Significant points regarding Salary

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Taxation Management FIN 623

MODULE 6

LESSON 6.23

SALARY AND ITS COMPUTATION

Significant points regarding Salary:

Reimbursement of expenditure by the employer

Taxable

Profits in lieu of salary received as:

· Consideration for a person's agreement to enter into an

employment relationship

· On termination of employment/ Golden handshake

payments

Provident fund payments, only Employers contribution

Taxable

Computation of value of perquisites (Sec 13)

Motor vehicle

As prescribed in IT rules

2002

Services of house keeper, driver, gardener, other domestic servant

Amount provided by

employer added back to

employee's salary.

Add FMV of utilities as reduced by any amount paid by

employee

Loan below benchmark rate for tax year 2007 is 9% PA

Add back

In case, Conessional loan as above used for construction of house or No Add back

purchase of house

Obligation of employee waived off by employer.

Add back

Any property transferred to employee.

FMV of property to be

added back

Accommodation or housing provided.

As prescribed in IT rules

2002

According to sub section14 of Section 13:

· Bench mark rate means rate of 5%PA

For tax year 2003 and increase by 1% for succeeding tax years.

· Services include any facility provided.

· Utilities include electricity, gas, water, and telephone.

Employee share schemes (sec 14)

Treatment of value of a right or option vested in an employee.

Formula:

AB

When Commissioner can tax "salary" on due basis:-

In certain cases, the Commissioner has been given powers to tax salary on due basis. Section 110 reads as

under:

"Salary paid by Private Companies":

where, in any tax year, salary is paid by a private company to an employee of the company for services

rendered by the employee in an earlier tax year and the salary has not been included in the employee's salary

chargeable to tax in that earlier year, the Commissioner may, if there are reasonable grounds to believe that

payment of the salary was deferred, include the amount in the employee's income under the head "Salary"

in the earlier year.

Leave Salary:

This is taxable whenever received or right to receive is exercised by the employee. Leave encashment on

retirement falls in this category. The only exemption available is for the members of the Armed Forces of

Pakistan, employees of the Federal Government and Provincial Governments.

Taxation Management FIN 623

Under clause (19), Part I of Second

Schedule to the Ordinance any sum representing encashment of leave preparatory to retirement in their case

is exempt.

▪ Salary in lieu of notice:

Taxable

▪ Fee and Commission:

Taxable

▪ Bonus:

Taxable

▪ Remuneration for extra duties:

Taxable

▪ Voluntary payments to employees:

Taxable

Flying Allowance

Any amount received as flying allowance by:

a) pilots, flight engineers and navigators of Pakistan Armed forces, Pakistani Airline or Civil Aviation

Authority; and

b) Junior commissioned officers of Pakistan Armed Forces.

Shall be taxed @ 2.5% as a separate block of income

Deductible Allowance:

The person shall be entitled to a deductible allowance for any Zakat paid by the person in a tax year

according to provisions of sec.60, for the amount of any Workers' Welfare Fund paid by the person in a

tax year under Sec 60-A, for the amount of any Workers' Participation Fund paid by the person in a tax

year under section 60-B.

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