Income From Salary

Question 1

Amount treated as salary

Answer 1

Revenue capital nature
Reimbursements other than for official purposes
Allowances rent utilities
Wages pays overtime lieu work condition supplements gratuity
Perquisites
Annuity pension

Question 2

Amount in addition to salary

Answer 2

Golden handshake termination redundancy and loss of employment payments
Provident fund if not repayment of contribution of employee
Work condition changes
Restrictive covenants

Question 3

Tax free salary treatment

Answer 3

Salary grossed up by tax payable by employer

Question 4

When amount shall be treated as received and is deduction allowed

Answer 4

Made by employees employer or third party under arrangement

by past or perspective employer or two employee

or an associate of an employee or third party in agreement with employee

Question 5

Golden handshake or termination treatment

Answer 5

Rate is A/ B perc
A id tax paid by employee for 3 preceding tax years and

b is employees taxable income from 3 preceding tax year( in loss case 2. Years)

Question 6

Summary of rates to car house laptop washing machine fridge

Answer 6

Car 5% or 10% of value or 5% or 10% of their market value obtained only if it is transferred then share market value of asset at time of transfer
in case of house 45% of basic salary for the amount that would have been paid
in case of laptop fair market value of the asset for the year less amount paid by employee to employer or depreciation charge by employer in his book less amount paid by employee to employer

Question 7

Perquisites vehicle

Answer 7

0% in case of official use

If a personal use then 10% of cost to acquire the vehicle or fair market value of the vehicle at commencement of lease

If partly personal and partly official use then 5% of cost of employer for acquiring the vehicle or the fair market value at commencment of lease

Question 8

Perquisites services and utilities

Answer 8

In case of housekeeper driver governor or domestic assistant provided by employer salary paid by employer to percent providing services less amount paid by employee will be added to salary

Fair market value of utilities as gas electricity water telephone

Question 9

Interest free loan

Answer 9

Interest is added to salary at benchmark rate and if loan is provided at less than benchmark rate then the difference shall be calculated and that will be added in salary

Question 10

Benchmark rate

Answer 10

2003 BenchMark is 5% per annum and for coming years it increases 1% but till 10% so rate for current and coming years is 10%

Question 11

When Loan interest not added to salary

Answer 11

If the loan is up to 1000000 or the interest is arising because employee waived interest to employer in case of provident funds

Question 12

Obligation paid by employer case and the aquisition of assets from loan by employer case

Answer 12

If obligation is paid by employer on waived off by employer that will be added to salary

when employee uses loan acquire a property producing income under any head of income it will be assumed that employee has paid interest equal to benchmark rate

Question 13

Services or property by employer

Answer 13

Fair market value of profit or services less the aMount paid by employee to employer shall be added to salary

Question 14

Value of accomodation and minimum time scale

Answer 14

Higher or
45 perc of time scale of basic( initial) salary
Amount that would’ve been paid if accomodation was not provided

Minimum time scale is starting salary

If rent allowance is 30 perc it will be used instead of 45 perc

Question 15

Self hiring of property s15 5

Answer 15

If employee or his wife own house given rent to employer and employer provides same house to employee as rent fee accommodation it will have two fold effect rent actually receive the employee from employer will be income from property and it will be upper quiz in form of combination 45% of basic salary will be added under the head salary

Question 16

Arrear high tax treatment

Answer 16

If employees income is charged at higher rate as compared to rate that was applicable if salary was paid in year he did services he may give notice to commissioner and elect rate applicable in the year in which he earned salary

Question 17

Employee share scheme

Answer 17

It means and agreement under which a company may issue shares in the

An employee of the company or an employee of an associated company

The trustee of a trust and the trusty may transfer shares to an employee of the company or an employee of an associated company

Question 18

Value of right 14(1) Disposal of right (2)

Answer 18

The value of a right or option to acquire shares under and employment share scheme is not chargeable to tax

Where In tax year an employee disposes of a right or option to acquire shares under an employee share scheme the amount chargeable under the head salary include amount of Gain calculated as

a - b

where a is the consideration received for disposal of right or option and b is the employees cost in respect of right or option

Question 19

Excercise of right

Answer 19

Where shares issued to employee under employee share scheme including as result of exercise of option following amount is chargeable

the fair market value of shares at date of issue less consideration given by employee for shares for right or options

Question 20

Shares issuer by company on restriction of transfer

Answer 20

Where shares are issued to an employee under and employee share scheme and their is restriction on transfer nothing will be added in income and till employee has a free right to transfer the shares on getting the free right to transfer the salary cell include the fair market value of the shares at the time of disposal less consideration

Question 21

Foreign source salary treatment 102

Answer 21

any foreign sourec salary received by a resident individual Shall be exempt if individual has paid for an income tax on salary

it will be assumed that resident individual has paid for an income tax if tax is withheld from salary by the employer and paid to revenue authority of the foreign country

where a citizen of Pakistan leaves Pakistan during a tax year and remains abroad then salary income earned outside Pakistan during that year shall be exempt from tax

Question 22

Exemptions salary pension

Answer 22

Any pension receive by a citizen of Pakistan from former employer shall be exempt if person continues to work for employer or associate of employer then it will be chargeable

if person receives more than one pension then only higher pension will be examined

if a person’s age is more than 60 years then all pension shall be extempt irrespective of above mention conditions

pension received by employee of arm forces of Federal or provincial government is exempt

Question 23

Exemption on commutation gratuity unapproved gratutity

Answer 23

Commutation of pension received from government or pension scheme approved by board shall be exempt

Gratuity or commutation of pension received on retirement or death by his hairs of government employees shall be fully exempt

approved by a commissioner shall be fully exempt

approved by board shall be exact up to 3 lakh if applicable to all employees

Unapproved gratituy or pension amount exempt will be lower of following 50% of amount receivable or 75000 rupees

Question 24

Benevolent fund exemption and perquisites exemption

Answer 24

Benevolent Grant paid from a benevolent fun to employees or members of their families is exempt

Perquisites receive by an employee are exempt if
Free or subsidize food provided by hotels and restaurants to employee during duty or
Free or subsidized education provide by educational institution to children of employees
Free or subsidized medical treatment provided by hospital to employees
Other benefit for which employer do not wear any marginal cost as notified by board

Question 25

Leave encashment and workers participation fund

Answer 25

Any amount received on encashment of leave preparatory to retirement is exempt if received by a government employee or armed forces of Pakistan

Workers profit participation fund is fully exempt

Question 26

Taxation of provident fund( recognized) and salary provident fund

Answer 26

On employee contribution not treatment on employer contribution

exempt up to lower of one tenth of salary of 150 thousand

interest on fund balance exempt up to 1/3 of salary or interest calculated at 16% accumulated balance hole of receipt is examined

salary of purposes of provident fund means basic salary and dearness allowance it excludes all other allowance is and perquisites

Question 27

Taxation of provident fund ( government)

Answer 27

Employee contribution no treatment

employer contribution exempt under income ordnance text 2001

accumulated balance also exempt

Question 28

Taxation of provident fund ( unrecognized)

Answer 28

Employee contribution No treatment as amount is paid from salary

employer contribution will not be taxed in each tax year

whole of employer contribution to date along with interest will be taxable final amount received minus whole employee contribution

Question 29

Medical facility and reimbursement

Answer 29

Medical facility as per terms of employment is exempt is national tax number of hospital or clinic is given and employer also certifies medical bills paid

Facility as per not terms of employment is fully taxable

Medical allowance is exempt up to 10% of basic salary

Medical allowance + medical facility in terms of employment then allowance is fully taxable and facility will be exempt

Medical allowance plus medical facility not with terms then allowance will be exempt I’m to 10% of basic salary and facility will be fully taxable

Question 30

Exemption on Unapproved gratituy applies if

Answer 30

Is payment is received in Pakistan

In case of director payment is received by him being a regular employee

If payment is received by a resident

To gratuity received by an employee who has not receive any gratuity from the same or any other employer