TAXATION

01 Revision
Haroon Tabraze
a) Person
b) Tax Year
c) Total Income
d) Deductable Allowance

Deductible Allowance
a) Zakat
b) WWF (companies)
c) WPPF (companies)
d) House loan interest
e) Education Expenses
a) Individual
b) Company
c) Association of Person
d) Federal / Foreign Govt.

Company
Body Corporate
Modaraba
Foreign Company
Cooperative/Finance Society
NPO
Trust
Foreign Association
Provincial/Local Govt
Small Company
PERSON
“firm” means the relation between
persons who have agreed to share the
profits of a business carried on by all or
Individual any of them acting for all
HUF, Firm, Artifical Juridical person,
Association of body of persons formed under foreign
Persons law

Company Company, Body Corporate, Modaraba,

Cooperative Society, Finance Society,
Federal or Foreign Non-Profit Organization, Trust,
Provincial & Local Government
Government
Tax Rates
Tax Rates
1 July 2015 – 30 June 2016 Tax Year 2016

1 July 2016 – 30 June 2017 Tax Year 2017

• Special Tax Years:
Sugar: 1.10.2014 – 30.9.2015 Tax Year 2015
Banks: 1.1.2016 – 31.12.2016 Tax Year 2016
Insurance Companies:
1.1.2017 – 31.12.2017 Tax Year 2017
Atlas Honda Limited (special permission)
1.4.2015 – 31.3.2016 Tax Year 2016
 Heads of Income
Salary XXX
Income from Property XXX
Income from Business XXX
Capital Gains XXX
Income from Other Sources XXX
Sub-Total XXX
Less: Zakat XXX
Less: WWF XXX
Less: WPPF XXX
Less: Interest on House Loan XXX
Less: Education Expense XXX
Taxable Income XXX
Exempt Income XXX
Total Income XXX
 Salary
Pay XXX
Wages XXX
Leave Pay XXX
Payment in lieu of leaves XXX
Overtime XXX
Bonus XXX
Commission XXX
Fee XXX
Work Condition Supplement XXX
Cost of Living Allowance (COLA) XXX
House Rent Allowance XXX
Utilities Allowance XXX
Education Allowance XXX
Entertainment / Travel Allowance XXX
Conveyance Allowance XXX
 i.e. Golf Club Subscription /
Credit Card Bill

a) Enter into
contract
b) Conditions /
change in
conditions
c) Termination
(separately
taxed
according to
average rate
of tax of last
three years)
 Valuation of Accommodation (Income Tax Rules, 2002)

Accommodation = House Rent Allowance paid if the accommodation

was not provided, or 45% of salary
 Valuation of Conveyance (Income Tax Rules, 2002)

Partly personal and partly official = 5% of Cost of Car

For personal use only = 10% of Cost of Car
 Changes in TY 2020
• Tax rates for “Salaried” individuals – Salaried
individual is someone whose salary income exceeds
75% of his taxable income.
• Separate Tax rates for AOP and Non-salaried
individuals
• Relief for Faculty Members, and Full Time
researchers at an HEC recognized institution or
University is now 25%.
Ali worked as manager in XYZ Ltd. at monthly salary of
Rs. 80,000 per month till December 2019. From
January 2020, his salary was increased to Rs. 100,000
per month. Salary is credited on 1 st of next month of
service. He gets a 10% medical allowance. XYZ Ltd.
pays Rs. 5,000 per month for Ali’s Golf Club
membership. On 1.1.20, Ali was provided with a car
costing Rs. 1,200,000 for both personal and official use.
He is also provided with a company flat since 1.7.17.
XYZ Ltd. paid Ali bonus of Rs. 150,000 for the year
2018 in August 2019. Find Tax Liability for TY 2020?
1. Where taxable income does not exceed Rs. 600,000 0%

2. Where taxable income exceeds Rs. 600,000, but does not 5% of the amount exceeding Rs. 600,000
exceed Rs. 1,200,000
3. Where taxable income exceeds Rs. 1,200,000, but does not Rs. 30,000 + 10% of the amount exceeding
exceed Rs. 1,800,000 Rs. 1,200,000
4. Where taxable income exceeds Rs. 1,800,000, but does not Rs. 90,000 + 15% of the amount exceeding
exceed Rs. 2,500,000 Rs. 1,800,000
5. Where taxable income exceeds Rs. 2,500,000, but does not Rs. 195,000 + 17.5% of the amount
exceed Rs. 3,500,000 exceeding Rs. 2,500,000
6. Where taxable income exceeds Rs. 3,500,000, but does not Rs. 370,000 + 20% of the amount exceeding
exceed Rs. 5,000,000 Rs. 3,500,000
7. Where taxable income exceeds Rs. 5,000,000, but does not Rs. 670,000 + 22.5% of the amount
exceed Rs. 8,000,000 exceeding Rs. 5,000,000
8. Where taxable income exceeds Rs. 8,000,000, but does not Rs. 1,345,000 + 25% of the amount
exceed Rs. 12,000,000 exceeding Rs. 8,000,000
9. Where taxable income exceeds Rs. 12,000,000, but does not Rs. 2,345,000 + 27.5 % of the amount
exceed Rs. 30,000,000 exceeding Rs. 12,000,000
10. Where taxable income exceeds Rs. 30,000,000, but does not Rs. 7,295,000 + 30% of the amount
exceed Rs. 50,000,000 exceeding Rs. 30,000,000
11. Where taxable income exceeds Rs. 50,000,000, but does not Rs. 13,295,000 + 32.5% of the amount
exceed Rs. 75,000,000 exceeding Rs. 50,000,000
12. Where taxable income exceeds Rs. 75,000,000. Rs. 21,420,000 + 35% of the amount
exceeding Rs. 75,0000,0000
Basic Salary 80,000 x 7 months = 560,000
Basic Salary 100,000 x 5 months = 500,000
Medical Allowance = Exempt
Golf Club subscription (5,000 x 12 months) = 60,000
Car 1,200,000 x 5% x 6/12 = 30,000
Accommodation (45% of 1,060,000) = 477,000
Bonus (received in TY20) = 150,000
Salary 1,777,000
Tax on 1,200,000 30,000
10% on 577,000 57,700
87,700
We do not make a P&L for Salary. Tax on Tax
Zahid, CEO of a company, gets a cash salary of Rs. 7 million
every month. His employer pays the income tax on Zahid’s
income.
Salary = 7,000,000 x 12 months = 84,000,000
Tax on 84 million:
On 75,000,000 21,420,000
9,000,000 x 35% = 3,150,000
Tax on Salary = 24,570,000
Tax is paid by employer so is a benefit to the employee
Tax on Tax 24.57m x 100/65 37,800,000
Why 100 / 65? 65 is 100 – tax rate of 35%
TO CHECK OUR CALCULATION:
Salary = 7,000,000 x 12 months = 84,000,000
Tax on Tax: = 37,800,000
121,800,000

On 75,000,000 21,420,000
46,800,000 x 35% = 16,380,000
Tax on Salary = 37,800,000

This method will not work every time – will work only when
salary and (salary + tax) lies in the same tax slab
Salary XXXX
Car (Cost of car x 5%/10%) XXXX
Medical Allowance (Exempt upto 10%) XXXX
Driver’s Salary XXXX
Less: Reimbursed by employee (XXXX) XXXX
Bill for Electricity / Gas / Telephone XXXX
Less: Reimbursed by employee (XXXX) XXXX
Section 13(7): Interest free loan, or loan at a rate lower
than market value will be taxable at benchmark rate of
10%. This section is not applicable on loans of Rs.
1,000,000 or less.
Arif works at monthly salary of Rs. 750,000 per month. He is
provided a brand new Land Cruiser costing 15,000,000 with
unlimited fuel for both personal and official use. He is also provided
a driver, whose Rs. 25,000 per month salary is paid by the
company, although Arif has to reimburse Rs. 5,000 per month.
Arif is provided a company maintained flat. A domestic servant at a
salary of Rs. 20,000 per month is provided by the company to Arif.
During the year the company paid Rs. 210,000 for fuel and repairs
of Land Cruiser, and also paid electricity and gas bills of Arif’s flat
amounting to Rs. 155,000 . Rs. 6,000 per month were deducted
from Arif’s salary in relation to the electricity and gas bills. On 1 st
January 2020, Arif took an interest free loan of Rs. 2 million from
his company for personal reasons. On 30 th June 2020, Arif paid Rs.
1,000,000 of the loan back, while the remaining was written off.
Basic Salary 750,000 x 12 months = 9,000,000
Car (15,000,000 x 5%) = 750,000
Salary of Driver (25,000 – 5,000) x 12 = 240,000
Flat (9,000,000 x 45%) = 4,050,000
Salary of Servant (20,000 x 12 ) = 240,000
Fuel = (included with car valuation)
Electricity & Gas (155,000 – 72,000) 83,000
Interest free loan (2,000,000 x 10% x 6/12) = 100,000
Loan Written off by company = 1,000,000
15,463,000
1. Where taxable income does not exceed Rs. 600,000 0% SALARIED TAX RATES
2. Where taxable income exceeds Rs. 600,000, but does not 5% of the amount exceeding Rs. 600,000
exceed Rs. 1,200,000
3. Where taxable income exceeds Rs. 1,200,000, but does not Rs. 30,000 + 10% of the amount exceeding
exceed Rs. 1,800,000 Rs. 1,200,000
4. Where taxable income exceeds Rs. 1,800,000, but does not Rs. 90,000 + 15% of the amount exceeding
exceed Rs. 2,500,000 Rs. 1,800,000
5. Where taxable income exceeds Rs. 2,500,000, but does not Rs. 195,000 + 17.5% of the amount
exceed Rs. 3,500,000 exceeding Rs. 2,500,000
6. Where taxable income exceeds Rs. 3,500,000, but does not Rs. 370,000 + 20% of the amount exceeding
exceed Rs. 5,000,000 Rs. 3,500,000
7. Where taxable income exceeds Rs. 5,000,000, but does not Rs. 670,000 + 22.5% of the amount
exceed Rs. 8,000,000 exceeding Rs. 5,000,000
8. Where taxable income exceeds Rs. 8,000,000, but does not Rs. 1,345,000 + 25% of the amount
exceed Rs. 12,000,000 exceeding Rs. 8,000,000
9. Where taxable income exceeds Rs. 12,000,000, but does Rs. 2,345,000 + 27.5 % of the amount
not exceed Rs. 30,000,000 exceeding Rs. 12,000,000
10. Where taxable income exceeds Rs. 30,000,000, but does not Rs. 7,295,000 + 30% of the amount
exceed Rs. 50,000,000 exceeding Rs. 30,000,000
11. Where taxable income exceeds Rs. 50,000,000, but does not Rs. 13,295,000 + 32.5% of the amount
exceed Rs. 75,000,000 exceeding Rs. 50,000,000
12. Where taxable income exceeds Rs. 75,000,000. Rs. 21,420,000 + 35% of the amount
exceeding Rs. 75,0000,0000
Tax on 15,463,000
On 12,000,000 2,345,000
(15,463,000 – 12,000,000) x 27.5% 952,325
Tax Liability 3,297,325

What if the tax is also paid by the employer?

Tax on Tax will be 3,297,325 x 100 / 72.5 = 4,548,034
Check if it is right?
Taxable income will be (15,463,000 + 4,548,034) = 20,011,034
On 12,000,000 2,345,000
(20,011,034 – 12,000,000) x 27.5% 2,203,034
Tax Liability 4,548,034