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040703

GOVERNMENT OF PAKISTAN
REVENUE DIVISION CENTRAL BOARD OF REVENUE
No.F.4(1 )ITP/2004-SAL
Islamabad, July 3, 2004

Circular No. 15 of 2004
(Income Tax)

Subject: DEDUCTION OF TAX FROM SALARY FOR THE TAX YEAR COMMENCING ON 1ST JULY 2004.

The tax liability of salaried taxpayers where salary constitutes more than 50% of the total income from all sources for the tax year 2005 shall be computed in accordance with the provisions of sections 12, 13 and 14 of Income Tax Ordinance, 2001 read with rules 3 to 9 of Income Tax Rules, 2002.

2. The taxpayers would be entitled to the following relief:

a. exemption of basic threshold of Rs. 100,000;

b. reduction in tax liability as provided in clause (1) (1) of Part-Ill of the Second Schedule to the Income Tax Ordinance, 2001, as per following schedule:
SNo Income Slab Reduction in Tax
liability
1. Where income exceeds Rs. 60,000 but 70%
does not exceed Rs.80,000
2. Where income exceeds Rs. 80,000 but 60%
does not exceed Rs. 100, 000
3. Where income exceeds Rs. 100, 000 50%
but does not exceed Rs. 150, 000
4. Where income exceeds Rs. 150,000 40%
but does not exceed Rs.200,000
5. Where income exceeds Rs.200,000 30%
but does not exceed rs,300,000
6. Where income exceeds Rs.300,000 20%
but does not exceed Rs. 500, 000
7. Where income exceeds Rs.500,000 10%
but does not exceed Rs.1 ,000,000
8. Where income exceeds Rs. 1,000, 000 5%

c. further reduction of 50% of tax available to the senior citizens aged 65 years or more and earning income upto Rs.300, OOO/- under clause (1A) of the said schedule shall also be applicable to salaried persons; and

d. additional reduction of 50% in tax liability in case of a full time teacher or researcher employed in a non-profit education or research institution, including Govt. training or research institution, duly recognized by a Board of Education or a university or University Grants Commission under clause (1 )(2) of the said schedule.

3. TAXATION OF PERQUISITES AND ALLOWANCES WHERE SALARY INCOME EXCEEDS RS.600.000.

The method of valuation of perquisites and benefits under Income Tax Rules, 2002 with respect to salary income is the same as explained in circular No. 12 of 2002 dated August 9, 2002. However, in case of salaried taxpayer whose income is Rs.600,000 or more, the house rent allowance received in cash upto 45% of the minimum of the time scale or where there is no time scale upto 45% of basic salary subject to maximum of Rs.270,000 shall not be included in his taxable income. Principles of taxation of other perquisites in case of such taxpayers remain the same.

4. INCREASE IN BASIC THRESHOLD.

The basic threshold has been raised to Rs. 100,000 w.e.f. tax year 2005. The tax slabs have also been revised accordingly. These slabs shall, however, be applicable for tax withholding purposes in respect of salary paid on or after first day of July 2004. The revised slabs are as under:-
S.No. Taxable income Rate of tax
(1) (2) (3)
1. Where taxable income does 0%
not exceed Rs. 100,000
2. Where taxable income 7.5% of the amount
exceeds Rs.1 00,000 but does exceeding Rs. 100,000.
not exceed Rs. 150,000
3. Where taxable income Rs.3,750 plus 12.5% of
exceeds Rs. 150,000 but does the amount exceeding
not exceed Rs.300,000 Rs. 150,000.
4. Where taxable income Rs.22,500 plus 20% of
exceeds Rs.300,000 but does the amount exceeding
not exceed Rs.400,000 Rs.300,000.
5. Where taxable income Rs.42,500 plus 25% of
exceeds Rs.400,000 but does the amount exceeding
not exceed Rs.700,000 Rs.400,000.
6. Where taxable income Rs. 11 7,500 plus 35% of
exceeds Rs.700,000. the amount exceeding
Rs.700,000.

5. The following examples illustrate the computation of tax of salaried persons for the tax year 2005 and tax shall accordingly be deducted under section 149(1) of the Income Tax Ordinance, 2001 by the employers w.e.f. July 1,2004.
Example -1. (Figures in Rupees)
Time Scale (1 2400 - 61 5 - 24700)
Total Exempt Taxable
Income Income Income
Basic Pay @ 1 8550 per month 222600 Nil 222600
House rent allowance 30996 30996 Nil
Conveyance allowance 4080 4080 Nil
Spl. Addl. Allowance 18600 18600 Nil
Over time 4500 Nil 4500
Spl. Relief allowance @ 15% through 33390 Nil 33390
Finance Division's OM No.1(4)lmp/
2003 dated June 30, 2003.
Ad-hoc Relief allowance @ 15% 33390 Nil 33390
through Finance Division's OM
No.1 (8) Imp/ 2004 dated July 1 , 2004.
TOTAL 347556 53676 293880
Tax on Rs.150,000(on the amount 3,750
exceeding Rs. 100,000) @ 7.5%.
Tax on remaining amount of 17,985
Rs. 1 43880 @ 12.5%
Total Tax 21,735
Less: 30% reduction as per clause (1 ) of 6,520
Part-Ill of 2nd Schedule.
Tax payable 15,215
Tax deductible per month. 1,268
Example -2. (Figures in Rupees)
Time Scale (1 6305 - 1 070 - 31 285)
Total Exempt Taxable
Income Income Income
Basic Pay @ 27005 324060 Nil 324060
per month
Qualification pay 9000 Nil 9000
Senior Post allowance 9600 Nil 9600
Entertainment allowance 5400 Nil 5400
Rent ceiling paid by 48609 48609
the employer Rs. 155664
(Restricted to 1 5% of salary).
Conveyance provided Nil Nil Nil
by the employer (for
business use only).
Spl. Addl. allowance 24456 24456 Nil
Orderly allowance 22800 Nil 22800
Spl. Relief allowance 48609 Nil 48609
@ 15% through Finance
Division's OM No.1 (4)lmp/
2003 dated June 30, 2003.
Ad-hoc Relief allowance 48609 Nil 48609
@ 15% through Finance
Division's OM No.1 (8) Imp/
2004 dated July 1,2004.
Total = 541143 24456 493887
Tax on Rs. 150,000
(on the amount
exceeding Rs.1 00,000)
@ 7.5%. 3,750
Tax on next Rs. 150,000
@12.5% 18,750
Tax on next Rs. 100,000
@ 20% 20,000
Tax on remaining amount
of Rs.93,887 @ 25% 23,472
Total Tax 65,972
Less: 20% reduction as
per clause (1) of
Part-Ill of 2nd Schedule. = 13,194
Tax payable 52,778
Tax deductible per
month. 4,398
Example -3. (Figures in Rupees)
Time Scale (1 6305 - 1 070 - 31 285)
Total Exempt Taxable
Income Income Income
Basic Pay @ 27,005 per month 324060 Nil 324060
Qualification pay 9000 Nil 9000
Entertainment allowance 5400 Nil 5400
Un-furnished accommodation provided 48609 48609
by the employer with plot area of 1 000
Sq.Yd. at Islamabad (addition
restricted to 1 5% of the basic salary).
Conveyance provided by the employer. 3600 3600
Spl. Addl. Allowance 24456 24456 Nil
Orderly allowance 22800 - 22800
Total 437925 24456 413469
Tax on Rs.1 50,000 (on the amount 3,750
exceeding Rs. 100,000) @ 7.5%.
Tax on next Rs. 150,000 @ 12.5% 18,750
Tax on next Rs.1 00,000 @ 20% 20,000
Tax on remaining amount of 3,367
Rs.1 3,469 @ 25%
Total Tax 45,867
Less: 20% reduction as per clause (1 ) 9,173
of Part- III of 2nd Schedule.
Tax payable 36,694
Tax deductible per month. 3,058

6. Following examples illustrate the determination of threshold of Rs.600,000:-

Example-1. (Figures in Rupees)

Time Scale (17440- 1250 - 34940)
Total Exempt Taxable
Income Income Income
Basic Pay @ 34940 419280 Nil 419280
per month
Conveyance provided by = 3600 Nil 3600
employer partly for private (as per
use. Rule 6C)
Spl. Addl. Allowance 18600 18600 Nil
Sr. Post Allowance 12000 Nil 12000
Entertainment Allowance = 9600 Nil 9600
Orderly Allowance 25584 Nil 25584
Spl. Relief allowance 62892 Nil 62892
@ 15% through Finance
Division's OM No.1 (4)lmp/
2003 dated June 30, 2003.
Ad-hoc Relief allowance 62892 Nil 62892
@ 15% through Finance
Division's OM No.1 (8) Imp/
2004 dated July 1,2004.
Total = 614448 18600 595848

The Salary chargeable to tax determined after allowing admissible exemptions in the above example is less than Rs.600,000. Hence the taxpayer would be entitled to valuation of perquisites as per rule 3 - 8 for aforesaid treatment.
Example -2. (Figures in Rupees)
Time Scale (20000-2000-40000)
Total Exempt Taxable
Income Income Income
Basic Pay @ 34000 408000 Nil 408000
per month.
Furnished accommodation
provided by the employer = 1 04820 Nil 1 04820
(15% + 10%
of basic
salary, as per
rule5A&5B)
Conveyance provided by = 3600 Nil 3600
employer partly for private
use.
Entertainment Allowance = 9600 Nil 9600
Concessional loan of 1 00000 Nil 1 00000
Rs.2.0 million obtained
@ 2% per annum
(Bench mark rate 7%
Diff: i.e. 7-2 = 5%)
Total = 626020 Nil 626020

Since salary chargeable to tax determined after allowing admissible exemptions exceeds Rs.599,999, valuation of perquisites and benefits shall be made as per rule 9 of the Income Tax Rules, 2002, which is as under:-
(Figures in Rupees)
Time Scale (20000-2000-40000)
Total Exempt Taxable
Income Income Income
Basic Pay @ 34000 408000 Nil 408000
per month
Furnished accommodation
provided by the employer = 370000 NIL 370000
with land area of 1 000 Sq
yards, Rule 9(1 )(a).
Add. 15%ofRs.270,000
under rule 9(1 )(b) 55500 55500
conveyance provided by = 50000 50000
employer partly for private
use. Cost of vehicle 1 million
(assumed) Rule 9(5)(b).
Entertainment Allowance = 9600 Nil 9600
Concessional loan of 1 00000 Nil 1 00000
Rs.2.0 million obtained
@ 2% per annum
(Bench mark rate 7%
for tax year 2005
Diff: i.e. 7-2 = 5%)
Total = 993100 Nil 993100
Tax on Rs. 150,000
(on the amount
exceeding Rs.1 00,000)
@ 7.5%. 3,750
Tax on next Rs. 150,000
@12.5% 18,750
Tax on next Rs. 100,000
@ 20% 20,000
Tax on next Rs.300,000
@ 25% 75,000
Tax on remaining
Rs.293,100@35% 102,585
Total Tax = 220,085
Less: 10% reduction as
per clause (1) of
Part-Ill of 2nd Schedule. = 22,008
Tax payable 198,077
Tax deductible per
month. 16,506

Example-3. Taxation of income of Rs.600,000 or more where house rent

allowance is paid in cash.
(Figures in Rupees)
Time Scale (40000-5000-75,000)
Total Exempt Taxable
Income Income Income
Basic Pay @ 55000 660000 Nil 660000
per month.
House rent allowance 240000 216,000 24000
received in cash [@ 45% as
per rule 9(2)]
conveyance provided by = 50000 50000
employer partly for private
use. Cost of vehicle 1 million
(assumed) Rule 9(5)(b).
Entertainment Allowance = 9600 Nil 9600
Concessional loan of 1 00000 Nil 1 00000
Rs.2.0 million obtained
@ 2% per annum
(Bench mark rate 7%
for tax year 2005
Diff: i.e. 7-2 = 5%)
Total = 1059600 216000 843600
Tax on Rs. 150,000
(on the amount
exceeding Rs.1 00,000)
@ 7.5%. 3,750
Tax on next Rs. 150,000
@12.5% 18,750
Tax on next Rs. 100,000
@ 20% 20,000
Tax on next Rs.300,000
@ 25% 75,000
Tax on remaining
Rs.1 43,600 @ 35% 50,260
Total Tax = 167,760
Less: 10% reduction as
per clause (1) of
Part-Ill of 2nd Schedule. = 16,776
Tax payable 150,984
Tax deductible per
month. 12,582

(Abdul Hamid)

Secretary (IT Policy)

Ph:9205561
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