Tax credits on Charitable Donations

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Taxation Management FIN 623

MODULE 6

LESSON 6.24

SALARY AND ITS COMPUTATION

Tax credits on Charitable Donations (Sec 61)

Tax credit allowed in respect of any sum paid or any property given by the person in a tax year as a

donation to:

Any board of education or any university of Pakistan established by, or under, Federal or a Provincial

law;

Any educational institution, hospital or relief fund established or run in Pakistan by federal government

or a provincial government or a local authority or;

Any non- profit organization

The amount of tax credit shall be computed according to following formula:

(A/B) x C

Here:

A is the amount of tax assessed to the person for the tax year before allowance of any tax credit

under

this part;

B is the person's taxable income for the tax year; and

C is the lesser of:

The total amount of the person's donations referred o in sub-section (1) in the year, including the fair

market value of any property given; or

Where the person is-

i. an individual or association of person, thirty percent of the taxable income of the person for the year;

ii. a company, fifteen percent of the taxable income of the person for the year.

Fair market value of any property given as donation shall be determined at the time it is given.

A cash amount paid by a person as donation shall be taken into account only if it was paid by a crossed

cheque drawn on a bank.

Investment in shares: Sec 62:

A person (other then a company) shall be entitled to a tax credit for a tax year in respect of the cost of

acquiring in the year new shares offer by a public company listed on a stock exchange in Pakistan where

the person is the original allottee of the shares or the shares are acquired from Privatization Commission

of Pakistan.

Formula:

It is same that is i.e. (A/B) x C

A and B are the same as explained in Sec 61.

Here C is lesser of:

The total cost of acquiring the shares referred to in sub-section (1) in the year;

Ten percent of the person's (taxable) income for the year; or

(Two hundred) thousand rupees

If the person how has availed tax credit in respect of purchase of share and has made a disposal of the

said shares within 12 months of the date of acquisition. The amount of tax payable by the person for

the tax year in which the share were disposed of shall be increased by the amount of credit allowed.

Profit on debt- Sec 64

A person shall be entitled to a tax credit for a tax year in respect of any profit or share in rent paid by a

person in the year on a loan by a schedule bank or non-banking finance institution or advanced by

government or the local authority or a statutory body or a public company listed on a registered stock

exchange of Pakistan, where the person utilizes the loan for the construction of a new house or the

acquisition of a house.

Formula for computation of Profit on debt:

(A/B) x C

A and B are the same as explained in Sec 61

C is the lesser of:

Taxation Management FIN 623

o The total profit referred to in sub-section (1) paid by the person during the year;

o (Forty) percent of the person's (taxable) income for the year; or

o [Five hundred] thousand rupees

Income tax rules, 2002 regarding salary:

Effective from 01-07-2006 (Tax Year 2007)

· Rule 3: valuation of perquisites, allowances and benefits:

The benefits provided by the employer to the employee shall be included in the said income in accordance

with rules 4 to 7.

· Rule 4: valuation of accommodation:

This shall be taken equal to the amount that would have been paid by the employer in case such an

accommodation was not provided.

Provided that the value taken for this purpose shall, in any case, not be less than 45 percent of minimum of

time scale or the basic salary where there is no time scale.

· Rule 5: valuation of conveyance:

(i) Partly for personal

5% of:

and partly official use

a) the cost to the employer for

acquiring the vehicle or ,

b) the fair market value of

vehicle at commencement

of the lease, if taken on

lease.

(ii) Conveyance provided

10% of:

for personal use only

a) the cost to the

employer for

acquiring the vehicle or

b) the fair market value

of vehicle at

commencement

of the lease, if taken

on lease.

· Rule 6

For the purpose of this part, "employee" includes a director of a company.

· Rule7:

These rules shall be applicable for the salary income received after thirtieth of June, 2006

Exemptions under the head `Salary'

TA/DA exempt under clause 39 of part 1 of second schedule.

Free furnished accommodation provided to the president of Pakistan, provincial governors, and Chiefs

of Staff of Pakistan Armed Forces are exempt under clause 51.

Free conveyance and entertainment allowances are fully exempt to the following:

Provincial Governors, the Chiefs of Staff of Pakistan Armed Forces, and Corps Commanders of

Pakistan Armed Forces under clause 52

Exemptions:

Amount received from workers participation fund is exempt under clause 26.

Local traveling allowance to journalists is exempt under clause 40 of part-1 of second schedule.

Tax rebate for teachers and the researchers.

Full time teacher or researcher employed in non profit education or research institution including

government training and research institution duly recognized by HEC, a Board of education or a University

recognized by HEC allowed tax rebate of 75%.

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