Page 52 - Insight 2018

TAX HACKS: TIPS ON HOW TO SAVE X HACKS: TIPS ON HOW TO SAVE
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YOUR MONEY THIS TAX SEASONUR MONEY THIS TAX SEASON
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By Aqeel Ishaq Sair
By Aqeel Ishaq Sair (Taxation, Payroll & Logistics) (Taxation, Payroll & Logistics)

The objective of this article is to enlighten our valued employees about income tax law (Income Tax Ordinance, 2001), certain tax credit and
certain provisions of income tax law in Pakistan relating to salary taxation and tax adjustment has been allowed, and your employer is authorised
guide them regarding how to reduce tax deduction from salary income and to give you the credit or adjustment after completing certain
increase their take-home pay. Tax credit is a systematic reduction (based documentary requirements. For convenience the current available
on certain formulas) in the tax liability of a person. Tax credit options are provisions for tax year 2019 (July 2018 - June 2019) have been
normally offered by the governments to induce investments, motivate for summarised below for information.
social welfare activities e.g. donations etc. Under the current applicable
TAX CREDITS Investment in Public Company Shares/

Open-Ended Funds & Life Insurance
Currently tax credit can be availed in following cases:
– Tax credit can be availed on investing in initial public offering
(IPO) of companies listed on a stock exchange in Pakistan. The
one purchasing the shares must be the first owner of the shares
i.e. direct purchase from the company. Purchasing of shares from
open market does not qualify for tax credit. Investment in open-
Charitable Donations ended-mutual funds that are being traded on any stock exchange
in Pakistan also qualifies for tax credit.
• Tax credit is also available on premium paid on a Life Insurance
Policy of employee only (not the family member).
– Tax credit on donation to the followings is available:
– To avail the tax credit, the proof of investment in one’s name
• Board of education, or university in Pakistan established by, or should be provided (For Life Insurance, photocopy of receipt of
under federal or provincial law. premium paid along with copy of policy documents is required).
• Educational institute, hospital or relief fund established or run in The tax credit is provided on the average tax rate applicable on the
Pakistan by Federal Government or a Provincial Government or a salary income on a maximum investment (investment in share +
Local Government. Insurance Premium) of Rs. 2,000,000 or 20% of employee’s taxable
• Any non-profit organisation (NGO) approved by commissioner of income for the year, whichever is less.
income tax under section 2(36) of ITO 2001.
– The shares/mutual fund purchased/Insurance Policy must be
– The tax credit is allowed on the average tax rate applicable to retained for twenty-four months from the date of purchase. In case
employee’s salary on a maximum donation of 30% of the employee’s of early disposal, the employee is responsible for paying the tax of
taxable income for the year. The donation should have been paid which he has availed the credit. The purchasing of shares/mutual
through cross cheque during period from July 2018 to June 2019. funds and insurance premium paid from July 2018 to June 2019
Donations paid in cash shall not be considered for tax credit. shall only be considered for tax purpose.

On contribution to an Approved On investment in Health
Pension Fund Insurance

– The tax credit is also available on investment in health insurance.
– Tax credit is also allowed on payment of contribution/premium to A resident person being a filer shall be entitled to a tax credit in
any pension fund approved under Voluntary Pension System Rules respect of any health insurance premium paid to any insurance
2005. In case an employee has invested in Pension Fund through company registered by Securities and Exchange Commission of
a withdrawal from his Provident Fund, that contribution shall not be Pakistan.
considered for tax credit.
– The Photocopy of receipt of premium paid along with copy of
– The tax credit is allowed on the average tax rate applicable to policy documents is required to give tax credit. Tax credit is allowed
employee’s salary on a maximum contribution of 20% of employee’s at average tax rate applicable on your salary on a maximum
taxable income for the year. Proof of payment shall be required for tax Premium of Rs. 150,000 or 5% of employee’s taxable income for
credit. The contribution/premium should be paid during period from the year, whichever is less. The premium payment from July 2018 to
July 2018 to June 2019. June 2019 shall be considered only.

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