As per Finance Act 2021 presented by Government of Pakistan, following salary tax slabs of salaried persons and salary income tax rates will be applicable for salaried persons for the financial year 2021-2020 (Tax Year 2022).
Tax rates on salary is given under section 149 of the Income Tax Ordinance, 2001.
|S.No||SALARY SLABS||TAX RATES ON SALARY SLABS|
|1||Where taxable income does not exceed Rs 600,000||0%|
|2||Where taxable income exceeds Rs 600,000 but does not exceed Rs 1,200,000||5% of the amount exceeding Rs 600,000|
|3||Where taxable income exceeds Rs 1,200,000 but does not exceed Rs 1,800,000|
Rs. 30,000 plus 10% of
the amount exceeding
|4||Where taxable income exceeds Rs 1,800,000 but does not exceed Rs 2,500,000|
Rs. 90,000 plus 15% of
the amount exceeding
|5||Where taxable income exceeds Rs 2,500,000 but does not exceed Rs 3,500,000|
Rs. 195,000 plus 17.5% of the amount exceeding Rs. 2,500,000
|6||Where taxable income exceeds Rs 3,500,000 but does not exceed Rs 5,000,000|
Rs. 370,000 plus 20% of the amount exceeding Rs. 3,500,000
|7||Where taxable income exceeds Rs 5,000,000 but does not exceed Rs 8,000,000|
Rs. 670,000 plus 22.5% of the amount exceeding Rs. 5,000,000
|8||Where taxable income exceeds Rs 8,000,000 but does not exceed Rs 12,000,000||Rs. 1,345,000 plus 25% of the amount exceeding Rs. 8,000,000|
|9||Where taxable income exceeds Rs 12,000,000 but does not exceed Rs 30,000,000||Rs. 2,345,000 plus 27.5% of the amount exceeding Rs. 12,000,000|
|10||Where taxable income exceeds Rs 30,000,000 but does not exceed Rs 50,000,000||Rs. 7,295,000 plus 30% of the amount exceeding Rs. 30,000,000|
|11||Where taxable income exceeds Rs 50,000,000 but does not exceed Rs 75,000,000||Rs. 13,295,000 plus 32.5% of the amount exceeding Rs. 50,000,000|
|12||Where taxable Income exceeds Rs 75,000,000||Rs. 21,420,000 plus 35% of the amount exceeding Rs. 75,000,000|
Directorship fee or fee for attending board meeting
Every person responsible for making payment for directorship fee or fee for attending Board meeting or such fee by whatever name called, shall deduct at the time of making payment an amount in terms of tax at the rate of 20% of the gross amount. Tax on Director’s fee is given under section 149(3) of the Income Tax ordinance, 2001.
Law under section 149(3) is reproduced here as under:
“Notwithstanding anything contained in sub-sections (1) and (2), every person responsible for making payment for directorship fee or fee for attending board meeting or such fee by whatever name called, shall at the time of payment, deduct tax at the rate of twenty percent of the gross amount payable.
(4) Tax deductible under sub-section (3) shall be adjustable.”
Tax which is deducted under section 149 of the Income Tax Ordinance, 2001 is ‘Adjustable’ nature of tax. It means that tax deducted and paid in the government exchequer will be adjusted against tax liability and in case any excess tax is paid then it will be carried forward as income Tax refundable. If any other tax liability exits against other source of income then excess amount can also be adjusted against tax on such other income.
When to Pay tax deducted on Salary under section 149
As per Rule 43(a), In case of Federal / provincial Government on the day the tax is deducted. As per Rule 43(b), In other than Federal / Provincial Government cases, within 7 days from the end of each week ending on every Sunday.
Amendments in Finance Act 2021 regarding Salary Income
“Provisions of clause (c) of sub-section (2) of section 12 were prone to misuse regarding the exemption available to allowance solely expended in the performance of employee’s duty in
conjunction with clause (39) of Part I of second schedule. The provisions were used to avoid tax. In order to streamline, an explanation has been inserted in clause (c) of sub-section (2) of
section 12 whereby the exempt allowance has been explained and consequently clause (39) of Part I of second schedule has been omitted. Any allowance which is paid on fixed basis or
percentage of salary basis shall not constitute allowance for the performance of duties.”
Salary – Explained “allowance solely expended in the performance of employee’s duty” [Section 12]
Common components of salary are available in Section 12(2) of the ITO, 2001. Clause (c) provides:
“the amount of any allowance provided by an employer to an employee including a cost of living, subsistence, rent, utilities, education, entertainment or travel allowance, but shall not include any allowance solely expended in the performance of the employee’s duties of employment;”
As the allowance solely expended in the performance of the employee’s duties of employment are excluded from the definition of salary, generally people misuse the provision and exclude certain amounts from taxable salary. Therefore, the Act inserted following explanation in clause (c) to provide more clarity:
Explanation.– “For removal of doubt, it is clarified that the allowance solely expended in the performance of employee’s duty does not include – (i) allowance which is paid in monthly salary on fixed basis or percentage of salary; or (ii) allowance which is not wholly, exclusively, necessarily or actually spent on behalf of the employer.“
Further, a similar exemption available in Clause (39), Part I, Second Schedule is also withdrawn. Omitted clause is reproduced below for ready reference of the readers:
“Any special allowance or benefit (not being entertainment or conveyance allowance) or other perquisite within the meaning of section 12 specially granted to meet expenses wholly and necessarily incurred in the performance of the duties of an office or employment of profit”.
Exemption of 10 (%) percent Medical allowance and other medical facility is still available
Through Finance Bill 2021, Clause (139), Part I, Second Schedule which provides exemption of medical allowance and medical facility provided by the employer to an employee was proposed to be removed. However, the parliament did not approve such omission, so the exemption under clause (139), Part I, Second Schedule relevant to medial allowance and other medical facility is still intact and available to the employees.