Tax on Salary

2012
Income Tax Law & Calculation

“This tax guide is for the use of CLIENTS and STAFF only and covers the taxability aspects of the salary as per Pakistani income tax laws applicable to Tax Year 2012”

A. Salam Jan & Co. -

Chartered Accountants – is a member of AFFILICA International – a network of independent accountancy firms.

ASC – GUIDE ON SALARY TAX – TY 2012

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INTRODUCTION
This tax guide gives information for arriving at the taxable income of a salaried person and computation of tax liability thereof under the Income Tax Ordinance, 2001. It is equally informative and useful from the employers’ perspective not only to determine the amount of tax to be withheld every month from the salary paid to the employees but also to understand the tax obligations as a Withholding Tax Agent (WTA). It contains the provisions relating to the tax of a resident salaried person only.

WHAT IS SALARY?
Salary means amount received by an employee from any employment, whether of a capital or revenue nature. It includes pay and perquisites. Pay means wages or other remuneration like leave pay, payment in lieu of leave, overtime payment, bonus, commission, fees and gratuity. Perquisite means benefit whether convertible to money or not given to employee over and above pay and wages, e.g. - utilities allowance, conveyance allowance, provision of vehicle and accommodation etc.

WHO IS A SALARIED PERSON?
An individual is treated as a salaried person if more than 50% of his total income comprises of salary income or he/she derives income entirely from salary. Every salaried person is obliged to pay tax on salary, if salary exceeds prescribed limits.

TAXABILITY OF SALARY
While computing the taxable salary income of a person, all perquisites, allowances or benefits, except exempt items are to be included in the salary and such gross figure shall