Understanding salary taxation is crucial for both employers and employees in Pakistan. The Finance Act 2023 introduced significant changes to the income tax slabs for salaried individuals, effective from July 1, 2023, corresponding to Tax Year 2024. These adjustments aim to enhance revenue collection and ensure a more equitable tax system.vialtopartners.com
Income Tax Slabs for Salaried Individuals – Tax Year 2023
The updated tax rates for salaried individuals are as follows:
| Annual Taxable Income (PKR) | Tax Rate (%) |
|---|---|
| Up to 600,000 | 0% |
| 600,001 – 1,200,000 | 2.5% of the amount exceeding 600,000 |
| 1,200,001 – 2,400,000 | 15,000 + 12.5% of the amount exceeding 1,200,000 |
| 2,400,001 – 3,600,000 | 165,000 + 22.5% of the amount exceeding 2,400,000 |
| 3,600,001 – 6,000,000 | 435,000 + 27.5% of the amount exceeding 3,600,000 |
| 6,000,001 – 12,000,000 | 1,095,000 + 35% of the amount exceeding 6,000,000 |
| Above 12,000,000 | 3,195,000 + 35% of the amount exceeding 12,000,000 |
Source: Mercans
Key Highlights
-
Tax-Free Threshold: Annual income up to PKR 600,000 remains exempt from income tax.
-
Progressive Taxation: Higher income brackets are subject to increased tax rates, promoting a progressive tax structure.
-
Employer Responsibility: Employers are mandated to deduct tax at source under Section 149 of the Income Tax Ordinance, 2001, and deposit it with the Federal Board of Revenue (FBR).
Tax Calculation Examples
Example 1: An individual earning PKR 1,500,000 annually.
-
Income exceeding PKR 600,000: PKR 900,000BeFiler+2Taxation PK Blog+2Mercans Global Payroll & PEO+2
-
Applicable tax:Worldwide Tax Summaries Online
-
First PKR 600,000: 0%
-
Next PKR 600,000: 2.5% of 600,000 = PKR 15,000
-
Remaining PKR 300,000: 12.5% of 300,000 = PKR 37,500
-
-
Total Tax: PKR 15,000 + PKR 37,500 = PKR 52,500
Example 2: An individual earning PKR 5,000,000 annually.
-
Income exceeding PKR 600,000: PKR 4,400,000
-
Applicable tax:
-
First PKR 600,000: 0%vialtopartners.com+2BeFiler+2Taxation PK Blog+2
-
Next PKR 600,000: 2.5% of 600,000 = PKR 15,000Taxation PK Blog
-
Next PKR 1,200,000: 12.5% of 1,200,000 = PKR 150,000
-
Next PKR 1,200,000: 22.5% of 1,200,000 = PKR 270,000
-
Remaining PKR 1,400,000: 27.5% of 1,400,000 = PKR 385,000
-
-
Total Tax: PKR 15,000 + PKR 150,000 + PKR 270,000 + PKR 385,000 = PKR 820,000
Compliance and Filing
-
Tax Deduction: Employers must deduct tax from employees’ salaries and deposit it with the FBR.
-
Annual Tax Return: Salaried individuals are required to file their annual tax returns, even if tax has been deducted at source.Taxation PK Blog
-
Documentation: Maintain records of salary slips, tax deduction certificates, and other relevant documents for accurate filing.
Tax Credits and Deductions
Salaried individuals may be eligible for various tax credits and deductions, including:
-
Investment in Shares: Tax credit under Section 62 for investment in shares of listed companies.
-
Donations: Tax credit for donations to approved charitable organizations under Section 61.
-
Education Expenses: Tax credit for tuition fees under Section 60C.
Note: Eligibility and limits for these credits are subject to specific conditions outlined in the Income Tax Ordinance, 2001.
Penalties for Non-Compliance
-
Late Filing: Penalty of 0.1% of the tax payable for each day of default, subject to a minimum of PKR 10,000.
-
Incorrect Declaration: Penalties and additional tax may be imposed for misrepresentation or concealment of income.
-
Audit and Assessment: The FBR may conduct audits and assessments to ensure compliance.
Conclusion
The revised salary tax slabs for Tax Year 2023 reflect the government’s efforts to enhance tax collection and promote equity. Salaried individuals should stay informed about these changes, ensure accurate tax deductions, and comply with filing requirements to avoid penalties. Consulting with tax professionals or using reliable tax calculation tools can aid in understanding obligations and optimizing tax liabilities
