Employee Share Scheme /

Provident Fund
• Free medical treatment under terms of employment
contract is exempt, if the employee provides NTN
(National Tax Number) of the hospital or the clinic.
Medical treatment includes expense for
hospitalization. (Clause 139 of Second Schedule)
• If not entitled - then fully taxable.
• Cash medical allowance - exempt upto 10% of salary.
• Where the employee is allowed free medical
treatment under terms of his employment, as well as
provided a cash medical allowance, then free medical
treatment and hospitalization will be exempt, and the
cash allowance will be taxable.
Clause 139 of Second Schedule – Medical Expenses / Allowance
a) Medical facility or reimbursement of Fully exempt if NTN of medical
medical expenses: practitioner and employer’s attestation
o In accordance with terms of are available.
employment

Not in accordance with terms of Taxable

employment

b) Medical allowance Exempt up to 10% of basic salary

o Medical allowance in addition to Fully taxable

medical facility or reimbursement in
accordance with terms
Medical allowance in addition to
reimbursement of medical expense
not in accordance with terms
[medical facility or reimbursement is
exempt if NTN of medial practitioner
and employer’s attestation are
available]
Allowance is exempt up to 10% of
basic salary.
[Reimbursement is taxable]
 Employee Share Scheme

Right / Option = Exempt from Tax

Market Value (issue date) = XXXX
Less: Amount paid by employee XXXX
Less: Amount paid for option XXXX
Include in Salary XXXX
 Employee Share Scheme

Options Shares

Exercised Exercised With Without

Issued Sold (without (with Restriction Restriction
restriction) restriction)
Taxable Event: Taxable Event
Taxable Event Taxable Event:
No Taxable Event Earlier of
Taxable Event Earlier of - Removal of FMV of Shares on
Consideration - Removal of date of issue –
Restriction
– Cost of Shares FMV Restriction - Sold Exercise Price –
Option (date of - Sold Cost of Option (if
exercise) – any)
FMV of Shares on
Cost of shares FMV of Shares on above date –
– Cost of above date – Exercise Price –
Options Exercise Price – Cost of Option (if
Cost of Option (if any)
any)
 Employee Share Scheme

Market Value (date when restriction is lifted) = XXXX

Less: Amount paid by employee XXXX
Less: Amount paid for option XXXX
Include in Salary XXXX
 On 15th June 2021, Flack Limited launched an
employee share scheme where all employees were
given 1,000 options to be exercised within a month, to
buy 1 share each, at a price of Rs. 10. Market value of
shares on 15th June 2021 was Rs. 25 per share. The
shares could not be sold till 2 years after purchase.
‘A’ purchased 1,000 shares at Rs. 10 on 1st July 2021.
Market value of shares on 15th June 2023 and 1st July
2023 was Rs. 40, and Rs. 45 respectively.
Tax Year 2024
Rs. 45 (Value on date when restriction is lifted) (1 Jul 2023)
Rs. (10) (Paid by employee)
Rs. 35 x 1,000 shares = 35,000 included in Salary
 Employee Share Scheme
When an employee receives a right / option to buy company shares, it will
not be a taxable event.
When employee sells the right / option, consideration received less amount
paid to acquire right / option will be taxable

Disposal of asset includes a sale, exchange or transfer (Section 75).

Therefore, if the employee does not sell the shares (with restriction on sale)
in the market, but transfers them as a gift to someone, the benefit will be
taxable for the employee on the day shares are transferred.
• Pasha is CEO of a listed company. On 1.7.22, he was given options
to buy 10,000 shares of the company at a fixed price of Rs. 12 per
share. The options were tradable in open market, and had cost Rs.
1.5 per option. They had a market value of Rs. 2.25 per option on
1.7.22. The shares of the company were trading at Rs. 23 per
share on 1.7.22. According to the terms, Pasha could exercise the
option anytime within the next 24 months, and the shares bought
through the option would be freely tradable in the open market,
without any restriction.
• On 31.10.23, Pasha sold 2,000 options in the open market at Rs.
14.5 per option. The value of Company’s share was Rs. 31 on
31.10.23. On 15.12.23, he sold 3,000 options to his Mr. A @ Rs. 15
per option.
• On 5.3.24, he exercised his remaining options. The MV of the
option was Rs. 16 per option on 5.3.24, while the shares of the
company were trading at Rs. 34 per share on that day.
• 31.10.23 Options exercised = 2000 X (14.5-1.5) = 26,000
• 15.12.23 Options sold = 3000 X (15-1.5) = 40,500
• 5.3.24 = Options exercised, meaning shares acquired:
MV of shares 34
Less: Cost to acquire shares (12)
Less: Cost to acquire options (1.5)
Net Gain (Salary) 20.5 per share,
i.e. 20.5 X 5000 = 102,500

Taxable Income for Tax Year 2024 = Rs. 169,000

 Provident Fund

Payment from a Provident Fund on retirement / termination = EXEMPT

Lower of 10%
of 150,000

1/3rd of Salary or
16%, whichever is
higher
Jamal works in Flack Limited, a listed company at a
monthly salary of Rs. 50,000. He participates in an
employee provident fund which Flack Limited operates
for all employees. Jamal is required to pay 11% of his
salary in the fund, and Flack Limited also contributes
the same amount in the fund on his behalf.
Salary (50,000 x12) = 600,000
Employer contribution in provident fund
Contribution = 11% of 600,000 = 66,000
Exempt: lower of 10% of salary=(60,000) 6,000
or Rs. 150,000 606,000
Kazim works in Flack Limited, a listed company at a
monthly salary of Rs. 350,000. He participates in an
employee provident fund which Flack Limited operates
for all employees. Kazim is required to pay 11% of his
salary in the fund, and Flack Limited also contributes
the same amount in the fund on his behalf.
Salary (350,000 x12) = 4,200,000
Employer contribution in provident fund
Contribution = 11% of 4,200,000 = 462,000
Exempt: lower of = (150,000) 312,000
(420,000 or Rs. 150,000) 4,512,000
Rs. 150,000
Kazim works has been working as Maintenance
Manager in Flack Limited at an annual salary of Rs.
45,000 for the last many years.
He also participates in an employee provident fund
which Flack Limited operates for all employees. Kazim
is required to pay 11% of his salary in the fund, with
Flack Limited also contributing the same amount in the
fund on his behalf. His accumulated fund on 30 th June
2024 was Rs. 2,360,000 and the trustees of the fund
credited interest at the rate of 16% for the year on the
same day.
Salary (Rs. 45,000 x 12 months) = 540,000
Employer contribution to provident fund
11% of 540,000 = 59,400
Exempt contribution – lower of:
(10% of salary = Rs. 54,000
or Rs. 150,000) (54,000) 5,400
Interest on acc. Balance
16% of 2,360,000 = 377,600
Exempt (377,600) 0
545,400
 PENSION Clause 8 – 2nd schedule
• Any pension received by a citizen of Pakistan is exempt
from a former employer (or associate).
• Where a person receives more than one pensions, the
higher will be exempt.
• If the person continues working with the employer after
retirement, the pension will be taxable as ‘salary’ income.
• For a person over 60 years of age, all such pensions are
exempt irrespective of the above mentioned conditions
(Circular 28 of 1991)
• Commutation of pension is exempt from tax
Gratuity - (Clause 13 – 2nd schedule )
Gratuity - (Clause 13 – 2nd schedule )

1) Amount received by government employees from the

Government Gratuity Fund is exempt
2) Amount received by private employees (non-
government) from an approved gratuity fund is exempt
3) An amount received from an approved gratuity scheme
(approved by board) will be exempt upto Rs. 300,000
4) In cases where an employee receives an amount from
an unapproved gratuity fund or scheme, it will be exempt
upto lower of (a) Rs. 75,000 or (b) 50% of the amount
received
 GRATUITY Clause 13 – 2nd schedule
Following are exceptions (no exemptions)
• Payment not received in Pakistan
• Payment received by a Director who is not employee
• Payment received by a person who is not a resident of
Pakistan (spend 183 days or more in Pakistan or employee / official
of FG, PG posted abroad or being Pak citizen not present in any other
country for > 182 days or is not resident taxpayer of any other country).
Asif worked at a HEC recognized university at monthly
basic salary of Rs. 295,000 till 31st March 2022, when he
retired. During his employment, he was provided with rent
free flat by the University, and a car costing Rs. 1,800,000
for both official and personal use. He was allowed to use
the flat and the car till 30 th June 2022.
Asif was provided a driver and a domestic servant till 30
June 2022. Salary of driver was Rs. 15,000 per month,
and the servant Rs. 12,000 per month.
Asif participated in the company’s approved provident fund
where all employees are required to contribute 12% of
their salary, with the employer matching the amount.
Asif had taken a loan of Rs. 1,600,000 on 1st July 2021. He
repaid Rs. 500,000 on 31 December 2021, while the rest were
written off at his retirement. On his retirement, Asif became
entitled to a monthly pension of Rs. 22,000 from the
University’s approved pension fund. He also received Rs.
140,000 from the University's unapproved gratuity scheme. He
was paid the accumulated balance on 30 June 2022 by the
provident fund.
On 30th June 2022, Asif purchased the car from his employer
at Rs. 500,000 when it’s WDV was 720,000 and market value
Rs. 753,650. At his retirement, a farewell was arranged for
Asif, where his employer presented him with a LED TV having
market value of Rs. 50,000 as farewell gift.
Salary (Rs. 295,000 x 9 months) = 2,655,000
Accommodation (45% of 2,655,000) = 1,194,750
Car (Rs. 1,800,000 x 5% x 9/12) = 67,500
Car (Rs. 1,200,000 x 10% x 3/12) = 45,000
Driver (15,000 x 12) = 180,000
Servant (12,000 x 12) = 108,000
PF 12% of 2,655,000 = 318,600
Less: 10% or 150,000 (150,000) 168,600
Interest on loan: 10% x 1,600,000 x 6 /12 = 80,000
Interest on loan: 10% x 1,100,000 x 3 /12 = 27,500
Loan write-off = 1,100,000
Approved Pension EXEMPT
Unapproved Gratuity fund: 140,000
lower of 50% or 75,000 (70,000) 70,000
Car Purchase (753,650 – 500,000) = 253,650
Farewell Gift = 50,000
Salary Income 6,000,000
Computation of Tax:
On 5,000,000 670,000
On 1,000,000 x 22.5% = 225,000
895,000
Less: HEC relief x 25% on salary (223,750)
Income Tax Liability 671,250