Income From Salary

Question 1

Basis of taxation

Answer 1

Receipt basis

Question 2

Deduction

Answer 2

No deduction are allowed under the head income from salary

Question 3

Pay wages, leave pay, payment in lieu of leave, overtime payment, bonus, commission, fees, gratuity or work condition supplement

Answer 3

Fully taxable

Question 4

Reimbursement of expenses to employee

Answer 4

Fully taxable. However expenses reimbursed to meet official duty are not taxable.

Question 5

All cash allowance(other than medical allowance) e.g. education allowance, house rent allowance, utility allowance, subsistence allowance etc.

Answer 5

Fully taxable. However allowance paid to meet official duty are not taxable.

Question 6

Amount paid to enter into employment relationship

Answer 6

Fully taxable

Question 7

Amount paid to fulfil any condition of employment

Answer 7

Fully taxable

Question 8

Amount paid on termination of employment
(Including golden hand shake receipts)

Answer 8

Two options
1- Treat in normal way as a part of calculation of taxable income
2- Tax this amount on the basis of last three years average tax rate

Question 9

Amount paid as for agreeing against a restrictive convenant

Answer 9

Fully taxable

Question 10

Employee contribution in recognized provident fund

Answer 10

No separate treatment

Question 11

Employer contribution in recognized provident fund

Answer 11

Exempt upto lower of:
- 1/10th of basic salary + dearness allowance
- Rs. 150,000

Question 12

Interest credited in recognized provident fund

Answer 12

Exempt upto higher of:
- 1/3th of basic salary + dearness allowance or
- interest calculated @16%

Question 13

Receipt of accumulated balance from recognized provident fund

Answer 13

Fully exempt

Question 14

Employee contribution in unrecognized provident fund

Answer 14

No separate treatment

Question 15

Employer contribution in unrecognized provident fund

Answer 15

No treatment

Question 16

Interest credited in unrecognized provident fund

Answer 16

No treatment

Question 17

Receipt of accumulated balance from unrecognized provident fund

Answer 17

Employer contribution + Interest is fully taxable

Question 18

Interest benefit in respect of interest free loan provided to employee

Answer 18

Interest calculated @ 10% is taxable

Question 19

Interest benefit in respect of loan provided at interest rate which is lower than bench mark rate

Answer 19

Interest calculated @ 10% - interest rate charged by employer is taxable

Question 20

Loan provided at interest rate which is equal to or greater than benchmark rate

Answer 20

No interest benefit arising so nothing is taxable

Question 21

Conveyance provided to employee partly for personal and partly for official use

Answer 21

5% of cost or FMV of vehicle depending on whether it is purchased or taken on lease respectively

Question 22

Conveyance provided to employee solely for personal use

Answer 22

10% of cost or FMV of vehicle depending on whether it is purchased or taken on lease respectively

Question 23

Conveyance provided to employee solely for business use

Answer 23

No treatment

Question 24

Service of house keeper , driver , gardener or other domestic assistant are provided to employee

Answer 24

Total salary paid to these persons by employer less amount paid by employee to employer for receiving these services is taxable

Question 25

Utility services provided

Answer 25

Fair market value of utilities provided less amount paid by employee to employer for receiving these services is taxable

Question 26

Waiver of loan payable by employee to employer

Answer 26

Amount of loan waived is taxable

Question 27

Liability of employee toward any third party paid by employer

Answer 27

Amount paid by employer is taxable

Question 28

Where employer transfer any property to employee (e.g. house , car, fridge etc).

Answer 28

FMV of asset transferred less amount paid by employee to employer

Question 29

House provided / Accomodation provided

Answer 29

Higher of following amounts is added: - 45% of basic salary or - Amount that would have been paid had no accomodation been provided by employer

Question 30

Pension

Answer 30

Fully exempt subject to the condition that person is citizen of Pakistan. Where more than 1 pension is received by a citizen of Pakistan than higher amount of pension will be exempt

Question 31

Government employees: Gratuity Commutation of pension

Answer 31

Fully exempt subject to certain conditions

Question 32

Non Government employees: Gratuity fund approved by commissioner or Gratuity scheme approved by FBR

Answer 32

Approved by commissioner - fully exempt Approved by FBR - Exempt upto Rs. 300,000 subject to certain conditions

Question 33

Non Government employees: Unapproved gratuity received or Unapproved commutation of pension

Answer 33

Exempt upto lower of: - 50% of amount received of - Rs. 75,000 (Subject to certain conditions) 1- If payment is received in Pakistan 2- in case of director , if payment us received by him being a regular employee 3- if payment is received by a resident; and 4- to gratuity received by an employee who has not received any gratuity from the same or any other employer.

Question 34

Free or concessional services provided by transporters , hotels , educational institutes and hospitals to its employees

Answer 34

Full exempt subject to certain conditions

Question 35

Gain on disposal of rights acquired under an employee share

Answer 35

Following is taxable: Consideration received against disposal of right - Cost paid to acquire right

Question 36

Shares acquired under an employee share scheme without any restriction on transfer

Answer 36

Following is taxable: FMV of shares at the date of acquisition of shares - cost paid to acquire shares - cost paid to acquire right

Question 37

Shares acquired under an employee share scheme with restriction on transfer ( Shares are in the possession of employee till the date he has free right to transfer the shares)

Answer 37

Following is taxable: FMV of shares at the date employee has free right to transfer the shares - cost paid to acquire shares - cost paid to acquire right

Question 38

Shares acquired under an employee share scheme with restriction on transfer (Shares are disposed off by employee before the date he has free right to transfer the shares)

Answer 38

Fair market value of the shares at the time the employee disposes of the shares - cost paid to acquire shares - cost paid to acquire right

Question 39

Foreign source salary received by a resident individual

Answer 39

Exempt

Question 40

Foreign source salary earned by a citizen of Pakistan who leaves Pakistan during a tax year and remains abroad during that tax year

Answer 40

Exempt

Question 41

Foreign source salary income derived if the person receiving this income is a returning expatriate i.e. a person remains abroad for last preceding 4 years

Answer 41

Exempt in the year in which he became resident and the following tax year only