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Steps for calculating income tax payable

1) Computation of income tax payable 2) Tax credited for AOP 3) Tax on property 4) Concession for senior citizen 5) Concession for teacher 6) Tax credited for foreign business income 7) Average relief/ rebate 8) Net tax 9) Tax deducted at source 10) Separate block of income (Income covered under FTR)

Explanation of the steps Step no 1) Computation of income tax payable:


Taxable income NO. 1 2 3 4 5 6 Income tax rate Tax rates NIL 5% of amount exceeding RS. 400,000 RS. 17,500 + 10% of amount exceeding RS. 750,000 RS. 95,000 + 15% of amount exceeding RS. 15,00,000 RS. 175,000 + 17.5% of amount exceeding RS. 20,00,000 RS. 4, 20,000 + 20% of amount exceeding RS. 25,00,000

Taxable income 0 to RS. 400,000 400,000 to RS. 750,000 750,000 to 15,00,000 15,00,000 to 20,00,000 20,00,000 to 25,00,000 25,00,000 and above

Step no 2) ) Tax credited for AOP


Gross tax for rate purposes Actual taxable income Taxable income for rate purposes

Step no. 3) Tax on Property roperty:


Total income from property NO. 1 2 3 4 Property income Up to RS. 1,50,000 1,50,001 to 4,00,000 4,00,001 to 10,00,000 More than 10,00,000 150,000 property tax rate

Property tax rates Nil 5% of the amount exceeding RS. 1,50,000 RS. 12,500 + 7.5% of the amount exceeding RS.4,00,000 RS. 57,500 + 10% of the amount exceeding RS. 10,00,000

Step no. 4) ) Concession for senior citizen


Two following conditions should be fulfilled for 50% concession of the senior citizen 1. The person should be above 60 years 2. His taxable income should not be more than RS. 10,00,000

Step no.5) ) Concession for teacher


The person should be full time teacher in a recognized institution as to get 75% concession in the income tax. The institution should be recognized by the board of education, university or Higher Education Commission of Pakistan. Total income from salary Gross tax = XXXXXX @75% Actual taxable income + property income (if it is taxable)

Step no.6) ) Tax credited for foreign business income


1. Foreign income tax paid 2. Or amount calculated by following formula (Which ever is less, will be deducted from gross tax)

Gross tax Foreign business income Actual taxable income+ property income (if it is taxable)
2

Step no.7) ) Average relief/rebate/exemptions claimed


The followings reasons are responsible for average relief/rebate (non others)

Particulars
1- Donation to approved institutions, education boards, relief funds, govt. hospitals, govt. universities etc 2- Shares of listed companies, shares of private company purchased through privatization commission of Pakistan

Amount nt claimed average relief

for

3- Contribution to approved pension fund

4- Life insurance premium paid by employee or by employer

5- Mark up paid on housing finance

Amount of donation 30%of actual taxable income (whichever is less) Amount of shares 20%of %of actual taxable income RS. 10,00,000 (whichever is less) Amount of pension fund 20%of actual taxable income (whichever is less) Amount of premium 20% % of actual taxable income RS. 10,00,000 (whichever is less) Amount of mark up 50% of actual taxable income RS. 7,50,000 (whichever is less)

Formula for calculating average relief


(When When share from AOP is given in the question) question Gross tax for rate purposes Amount claimed Taxable income for rate purposes + property income (if it is taxable) for average relief

(When AOP is not given) Gross tax Amount claimed for average relief

Actual Taxable income + property income (if it is taxable)

Step no.8) Net tax


Net tax = Gross tax - average relief

Step no. 9) Tax deducted at source


1- Tax paid on motor vehicle 2- Tax paid with telephone bill 3- Tax paid by employer 4- Tax deducted from salary 5- Tax deducted at source 6- Tax borne by employer on employees salary 7- Cash withdrawal from bank, more than RS. 50,000 on one day @0.3% @0.3 8- Tax paid on purchase of domestic air ticket 9- Tax paid on remuneration emuneration for examinership @6% 10- Tax paid on TV talk show@6% 11- Tax on sale of Modaraba certificates (Holding period less than 6 months) ( will be added) 12- Gain on sale of public company shares ( holding hol period riod less than 6 months) (will be added) 13- Golden handshake scheme ( if average tax rates are given) (Will be added)

Step no. 10) ) Separate block of income OR Income covered under FTR Particulars
1- Dividend or yield received from public/listed/private company 2- Prize on prize bond 3- Winning of cross word puzzle 4- Income from a raffle or lottery 5- Profit on debt or security 6- Profit on security issued by banking company Tax rate 10% 10% 10% 20% 10% 10%
4

7- Profit on special deposit certificates 8- Profit on national saving certificate 9- Interest/profit on PLS account 10- Profit on government security 11- Profit on defense saving certificates

10% 10% 10% 10% 10%

The things which are not entitled for average relief OR having no treatment
1- Payment of loan installment 2- Telephone paid by employee himself 3- Purchase of domestic air ticket 4- Donation to bait-ul-mal fund 5- Bonus shares received 6- Personally paid zakat 7- Personal legal expenditure 8- Defense saving certificates purchased 9- Life insurance premium paid by employee for his wife 10- Employee contribution towards recognized provident fund 11- Professional books purchased 12- Charity paid 13- Shares of private company purchased as original allottee 14- Loss from speculation of shares 15- Purchase shares from stock exchange 16- Loss sustained on disposal of security 17- Amount paid to practitioner for legal services 18- Children education expenditures 19- Property expenses, water charges, white wash and repair charges 20- Leasing rent paid 21- Investment in DSC, special saving certificates and khas deposit certificates 22- Capital loss
Prepared by: Muhammad Ahmad (M.phil Finance) (Please join for more suggestions) 0306-6922217 m.ahmadlhr m.ahmadlhr3@gmail.com