The low-income groups mostly falling in the first two income slabs will get maximum benefit from the reduction in tax liability worked out by the Central Board of Revenue (CBR).
The CBR has given eight income slabs specifying reduction in tax liability through Income Tax Circular 15 of 2004 issued here on Tuesday.
According to these slabs, where income exceeds Rs 60,000 but does not exceed Rs 80,000, the reduction in tax liability would be 70 percent; income exceeds Rs 80,000 but does not exceed Rs 100,000, 60 percent; income exceeds Rs 100,000 but does not exceed Rs 150,000, 50 percent; income exceeds Rs 150,000 but does not exceed Rs 200,000, 40 percent; income exceeds Rs 200,000 but does not exceed Rs 300,000, 30 percent; income exceeds Rs 300,000 but does not exceed Rs 500,000, 20 percent; income exceeds Rs 500,000 but does not exceed Rs 1,000,000, 10 percent and where income exceeds Rs 1,000,000, the reduction in tax liability would be 5 percent.
The circular has specified that further reduction of 50 percent of tax available to the senior citizens aged 65 years or more and earning income up to Rs 300,000 will also be applicable to salaried people and additional reduction of 50 percent in tax liability in case of a full time teacher or researcher employed in a non-profit education or research institution, including government training or research institution, duly recognised by a Board of Education or a university or University Grants Commission (UGC).
Clarifying taxation of perquisites/allowances where salary income exceeds Rs 600,000, the method of valuation of perquisites and benefits under Income Tax Rules 2002 with respect to salary income remained the same as explained in Circular No 12 of 2002. However, in case of salaried taxpayer whose income is Rs 600,000 or more, the house rent allowance received in cash up to 45 percent of the minimum of the time scale or where there is no time scale up to 45 percent of basic salary subject to maximum of Rs 270,000 shall not be included in his taxable income. Principles of taxation of other perquisites in case of such taxpayers remain the same.
As per the circular, the basic threshold has been raised to Rs 100,000 from tax year 2005. The tax slabs have also been revised accordingly. These slabs shall, however, be applicable for tax withholding purposes pertaining to salary paid on or after July 1, 2004.
Under the revised slabs, where taxable income does not exceed Rs 100,000 the rate of tax will be zero percent; taxable income exceeds Rs 100,000 but does not exceed Rs 150,000, the tax rate will be7.5 percent of the amount exceeding Rs 100,000; taxable income exceeds Rs 150,000 but does not exceed Rs 300,000, the tax rate will be Rs 3,750 plus 12.5 percent of the amount exceeding Rs 150,000; taxable income exceeds Rs 300,000 but does not exceed Rs 400,000, the tax rate will be Rs 22,500 plus 20 percent of the amount exceeding Rs 300,000; taxable income exceeds Rs 400,000 but does not exceed Rs 700,000, the tax rate will be Rs 42,500 plus 25 percent of the amount exceeding Rs 400,000 and where taxable income exceeds Rs 700,000, the rate of tax will be Rs 117,500 plus 35 percent of the amount exceeding Rs 700,000.
The CBR has also given examples for the computation of tax of salaried people for the tax year 2005. The tax will be accordingly deducted under Section 149 (1) of the Income Tax Ordinance 2001 by the employers from July 1, 2004.