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Taxation Managment

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Taxation Management ­ FIN 623
VU
MODULE 6
LESSON 6.24
SALARY AND ITS COMPUTATION
Tax credits on Charitable Donations (Sec 61)
Tax credit allowed in respect of any sum paid or any property given by the person in a tax year as a
donation to:
Any board of education or any university of Pakistan established by, or under, Federal or a Provincial
law;
Any educational institution, hospital or relief fund established or run in Pakistan by federal government
or a provincial government or a local authority or;
Any non- profit organization
The amount of tax credit shall be computed according to following formula:
(A/B) x C
Here:
A is the amount of tax assessed to the person for the tax year before allowance of any tax credit
under
this part;
B is the person's taxable income for the tax year; and
C is the lesser of:
The total amount of the person's donations referred o in sub-section (1) in the year, including the fair
market value of any property given; or
Where the person is-
i. an individual or association of person, thirty percent of the taxable income of the person for the year;
or
ii. a company, fifteen percent of the taxable income of the person for the year.
Fair market value of any property given as donation shall be determined at the time it is given.
A cash amount paid by a person as donation shall be taken into account only if it was paid by a crossed
cheque drawn on a bank.
Investment in shares: Sec 62:
A person (other then a company) shall be entitled to a tax credit for a tax year in respect of the cost of
acquiring in the year new shares offer by a public company listed on a stock exchange in Pakistan where
the person is the original allottee of the shares or the shares are acquired from Privatization Commission
of Pakistan.
Formula:
It is same that is i.e. (A/B) x C
A and B are the same as explained in Sec 61.
Here C is lesser of:
The total cost of acquiring the shares referred to in sub-section (1) in the year;
Ten percent of the person's (taxable) income for the year; or
(Two hundred) thousand rupees
If the person how has availed tax credit in respect of purchase of share and has made a disposal of the
said shares within 12 months of the date of acquisition. The amount of tax payable by the person for
the tax year in which the share were disposed of shall be increased by the amount of credit allowed.
Profit on debt- Sec 64
A person shall be entitled to a tax credit for a tax year in respect of any profit or share in rent paid by a
person in the year on a loan by a schedule bank or non-banking finance institution or advanced by
government or the local authority or a statutory body or a public company listed on a registered stock
exchange of Pakistan, where the person utilizes the loan for the construction of a new house or the
acquisition of a house.
Formula for computation of Profit on debt:
(A/B) x C
A and B are the same as explained in Sec 61
C is the lesser of:
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Taxation Management ­ FIN 623
VU
o  The total profit referred to in sub-section (1) paid by the person during the year;
o  (Forty) percent of the person's (taxable) income for the year; or
o  [Five hundred] thousand rupees
Income tax rules, 2002 regarding salary:
Effective from 01-07-2006 (Tax Year 2007)
Rule 3: valuation of perquisites, allowances and benefits:
The benefits provided by the employer to the employee shall be included in the said income in accordance
with rules 4 to 7.
Rule 4: valuation of accommodation:
This shall be taken equal to the amount that would have been paid by the employer in case such an
accommodation was not provided.
Provided that the value taken for this purpose shall, in any case, not be less than 45 percent of minimum of
time scale or the basic salary where there is no time scale.
Rule 5: valuation of conveyance:
(i) Partly for personal
5% of:
and partly official use
a) the cost to the employer for
acquiring the vehicle or ,
b) the fair market value of
vehicle at commencement
of the lease, if taken on
lease.
(ii) Conveyance provided
10% of:
for personal use only
a) the cost to the
employer for
acquiring the vehicle or
b) the fair market value
of vehicle at
commencement
of the lease, if taken
on lease.
Rule 6
For the purpose of this part, "employee" includes a director of a company.
Rule7:
These rules shall be applicable for the salary income received after thirtieth of June, 2006
Exemptions under the head `Salary'
TA/DA exempt under clause 39 of part 1 of second schedule.
Free furnished accommodation provided to the president of Pakistan, provincial governors, and Chiefs
of Staff of Pakistan Armed Forces are exempt under clause 51.
Free conveyance and entertainment allowances are fully exempt to the following:
Provincial Governors, the Chiefs of Staff of Pakistan Armed Forces, and Corps Commanders of
Pakistan Armed Forces under clause 52
Exemptions:
Amount received from workers participation fund is exempt under clause 26.
Local traveling allowance to journalists is exempt under clause 40 of part-1 of second schedule.
Tax rebate for teachers and the researchers.
Full time teacher or researcher employed in non profit education or research institution including
government training and research institution duly recognized by HEC, a Board of education or a University
recognized by HEC allowed tax rebate of 75%.
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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