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Income Tax Ordinance - 2001

Topics

➢ Introduction to income tax Ordinance

➢ Important Definitions
➢ Salary under income Tax
➢ Perquisites
➢ Exemption and concessions & (Relevant Sections)
➢ Exemption or lower certificate
➢ Flying allowance & submarine Allowance
➢ Teachers and researchers
➢ Reduction in tax liability
➢ Date and time for filing of return
➢ Income tax Rates
➢ Penalty
➢ Wealth statement
➢ Departmental orders
➢ Calculation of tax (Civilian and Army personals)

Article 77 of the constitution of Pakistan empowers the Federal Government to levy Tax
for the purpose of Federation.

[Published on 13th Sep 2001]

[Ordinance No. XLIX of 2001]

NOW, THEREFORE in pursuance of the proclamation of emergency of the

fourteenth day of Oct 1999, and the provisional constitutional order No. 1 of 1999 read
with provisional constitutional Amendment No. 9 of 1999 and in exercise of all power
enabling him in that behalf the President of the Islamic Republic of Pakistan is please
to make and promulgate this ordinance.

Detail of Income Tax ordinance 2001 is available on www.fbr.gov.pk.

RELEVANT INCOME TAX LEGISLATION IN PAKISTAN

• Income Tax Ordinance, 2001
• Income Tax Rules, 2002

IMPORTANT DEFINITIONS

Head of Income Section 11:-

(a) Salary
(b) Income from Property
(c) Income from business
(d) Capital Gains
(e) Income from other source

Total Income:- The total income of a person for a tax year shall be the sum of the
person’s income under each of the heads of income for the tax year.
Person:-
Person means not a natural person, also include artificial person.

Artificial Person:-
Means companies, organizations or any other legal entity. And also local & foreign
governments.

Financial Year:-

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Generally financial year is starts from 1st July to 30th June (12 months) or may also be
granted by the FBR.

Employee:-
Means any individual engaged in employment.

Employer:-
Means any person who engages and remunerates an employee.

Resident Person:-
Any person live in Pakistan for 183 or more days in a tax year.

Taxable Income:-
Means an amount received by an individual from different sources of income in a tax
year.

Employment:
Employment is the rendering of services by an employee against the remuneration
received from the employer.

Assessment:
Assessment means the determination of taxable Income and the Tax liability of a
taxpayer or refund to him. This term includes reassement and amendment
assessment.

Assessment year:
Assessment year means period of 12 months beginning on the first day of July Next
following the income year.

Total Income:
Sec 10: the total income has been redefined to include a person’s income exempted
from tax.

INCOME YEAR:
Income year is a period during which a tax payer earns Income.

SALARY INCOME.
A salary shall be a Pakistan source Income if any of the following conditions are
fulfilled.

1. The salary is received from an employment exercised in Pakistan.

(The place of payment of salary is immaterial.)

2. The salary is paid by or on behalf of any of the following persons

i. Federal Government
ii. A Provincial Government
iii. A Local Government in Pakistan

TAX:
Tax means any amount chargeable, leviable or payable under Income Tax Ordinance
2001. It may be
i. Income Tax
ii. Additional Tax
iii. Penalty
iv. Fee and any other charge under Income Tax Ordinance

TAX TREATY:
Is an agreement entered into by the Federal Govt with a foreign country for the
purpose of avoidance of double taxation.

DEDUCTABLE & TAX CREDITSALLOWANCES

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Deductible allowances means an allowance that is deductible from total income in

order to arrive at the taxable income.

Note. The allowance shall be deducted up to the amount of the total income for the
tax year. Any excess amount of deductible allowance shall not be refunded or carried
forward.
“It is now not to consider the following, whilst determining tax to be withheld
from salaried payments”:
a. Charitable donations
b. Tax credit for investment in shares and insurance
c. Contribution to an “Approved pension Fund"
Auth:- Finance Act 2013

WHAT IS SALARY UNDER INCOME TAX ORDINANCE 2001

Section 12:- Any amount received by an employee from any employment, whether of a
revenue or capital nature. It includes:-
➢ Any pay, wages or other remuneration provided to an employee, including leave
pay, payment in lieu of leave, overtime payment, bonus, commission, fees,
gratuity or any other amount etc.

➢ Any perquisite, whether convertible to money or not.

➢ The amount of any profits in lieu of, or in addition to salary or wages, including
any other amount received:-

i) As consideration for a person’s agreement to enter into an employment

relationship.

➢ The amount of any allowance provided by an employer to an employee including

a cost of living, subsistence, rent utilities, education, entertainment or travel
allowance.

➢ The amount of any expenditure incurred by an employee that is paid or

reimbursed by the employer.

➢ Any pension or annuity, or any supplement to a pension or annuity.

➢ Any other amount chargeable to tax as “salary” under section 12.

PERQUISITES: (SEC 13)

Black’s Law Dictionary defines as “emoluments, fringe, benefits or other incidental

profits or benefits attaching to an office or position.” Under income tax Law perquisites
includes
i. The value of rent free accommodation
ii. The value of any concession in rent of any accommodation
iii. Facility of Motor vehicles.
iv. Services of housekeeper, driver, gardeners or other domestic assistance.
v. Utilities Like Electricity, Gas, water, Telephone.

EXEMPTION AND CONCESSIONS

Section 41 through 55 of income Tax ordinance 2001 deals with exemption and tax
concession available to a tax payer.

Note: Any exempted income shall be included in the total income of a tax payer if it is
so required under any provision of the second schedule. However the tax payer shall
not pay tax in respect of such income.

The income or clauses of income for exemption are specified in second schedule.

1. Income of Govt (Section 49)

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i. The Federal Govt

ii. The Provincial Govt
iii. A Local Govt in Pakistan

2. Gratuity or commutation of pension (clause 12)

Note: where the person receives more than such pension the exemption applies to the
higher of the pension received. The exemption shall be withdrawn if the retired person
is re-employed by the same employer.
3. Leave Encashment, (LPR) Clause 19

Any sum representing encashment of leave preparatory to retirement of a member of

the Armed Forces of Pakistan or an employee of the Federal Government or a
Provincial Government.
4. The perquisite represented by the right of the President of Pakistan, Provincial
Governors and the Chiefs of Staff, Pakistan Armed Forces to occupy free of rent as a
place of residence any premises provided by the Government. (Clause 51)
5. Reimbursement for business expenses (Clause 39)

The whole amount of any special allowance granted to meet the expenditure incurred
in the performance of the duty is exempted. For example Traveling Allowance and daily
Allowance.

However the following allowances are not exempted from tax

i. Entertainment Allowance
ii. Conveyance Allowance

6. The perquisite represented by free conveyance provided and the sumptuary

(entertainment) allowance granted by Government to the Chiefs of Staff, Pakistan
Armed Forces and the Corps Commanders. (Clause 52)

7. To Judge of the Supreme Court or High Court to occupy free of rent as a place of
residence provided by Federal or Provincial Government or equalling rent allowance.
(Clause 55)

EXEMPTIONS IN TAX

Following allowances are exempted from levying of income tax:- (Clause 39 A)

i. Kit Allowance;
ii. Ration Allowance;
iii. Special Messing Allowance (SMA);
iv. Special Services Group Allowance (SSG);
v. Northern Area Compensatory Allowance (NACA);
vi. Special Pay for Northern Areas (SPNA); and
vii. Height Allowance to the Armed forces personnel.
viii. Internal Security (I.S) Allowance (Subject to condition provided)
ix. Any amount received by Shuhada’s family

EXEMPTION OR LOWER CERTIFICATE 53(2)

Power of Federal Govt, exercised by FBR under delegated authority of Federal Govt in
respect of amendment in Second schedule to the ordinance have been withdrawn.

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Section 159(6). Notifications/ SROs issued under the omitted sub sections (3,4,5) and
for the time being in force shall continue to remain in force until restricted by the FBR
through notification in official Gazette.
Auth:- Finance Act 2015

Flying Allowance (Part III of the second schedule) Reduction in Tax Liability

The word “pilot” has been omitted under Finance Act 2014 and amended as:-

a. Flying allowance by flight Engineers, Navigators of Pakistan Armed Forces,

Pakistani Airlines or Civil Aviation Authority, Junior commissioned officer or other
Ranks of Pakistan armed Forces and
b. Submarine allowance by the officer of Pakistan Navy shall be taxable @ 2.5% as
separate block of income
Provided that the reduction under this clause shall be available to so much of the flying
allowance as does not exceed an equal to the basic salary.
Finance Act 2014

Flying Allowance (Part III of the second schedule)

Total allowances received by pilots of any Pakistani Airlines shall be taxed at a rate of
7.5%, provided that the reduction under this clause shall be available to so much of the
allowances as exceeds an amount equal to basic pay”
Flying Allowance (@7.5%) Submarine Allowance (@2.5%)
Basic Pay 408,000 Basic Pay 908,000
Allowance 336,000 (this amount will be separately calculated
from the submarine Allce)
Tax on Allce Nil
IF:-
Allowance 440,000 Allowance 336,000

Tax (440,000-408,000) Tax on Allce

32,000X 7.5% 2,400 336,000 X 2.5% 8,400

[Clause (1AA)] inserted under finance Act 2014 which provides that: “totals allowances
received by pilots of any Pakistani Airlines shall be taxed @ 7.5%, provided that the
reduction under this clause shall be available to so much of the allowances as exceeds
an amount equal to basic pay”
The concept of treating the flying allowance as separate block of income, in case
of pilots of Pakistan Armed Forces and civil aviation Authority stands withdrawn.
Auth:- Finance Act 2014
PURCHASE OF MOTOR CAR & JEEP

The rate of payment of tax under section 231-B (Advance tax on private motor vehicle)
provided for filer and non filler are at registration and on invoiced amount by
manufacturer:-
S.No Engine Capacity Filer Non-Filer
1. Up to 850 CC Rs. 7,500 Rs. 10,000
2. 851 CC to 1000 CC Rs. 15,000 Rs. 25,000

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3. 1001 CC to 1300 CC Rs. 25,000 Rs. 40,000

4. 1301 CC to 1600 CC Rs. 50,000 Rs. 100,000
5. 1601 CC to 1800 CC Rs. 75,000 Rs. 150,000
6. 1801 CC to 2000 CC Rs. 100,000 Rs. 200,000
7. 2001 CC to 2500CC Rs. 150,000 Rs. 300,000
8. 2501 CC to 3000 CC Rs. 200,000 Rs. 400,000
9. Above 3000 CC Rs. 250,000 Rs. 450,000

Withholding Tax on annual Registration

With holding tax to be paid under section 234 at the time of annual renewal of
registration of motor car or jeep is as under:-
In case of other private motor cars the revised tax rates shall be as under:-

S.No Engine Capacity Tax for filer of Tax for non-filer of

income tax return income tax return
1. Upto 1000 CC Rs. 800 Rs 1,200
2. 1001 cc to 1199 cc Rs 1,500 Rs 4,000
3. 1200 cc to 1299 cc Rs 1,750 Rs 5,000
4. 1300 cc to 1499 cc Rs 2,500 Rs 7,500
5. 1500 cc to 1599 cc Rs 3,750 Rs 12,000
6. 1500 cc to 1999 cc Rs 4,500 Rs 15,000
7. 2,000 cc to above Rs 10,000 Rs 30,000

Auth:- Finance Act-2015

Where the motor vehicle is collected in lump sum, the revised tax rates are as follows:

S.No Engine Capacity Tax for filer of Tax for non-filer of

income tax return income tax return
1. Upto 1000 CC Rs. 10,000 Rs 10,000
2. 1001 cc to 1199 cc Rs. 18,000 Rs. 36,000
3. 1200 cc to 1299 cc Rs. 20,000 Rs. 40,000
4. 1300 cc to 1499 cc Rs. 30,000 Rs. 60,000
5. 1500 cc to 1599 cc Rs. 45,000 Rs. 90,000
6. 1500 cc to 1999 cc Rs. 60,000 Rs. 120,000
7. 2,000 cc to above Rs. 120,000 Rs. 240,000

REBATE FOR FULL TIME TEACHERS AND RESEARCHERS

A tax payable by a full time teacher or a researcher, employed in a non-profit education

or research institution duly recognized by Higher Education Commission (HEC), a board
of education or a university is entitled to a benefit, under part III of Second Schedule of
the Income Tax Ordinance 2001 and his tax liability stood reduced by an amount equal
to 40% of tax payable on his/her income from salary.
Finance Act 2013

This concession has been extended from tax year 2007 onward to full time teachers and
researchers employed in Government training and research institutions also.

Retirement Benefits Schemes

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Gratuity or commutation of pension (Clause 13 Part I Second Schedule) Taxability of

gratuity received by a person is tabulated as under:

Gratuity type Tax treatment Gratuity type Tax treatment

1. Government employees Fully exempt
2. Gratuity Fund approved by the Fully exempt
Commissioner under Sixth
Schedule
3. Gratuity Scheme approved by the Exempt up to Rs. 300,000
Board

4. • Unapproved gratuity scheme/ Exempt up to 75,000 or 50% of

fund the amount receivable whichever
• Unapproved Commutation of is lower
pension

TAX ON SALARY RECEIVED IN ARREARS

• Any employee may opt that the amount of salary received in arrears be taxed at
such rates that would have been applicable if the salary had been paid to him in
the tax year in which the service was render. This option may be exercised if the
following conditions are fulfilled.
• The tax payer has received a salary in arrears is the receipt has been included in
the total income for the year in which it is received.
• The inclusion has resulted in the application of the higher rate of the tax or such
income.
Note: The option available to the employee in respect of salary received in arrears or
amount received on termination of employment shall be exercised in writing and
furnished to the commission by due date for filling the return etc (12(8)
formula for calculation of arrear
Total tax paid or Payable for three preceding years
Total Taxable Income for three preceding Years X 100

VALUATION OF ACCOMMODATION (12((7))

• Accommodation or housing, the amount chargeable to tax under the head salary
shall include higher of the following:
o Amount that would have been paid in case such accommodation was not
provided; and
o 45% of the minimum of time scale (MTS) of the basic salary or the basic
salary where there is no MTS.
• Minimum of time scale is the amount from where the salary scale of a particular
employee starts for example (4900-800-8500) means salary of the employee start
with Rs. 4900 with increment of Rs. 800 per annum/qtr. etc. subject to maximum
increased salary up to Rs. 8,500.

SELF HIRING {section 15(5)}

o where an employee or his spouse is the owner of the any such building (i.e house,
flat or apartment) that is given on rent to employer and the employer has provided
the same building to the employee against his entitlement for rent free
accommodation then it will have two folded effect under the income tax.

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o Salary income: The building is provided by the employer to his employee as rent
free accommodation. It will perquisite and will be included in the salary income
of the employee as per income Tax rules.

o Property income: Receipt of rent is chargeable to tax under the head income
from property. Any rent received by the employee or his spouse shall be a property
income of the recipient and will be treated accordingly.

MEDICAL FACILITY (Clause 139)

o Any benefit or reimbursement of Medical expenses or hospitalization charges to
an employee is perquisite in his hand.
o The tax treatment depends upon the terms of employment which is as follows.
o Any benefit to the employee in the form of free medical treatment or
hospitalization by the employer shall be exempted from tax if it is provided in
accordance with term of employment.
o If both facilities are provided then full medical allowance will be taxable.
o Note: Maximum 10% of the basic salary shall be exempted from tax if the medical
allowance has been received by an employee and other benefit in this regard is
provided under terms of the employment.

TAXATION OF MOTOR VEHICLE PROVIDED BY THE EMPLOYER:

o The value of conveyance provided by the employer to employee shall be taken

equal to an amount as below,
o In case the motor vehicle provided by the employer is used partly for personal
and partly for official purpose the amount to be included in salary on this account
shall be 5% on the cost of the car.
o In case motor vehicle provided by the employer is used exclusively for personal
use addition in Income on this account shall be 10% on the cost of the car.

EMPLOYER RESPONSIBILITY SECTION 149

Every employer paying salary to an employee shall, at the time of payment,
deduct tax from the amount paid at the employee’s average rate of tax computed at the
rates specified in Division I of part I of the First Schedule on the estimated income of
the employee chargeable under the head “salary” for the tax year in which the payment
is made after making adjustment.
“The responsibility for withholding Tax from salary has now been extended to any
“person responsible for” paying salary. Previously it was the only the “employer” who
was responsible for withholding.”
Auth:- Finance Act 2013
MAG’S ORDERS

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Total recovery of income tax up to date of the transfer of an officer/ personnel liable to
pay income tax may invariably be shown in appropriate column provided in LPC form.

MAG’s officer letter No. 32/AT/PO/5948-XLVII/P-203 dated 17th June 2014

ADJUSTMENT OF TAX DEDUCTED/ COLLECTED (adjustable advance taxes)

Following tax adjustments are allowed subject to the provision of documentary
evidence:-
➢ Motor Vehicle under Section 234 of Income Tax Ordinance, 2001 in respect of
motor vehicle registered in employee’s own name.
➢ Withheld tax is paid on Telephone/Mobile phone bills as subscribers of
telephone under section 236 of the income Tax Ordinance 2001.
➢ Registration of new car/ Jeep under Section 231-B of Income Tax Ordinance.
➢ Withheld tax on cash withdrawals from banks.
➢ Tax deduction under section 231 AA. (Banking Transactions)
➢ Advance tax deducted under section 236B. (With-holding tax at the time of
purchased of domestic air ticket).
➢ Advance Tax paid on u/s 236 D, 236 account of functions/ gathering and fee to
educational institutions.
RTO Rawalpindi ltr No. MAC-III/SPD/2013-14 Dated 10-02-2014

Advance tax on purchase of air ticket

Exemption on collection of advance tax on purchase of domestic air ticket of Baluchistan

coastal belt, Azad Jammu & Kashmir, FATA GB, and chitral routes.

PAYMENT OF TAX COLLECTED (160 & 165):

A person who is responsible for deduction or collection of tax at source has to deposit
the amount of tax within a period specified under income Tax Rules 2002. The Rules
specifies different time period for different person.
Amendments have been introduced for ease of doing business through amendment
Through Finance Supplementary (Second Amendment) Bill, 2019.
Section 165 amended, whereby prescribed persons or withholding agents were
previously required to furnish monthly statement.
Method of furnishing return and other documents (Sec 118(2A))

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The tax payer having salary income of Rs 500,000 or more is obliged to file his return of
income electronically accompanied by proof of deduction/ payment of tax and wealth
statement. Now the FBR has the empowered to amend the condition or direct that
condition shall not apply for tax.
Finance Act 2015
E-FILLING OF RETURN/WEALTH STATEMENT
According to the changes introduced, through Finance Act. 2009, in section 115(1) of
the Income Tax Ordinance 2001, all taxpayers those who are drawing salary income of
Rs.500,000/- or more are required to file their income tax return electronically. The
due date of Income Tax Return for each year is 31 Aug . For electronic filing of income
tax return, please visit http://e.fbr.gov.pk of Federal Board of Revenue, Head
Quarters Islamabad.
No paper base return is acceptable since tax year 2009. The status of return filed by
hand or through normal mail procedure will deemed as not to be filed.
MAG's FTN : 9010605-9

TAX PAYER REGISTRATION (Sec- 181(4)

National Tax Number has been replaced with CNIC issued by NADRA. From tax year
2015 and onwards, all individual shall use CNIC as NTN.
Auth:- Finance Act 2015
ADJUSTMENT PROCEDURE

“It is the responsibility of the tax payer to forward adjustment request with documents
proof to the deducting authorities i.e. CsMA concern before April of each year so that
CsMA could adjust the withholding tax till June of the each year, to avoid unnecessary
documents with income tax authority for return adjust in financial year.”

AGs Br No. 4630/2008/Policy/PPA-6 Dated 16, Sep 2008

WEALTH STATEMENT SECTION 116

The statement should contain
o Total assets and liabilities of the taxpayer as on the date specified in the notice.
o Total assets and liabilities of his spouse minor children and dependent as on
the specified in the notice.
o Any asset transferred by him to any person during the specified period.
o Detail of total expenses incurred by the taxpayer his spouses, minor children
and dependent during specified period.

Interpretation of tax Rules

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It is general accepted rule that where a provision can be interpreted in more than one
way the interpretation that favours the taxpayer will prevail, it is decided in legal cases
some of them are:-
a. Dreamland cinema, Multan vs CIT Lahore(Lahore high court)
b. Searle Pakistan (Pvt) Ltd Vs Govt of Pakitan (Sindh High Court)
c. Mehran Associates Ltd Vs CIT Karachi (Supreme court of Pak)
d. Rijaz (Private Ltd) Vs Wealth Tax officer, Lahore (Lahore)

PENALTY (Section 182)

Where any person fails to:-
1. Furnish a return of income or
2. As statement required under section 115
3. Wealth statement
4. Wealth reconciliation statement or
5. Statement under section 165 within due date
Minimum penalty of Rs 50,000 in case any person fails to furnished a statement.
More over penalty @ 0.1 % of taxable income per week or Rs 20,000 whichever is higher
shall be paid who fails to furnish wealth statement or wealth statement.
APPEALS AND REVISIONS
APPEAL:-
whenever a dispute or difference of option is brought before the Appellate Authorities,
it is known as “appeal”.
REVISION:-
is reconsideration of the case by the same or the higher Administrative authority.
Appeal to Time period
Commissioner Appeal 30 days
Appellate Tribunal inland revenue 60 days
Reference to High Court 90 days
Revision of Tax Slabes
Tax slabs have been received through Finance Act 2018

S.No Taxable Income Rate of tax

1. 0 to 400,000 0%
2. 400,000 to 800,000 Rs 1,000
3. 800,000 to 1,200,000 Rs 2,000
4. 1,200,000 to 2,500,000 5% of the amount exceeding
Rs, 1,200,000.
5. 2,500,000 to 4,000,000 Rs, 65,000/- + 15% of the amount
exceeding Rs. 2,500,000

6. 4,000,000 to 8,000,000 Rs. 290,000/- + 20% of the amount

exceeding Rs. 4,000,000.

7. Where the taxable income Rs. 1,090,000/- + 25% of the amount

exceeds Rs, 8,000,000. exceeding Rs. 4,800,000

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o Provided that where the taxable income exceeds Rs. 800,000/- the minimum tax
payable shall be Rs.2,000/-]
o These amendments are updated up to Second supplementary finance act bill 2019.

Calculation of tax (Army person) STEP 1. (Determine Total Income

Rank Pay 1,727,440 Rank Pay 1,727,440

C/S pay 8,760 C/S pay 8,760
Qualification pay 7,320 Qualification pay 7,320
Entertainment Allce 6,000 Entertainment Allce 6,000

Kit Allce 17,520 Kit Allce 17,520

Ration Allce 10,716 Ration Allce 10,716

SMA 54,000 SMA 54,000

NACA 7,200 NACA 7,200

Car Allce 29,760 Car Allce 29,760

HRA - HRA 122,604

ARA-2013 55,260 ARA-2013 55,260
100% R Pay 365,580 100% R Pay 365,580
Adh-2015 54,558 Adh-2015 54,558
Income 2,344,114 Income 2,466,718

Step -2 (Taxable income)

Rank Pay 1,727,440

C/S pay 8,760

Qualification pay 7,320

Entertainment Allce 6,000

Kit Allce -

Ration Allce -
SMA -
NACA -

Car Allce 29,760

HRA 122,604

ARA-2013 55,260

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100% R Pay 365,580

Adh-2015 54,558

Taxable Income 2,377,282

STEP -3 (Tax Liability)

Taxable Income = 2,377,282

According to Slab 4: 5% of the amount exceeding Rs. 1,200,000
Amount Exceeding (2,377,282-1,200,000)
= 1,177,282 X 5% = 58,864
Note:- In case advance tax paid the amount paid will be deducted from tax liability.

Calculation of Tax (Civil Employee)

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DEDUCTION OF INCOME TAX, SALES TAX AND

PROFESSIONAL TAX FROM CONTRACTORS & SUPPLIERS

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INCOME TAX
➢ Definition: words used in section 153
➢ Relevant section of income tax
➢ Rates of Income Tax on Goods & Services
SALES TAX (Withholding rules 2007)
➢ Introduction to sales tax
➢ Salient provision of rules
➢ Procedure observed by the Govt departments
➢ Non-applicability of rules [rule-5]
➢ Tax invoice [2(40)]
PROFESSIONAL TAX
➢ Introduction and rates prevail in Punjab province

Definitions
PRESCRIBED PERSON: Prescribed person means:-
a. the Federal Government
b. a company
c. an association of persons constituted under a law
d. a non profit organizations
e. a foreign contractor or consultant.
f. a consortium or joint venture
g. an AOP having turnover of more than 50 M in any one tax Year
(Since 2007 or subsequently)
h. an individual having turnover of more than 50 M in any one tax Year
(Since 2009 or subsequently)
I. a person registered under Sales Tax Act 1990.
RESIDENT & NON RESIDENT PERSON:
1. A person shall be a resident person for the tax year if the person is:-
a. A resident individual, resident company or resident association of person for
the year, or
b. The Federal Govt
2. A person shall be non –resident person for the tax year if the person is not resident
person.

DEDUCTION OF INCOME TAX FROM CONTRACTOR AND SUPPLIER

Section 153:
(1) Every prescribed person making a payment in full or part including a payment by
way of advance to a resident person :-
a. For the sale of goods [ exempt where payment is less than seventy-five thousand
Rupees in aggregate, during a financial year];
b. For the rendering of services [except where payment is less than thirty thousand
Rupees in aggregate, during a financial year];

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c. On the execution of a contract, other than a contract for the [sale] of goods or
the rendering of [or providing of ] services,
Shall, at the time of making the payment, deduct tax from the gross amount payable
at the rate specified in Division III of Part III of the First Schedule.
Auth:- Finance Act 2018
RATES OF INCOME TAX

Item name Filer Non filer

Sale of rice, cotton seed or edible oil 1.5% 1.5%

supplies by distributer of fast Company 2% Company 2%

moving consumer goods Other Case 2.5% Other Case 2.5%

Sale of any other good by (153(1)(a):

▪ A company 4.0% 8%
▪ Other than company 4.5% 9%

Services (153 (1)(a)

Transport of services 2% 2%

Other services provide by:

• A company 8.0% 14.5 %
• Other than a company 10.0% 17.5 %
Electronic & Print media 1.5%
• Non company - 12%
• other than company - 15%

Execution of contract:-
• A company 7% 14 %
• Other than a company 7.5% 15 %
• in case of sports person 10 % 10%

Payment on account of brokerage or

commission
• Commission agent 12% 15%
(other than below mentioned)
• Life Insurance Agents 8% 16%
(Commission less than 0.5 M)
• Advertising agents 10% 15 %

Pharmaceutical
Pharmaceutical by distributors .2% .2%
Payments to residents for use of 10 % 10%
machinery and equipments.

Sales Tax Special Procedure (Withholding) Rules 2007

INTRODUCTION TO RULES
The Federal Govt while exercising the power specified in section 3(6) & (7) of the sales
tax Act 1990 issued SRO 660(1)/2007 dated 30th June 2007 notifying the sales Tax

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special procedure (withholding) Rules 2007. since coming into force i.e 01-07-2007
these rules have been modified off and on.

SALIENT PROVISION OF RULES

➢ Withholding Agent: these rules are applicable to all taxable goods and services
supplied to “withholding agents”. The following persons are terms as withholding
agent.
1. Federal and provincial departments
2. Autonomous bodies
3. Public sector organizations
4. Companies register for sales tax, FED or income tax
5. Recipients of services of advertisement, who are registered for sales tax.
RESPONSIBILITIES OF WITHHOLDING AGENT:
1. While intending to make purchase of taxable goods it shall indicate in the
advertisement or notice issued for the purpose that sales tax shall be deducted
from the payment to be made to the supplier.
2. A withholding agent shall deduct an amount equal to one-fifth (1/5th) of the total
sales tax shown in the tax invoice issued by the supplier. The balance amount
shall be paid to the supplier.
In case of supply received from persons registered as wholesalers, dealer and
distributer shall deduct an amount equal to one-tenth (1/10) of total sales tax.

EXAMPLE: A registered person has supplied taxable goods worth Rs. 100,000 to a
Government department. Compute the amount of sales tax deductable by the
withholding agent and amount payable to the supplier.
Value of taxable supply (Excluding sales Tax) Rs. 100,000
Sales Tax chargeable @ 17% (17% of Rs. 100,000) Rs. 17,000
Value of Tax invoice inclusive sales tax Rs. 117,000

Sales Tax deductible by the withholding agent (1/5th of Rs. 17,000) = Rs. 3,400
Amount payable to the supplier:
a. Value of supply (excluding sales tax) Rs. 100,000
b. Sales tax payable to supplier:-
Total sales Tax Rs. 17,000
Less: sales tax deductable Rs. (3,400) Rs. 13,600
Amount payable to supplier Rs. 113,600

3. Certain withholding agents are required to deduct sales tax on purchases made
from unregistered persons. Other provisions in this regard are as below:
i. The withholding agents falling under this category may be:
a. Federal and provincial government departments
b. Autonomous bodies or

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c. Public sector organizations

ii. The withholding agent is having free Tax Number (FTN)
iii. Sales tax shall be deducted at the applicable rate from the payment made to the
supplier
iv. iv. Tax rate shall be applied on the value of taxable supplies made to the
withholding agent. The amount of sales tax shall be computed on the basis of
gross value taxable supply. The buyer and the supplier may agree on some other
value for this purpose. Under such a case that value shall be used for deduction
of tax Rule 2(3).

EXAMPLE. A Government department has purchased taxable goods worth Rs. 100,000
from unregistered person. Compute the amount of sales tax to be withheld and amount
payable to the suppler.
Value of taxable supply Rs. 100,000
Sales tax deductable by withholding agent 17% Rs. 17,000
Amount payable to the supplier Rs. 83,000

4. A sales tax registered recipient of advertising services, who receives

advertisement services provided or rendered by the person based in Pakistan or abroad,
shall deduct the amount of sales tax as mentioned in the invoice from the payment due
to the service provider.
Where the sales tax amount is not indicated on the invoice, the recipient of the
services shall deduct sales tax at the applicable rate of the value of taxable services from
the payment due to the service provider.

CALCULATION OF INCOME TAX ALONG WITH SALES TAX

EXAMPLE:
A registered person has supplied taxable goods worth Rs. 100,000 to a Government
department. Compute the amount of sales tax and income Tax deductable by the
withholding agent and amount payable to the supplier.

o Value of taxable supply (Excluding sales Tax) Rs. 100,000

o Sales Tax chargeable @ 17% (17% of Rs. 100,000) Rs. 17,000
o Value of Tax invoice Rs. 117,000

o Income Tax @ 4.5% (117,000 X 4.5%) Rs. 5,265

Payment To Registered Contractor
o Value of invoice Rs. 117,000
o Income Tax Rs. (5,265)
o Withholding of Sales Tax (1/5th ) Rs. (3,400)
o Net Payment Rs. 108,335

IN CASE OF NON REGISTERED PERSON:

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o Value of invoice Rs. 117,000

o Income Tax Rs. (5,265)
o Withholding of Sales Tax Rs. (1,7000)
o Net payment Rs. 94, 735

Procedure Observed By The Govt Departments

i. The DDO preparing the bill for the accounting office shall indicate the amount of
sales tax withheld as per rule.
ii. The accounting office shall adopt the following procedure.
a. Where the purchases are made by the departments under the Federal
Govt, the office of the AGPR shall account for the amount of tax withheld
during a month and intimation shall be sent to the members (sales tax)
FBR by 15th of the following month.
b. Where the purchases are made by a department under the provincial Govt
or district Govt, the A.G of the province or the district Accounts officer
shall credit the amount of tax withheld during the month to the relevant
head of account, cheque shall be prepared and sent to the commissioner
having jurisdiction, by the 15th of the following month and
c. Where purchases are made by department under Military Accountant
General (MAG), the MAG shall account for the amount withheld during a
month and sent intimation to members (Sales Tax) FBR by 15th of the
following month. MAG office shall also report the amount of tax deducted
to AGPR through civil exchange accounts.

Non-Applicability of Rules [Rule-5]

1. Electrical energy
2. Natural gas
3. Petroleum products as supplied by the petroleum and exploration companies, oil
refineries and oil marketing companies.
4. Mild steel products
5. Products made from sheets of iron or non steel alloy , stainless steel or other alloy
steel such as pipes, almirahs, trunks etc.
6. Paper in roll or sheets
7. Plastic products including pipes
8. Vegetable ghee and cooking oil and
9. Telecommunication services.

Tax Invoice [2(40)]

Particulars of tax invoice

1. Serial number
2. Name, address and registration number of supplier
3. Name, address and registration number of recipient

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4. Date of issue of invoice

5. Description and quantity of goods
6. Value before tax
7. Amount of sales tax and
8. Value inclusive of sales tax.
only one invoice shall be issued for taxable supply. Upon loss of original tax
invoice a copy clearly marked as “COPY ONLY” can be issued.

The sixth schedule (Exemptions)

Supply or import of Goods Local supply of Goods

➢ Air craft , whether imported or dry lease ➢ Raw and pickled skins, wet blue hides
➢ Spare parts for use in aircrafts, trainers and skins
aircraft or simulators ➢ Bricks, Crush stones
➢ operational tools, machinery , equipment ➢ Poultry feed, sunflowers seeds meal,
and furniture rape seeds meal and canola seed meal
➢ import of plant, machinery ➢ Supply made by manufacturers of
marble and granite.

Professional Tax

Rates Of Professional Tax In Punjab

(See Section 3 Of Punjab Finance Act, 1977)

Rate of tax per annum

Sr. No. Class of Persons
(Rupees)
1 2 3
[Companies registered under the Companies Ordinance, 1984, modarbas, mutual
1. funds or any other bodies corporate with the paid-up capital or, as the case may
be, the reserves in the preceding year-]
(i) upto rupees 5 million 5,000/-

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(ii) exceeding rupees 5 million but not exceeding

20,000/-
rupees 50 million
(iii) exceeding rupees 50 million but not exceeding
50,000/-
rupees 100 million
(iv) exceeding rupees 100 million but not exceeding
75,000/-
rupees 200 million

(v) exceeding rupees 200 million 1,00,000/-

Persons other than companies owning factories as

2.
defined under the Factories Act, 1932 and having-
(i) employees not exceeding 10 1,000/-

(ii) employees exceeding 10 but not exceeding 25 2,000/-

(iii) employees exceeding 25 5,000/-

(i) Persons other than companies owning
3. commercial establishments having 10 or more
employees-
(a) within Metropolitan and Municipal 3,000/-
Corporations limits
(b) others 2,000/-

(ii) All other commercial establishments other

1,000/-
than wholesalers and retailers
Persons engaged in the import or export of goods
[3-A.
who, during the preceding financial year,
imported or exported goods of the value-
(i) exceeding Rs.1 lac but not exceeding
2,000/-
Rs.1 million
(ii) exceeding Rs.1 million but not exceeding 3,000/-
Rs. 5 million

(iii) exceeding Rs.5 million 5,000/-

Persons who are engaged in a profession, trade,

calling or employment either wholly or partly within 200/-
4
the Province of Punjab, who were assessed to pay
income tax during the preceding financial year.

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Rate of tax per annum

Sr. No. Class of Persons
(Rupees)
Contractors, builders and property developers, who
during the preceding financial year supplied to the
Federal or the Provincial Government or a company
5. or a factory or a commercial establishment or an
autonomous or a semi autonomous organization or
any Local Authority goods, commodities and services
of the value-
[(i) not exceeding rupees 1 million 500/-
[(ii)] exceeding rupees 1 million but not
3,000/-
exceeding rupees 10 million
[(iii)] exceeding rupees 10 million but not exceeding
5,000/-
rupees 50 million
[(iv)] exceeding rupees 50 million 10,000/-
Persons engaged in various professions and
6.
providing different services such as-
[(i) Medical consultants or specialists/dental
1,000/-
surgeons

(ii) Registered medical practitioners 1,000/-

(iii) Others including homoeopaths, hakeems

and ayuervedics-
(a) within Metropolitan and Municipal
1,000/-
Corporations limits
(b) others 500/-
(iv) Auditing firms (per professionally
qualified person)-
(a) within Metropolitan and Municipal
3,000/-
Corporations limits

(b) others 2,000/-

(v) Management and tax consultants architects,

engineering, technical and scientific consultants-
(a) within Metropolitan and Municipal
3,000/-
Corporations limits
(b) others 2,000/-

[(vi) Lawyers 1,000/-

(vii) (a) Members of Stock Exchanges 5000/-

(b) Money changers-

(i) within Metropolitan and Municipal 3,000/-
Corporations limits
(ii) others 1,000/-

(c) Motorcycle/Scooter dealers-

(i) within Metropolitan and Municipal 5,000/-
Corporations limits.
3000/-
(ii) others

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(d) Motor car dealers and real estate agents-

(i) within Metropolitan and Municipal Corporations 10,000/-

limits
5,000/-
(ii) others

e) recruiting agents-
(i) within Metropolitan and Municipal Corporations 10,000/-
limits
5,000/-]
(ii) others

viii)] Carriage of goods and passengers by road-

(i) within Metropolitan and Municipal Corporations 2,000/-
limits
1,000/-
(ii) others

[(ix)] Health clubs and gymnasiums-

(i) within Metropolitan and Municipal Corporations 2,000/-
limits
(ii) others 1,000/-
[(x) jewelers, departmental stores, electronic goods
stores, cable operators, printing presses and pesticide 1,000/-
dealers

Prepared by Azmat Shah (Dy. Director Finance)