WORKSHOP ON INCOME TAX ORGANIZED BY ITBA, KARACHI ON AUGUST 29, 2005 “SALARY TAXATION” by ASIF...

WORKSHOP ON INCOME TAX WORKSHOP ON INCOME TAX

ORGANIZED BY ITBA, KARACHIORGANIZED BY ITBA, KARACHI

ON ON AUGUST 29, 2005AUGUST 29, 2005

““SALARY TAXATION”SALARY TAXATION” byby

ASIF KASBATIASIF KASBATI[FCA, FCMA, LLB, LCC(AA)][FCA, FCMA, LLB, LCC(AA)]

SENIOR MANAGER SENIOR MANAGER A.F. FERGUSON & CO.A.F. FERGUSON & CO.

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AREAS TO BE COVEREDAREAS TO BE COVERED

A Scope of Salary income

B Valuation of perquisites

C Employee share scheme

D Exemptions & concessions (including tax credit, etc)

E Provisions relating to staff retirement benefits

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(A)(A) SCOPE OF SALARYSCOPE OF SALARY S.12

1 CHARGEABILITY S.12(1)

1.1 Definition of the “Receipt of income” S.69

1.2 Exception S.110

22 DEFINITION OF SALARYDEFINITION OF SALARY S.12(2)

2.1 General definition

2.2 Specific inclusion

2.3 Directorship S.2(20) to (22)

2.4 An issue in respect of Directors

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3.3. RECEIPT OF CAPITAL NATURE RECEIPT OF CAPITAL NATURE S. S. 12(2)12(2)

4.4. TAX BORNE BY EMPLOYER IS TAXABLE TAX BORNE BY EMPLOYER IS TAXABLE S.12(3)S.12(3)

5.5. NO DEDUCTION IS ALLOWABLENO DEDUCTION IS ALLOWABLE S.12(4) S.12(4)

6.6. RECEIPTS FROM EMPLOYMENT INCLUDE RECEIPTS FROM EMPLOYMENT INCLUDE PAYMENTS RECEIVED FROM CERTAIN PERSONPAYMENTS RECEIVED FROM CERTAIN PERSONOTHER THAN AN EMPLOYEROTHER THAN AN EMPLOYER S.12(5) S.12(5)

7.7. SALARY RECEIVED IN ARREARS SALARY RECEIVED IN ARREARS S.12(7)&(8) S.12(7)&(8)

8.8. AVERAGE RATE OF TAX TO BE CHARGED ON AVERAGE RATE OF TAX TO BE CHARGED ON RECEIPTS ON ACCOUNT OFRECEIPTS ON ACCOUNT OF

(a) Termination of Employment S.12(6)&(8)

(b) Other payments on cessation of employment (an issue)

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BB VALUATION OF PERQUISITES & CERTAINVALUATION OF PERQUISITES & CERTAIN

EXEMPTIONSEXEMPTIONS S.13 & SII PIS.13 & SII PI

1. Service of a house keeper, driver, gardner or other domestic assistant S 13(5)

2 Utilities provided by employer S.13(6) & SII PI CI.38

3. Loan given by employer on or after July 1, 2002 S.13(7)

4. Use of Loan for taxable income S.13(8)

5. Waiver of obligation of employee to pay or repay amount owing to employer

S.13(9)

6. Obligation of employee to repay amount owing by employee to another person, paid by employer

S.13(10)

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BB VALUATION OF PERQUISITES & CERTAINVALUATION OF PERQUISITES & CERTAIN

EXEMPTIONSEXEMPTIONS S.13 & SII PIS.13 & SII PI

7. Property transferred by employer to employee or services provided by employer to employee

S.13(11)

8. Motor vehicle provided by employer S.13(3)

9. Accommodation or housing provided by employer S.13(12)

10. Medical SII PI CL39

11. Certain perquisites by virtue of employment S.13(13)

12. Perquisites not covered by the section 13 SII PI CL53A

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RULES FOR VALUATION OF PERQUISITES RULES FOR VALUATION OF PERQUISITES (IT Rules, 2002)(IT Rules, 2002)

1.1. DETERMINATION OF LEVELS SALARY INCOME R.3 to 9DETERMINATION OF LEVELS SALARY INCOME R.3 to 9

1.11.1 BASIC SALARYBASIC SALARY

R.3(4)(b) R.3(4)(b)

1.21.2 SALARYSALARY

R.3(4)(c) R.3(4)(c)

2.2. BASIS OF VALUATION OF PERQUISITES, ALLOWANCES BASIS OF VALUATION OF PERQUISITES, ALLOWANCES AND BENEFITS AND BENEFITS

(a) House rent allowance in cash (a) House rent allowance in cash R.5 R.5

(b) Accommodation and housing provided by employer(b) Accommodation and housing provided by employer (i) Rent free unfurnished accommodation(i) Rent free unfurnished accommodation R.5A(b)&9(4) R.5A(b)&9(4)(a)(a) (ii) Rent free furnished accommodation (ii) Rent free furnished accommodation R.5B(b)&9(4)(b)R.5B(b)&9(4)(b)

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RULES FOR VALUATION OF PERQUISITES RULES FOR VALUATION OF PERQUISITES (IT Rules, 2002)(IT Rules, 2002)

(c) Conveyance / Motor vehicle (Taxable Salary not (c) Conveyance / Motor vehicle (Taxable Salary not exceeding Rs 600,000)exceeding Rs 600,000)

(i) Motor Vehicle partly for business and (i) Motor Vehicle partly for business and partly for personal partly for personal R.6C R.6C

(ii) Motor Vehicle wholly for business (ii) Motor Vehicle wholly for business R.6D R.6D

(d) Motor Vehicle provided by employer (d) Motor Vehicle provided by employer (Taxable Salary exceeding Rs 600,000) (Taxable Salary exceeding Rs 600,000)

R.9(5) R.9(5)

(e) Free or concessional passage for travel(e) Free or concessional passage for travel(Taxable salary not exceeding Rs 600,000) (Taxable salary not exceeding Rs 600,000)

R.7 R.7

(f) Minor perquisites(f) Minor perquisites

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C. EMPLOYEE SHARE SCHEME S.14

1. DEFINITION S.14(6)

2. RIGHT OR OPTION TO ACQUIRE SHARES S.14(1)

3. DISPOSAL OF THE RIGHT/OPTION S.14(5)

4. CHARGEABLE TAX ON ISSUE OF THE SHARES

(a) The benefit

S.14(2)

(b) Restriction on transfer

S.14(3)(a)

(c) Amount chargeable to tax

S.14(3)(b)

5. COST OF SHARES S.12(4)

6. GAIN ON DISPOSAL OF SHARES ACQUIRED UNDER THE SCHEME

S.37

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D.1 TAX CREDITS D.1 TAX CREDITS

1. CHARITABLE DONATIONS S.61

2. INVESTMENT IN SHARES S.62

3 CONTRIBUTION TO APPROVED PENSION FUND (APF)

S.63

4 PROFIT ON DEBT S.64

5 MISCELLANEOUS PROVISIONS RELATING TO TAX CREDITS

S.65

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D.2 EXEMPTION & TAX CONCESSIONSD.2 EXEMPTION & TAX CONCESSIONS

1. FOREIGN SOURCE INCOME RETURNING EXPATRIATES

S.52(1)

2. FOREIGN SOURCE INCOME OF RESIDENT INDIVIDUAL

S.52(2)

3. FOREIGN-SOURCE SALARY OF RESIDENT INDIVIDUAL

S.102

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D.3 OTHER RELEVANT PROVISIONSD.3 OTHER RELEVANT PROVISIONS

1. PERSONS NOT REQUIRED TO FURNISH A RETURN OF INCOME

S.115

(a) Employer’s Certificate in lieu of return

(b) Statements

2. WEALTH STATEMENT S.116

3. DUE DATES FOR FURNISHING RETURN AND OTHER DOCUMENTS

S118

4. WITHHOLDING TAX S.149

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5. TAX RATES SI

Where salary income exceeds 50% of total income [TY 2006]

(a) Taxable income does not exceed Rs 100,000

NIL

(b) Taxable income exceeds from Rs 100,000 to Rs 700,000 3.5% to 25%

(c) Above Rs 700,000 30%

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1. PENSIONS CL8

2. COMMUTATION OF PENSION CL.12

3. GRATUITY OR COMMUTATION OF PENSION CL.13

4. APPROVED SUPERANNUATION FUND, ETC.

CL.25 5. ANNUITIES

CL.20 & 216. PROVIDENT FUND

CL.22 & 23

E. EXEMPTIONS RELATING TO STAFF RETIREMENT BENEFITS

(Schedule II Part I)