir, a salaried individual.
MTS Rs30,000-2,500-50,000
a. Basic salary,
Rs. 420,000pa
b. Salary received from former employer
Rs 200,000
c. Salary received from prospective employer
Rs 100,000
d. Tax liability of employee paid by the employer
Rs 40,000
e. Voluntary payments made by employee.
Rs 80,000
f. Mr. Yasir incurred the expenses during the tax year on account of personal car Rs. 40,000 and on
renovation of his house
Rs.100,000
g. Leave pay
Rs.20,000
h. Medical allowance
Rs.60,000
i. Free hospitalization services received under the term of employment.
Rs.100,000
j. Extra duty Allowance
Rs.15,000
k. Bonuses received
Rs.40,000
l. Utilities provided by the employer
Rs.30,000
m. T.A /D.A reimbursed on account of official assignments.
Rs 40,000
n. Golden handshake payments received
Rs 1,600,000
Average rate of tax for last 3 years was 25%, 20%, 15%.
47
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Taxation Management ­ FIN 623
VU
o. Donation paid by the employee to a charitable institution duly approved by CBR
Rs. 40,000
p. Deduction of tax at source
Rs. 224,000
Solution to Exercise 11:
Tax payer: Mr. Yasir
Tax year: 2007
Residential Status: Resident
NTN: 000111
Computation of taxable income and tax thereon:
In Rs
Particulars
Total income
Exempt Income
Taxable Income
Salary
420,000
Nil
420,000
Salary from former employer
200,000
Nil
200,000
Salary from prospective employer
100,000
Nil
100,000
Tax liability paid by employer
40,000
Nil
40,000
Voluntary payments
80,000
Nil
80,000
Expenses incurred (deductions
---
---
---
not admissible to salaried
individuals)
Leave pay
20,000
Nil
20,000
Medical allowance
60,000
Nil
60,000
(Exemption not allowed since free
hospitalization services provided)
Free hospitalization
100,000
100,000
Nil
Extra duty allowance
15,000
Nil
15,000
-Bonuses received
40,000
Nil
40,000
- Utilities
30,000
Nil
30,000
TA/DA for official purpose
40,000
40,000
Nil
Golden handshake amount of Rs
1,600,000
1,600,000 can be taxed @average
rate of tax of last 3 years i.e.; 25+
20+15/3= 20%
--not advisable
Total taxable income
2,605,000
Tax liability:
Tax rate of 16% percent as given at serial #17 for taxable income exceeding Rs.2,000,000 up to Rs.
3,150,000
Income tax payable:
2,605,000 x 17%= Rs. 442,850
Computation of tax credit on Donation:
A/B x C
442,850/2,605,000 x 40,000 = Rs. 6,800
Income tax payable
= 442,850 ­ 6,800 = 436,050
(C is2,605,000 x 30%=781,500. Hence C is taken as Rs.40,000)
Salary and Its Computation
Tax Payable=
Rs. 436,050
Deduction at source =
Rs. 224,000
Tax Payable =
Rs. 212,050
48
Table of Contents:
  1. AN OVERVIEW OF TAXATION
  2. What is Fiscal Policy, Canons of Taxation
  3. Type of Taxes, Taxation Management
  4. BASIC FEATURES OF INCOME TAX
  5. STATUTORY DEFINITIONS
  6. IMPORTANT DEFINITIONS
  7. DETERMINATION OF LEGAL STATUS OF A PERSON
  8. HEADS OF INCOME
  9. Rules to Prevent Double Derivation of Income and Double Deductions
  10. Agricultural Income
  11. Computation of Income, partly Agricultural,
  12. Foreign Government Officials
  13. Exemptions and Tax Concessions
  14. RESIDENTIAL STATUS & TAXATION 1
  15. RESIDENTIAL STATUS & TAXATION 2
  16. Important Points Regarding Income
  17. Geographical Source of Income
  18. Taxation of Foreign-Source Income of Residents
  19. Exercises on Determination of Income 1
  20. Exercises on Determination of Income 2
  21. SALARY AND ITS COMPUTATION
  22. Definition of Salary
  23. Significant points regarding Salary
  24. Tax credits on Charitable Donations
  25. Investment in Shares
  26. SALARY AND ITS COMPUTATION EXERCISES 1
  27. SALARY AND ITS COMPUTATION EXERCISES 2
  28. SALARY AND ITS COMPUTATION EXERCISES 3
  29. Tax treatment of Gratuity
  30. Gratuity Exercise
  31. PROVIDENT FUND
  32. Exemptions on Business income, Treatment of Speculation Business
  33. Deductions Allowed & Not Allowed
  34. Deductions: Special Provisions, Depreciation
  35. Methods of Accounting
  36. Taxation of Resident Company
  37. Taxation of Companies: Exercises
  38. Computation of Capital Gain
  39. Disposals Not Chargeable To Tax
  40. TAX RETURNS & ASSESSMENT OF INCOME UNIVERSAL SELF ASSESSMENT SCHEME
  41. Normal Assessment, USAS, Provisional Assessment, Best Judgment Assessment
  42. ADVANCE TAX COLLECTION & RECOVERY OF TAX PENALTIES & PROSECUTION
  43. What is Value Added Tax (VAT)?
  44. SALES TAX
  45. SALES TAX RETURNS