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Taxation
Management FIN 623
VU
MODULE
6
LESSON
6.23
SALARY
AND ITS COMPUTATION
Significant
points regarding
Salary:
Reimbursement
of expenditure by the employer
Taxable
Taxable
Profits
in lieu of salary received
as:
· Consideration
for a person's agreement to
enter into an
employment
relationship
· On
termination of employment/ Golden
handshake
payments
Provident
fund payments, only Employers
contribution
Taxable
Computation
of value of perquisites (Sec
13)
Motor
vehicle
As
prescribed in IT rules
2002
Services
of house keeper, driver,
gardener, other domestic
servant
Amount
provided by
employer
added back to
employee's
salary.
Add
FMV of utilities as reduced by any amount
paid by
employee
Loan
below benchmark rate for tax
year 2007 is 9% PA
Add
back
In
case, Conessional loan as
above used for construction of
house or No
Add back
purchase
of house
Obligation
of employee waived off by
employer.
Add
back
Any
property transferred to
employee.
FMV of
property to be
added
back
Accommodation
or housing provided.
As
prescribed in IT rules
2002
According
to sub section14 of Section
13:
· Bench
mark rate means rate of
5%PA
For
tax year 2003 and increase
by 1% for succeeding tax
years.
· Services
include any facility
provided.
· Utilities
include electricity, gas, water, and
telephone.
Employee
share schemes (sec
14)
Treatment of
value of a right or option
vested in an employee.
Formula:
AB
When
Commissioner can tax "salary" on due
basis:-
In
certain cases, the Commissioner
has been given powers to tax
salary on due basis. Section
110 reads as
under:
"Salary
paid by Private
Companies":
where,
in any tax year, salary is paid by a
private company to an employee of the
company for services
rendered
by the employee in an earlier tax year
and the salary has not
been included in the employee's
salary
chargeable
to tax in that earlier year, the
Commissioner may, if there
are reasonable grounds to
believe that
payment
of the salary was deferred, include the
amount in the employee's income under the
head "Salary"
in the
earlier year.
Leave
Salary:
This
is taxable whenever received or
right to receive is exercised by the
employee. Leave encashment
on
retirement falls in
this category. The only
exemption available is for the
members of the Armed Forces
of
Pakistan,
employees of the Federal Government
and Provincial Governments.
35
Taxation
Management FIN 623
VU
Under
clause (19), Part I of Second
Schedule
to the Ordinance any sum representing
encashment of leave preparatory to retirement in
their case
is
exempt.
▪ Salary
in lieu of notice:
Taxable
▪ Fee
and Commission:
Taxable
▪ Bonus:
Taxable
▪ Remuneration
for extra duties:
Taxable
▪ Voluntary
payments to employees:
Taxable
Flying
Allowance
Any
amount received as flying allowance
by:
a)
pilots, flight engineers and
navigators of Pakistan Armed
forces, Pakistani Airline or
Civil Aviation
Authority;
and
b)
Junior commissioned officers of Pakistan
Armed Forces.
Shall
be taxed @ 2.5% as a separate
block of income
Deductible
Allowance:
The
person shall be entitled to a deductible
allowance for any Zakat
paid by the
person in a tax year
according
to provisions of sec.60, for the amount of
any Workers'
Welfare Fund paid by the
person in a
tax
year under Sec 60-A, for the amount of
any Workers'
Participation Fund paid by the
person in a tax
year
under section 60-B.
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