The Central Board of Revenue (CBR) has issued an explanatory circular for computing income tax payable by the salaried class for the 'tax year 2007', and deducting of advance tax from salary for the tax year starting from July 1, 2006.
The Board issued Income Tax Circular 3 of 2006 on Tuesday to explain the taxation on salaried persons including taxation on motor vehicle/accommodation provided by the employer, quoting different examples to explain the levy.
A salaried taxpayer means where salary constitutes more than 50 percent of the total income. All perquisites, allowances or benefits, (excepting those covered under Part-1 of the Second Schedule of the Ordinance) would be included in the salary and rate of tax prescribed in Part-1 of the First Schedule shall be applied for the tax year 2007 on the gross figure. Tax in the case of a salaried taxpayer shall be computed in accordance with sections 12,13 and 14 of Income Tax Ordinance 2001, read with rules 2 to 7 of Income Tax Rules 2002.
According to the Circular, the value of accommodation provided by the employer to the employee shall be taken as the amount which the employer would have paid to the employee in case the accommodation was not provided to him. In other words, for the purpose of calculation of value of the perquisite of housing, the amount of house rent that would have been paid by the employer (if the house was not provided) shall be included in the salary for tax purposes.
However, the value taken for this purpose will not be less than 45 percent of the minimum of the time scale of the basic salary or the basic salary where there is no time scale.
Explaining the basic exemption threshold, the Board has elaborated that the basic exemption for tax year 2006 is Rs 100,000. This has been enhanced to Rs 150,000 for the 'tax year 2007'.
The tax slabs have also been revised through Finance Act, 2006. These slabs shall be applicable for tax year 2007. For withholding purposes, these shall apply to salary paid from July 1, 2006.
According to the revised slabs, where the taxable income does not exceed Rs 150,000, the rate of tax would be zero percent;
-- where the taxable income exceeds Rs 150,000 but does not exceed Rs 200,000, 0.25 percent;
-- where the taxable income exceeds Rs 200,000 but does not exceed;
-- Rs 250,000, 0.50 percent; taxable income exceeds;
-- Rs 250,000 but does not exceed;
-- Rs 300,000, 0.75 percent; taxable income exceeds;
-- Rs 300,000 but does not exceed;
-- Rs 350,000, 1.50 percent; taxable income exceeds;
-- Rs 350,000 but does not exceed;
-- Rs 400,000, 2.50 percent; taxable income exceeds;
-- Rs 400,000 but does not exceed;
-- Rs 500,000, 3.50 percent; taxable income exceeds;
-- Rs 500,000 but does not exceed;
-- Rs 600,000, 4.50 percent; taxable income exceeds;
-- Rs 600,000 but does not exceed;
-- Rs 700,000, 6 percent; taxable income exceeds;
-- Rs 700,000 but does not exceed;
-- Rs 850,000, 7.50 percent; taxable income exceeds;
-- Rs 850,000 but does not exceed;
-- Rs 950,000, 9 percent; taxable income exceeds;
-- Rs 950,000 but does not exceed;
-- Rs 1,050,000, 10 percent; taxable income exceeds;
-- Rs 1050,000 but does not exceed;
-- Rs 1,200,000, 11 percent; taxable income exceeds;
-- Rs 1200,000 but does not exceed;
-- Rs 1,500,000, 12.50 percent; taxable income exceeds;
-- Rs 1500,000 but does not exceed;
-- Rs 1700,000, 14 percent; taxable income exceeds;
-- Rs 1700,000 but does not exceed;
-- Rs 2000,000, 15 percent; taxable income exceeds;
-- Rs 2000,000 but does not exceed;
-- Rs 3,150,000, 16 percent; taxable income exceeds;
-- Rs 3,150,000 but does not exceed;
-- Rs 3,700,000, 17.50 percent; taxable income exceeds;
-- Rs 3,700,000 but does not exceed;
-- Rs 4,450,000, 18.50 percent; taxable income exceeds;
-- Rs 4,450,000 but does not exceed;
-- Rs 8,400,000, 19 percent and where the taxable income exceeds;
-- Rs 8,400,000, the rate of tax would be 20 percent.
For the taxation of motor vehicle provided by the employer, the addition on account of motor vehicle provided by the employer to the employee shall be calculated in the following manner:
Where motor vehicle is used partly for personal and partly for business purposes: In case the motor vehicle provided by the employer is used partly for personal and partly for business purposes, the amount to be included in the salary on this account shall be 5 percent of cost to the employer for acquiring the motor vehicle or the fair market value of the motor vehicle at the commencement of the lease (if the motor vehicle is taken on lease by the employer).
Where motor vehicle is provided exclusively for personal or private use: In case motor vehicle provided by the employer is used exclusively for personal or private use, addition in income will be made as under: Where motor vehicle is owned by the employer, 10 percent of cost to the employer for acquiring the motor vehicle or where the motor vehicle is taken on lease by the employer, 10 percent of fair market value of the motor vehicle at the commencement of the lease.
The circular has clarified that any amount received as flying allowance by the pilots, flight engineers and navigators of Pakistan armed forces, Pakistani airline or Civil Aviation Authority (CAA) and Junior Commissioned Officers or other ranks of the armed forces shall be taxed at the rate of 2.5 percent as a separate block of income.
The circular has also issued procedure for the adjustment of tax liability of salaried taxpayers by employers being withholding agents.
In accordance with the guidance embodied in Circular No 18 of 2004 every employer, while deducting income tax payable on the income chargeable under the head 'Salary' of its employees, is allowed to make such adjustments, as may be necessary, for any excess deduction or deficiency arising out of any previous deduction or failure to make deduction during the 'tax year'.
A withholding agent is allowed to make adjustments on production of the documentary evidence by an employee regarding income tax withheld along with motor vehicle tax in respect of motor vehicle registered in employee's own name and telephone bill as subscriber of telephone.
The Circular added that a full-time teacher or a researcher, employed in a non-profit education or research institution recognised by Higher Education Commission (HEC), a board of education or a university was entitled to a benefit, under the Ordinance 2001 and his tax liability stood reduced by an amount equal to 75 percent of tax payable on his income from salary.
This concession has now been extended to full-time teachers and researchers employed in government training and research institutions also, the Circular added.
Salary Circular 2006