SALARY AND ITS COMPUTATION

Definition of Salary >>

Taxation Management FIN 623

MODULE 6

LESSON 6.21

SALARY AND ITS COMPUTATION

There are followings heads of income, we start from the first head that is salary i.e. Income from Salary.

Salary

Income from Property

Income from Business

Capital Gains

Income from other sources

Employer and Employee Relationship between Payer and Payee

· Salary represents amount received by an employee from an employment.

· Employee sec 2(20): means any individual engaged in employment.

· Employer sec 2(21): means any person who engages and remunerates an employee.

Employment Sec. 2(22)

Employment includes:

· A directorship or any other office involved in the management of a company;

· A position entitling the holder to fixed or ascertainable remuneration; or

· Holding or acting in any public office

Significant Points:

Salary from more than one source during a tax year is taxable income.

Salary may be from former employer, present employer or prospective employer.

No deductions are allowed under the head "Income from Salary"

In case of Tax Free Salary by the employer, the amount of tax paid by employer shall be added

back to employee's salary. It tantamount to Tax on Tax

Voluntary Payments Taxable

Tax year of a salaried Person shall be Normal Tax year

In case of Tax Free Salary by the employer, the amount of tax paid by employer shall be added

back to employee's salary. It tantamount to Tax on Tax

Voluntary Payments Taxable

Tax year of a salaried Person shall be Normal Tax year

Tax on salary income for Tax year 2007 (1st July 2006 to 30th July 2007) shall be computed

according to amendments as made by Finance Act, 2006.

Salary by members of AOP is not treated as Salary but treated as appropriation of profit and

charged under the head "Income from Business"

Treatment of Salary by members of AOP:

Any salary drawn by a member of an AOP [as defined in section 80] is appropriation of profits and is

chargeable to tax as `Income from Business' being share of a member in the total income of AOP in view of

provision contained in section 93(6).

Taxation of members of an associations of persons Section 93(6)

· Sec 93 (6) the share of a member in the total income of a association of persons shall be determined

according to the member's interest in the association and shall include any profit on debt, brokerage,

commission, salary or other remuneration received or due from the association.

· Salary sec 12(1): any salary received by an employee in a tax year, other than salary that is exempt from

tax under this Ordinance, shall be chargeable to tax in that year under the head "Salary".

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