Tax credit on contributions to pension funds: FBR asked to raise limit to Rs one million

The Securities and Exchange Commission of Pakistan (SECP) has asked the Federal Board of Revenue (FBR) to increase tax credit limit from Rs 500,000 to Rs 1,000,000 on contribution to an approved pension fund in coming budget (2009-2010). The SECP has proposed amendment in the sub-section (2) of section 63 of Income Tax Ordinance, 2001.
The limit for tax credit at the contribution stage needs to be enhanced from current limit of Rs 500,000 to Rs 1,000,000 in view of inflation and increase in cost of living. The limit was placed in 2005 and during the intervening period there has been double digit inflation and more 30 percent depreciation of currency. The increase in limit will encourage more saving for investment.
The SECP proposed amendment says: (2) The amount of a person's tax credit allowed under sub-section (1) for a tax year shall be computed according to the following formula, namely:
(A/B) x C Where.-
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 -
(i) the total contribution or premium referred to in sub-section (1) paid by the person in the year; or
(ii) twenty per cent of the 1[eligible] person's taxable income for the relevant tax year; Provided that 2[an eligible person] joining the pension fund at the age of forty-one years or above, during the first ten years 3[starting from July 1, 2006] shall be allowed additional contribution of 2 percent per annum for each year of age exceeding forty years. Provided further that the total contribution allowed to such person shall not exceed 50% of the total taxable income of the preceding year; and (iii) ten hundred thousand rupees.