Pakistan International Airlines (PIA) has approached the Central Board of Revenue (CBR) for obtaining clarification for deduction of income tax from its employees, availing golden handshake or facing termination from services, on the basis of last three years' average tax paid by them.
In this connection, PIA Head Office at Karachi Airport has made a formal request to the CBR Chairman Abdullah Yusuf through a communication titled, 'Deduction of tax from payment on mandatory golden handshake scheme'.
PIA has informed the CBR that payment received by the corporation's employees for golden handshake or on early termination of employment is taxable at the last three years' average rate of tax paid by the employee, as per section 12(2)(e)(iii) read with section 12(6) of the Income Tax Ordinance 2001.
Although tax is to be paid by the employee on golden handshake payment at the last three years' average rate of tax paid by the employee, but the employer is not allowed to deduct tax where average rate of tax is lower than the normal rate.
According to PIA, the employer has to deduct tax at the normal tax rate from the payment on termination or on golden handshake resulting in excess deduction of tax from the payment than the actual tax payable on such payment received on termination of services, which results in hardship to the terminated employee.
To avoid hardship in case of employees receiving payment under mandatory golden handshake scheme, the PIA may be allowed to deduct tax at the last three years' average rate of tax paid by the employee from the payment to be made by the corporations under the golden handshake scheme including compensation for redundancy.
PIA has asked the CBR that necessary instructions be issued in this regard so that the corporation may deduct tax at the last three years' average tax rate paid by the employee.
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