You are on page 1of 53

Project Topic

Income Tax Systems in Pakistan, India & UK

Over View of this Report

The main purpose of this report is to study the tax systems exists in India and UK and then compare the similarities & differences with Income Tax Law in Pakistan. India is a developing country where as UK is a developed country. So, we briefly overview the Tax Systems of India and UK and then at the end compare it with Pakistan Income Tax Systems. Tax revenue collection is one significant issue of economic development among others. It has been said that ‗what the government gives it must first take away‘. The economic resources available to society are limited, and so an increase in government expenditure normally means a reduction in private spending. Taxation is one method of transferring resources from the private to the public sector, but there are others i.e. creation of more money, to charge for the goods and services it provides or to borrow. Taxation has its limits as well, but they considerably exceed the amounts that can be raised by resorting to the printing press, charging consumers directly, or borrowing. So while governments often use all four methods of raising resources, taxation is usually by far the most important source of government revenue. Pakistan‘s economic performance since its emergence in 1947 has remained volatile across the sectors and provinces, and even its structure has changed over the time. The tax efficiency in Pakistani tax system remained focal point for the last 25 years. However, despite all efforts the tax to GDP ratio remained constant during this period.

Income Tax Project [Sec-C]

Page 1

TAXATION SYSTEM IN INDIA
Executive Summary

The government of India imposes an income tax on taxable income of individuals, Hindu Undivided Families (HUFs), companies, firms, co-operative societies and trusts (identified as body of individuals and association of persons) and any other artificial person. Levy of tax is separate on each of the persons. The levy is governed by the Indian Income Tax Act, 1961. The Indian Income Tax Department is governed by the Central Board for Direct Taxes (CBDT) and is part of the Department of Revenue under the Ministry of Finance, Govt. of India. There are close to 35 million income tax payers in India.

 The taxation system in the Republic of India is quite well structured. The Department of Revenue of the Finance Ministry of the Government of India is responsible for the computation; levy as well as collection of most the taxes in the country. However, some of the taxes are even levied solely by the Local State Bodies or the respective governments of the different states in the nation.  Central Government levies taxes on income (except tax on agricultural income, which the State Governments can levy), customs duties, central excise and service tax.  Value Added Tax (VAT), stamp duty, state excise, land revenue and profession tax are levied by the State Governments.  Local bodies are empowered to levy tax on properties, octroi and for utilities like water supply, drainage etc.

Income Tax Project [Sec-C]

Page 2

Income Tax in India
According to Income Tax Act 1961, every person, who is an assessee and whose total income exceeds the maximum exemption limit, shall be chargeable to the income tax at the rate or rates prescribed in the Finance Act. Such income tax shall be paid on the total income of the previous year in the relevant assessment year. Assessee means a person by whom (any tax) or any other sum of money is payable under the Income Tax Act, and includes  Every person in respect of whom any proceeding under the Income Tax Act has been taken for the assessment of his income (or assessment of fringe benefits) or of the income of any other person in respect of which he is assessable, or of the loss sustained by him or by such other person, or of the amount of refund due to him or to such other person;  Every person who is deemed to be an assessee under any provisions of the Income Tax Act;  Every person who is deemed to be an assessee in default under any provision of the Income Tax Act.

Where a person includes:         Individual Hindu Undivided Family (HUF) Association of persons (AOP) Body of individuals (BOI) Company Firm A local authority and, Every artificial judicial person not falling within any of the preceding categories.

Income Tax Project [Sec-C]

Page 3

Indian Tax Year
 Income tax is an annual tax imposed separately for each assessment year (also called the tax year).  Assessment year commences from 1st April and ends on the next 31st March. The total income of an individual is determined on the basis of his residential status in India.

For tax purposes, an individual may be resident, nonresident or not ordinarily resident.

Resident
An individual is treated as resident in a year if present in India:  For 182 days during the year or  For 60 days during the year and 365 days during the preceding four years. Individuals fulfilling neither of these conditions are nonresidents. (The rules are slightly more liberal for Indian citizens residing abroad or leaving India for employment abroad.)

Resident but not Ordinarily Resident
A resident who was not present in India for 730 days during the preceding seven years or who was nonresident in nine out of ten preceding years is treated as not ordinarily resident.

Non-Residents
Non-residents are taxed only on income that is received in India or arises or is deemed to arise in India. A person not ordinarily resident is taxed like a non-resident but is also liable to tax on income accruing abroad if it is from a business controlled in or a profession set up in India. Non-resident Indians (NRIs) are not required to file a tax return if their income consists of only interest and dividends, provided taxes due on such income are deducted at source.

Income Tax Project [Sec-C]

Page 4

Personal Income Tax Rates
Personal income tax is levied by Central Government and is administered by Central Board of Direct taxes under Ministry of Finance in accordance with the provisions of the Income Tax Act. Income tax slabs for individual taxpayers for the year 2012-13 to be as follows:

Income Tax Rates/Slabs Upto 1,80,000 Upto 1,90,000 (for women) Upto 2,50,000 (senior citizens) 1,80,001 – 5,00,000 5,00,001 – 8,00,000 8,00,001 and above Tax amendments for the FY 2011-12 are mentioned below : Increase in base income tax slab of men and senior citizens.

Rate (%)

NIL

10 20 30

Tax exemption limit remains the same i.e Rs. 20,000 on investment in tax saving Infrastructure bonds. A set of New Direct Tax Codes have been proposed, which will be active from Financial Year 2011. Senior citizen age reduced from 64 years to 60 years. People above 80 years of age to be included in the newly introduced 'Very Senior citizen' category.

 Proposal to allow individual tax payers, a deduction of upto Rs 10,000 for interest from savings bank accounts.  Proposal to allow deduction of upto Rs 5,000 for preventive health check up.  Senior citizens not having income from business proposed to be exempted from payment of advance tax.
Income Tax Project [Sec-C] Page 5

Status Resident and ordinarily resident Resident but not ordinary resident Non-Resident Indian Income Taxable Taxable Taxable Foreign Income Taxable Not taxable Not taxable Income Tax Project [Sec-C] Page 6 .

No bills are required for this amount. Income from business or profession. 4. as Tax Deducted at Source (TDS). In addition. and provide their employees with a Form 16 which shows the tax deductions and net paid income. Salary income Income from house property.  Professional taxes: Most states tax employment on a per-professional basis.600 per year) is tax free if provided as transport allowance. 5.Heads of Income The total income of a person is divided into five heads: 1.  House rent allowance: the least of the following is available as deduction  Actual HRA received  50%/40%(metro/non-metro) of basic salary  Rent paid minus 10% of 'salary'. 3. Section 10 exemptions are available for the following perquisites:  Leave Travel Concession u/s 10(5)  Perquisites paid to Indian Citizens Employed Abroad 10(7) no  Tax Paid on Behalf of Any Employee by the Employer 10(10CC) Income Tax Project [Sec-C] Page 7 . usually a slabbed amount based on gross income.000 per year is tax free if supported by bills. Perquisite Valuation does not include certain medical benefits.  Transport allowance: Up to 800 per month (9. the Form 16 will contain any other deductions provided from salary such as:  Medical reimbursement: Up to 15. if income exceeds minimum exemption limit.  Conveyance allowance:is tax exempt. Such taxes paid are deductible from income tax. Individual Heads of Income Income from Salary All income received as salary under Employer-Employee relationship is taxed under this head. Capital Gain Income from other sources. basic Salary for this purpose is basic+DA forming part+commission on sale on fixed rate. Employers must withhold tax compulsorily. 2.  Income from salary is the least of all the above deductions.  Perquisites and Exemptions u/s 10  The term "Perquisite" includes value of any benefit or amenity/value of any concession provided by the employer to the employees.

annual value is assumed to have accrued to the owner. For all non selfoccupied homes.30.) From this.000 (if the loan is taken before 1 April 1999). deduct Municipal Tax paid and you get the Net Annual Value. (However if there is more than one self occupied house then the annual value of the other house/s is taxable. deduct : 30% of Net value as repair cost (This is a mandatory deduction) No other deduction available Interest paid or payable on a housing loan against this house In the case of a self occupied house interest paid or payable is subject to a maximum limit of Rs.000 (if loan is taken on or after 1 April 1999 and construction is completed within 3 years) and Rs.1. Municipal Valuation Fair Rent (as determined by the IT department) If a house is not let out and not self-occupied. with no upper limits.      Income Tax Project [Sec-C] Page 8 . From this Net Annual Value.50.Income from House property Income from House property is computed by taking into account what is called Gross Annual Value of the property. The balance is added to taxable income. The annual value (in the case of a let out property) is the maximum of the following:     Rent received . Annual value in case of a self occupied house is to be taken as NIL. all interest is deductible.

Deemed Incomes . 44BBB. the incomes chargeable as "Income from Business or Profession" shall be computed in accordance with the provisions contained in sections 30 to 43D.. 33AC.e. if regular books of accounts have been maintained and Profit and Loss Account has been prepared. 44AD. In summary. 44BBA.Sections 33AB. 40A. 44AE. Special Provisions . 44AF. then the computation would be as under:  Income (including Deemed Incomes) chargeable as income under this head xxx Less: Expenses deductible (net of disallowances) under this head xxx Profits and Gains of Business or Profession xxx However. 33ABA. which contain the computation completely within itself. 35ABB & 41. Section 44C is a disallowance provision in the case non-residents. However. Sections 44 to 44DA (except sections 44AA. 44BB.  The computation of income under the head "Profits and Gains of Business or Profession" depends on the particulars and information available. the sections relating to computation of business income can be grouped as under:      Deductible Expenses . 44-D & 44-DA.Income from Business or Profession The income referred to in section 28.Sections 42 & 43D Self-Coded Computations .Sections 30 to 38 [except 37(2)]. 44B. 43B & 44-C. 44A. then the computation would be as under: Net Profit as per Profit and Loss Account Add : Inadmissible Expenses debited to Profit and Loss Account Deemed Incomes not credited to Profit and Loss Account xxx Less: Deductible Expenses not debited to Profit and Loss Account xxx xxx xxx xxx Incomes chargeable under other heads credited to Profit & Loss A/c xxx xxx Profits and Gains of Business or Profession xxx Income Tax Project [Sec-C] Page 9 . 44AB & 44C). 40.Sections 44. Inadmissible Expenses . viz..[4]  If regular books of accounts are not maintained.Sections 37(2). there are few more sections under this Chapter. 35A. Section 44AA deals with maintenance of books and section 44AB deals with audit of accounts. i.

2% for foreign companies) as well as an education tax (CESS) of 3%. or. income that is deemed to arise in India. The top effective tax rate in India is 32.45% for a local company and 42. the control and the management of its affairs is situated wholly in India  A company is said to be non-resident in India if it is not an Indian company and some part of the control and management of its affairs is situated outside India. Foreign companies are taxable on income that arises out of their Indian operations. which is distributed to its shareholders as dividend. Residence of a company A company is said to be a resident in India during the relevant previous year if:  It is an Indian company  If it is not an Indian company but. interest. Royalty.02% for a foreign company.01% for domestic companies and 19.44% for foreign companies Income Tax Project [Sec-C] Page 10 . the income so distributed is an appropriation of the profits of the company.Corporate Tax in India Definition of a company A company has been defined as a juristic person having an independent and separate legal entity from its shareholders. is assessed in their individual hands.5% of the "book profits" pay a 18. 5% for domestic companies. A limited company in India is liable for tax in the financial year 2011-2012 at the rate of 30% for a local company and 40% for a foreign company with the addition of surcharge (for income above INR 10 millions. bringing the effective tax rate of 20. Corporate sector tax The taxability of a company's income depends on its domicile. Indian companies are taxable in India on their worldwide income. in certain cases. gains from sale of capital assets located in India (including gains from sale of shares in an Indian company).5% minimum alternative tax. Income of the company is computed and assessed separately in the hands of the company. However the income of the company. dividends from Indian companies and fees for technical services are all treated as income arising in India. Companies in India whose tax liability is less than 18. Such distribution of income is not treated as expenditure in the hands of company. MAT on the "book profits" with a surcharge and CESS.

 "Through the establishment of Special Economic Zones (SEZ) the government is able to steer companies toward geographical locations that are in need of development. monitoring and operating specified infrastructure facilities or in units of mutual funds involved with the infrastructure of power sector is proposed to be tax exempt.  Long-term capital gains have lower tax incidence. maintaining and operating new infrastructure facilities and power-generating units. Income Tax Project [Sec-C] Page 11 . No carry back is allowed. India was able to attract many players in the IT industry. it is offering the same incentives to the manufacturing community.  There are liberal deductions for setting up enterprises engaged in developing.  Business losses can be carried forward for eight years. .  There is no concept of thin capitalization. and unabsorbed depreciation can be carried indefinitely. interest and long-term capital gain income earned by an infrastructure fund or company from investments in shares or long-term finance in enterprises carrying on the business of developing.  Liberal deductions are allowed for exports and the setting up on new industrial undertakings under certain circumstances. By offering a 10-year tax holiday.  A driving force behind many multinational companies locating in India has been the tax incentives offered by the government. The SEZ regulations offer tax exemptions from 50% -100% over a fifteen year period.  Special provisions apply to venture funds and venture capital companies. the leader of KPMG LLP's India Center of Excellence." explains Dharmesh Pandya.Tax Rebates for Corporate Tax The classical system of corporate taxation is followed in India  Domestic companies are permitted to deduct dividends received from other domestic companies in certain cases. One reason for the creation of a tax-friendly policy was India's complicated tax structure that included a base corporate tax rate of 30-35% and a variety of other indirect taxes that could end up creating a total tax rate in excess of 50%.  Inter Company transactions are honored if negotiated at arm's length. Building on that success.  Dividends.

to a deduction of tax at source (rates are before surcharge and cess):     Dividend . Interest . is exempt from submitting an annual return. India Deduction of Tax at Source Taxation of Employees  An employer is obligated to deduct tax at source on a monthly basis from a salaried employee and to make additional contributions to a provident fund and insurance. Royalties .  An individual whose income is from a business must submit an annual return by October 31.India Reporting Dates and Payment  The tax year in India begins on April 1 and ends on March 31.  An advance payment must be made on 3 dates . Employees pay to provident funds 10%-12% of their salary.0%. India Other deductions The following payments to non-residents are subject.10%. There is a fine of 10% of the tax payable for each month's delay. Income Tax Project [Sec-C] Page 12 .  An individual whose income is from a wage or whose income is subject to a deduction of tax at source.  The Indian employer's contribution to provident fund is 12% in general. Technical Fees-10%. December 15 and March 15.September 15.  There is an official body in India that deals with the subject of pre-ruling in connection with tax problems that are presented for discussion.20%. in India.

a sum which shall not be less than. is satisfied that any person(b) has failed to comply with a notice under sub-section (1) of section 142 or sub-section (2) of section 143 or fails to comply with a direction issued under sub-section (2A) of section 142. "If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act.(ii) in the cases referred to in clause (b). Income Tax Project [Sec-C] Page 13 . he may direct that such person shall pay by way of penalty. but which shall not exceed three times. or (c) has concealed the particulars of his income or furnished inaccurate particulars of such income. the amount of tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income. in addition to any tax payable by him.Tax Penalties The major number of penalties initiated every year as a ritual by I-T Authorities is under section 271(1)(c) which is for either concealment of income or for furnishing inaccurate particulars of income. in addition to any tax payable by him. a sum of ten thousand rupees for each such failure. (iii) in the cases referred to in clause (c).

1.  The land is being used for agricultural operations.Agricultural Income in India Agriculture income is exempt under the Indian Income Tax Act.  Agricultural operation means that efforts have been induced for the crop to sprout out of the land . In order to consider an income as agricultural income certain points have to be kept in mind:  There must me a land. What does the term Agricultural Income mean? As per Income Tax Act income earned from any of the under given three sources meant Agricultural Income. Income attributable to a farm house subject to the condition that building is situated on or in the immediate vicinity of the land and is used as a dwelling house. 3. The reason for exemption of agriculture income from Central Taxation is that the Constitution gives exclusive power to make laws with respect to taxes on agricultural income to the State Legislature. However while computing tax on nonagricultural income agricultural income is also taken into consideration. Now income earned from carrying nursery operations is also considered as agricultural income and hence exempt from income tax. or sale of such produce. Income Tax Project [Sec-C] Page 14 .  In order to assess income of farm house as agricultural income the farm house building must be situated on the land itself only and is used as a store house/dwelling house. Any rent received from land which is used for agricultural purpose. raised or received as rent in kind so as to render it fit for the market. This means that income earned from agricultural operations is not taxed.  If any rent is being received from the land then in order to assess that rental income as agricultural income there must be agricultural activities on the land. store house etc. 2. Any income derived from such land by agricultural operations including processing of agricultural produce.

(i) Income from butter and cheese making. (d) Share of profit of a partner from a firm engaged in agricultural operations. (c) Income from sale of spontaneously grown trees. (e) Interest on capital received by a partner from a firm engaged in agricultural operations. Certain income which is not treated as Agricultural Income.Certain income which is treated as Agriculture Income. (a) Income from sale of replanted trees. (j) Receipts from TV serial shooting in farm house is not agriculture income. (e) Purchase of standing crop. (a) Income from poultry farming. (f) Dividend paid by a company out of its agriculture income. (d) Income from dairy farming. (c) Income from growing flowers and creepers. (g) Income of salt produced by flooding the land with sea water. (h) Royalty income from mines. (b) Income from bee hiving. (f) Income derived from sale of seeds. (b) Rent received for agricultural land. Income Tax Project [Sec-C] Page 15 .

however. (a) Agricultural income is considered for rate purpose while computing tax of Individual/HUF/AOP/BOI/Artificial Judicial Person. assessees have to be extra careful while dealing with such income. Assessees must also maintain credible records to provide the tax authorities with proof of ownership of agricultural land and evidence of having earned agricultural income. This process of computation is. 1973. Tax after including agricultural income in total income: Although agricultural income is fully exempt from tax. the Finance Act. followed only if the assessee‘s non-agricultural income is in excess of the basic exemption slab. (b) Losses from agricultural operations could be carried forward and set off with agricultural income of next eight assessment years. Clearly. (c) The difference between (a) and (b) is the amount of tax payable by the assessee. (b) Income tax is then calculated on the basic exemption slab increased by the assessee‘s net agricultural income. (c) Agriculture income is computed same as business income. The process of computation is as follows: (a) Income tax is first calculated on the net agricultural income plus the assessee‘s total income from non-agricultural sources. despite agricultural income being tax-exempt. They must make sure that they aggregate agricultural income with their total income to avoid interest payments and possible penalties for concealment of income. introduced a scheme whereby agricultural income is included with non-agricultural income in the case of noncorporate assessees who are liable to pay tax at specified slab rates. Income Tax Project [Sec-C] Page 16 .Certain points to be remembered.

it could not be Implemented. Fact Finding Committee on Agriculture opposed imposition of tax on agriculture. In 1979. Due to the imposition of Martial Law.T.AGRICULTURAL INCOME TAX in PAKISTAN A BRIEF SURVEY In 1860 the British Imperialists levied income tax in India. Taxation and Tariff Commission recommended the imposition of tax on agriculture and handing over the subject to the Federal Government. Act of 1922. Ordinance. In 1963. agricultural income was again exempted from taxation.T. Agricultural Income was exempted from taxation by the I. a law for the imposition of Agricultural Income Tax was promulgated in the Province of Bengal. In 1922 Income Tax Act was promulgated and Agricultural Income was exempted from taxation.F. but it was not accepted. the agricultural tax was removed from the purview of the central government. In 1944. In 1964. which exempted 25 Acres irrigated and 50 Acres non irrigated land from taxation. the Provinces of Punjab-Bhawalpur and N. the Federal Government repealed the I. In 1935. Taxation Enquiry Committee recommended taxation of agricultural income but the Food and Agricultural Committee recommended exemption of Agriculture from taxation. In 1925 Indian Taxation Enquiry Committee was constituted. with the promulgation of the constitution. the taxation system was divided been the central and provincial governments. promulgated similar laws. In 1948 in Pakistan. In the 1973 Constitution. In 1956. In 1970.P. but the Government of West Pakistan vetoed the proposal. Income Tax Project [Sec-C] Page 17 . which recommended taxation of all incomes including the agricultural incomes. Agricultural tax was removed from the purview of the central government.W. In 1977. IN 1959. In 1882 Agricultural Income was exempted from taxation. Agricultural Income was also taxable. In 1977 the Assembly passed the Financial Ordinance. the Enquiry Committee on Agriculture recommended the imposition of income tax on agricultural income on a very limited scale.

Therefore while the middle class and the salaried people are crushed under the dual burden of taxation and rising cost of living. but the Government of the day is totally blind to the situation. lies in identifying as to who is ready to fight for the economic emancipation of the people. Can we venture to question them as to what their democracy means. but without any result.period. Mahbub ul Haq is on record as saying that the Deficit in the 1985 budget of 65 billion rupees could have been met had the government chosen to impose income tax on agriculture then. Because the repayment of these loans( $ 52 Billion by 2009) will be made by the people and their future generations and not the ruling classes. if everyone is not equal before the law? It was only in moribund states and societies. The exemption of agriculture from income tax has also given rise to fraudulent practices where income from shady sources is filed under the heading of agricultural income. In 1993 The Care-taker Prime Minister Moin Qureshi rescinded the Section 5-a of the Wealth Tax Act (1963) so that agricultural income may be taxed on a limited scale. The political leadership of all major political parties today are shouting themselves hoarse about their commitment to democracy. Serious consideration started to be given to the imposition of agricultural income tax. From the above it is clear that during the last Century and Half the question of Agricultural income tax has been a subject of debate. Today the acid test of who really represents the people. Even in India the distinction was later done away with. In 1992 there was a serious deficit in tax revenue. across the board taxation was imposed very early.In 1986. pocket their profits and then go with the begging bowl to the West to finance the economy. The gravity of the situation is apparent to any literate citizen of Pakistan. the exemption from taxation was the privilege granted to the scions of those elements who helped the British Imperialists in occupying and ruling the sub. thereby depriving the exchequer of millions in taxes. the traders and the civil and military bureaucrats. the National Taxation Reform Commission examined the imposition of Agricultural Income tax but there was no outcome. The reason is not difficult to fathom. Their policy is. let all the political parties bear this in mind when they are judged by History. It was only in India and Pakistan that the distinction between agricultural and income from other sources was made. such as Russia and France that the Feudal class and the Churches were exempt from taxation. all are utilizing this loophole to defraud the treasury. Income Tax Project [Sec-C] Page 18 . the feudal and land owning classes are free to earn millions from their fruit orchards and fields. The industrialists.continent. The late Dr. The taxation policy throughout the world is on income. Even in England.

top echelon of civil and military bureaucracy. Temporary exemptions are also granted to address issues that arise from time-totime.Taxation in Pakistan Executive Summary As we have studied Income Tax Laws in Pakistan in detail throughout the semester. But the fall in the tax-to-GDP ratio has made this task increasingly difficult. massive tax evasion and administrative weaknesses. Pakistan‘s tax collection has failed to improve since the late 1990s mainly due to inherent structural problems.3 percent from 8.8 percent in 2008/09. tax-to-GDP ratio is expected to rise to 9.‖ The report said that Pakistan needs to look thoroughly at the available reform options. ―There are also political exemptions Ö (for) diplomats. countries in the region set a different example. and employees of the international organizations. thereby affecting the growth momentum of the economy.‖ Pakistan‘s tax–to-GDP ratio stands today at just below 10 percent and it have been falling steadily. which would help the government to meet its medium-term revenue collection targets. Income Tax Project [Sec-C] Page 19 . While there are other developing countries at Pakistanis income level with similarly low tax-to-GDP ratios. Exemptions are also introduced to protect certain industries. it added. especially on development. necessitating sharp cutbacks in public expenditure. including a narrow tax-base. including those which are new. Exemptions are made part of the tax system for a variety of reasons including the income tax threshold and GST exemption on basic foodstuffs are granted to protect the most vulnerable groups of society. Federal Board of Revenue (FBR) said in its quarterly report. the FBR report said. Greater emphasis has been placed on budget deficit reduction in order to contain the rate of inflation and restore a measure of fiscal sustainability by arresting the increase in the debt-to-GDP ratio. The fall in tax-to-GDP ratio in recent years has come at a time when government‘s efforts have been increasing focused on macroeconomic stabilization. pursuing twin-track reforms of tax policy and administration. under the impetus of various on-going IMF programs. But in fiscal 2009/10 (July-June). The report said that taxpayers distrust public institutions and the tax-to-Gross Domestic Product (GDP) ratio had declined in recent years. so we don‘t go in detail here…We just discuss the problems and a brief summary here… “International experience shows that tax reform can deliver large increases in the tax-toGDP ratio.

Hence. but rather on the politicians‘ personal needs/wants. Second. The solution to this problem.Most of the Pakistanis are not willing to pay taxes because First. people simply do not expect that paying taxes will lead to any increase in the quantity and quality of public goods and services provided by the state. careful planning. and quite well-founded belief. or the needs/wants of these politicians‘ favorites. they have nothing to gain from paying taxes. there is a strong. Income Tax Project [Sec-C] Page 20 . that a large part of the tax collected will not be spent on the welfare of the public at large. Decent governance. and honest work are all that‘s needed. while obviously not easy. does not require any new fundamental breakthrough in technology or human thinking in general. due to the above problem. While one has to admit that even these relatively basic changes will take time in Pakistan. It‘s simply a matter of will. and time. it‘s nevertheless nothing that cannot be done.

while it was just $47 billion a couple years ago. Taxation is the price of civilization of a society. Pakistan had to pay a total of $5.512 billion. The taxation of agricultural sector has always been a controversial issue in Pakistan throughout the history of the country. USA and Canada have brought agricultural income under tax net and even India is far ahead than Pakistan in this regard. All the developed countries like UK. credit cost and income disparity on the one hand and poor resource generation. agriculture is primitive and primarily of subsistence nature. The biggest argument against agricultural income tax has been the cost benefit analysis factor which shows that perhaps there is a very nominal potential in this sector.614 billion as debt serving in the fiscal year 2009-2010. Income Tax Project [Sec-C] Page 21 . The total foreign debt and liabilities of Pakistan has reached $58. It is known to all of us that Pakistan and India both inherited the same revenue collection system on their independence. 2010). 2010). "modern sector" consisting of industry and service sectors receives top priority. On the other hand. but now we see there is a huge difference between India and Pakistan with regard to their taxation regimes. This is a very dismal situation of affairs. In economic development. It has entrapped in a vicious cycle due to high inflation. The degree of civilization of a society depends upon the participatory polity which becomes vague if there is no participatory economy.Agriculture Income in Pakistan The economy of Pakistan has been in a very deplorable situation especially for the previous three decades and it has kept on deteriorating ceaselessly throughout this period. which account for almost more than 33% of the entire foreign exchange reserves of country (The Economic Survey of Pakistan. low investment. There have been divergent views of expert policy makers and legislators on the said issue. unemployment. Agriculture sector is characterized by backwardness in Pakistan like other developing countries where poverty and illiteracy are rampant. In a civilized society equals must pay equally to public exchequer to make a country economically sovereign so that its political sovereignty can be secured. It has made our country a dependent parasite at one end and corrodes our public exchequer annually in the form of huge foreign debt servicing payments at the other. "Modern" sector is comparatively more developed with higher literacy. A major reason for the economic stagnation is foreign debts that have been on the rise at alarming rate especially in the previous few couple of years. dismal law and order situation and extremely influential political cum feudal forces. income and documentation. Agriculture is the back bone of economy of Pakistan contributing almost 22% to GDP but its share in tax is only 1% (The Economic survey of Pakistan. There have been sporadic efforts to bring such a big sector of economy in tax net but all the efforts have remained almost ineffective and we have failed to harness a huge source of public exchequer.

but actual receipts for 1799 totaled just over £6 million. corporation tax and fuel duty. Pitt's new graduated (progressive) income tax began at a levy of 2 old pence in the pound (1/120) on incomes over £60 (£5. to pay for weapons and equipment in preparation for the Napoleonic.2 per cent of GDP. business rates in England and Wales. total government revenue was 39. Council Tax and increasingly from fees and charges such as those from on-street parking. the 18th century and the early 19th century. value. and increased up to a maximum of 2 shillings (10%) on incomes of over £200.Taxation in the United Kingdom (UK) Executive Summary Income tax was announced in Britain by William Pitt the Younger in his budget of December 1798 and introduced in 1799. Local government revenues come primarily from grants from central government funds. The central government (HM Revenue and Customs) & 2. and converting using 2009 conversion rate). Taxation in the United Kingdom may involve payments to a minimum of two different levels of government: 1.9 per cent of GDP—approximately £600 billion (using 2008 nominal GDP measured in dollars.077 as of 2012). This formed the main source of government revenue throughout the rest of the 17th century. A uniform Land tax was introduced in England during the late 17th century. Pitt hoped that the new income tax would raise £10 million. In the fiscal year 200708. Central government revenues come primarily from income tax. Local government. with net taxes and National Insurance contributions standing at 36. Income Tax Project [Sec-C] Page 22 . National Insurance contributions.

or when having annual visits to the UK for 91 days in 4 consecutive years. overseas income and casual income) 5. 4. Residence An individual in UK is resident when staying in the UK for more than 183 days in a tax year. interest. 3. or when the management is in the UK. Income not falling within those schedules was not taxed.Income Tax Schedules in UK Income tax was levied under five schedules. The schedules were: 1. A company is UK resident if incorporated in the UK. income from professions and vocations. 2. Schedule A (tax on income from UK land) Schedule B (tax on commercial occupation of land) Schedule C (tax on income from public securities) Schedule D (tax on trading income. Schedule F (tax on UK dividend income) was added. Schedule E (tax on employment income) 6. Income Tax Project [Sec-C] Page 23 . Later a sixth Schedule.

Hence the 2010-11 tax year ran from 6 April 2010 to 5 April 2011. Income Tax Project [Sec-C] Page 24 .Tax year in UK The tax year in the UK. Financial Year 2011 runs from 1 April 2010 to 31 March 2011. which applies to income tax and other personal taxes. as Financial Years are named according to the calendar year in which they end. The Financial Year. runs from 1 April to 31 March. runs from 6 April in one year to 5 April the next (for income tax purposes). The tax year is sometimes also called the Fiscal Year. used mainly for corporation tax purposes.

£150.£114.000. Alistair Darling announced in the 2009 budget (22 April 2009) that. which also saw the 22% income tax rate drop to 20%.000.5% (Lower Band) Regressive rate 56.001 .105 applies only if total income falls in Basic rate 10% 20% 40% 60% 40% 20% 40% 60% 40% £8.000 £100.£100. For the 2012/13 tax year.890 £114. the Chancellor (George Osborne) increased the personal allowance by £1000 in his emergency budget.000 Higher rate 32.891 . Above this amount there are a number of tax bands — each taxed at a different rate (as of 2012/13): Rate Dividend income Savings income Other income (inc Band (above any employment) personal allowance) £0 Lower rate N/A 10% N/A this band - £8. from April 2010 there would be a new 50% income tax rate for those earning more than £150. taxfree allowance is £8105. an additional levy on incomes at around 20%). Each person has an income tax personal allowance. whilst this allowance is withdrawn the effective income tax rate is 60% and with the NI rate in this band the effective tax rate is 62%.Income Tax in UK Income tax forms the single largest source of revenues collected by the government (followed by national insurance contributions. and income up to this amount in each tax year is free of tax for everyone.106 .371 . Income Tax Project [Sec-C] Page 25 .475.5% 50%(45% from 50%(45% from Aprover £150. This reduces by £1 for every £2 of taxable income above £100. bringing it to £7.475 for the tax year 2011-12.000 Apr-2013) 2013) This table reflects the removal of the 10% starting rate from April 2008.370[15] £34.£34. For 2010-11 the tax allowance for under 65s is £6.5% (Upper Band) Additional rate 42. On 22 June 2010.25% Higher rate 32.

after allowing deductions including mortgage interest. The taxpayer's income is assessed for tax according to a prescribed order.000. Foreign income of UK residents is taxed as UK income. the effective marginal top rate for 2011-12 is 58%: that is. subject to a maximum of the purchase prices of the property investment business properties (or the market value at the time they transferred into the business). followed by savings income (from interest or otherwise unearned) and then dividends. Joint owners can decide how they divide income and expenses.After consideration of employer and employee National Insurance contributions. as long as one does not make a profit and the other a loss. These deemed amounts paid abroad are not necessarily as much as actually paid.[19] Sometimes it is necessary to inform foreign authorities that tax should be withheld at the deemed rate. The mortgage does not need to be secured against the property receiving the rent. but to prevent double taxation the UK has agreements with many countries to allow offset against UK tax what is deemed paid abroad. after the first £150.138 and the employee receives £480 after deductions. Losses can be brought forward to subsequent years. to pay an employee an additional £1. Income Tax Project [Sec-C] Page 26 . Rental income on a property investment business (such as a buy to let property) is taxed as other savings income. with income from employment using up the personal allowance and being taxed first.000 of taxable income costs the employer £1.

There is an annual exemption of GBP 10.000 the tax rate is 21%.  UK's corporate tax rate for 2010-2011 is 28%. There is a participation exemption for sale of shares.  Capital gains for companies are generally taxed at the standard corporate tax rate. but rather than receipts being retained directly they are pooled centrally and then redistributed. For UK resident companies with annual profits below GBP 300. £19.  Corporation tax is a tax levied in the United Kingdom on the profits made by companies and on the profits of permanent of non-UK resident companies and associations that trade in the EU. Capital Gains  Capital gains of individuals are generally taxed at 18%.35% of the total UK tax income. Business rates form part of the funding for local government. Business rates Business rates are the commonly used name of non-domestic rates. representing 4.K. In 2005/06. corporate tax revenue as a percentage of GDP compared to the OECD and the EU 15.9 billion was collected in business rates. Income Tax Project [Sec-C] Page 27 . and are collected by them. subject to certain terms. a United Kingdom rate or tax charged to occupiers of non-domestic property.000.Corporation Tax in UK U.

GBP 43.875 with additional 1% on income exceeding GBP 43.715.715.875. The contributions by the employer and the employee are subject to ceiling defined by law. tax is deducted at source from the following payments to non residents:    Dividend.Deduction of Tax at Source in U.K.875.GBP 43. Self employed pay 8% for income of GBP 5.715. In the U. National Insurance Contributions (NIC) in the UK.K.20%.K. Social Security in U.20%.8% on salary above GBP 5.0%.875. Royalties. Employee: 11% on salary of GBP 5. with additional 1% for salary above GBP 43. Interest. Employer: 12. Income Tax Project [Sec-C] Page 28 . (20% for dividends paid by REITs).

Record keeping If you are a taxpayer. income spent on certain things. This means that some of your income. You must keep personal or non-business records for 22 months after the end of the tax year to which they relate. can be deducted when calculating tax. professional subscriptions or the cost of the tools of your trade. These reliefs reduce the amount of your taxable income so you pay less tax. unless your income is over £100.  If you are an employee and so are taxed under Pay As You Earn (PAYE). Tax reliefs In addition to personal tax allowances.000 a year. which would otherwise be taxable. You will need these records if the tax office asks you to complete a tax return. for example. your personal allowances will be spread throughout the year. keep records of your income and any expenses you claim against tax. will be tax-free.Tax allowances  If you live in the UK on a day to day basis you are entitled to a basic personal tax allowance. your personal allowances will be taken into account when your tax bill is calculated after you have sent in your annual tax return or repayment claim. and you must keep business records for 5 years and 10 months after the end of the tax year to which they relate. You may also be entitled to other allowances on top of the basic allowance.  If you are self-employed or have taxable income but are not working. so that each week or month you will have a certain amount of tax-free income and then pay tax on the remainder. by law. Tax reliefs for self-employed people and people who have taxable income but are not working are taken into account when their tax bill is calculated after they have sent in their annual tax return or repayment claim. Income Tax Project [Sec-C] Page 29 . This is known as tax relief on outgoings. you must. Tax reliefs for employees are spread throughout the year in the same way as personal tax allowances.

How HM Revenue and Customs collects income tax Deduction of tax at source Most taxpayers pay their tax through deductions that are made from their income before they receive it. and any income tax and class 1 national insurance contributions deducted. This is called deduction at source. The bank or building society must give you the information free of charge if you ask for it. which shows the pay and tax in the job you are leaving. the earnings and income tax deducted in the tax year to date. A number of banks and building societies send these details to all their investors each year. Bank and building society interest Banks and building societies deduct income tax from the interest paid on most deposits made with them by individuals. confirming the amount of gross earnings or pension. and  a P45 certificate whenever you change jobs. and  a P60 certificate at the end of each tax year. and pay this over to HMRC. deductions made and net pay if you are an employee. anyone making payments to employees or members of occupational pension schemes is obliged to operate the PAYE system. the tax code operating on your earnings at the time you left and. The bank or building society must confirm the amount of interest earned in each tax year and the amount of income tax deducted. and bank and building society interest. showing gross pay. If you do not need to pay any tax on this interest. because your total taxable income from all sources falls below your personal tax allowances for the tax year. as a matter of course. and must send these sums to HM Revenue and Customs (HMRC). you can arrange to Income Tax Project [Sec-C] Page 30 . You are entitled to receive written confirmation of deductions that have been made by: payslips. for example. see below Pay As You Earn (PAYE) By law. Some of the most common examples of deduction at source are PAYE. This means they must deduct income tax and class 1 national insurance contributions from the payments that they make. This is done before the interest is paid into your account. Statements and pass books may also show this information. see below. in some cases.

which you must complete and return to the branch.receive your interest gross. you should contact HM Revenue and Customs. or could not be. click on nearest CAB. avoiding the need to claim a tax refund. met by deduction at source. or consult an experienced adviser. for example. You should ask your branch of the bank or building society for form R85. To search for details of your nearest CAB. Income Tax Project [Sec-C] Page 31 . without deduction of any tax. Collection of tax by Self Assessment Tax will have to be paid to HMRC direct through the system of Self Assessment where the full liability was not. that is. If you need help with the Self Assessment process. at a Citizens Advice Bureau. Interest will then be paid without tax deduction. including those that can give advice by e-mail.

Equality is not always the same as fairness – see the notes below on the canons of taxation Correct for market failure: As with many other governments in other countries. The government is committed to using the tax system as an instrument of correcting for market failures. the UK government believes in the use of taxes to make markets work better (including taking account of externalities) – this is an important microeconomic objective.Objectives of the UK tax system The current government's objectives for the British tax system are broadly as follows: The burden of tax: To keep the tax burden as low as possible (the burden of tax for a country can be measured by the % of GDP taken in taxes) To improve incentives: The government believes that reducing tax rates on income and business profits helps to sharpen incentives to work and create wealth in the economy as a strategy to enhance long-run growth Tax spending rather than income: To shift the balance of taxation away from taxes on income towards taxes on spending – this is because it is thought that taxes on income have a greater effect on work incentives Equitable taxes: To ensure taxes are applied equally and fairly to everyone. Income Tax Project [Sec-C] Page 32 .

1 1.7 3.5 13.3 22.4 2.3 2.The table below shows the main sources of direct and indirect tax revenues for the UK projected for the 2004-05 financial year.3 2.0 34.1 56. Income from taxation for the UK government 1999-00 £ billion Income tax National Insurance contributions VAT Corporation tax Fuel duties Council Tax Business rates Other taxes Stamp duties Tobacco duty Vehicle excise duty Beer & cider duties Inheritance tax Spirits duties Insurance Premium tax Capital gains tax Wine duties 95. Income tax and national insurance contributions together account for over £205 billion of government tax revenues each year.8 1.2 78.1 1.7 56.1 23.1 15.9 2.7 4.3 20.1 6.7 9.1 18.2 Income Tax Project [Sec-C] Page 33 .4 2.7 2004-05 £ billion 127.9 3.1 73.4 8. VAT is the biggest single source of indirect tax revenue although over £40 billion of revenue comes each year from excise duties.4 2.4 34.0 8.7 11.0 2.1 4.9 5.

Income Tax Project [Sec-C] Page 34 .4 2.4 0.5 0.4 1.Customs Duties & levies Betting & Gaming duties Petroleum revenue tax Air Passenger duty Climate Change Levy Land fill tax Aggregates levy Oil royalties 2.0 Revenue collection Suggestions for improvements to increase certainty and/or reduce compliance costs for taxpayers should bear in mind the need to preserve the capacity of the Tax Office to collect legitimate revenue.9 0.0 0. In 2002-03.3 0.9 0.2 1.3 0.8 0.0 1.0 0.6 billion was collected in income tax (excluding petroleum resource rent tax). $129. Income tax paid by individuals and business is the largest source of funding for Government spending priorities or the retirement of debt.7 0.9 0.

2001.000 but does not exceed Rs. 1 Where the taxable income exceeds Rs. 1.5% 1.200. 14 Where the taxable income exceeds Rs.250.1. 550.000 but does not exceed 7 Rs. Where the taxable income exceeds Rs.0% 11.400.550.5% 18. 16 Where the taxable income exceeds Rs.1.000 but does not exceed Rs.000 but does not exceed 5 Rs.400. 750.000.000. Where the taxable income exceeds Rs.0% 7.000.0% 16.5% Page 35 .2.1. 13 Where the taxable income exceeds Rs.0% 15. 3. 15 Where the taxable income exceeds Rs.850. 2.0% 12. India and United Kingdom Tax Rates in Pakistan RATES OF TAXATION: The tax on salary income is calculated at the rates prescribed in Income Tax Ordinance. 1.000. 1.050.250.000 but does not exceed Rs.000 but does not exceed Rs.350.000 but does not exceed 8 Rs.4. Through Finance Act 2011 rates for the TY 2012 are amended.000.Tax Rates in Pakistan.700.0% 17.5% 4.000. Income Tax Project [Sec-C] Rate of Tax 0. 11 Where the taxable income exceeds Rs.5% 6.5% 2.000 but does not exceed 4 Rs.950.900.000 but does not exceed Rs.550.000.950.000 but does not exceed 2 Rs.1. Where the taxable income exceeds Rs.850.000.450.000. Where the taxable income exceeds Rs.700. 12 Where the taxable income exceeds Rs.5% 14.000. 450.000. 900.000.750.1.000 but does not exceed 9 Rs.050. 1.0% 10. 10 Where the taxable income exceeds Rs. Where the taxable income exceeds Rs. 1.350.2. Where the taxable income exceeds Rs.200.000 but does not exceed 3 Rs. 650. Where the taxable income exceeds Rs.450.000.550.3.000. The rates for Tax Year 2012 are as follows: S.000.000 but does not exceed Rs.5% 9.000 but does not exceed Rs. 2.450.000 but does not exceed 6 Rs.550.No Taxable Income Where the taxable income does not exceed Rs.000.5% 3.650.

550.550.050. Income of Property in Pakistan: Property tax is a provincial tax levied on the value of property. The tax is levied at 4% on the property‘s recorded value. It is generally levied at a flat rate of 10% but the tax rates vary.550. the effective rate is likely to differ on account of allowances and exemptions related to industry.No 1 2 3 4 5 If taxable income of the tax payer is Up to Rs. etc.001 to 2.050.1. However. In the province of Sindh.001 to 1.0% MARGINAL RELIEF: Through Finance Act 2008 the provision for marginal relief in the tax rates was introduced to remove anomaly in the tax rates. The marginal amount will be taxed at the following rates: S. resident company or resident association of persons for the year.17 Where the taxable income exceeds Rs. location. the tax is levied at PKR50 (US$0.250.000 550. property tax is levied at a flat rate of 20% on the annual rental value of the land and building.000 1. Income Tax Project [Sec-C] Page 36 .001 to 4.001 and above Percentage of incremental income taxable at next applicable tax rate 20% 30% 40% 50% 60% Income of Business in Pakistan: All public companies (other than banking companies) incorporated in Pakistan are assessed for tax at corporate rate of 39%.58) per square yard of the property.000 2. Association of Persons in Pakistan: Resident and non-resident persons. If no property value is recorded.000.550. A person shall be a resident person for a tax year if the person is – a) a resident individual.000 4. or b) the Federal Government. The marginal relief is available on amount in excess of maximum limit of the preceding slab relative to slab in which the taxable income fall. depending on the province. 4. exports.250. 20. Individuals who purchase real property in urban areas or acquire the right to use the real property for more than 20 years are liable to pay capital value tax. Property tax is levied at progressive rates in the Punjab province.

namely:– (A/B) x C Where – A is the amount of tax that would be assessed to the individual for the year if the amount or amounts exempt from tax under sub-section (1) of section 92 were chargeable to tax. an individual has taxable income and derives an amount or amounts exempt from tax under sub-section (1) of section 92. Income Tax Project [Sec-C] Page 37 .2. An individual as a member of an association of persons. B is the taxable income of the individual for the year if the amount or amounts exempt from tax under sub-section (1) of section 92 were chargeable to tax.An association of persons shall be a resident association of persons for a tax year if the control and management of the affairs of the association is situated wholly or partly in Pakistan at any time in the year. the amount of tax payable on the taxable income of the individual shall be computed in accordance with the following formula. for a tax year. and C is the individual‘s actual taxable income for the year. A person shall be a non resident person for a tax year if the person is not a resident person for that year Resident association of persons.If.

No Taxable Income Where taxable income does not exceed Rs.000 12 Where the taxable income exceeds Rs.000 but does not 6 exceed Rs.000 Where the taxable income exceeds Rs.150.000 but does not 8 exceed Rs.800.00.13.000 14 Where the taxable income exceeds Rs.000 13 Where the taxable income exceeds Rs.Rates of Tax for Individuals and Association of Persons: S.00% Income Tax Project [Sec-C] Page 38 .000 11 Where the taxable income exceeds Rs.500.50% 15.00% 3.175.00% 25.000 but does not 9 exceed Rs.110.000 Where the taxable income exceeds Rs.13.000 but does not exceed Rs.00.00% 7.50% 1.400.000 Where the taxable income exceeds Rs.150.00.200.000 Rate of Tax 0% 0.000 10 Where the taxable income exceeds Rs.100.000 but does not 3 exceed Rs.400.00% 12.00% 4.000 1 Where the taxable income exceeds Rs.00% 17.000 but does not 4 exceed Rs.000 Where the taxable income exceeds Rs.125.000 Where the taxable income exceeds Rs.000 but does not 5 exceed Rs.125.300.00% 5.500.50% 21.000 but does not 7 exceed Rs.000 Where the taxable income exceeds Rs.800.300.00% 2.50% 10.10.175.100.000 but does not exceed Rs.110.000 but does not exceed Rs.000 but does not 2 exceed Rs.600.10.00.000 but does not exceed Rs.600.200.000 Where the taxable income exceeds Rs.

No 1 2 3 4 5 6 Taxable income. no tax shall be charged if the taxable income does not exceed Rs. 100. Income Tax Project [Sec-C] Page 39 .000. 150. 300.000 22.000 3. 400.500 plus 35% of the amount exceeding Rs.000. Rate of tax. 0% 7. Where taxable income exceeds Rs.750 plus 12.500 plus 25% of the amount exceeding Rs. 100.000 Where taxable income exceeds Rs.500 plus 20% of the amount exceeding Rs. Where taxable income does not exceed Rs.125.000 but does not exceed Rs. 400.000. 700.Provided that where income of a woman taxpayer is covered by this clause. 700. 42.000. Where taxable income exceeds Rs. 100. 300. 700. 117.000 but does not exceed Rs. 400.000/S.000. Where taxable income exceeds Rs. 150.5% of the amount exceeding Rs.000 but does not exceed Rs.000.000.000 but does not exceed Rs. Where taxable income exceeds Rs. 150.000. 300.5% of the amount exceeding Rs.

700.000.000 but does not exceed Rs.000 but does not exceed Rs.000 but does not exceed Rs.1.00% 11.000 but does not exceed Rs.1.1.000.2.Where the income of an individual chargeable under the head ―salary‖ exceeds fifty percent of his taxable income.000.000 but does not exceed Rs.150.000.050.400.150.000 Where the taxable income exceeds Rs.250.1.000 Where the taxable income exceeds Rs.000 but does not exceed Rs.00% 10. Where the taxable income exceeds Rs.50% 3.4.000 but does not exceed Rs.1.50% 18.700. Where the taxable income exceeds Rs.25% 0.00% Page 40 Income Tax Project [Sec-C] .950.3.000.75% 1.700.000 Where the taxable income exceeds Rs.600.000.50% 4. Where the taxable income exceeds Rs.000 but does not exceed Rs.200.00% 12.850.50% 14. Where the taxable income exceeds Rs.300.000 Where the taxable income exceeds Rs.150. Where the taxable income exceeds Rs.000 but does not exceed Rs.50% 6.200.00% 15.50% 0. Where the taxable income exceeds Rs.000.000 but does not exceed Rs. Where the taxable income exceeds Rs.200.450.000 but does not exceed Rs.700.350.00% 17.500.00% 16.000.250.1.000.700.000.400.000 but does not exceed Rs.850.3.000.300. Where the taxable income exceeds Rs.350.000 but does not exceed Rs.000 Where the taxable income exceeds Rs.000 but does not exceed Rs.150.000.400.50% 19.50% 9.8.8.2.No 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Taxable Income Where taxable income does not exceed Rs. the rates of tax to be applied shall be as set out in the following table namely: S. Rate of Tax 0% 0.000.000 Where the taxable income exceeds Rs.000 but does not exceed Rs.1.00% 20.450. Where the taxable income exceeds Rs.000.050.000 but does not exceed Rs.700.950.1.600.000.000 Where the taxable income exceeds Rs.50% 2.4. Where the taxable income exceeds Rs.000 but does not exceed Rs.00% 7.500.500.3.200. Where the taxable income exceeds Rs.000 but does not exceed Rs.000 but does not exceed Rs.3.400.500.000 Where the taxable income exceeds Rs. Where the taxable income exceeds Rs.

500.500. Education cess of 3% is applicable on income tax plus surcharge.500.000 plus 30% For senior citizens (men or women who are 65 years or more at any time during the Previous Year): Income Up to 240.000 190.300.001 . A minimum alternate tax (MAT) is levied at 18. A 5% surcharge in case of domestic companies and a 2% surcharge in case of foreign companies is applicable if the total income is in excess of INR 10 million.000 Tax Rates Nil 10% Rs 11. if any.000 300.Tax Rates in India Rates of Taxation: For resident men below the age of 65 yrs: Income Up to 160.000 240. Securities transaction tax (STT) Income Tax Project [Sec-C] Page 41 Tax Rates Nil 10% Rs 6.000 plus 30% .000 Above 500.001 .001 . Surcharge and education cess is applicable on the above taxes.001 .001 .000 Above 500.5%.000 plus 20% Rs 54.000 For resident women below the age of 65 years: Income Up to 190. Wealth tax is imposed at a rate of 1% on the value of specified assets held by the taxpayer in excess of the basic exemption of INR 3 million.000 Above 500.000 plus 30% Tax Rates Nil 10% Rs 14. Domestic companies are taxed at a rate of 30%.445%. Foreign companies are taxed at a rate of 40%.000 plus 20% Rs 51. Dividend distribution tax (DDT) is levied at 15% on dividends distributed by a domestic company.300.000 plus 20% Rs 46.000 Income of Business in India: The corporate tax rate is 32. however profits from life insurance business in India are taxed at a rate of 12.000 160.001 .300.5% of their book profits.000 300.5% of the adjusted profits of companies where the tax payable is less than 18.000 300.

annual value is to be taken as NIL. Income of Property in India: Income from House property is calculated by considering the Annual Value. From this Net Annual Value. Municipal Tax paid is deducted to arrive at the Net Annual Value.         Income through the salary Interest rate generated from nay mode Rental charges Insurance commission Prize money from betting.is levied on the value of taxable securities transactions in equity shares and units of equity oriented funds. lotteries and horse races Commission on sale of lottery ticket Income generated from the foreign countries Fees for professional and technical services Income Tax Project [Sec-C] Page 42 . the following are deducted:   30% of Net value as repair cost . From this. then annual value is assumed to have accrued to the owner. In case of a self occupied house. The annual value (for a let out property) will be maximum of the following:    HRA Rent received Municipal Valuation Fair Rent (as determined by the I-T department) However if a house is not let out and not self-occupied.mandatory deduction Interest paid or payable on a housing loan for the house Association of Persons in India: Tax Deducted at Source in India: Let‘s have a look at some of the income that is subjected to tax deduction at source (TDS). But if there is more than one self occupied house then the annual value of the other house/s is taxable.

Latest TDS (tax deducted at source) rate S.No Payment Source Threshold in Rupees Co-operative HUF (rate in society/Local %) authority/company firm (rate in %) 30 30 30 30 10 10 10 10 10 10 10 10 10 10 1 1 2 2 2 2 10 20 10 20 15 10 - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Winning from lotteries Winning from horse races Commission on insurance Rent or property Interest from bank Commission/brokerage Professional fees Scrap Toll plaza Mining /quarrying Interest on debenture and securities Withdrawal from NSS Payment to nonresident sportsmen Income from ling term capital gain Income by way of short term capital gain Fees for technical services payable by Government or an Indian concern in Pursuance of an agreement made by nonResident with the government 10000 5000 20000 180000 10000 5000 30000 2500 - Income Tax Project [Sec-C] Page 43 .

710 Starting rate for savings £0 to £34.000 Higher rate Over £150.see basic rate band 10% 32.5% Income Tax Project [Sec-C] Page 44 .370 Basic rate £34.000 Additional rate Income Tax rate on non savings income Not available 20% 40% 50% Income Tax rate on savings 10% 20% 40% 50% Income Tax rate on dividends Not applicable .Tax Rates in United Kingdom Rates of Taxation: Income Tax Band £0 to £2.371 to £150.5% 42.

10. Turnover. 1. 92D.000 Page 45 Income Tax Project [Sec-C] . repayment of any deposit otherwise than by modes specified therein.000 whichever is less Rs.e. i. 156. Basis of Charge -- Quantum of penalty Amount of tax in arrears Rs. turnover or gross receipts. 269SS. Contravention of the provisions of S.00. by taking or accepting any loan or deposit otherwise than by ways specified therein. 115-O.000 Equal to the amount failed to be deducted 271B 271BA 271C 271D 271E 271F Failure to furnish a report as required u/s.00.000 271(1)(b) -- 271(1)(c) Tax sought to be evaded -International transaction Total Sales. 142(2A) to get accounts audited. or Gross Receipts 271A 271AA 100 % to 300 % of tax sought to be evaded Rs. 269T. 1.Income Tax Offences and Penalties in India Section 221(1) Nature of Default Failure to pay tax. 44AA. nonpayment of tax required by notice u/s. or Rs. Non-compliance with notice u/s. Contravention of S.e. Failure to maintain books or documents u/s. 143(2) to produce evidence on which assessee relies or u/s. 5. 142(1) to file returns or to produce documents required by assessing officer or u/s. 192 to 196D) or failure to pay the whole or part of tax u/s. Failure to keep and maintain information and documents u/s. Failure to deduct the whole or part of the tax as required by or under Chapter XVII-B (Ss. Failure to furnish Return of -Tax failed to be deducted Amount of loan or deposit so taken or accepted Amount of deposit so repaid -- Equal to the amount of loan or deposit so taken or accepted Equal to the amount of deposit so repaid Rs. i.. Failure to get accounts audited and furnish Tax Audit Report as required u/s.000 2% of International transaction 0. 92E.5% of total sales. or furnishing inaccurate particulars thereof. Concealment of the particulars of income. 44AB.e. i.. 25.

000 Rs. 10.S.S. 226(2) Furnish returns/ statements/ certificate u/s. 139 before the end of the relevant Assessment Year. attend summons u/s. 206C Furnish a statement of particulars of perquisites and profits in lieu of salary u/s. Failure to: Comply with notice u/s. -- Rs. 192(2C) Failure to furnish the prescribed information required u/s. 139A. -- Rs.000 Rs.000 Rs. Failure to answer questions. 139(4A) Deliver in due time a declaration mentioned in S. 133B (Refer to Form No. (TCN) International transaction -- 2 % of such default. 45D). 206 or 285B Allow inspection of any register(s) . 131(1). 271G 272A(1) Income under sub-section (1) of S. or particulars u/s. 94(6) furnishing information regarding securities Give notice of discontinuance of business . 10. sign statements. 92D (3). 197A Furnish a certificate u/s. 100 for every day during which the failure continues. Rs. 139 by the due date. 5. Failure to apply for Permanent Account Number (PAN) Failure to apply for Tax Deduction Account No. 10. 176(3) Furnish in due time returns.000 Income Tax Project [Sec-C] Page 46 . 134 Furnish returns u/s. 133. 10. 203. apply for permanent account number u/s.000 272A(2) 272AA(1) 272B 272BB(1) 272BBB Failure to furnish information or document u/s. statements. Deduct and pay tax u/s.Failure to furnish Return of Income under proviso to sub-section (1) of S. 1. (TAN) (S. 203A) Failure to apply for Tax Collection Account No.000 ---- Rs.

If HMRC hasn't contacted you. let HMRC know. It's important to do this as soon as possible. Income Tax Project [Sec-C] Page 47 . but you think you may need to complete a tax return.Income Tax Offences and Penalties in UK Tax return HM Revenue & Customs (HMRC) will contact you. usually in April. you'll receive a paper tax return. If you've previously sent your return on paper. If you don't you may have to pay a penalty. if they think you need to fill in a tax return. If HMRC asks you to complete a tax return but you think you don't need to. follow the link below to check. You'll receive a letter which explains when you'll need to send your tax return back.

£300 or 5% of the tax due.Penalties if you miss the tax return deadline If you miss the deadline. The table below shows the penalties you'll have to pay if your tax return is late. So it's important to send your tax return to HMRC as soon as you can. you'll need to work out the tax due yourself. Penalties for missing the tax return deadline Length of delay 1 day late Penalty you will have to pay A penalty of £100. This is as well as the fixed penalty above. You can only change this estimate by sending your tax return. If a Partnership tax return is late. If you don't receive this. This is as well as the penalties above. £300 or 5% of the tax due. whichever is the higher. You will also have to pay any penalties due for missing the HMRC will usually send you a 'Self Assessment Statement' that shows how much you owe. You will have to pay this and also pay interest on any tax that you pay late. In serious cases you may be asked to pay up to 100% of the tax due instead. You can use your tax calculation and previous statements or log in to HMRC Online Services and use the 'View Account' option. the longer you delay. £10 for each following day . the more you'll have to pay. whichever is the higher. These are as well as the penalties above.up to a 90 day maximum of £900. Income Tax Project [Sec-C] Page 48 . each partner will have to pay the penalties shown below. 3 months late 6 months late 12 months late Receiving a tax estimate if your return is late If you don't send your return by the deadline HMRC may estimate the tax you owe. This applies even if you have no tax to pay or have paid the tax you owe.

 You may think you have a reasonable excuse for paying your tax late. For example if HMRC asked you to fill in a 2009-10 tax return and you still haven't sent it back. This is as well as the 5% above. So it's important to pay the tax as soon as you can.If you don't pay the tax you owe for the previous tax year on time. Income Tax Project [Sec-C] Page 49 . You don‘t need to wait until you get a penalty. the more you'll have to pay. This as well as the two 5% penalties above Twelve months late  The penalties above do not apply to any payments on account that you pay late. you may have to pay a penalty under the 'old rules' that applied before 6 April 2011. You can find out more about reasonable excuses in the 'How to appeal' article (see link below). the longer you delay.  Late return and payment penalties before 6 April 2011  In some cases.  Interest charges if you pay late  You will have to pay interest on anything you owe and haven't paid. Penalties for paying late Length of delay Thirty days late Six months late Penalty you will have to pay 5% of the tax you owe at that date 5% of the tax you owe at that date. including any unpaid penalties. you should let HMRC know as soon as you can. until HMRC receives your payment. 5% of the tax unpaid at that date.

In Asian Pacific countries. India. India. Income Tax Project [Sec-C] Page 50 . Govt should reduce their expenditures and pay special attention to the welfare activities. which would help the government to meet its medium-term revenue collection targets. and Sri Lanka ñ countries with similar tax policies and administration ñ is systematically higher than Pakistan.8 percent in 2000 to 16.‖ Agriculture Income should be taxed because a lot of revenue has been generated from agriculture land. Corruption in FBR must be finished. USA and Canada have brought agricultural income under tax net and even India is far ahead than Pakistan in this regard. 2010). Govt of Pakistan should pay special attention on poor or unemployed persons. Agriculture is the back bone of economy of Pakistan contributing almost 22% to GDP but its share in tax is only 1% (The Economic survey of Pakistan. Punishments and penalties should be stick so that every Pakistani should Pay Tax.‖ the report said adding that this gap increased during the present decade. The report said that Pakistan needs to look thoroughly at the available reform options. ―Different studies conducted on Pakistan taxation system highlight that Pakistan has the potential to achieve the objective of increasing the tax to GDP ratio by 13-15 percent over the next five years.Conclusion & Recommendations The reports said that Malaysia. ―The simple average of the tax-to-GDP ratio in Bangladesh. As in UK.5 percent in 2004. while in Pakistan it remained roughly constant as a percent of GDP since the early 2000. All the developed countries like UK. and Sweden saw rapid growth and rising tax ratios. while in Pakistan tax collection rose just in line with the economic growth. the tax collection ratio increased from 13. pursuing twin-track reforms of tax policy and administration. Thailand. Turkey.

2. The rate of this tax can be 3. Income Tax Project [Sec-C] Page 51 .Our Special Research & Recommendations Regarding Agriculture Income Our research syndicate recommends a stepwise levying of agricultural income tax in the following steps.5%. in all these steps or mode the taxes that are already being paid will in the form of land revenue or Abiana will be treated as tax credit.  In case of agricultural and income from other sources. agricultural income will be clubbed with the income from other heads of income and tax will be calculated.  In case where there is only agricultural income. WITH HOLDING TAX The second stage for the taxation of agriculture can be with holding on the total consideration received for the sale of agricultural produce. 1-RATE PURPOSE In the first stage we can use agricultural income for rate purpose and proportionate relief will be given for agricultural income. Proportionate relief and tax credits will be granted and total payable tax will be determined. the income from other heads of income will be taken as zero and proportionate relief will be given 80% of the entitled relief.

Income Tax Project [Sec-C] Page 52 . medicines and labor involved. The expenses allowed can be the lesser of:  Actual expenses occurred  50% of the total considerations received for agricultural produce. For example agricultural inputs like seeds. fertilizer. HEAD OF INCOME In the final stage agricultural income can be treated as a separate head and all the expenditures incurred on deriving income can be admitted as expense.3. The time frame to meet all the three stages can be decided by the agricultural taxation committee.

hmrc.com/highlights/todays-pick/agriculture-income-tax-the-reality.gov.forexpk.direct.com/2009/05/08/agricultural-income/ http://www.pdf http://www.gov.uk/about/new-penalties/failure-to-notify.wordpress.References http://indiantaxguide.uk/en/MoneyTaxAndBenefits/Taxes/BeginnersGuideToTax/IncomeTax/Introduct iontoIncomeTax/DG_078825 http://www.html Income Tax Project [Sec-C] Page 53 .