Tax on Salaries? Does your employer deduct income tax at source?

[jayerjes]

Dear Friends,

We have a confusion regarding taxes paid or not paid by salaried people whether employed by the government or the private employers.
To my understanding, regardless of being employed by government or private organization, if the taxable salary of an employee falls within the taxable bracket of 400,000 (annual taxable salary) or above, the employer deducts the income tax at source. Which means that the employee is only paid salary after deducting the right amount of tax.

Those who are currently employed in any organization whether private or not, can help us understand whether this practice is done in all the companies regardless of being employed in government or private organization. This will help us also understand that all the people who are salaried actually pay taxes to government and the people who do not pay the taxes are those who are self-employed or have been running businesses but cheat on taxes.
Can you reply to the post and state that if you are employed whether your employer deducts income tax at source or not? I hope that you will help us understand that income tax is being paid by salaried person.

Thank you very much in advance.

I also provide below what a salary is and who is salaried employee and what are the tax brackets. Moreover, how to file a tax return. What does it mean by filing tax return. We need not run from tax return, it is just a document to say that this much of tax has been deducted from my salary and this has been my total income.

WHAT IS SALARY?
Salary means amount received by an employee from any employment, whether of a
capital or revenue nature. It includes pay and perquisites.

Pay means wages or other remuneration like leave pay, payment in lieu of leave,
overtime payment, bonus, commission, fees and gratuity.

Perquisite means benefit whether convertible to money or not given to employee over
and above pay and wages, e.g. - utilities allowance, conveyance allowance, provision
of vehicle and accommodation etc.

WHO IS A SALARIED PERSON?
An individual is treated as a salaried person if more than 50% of his total income
comprises of salary income or he/she derives income entirely from salary. Every salaried
person is obliged to pay tax on salary, if salary exceeds prescribed limits.

TAXABILITY OF SALARY
While computing the taxable salary income of a person, all perquisites, allowances or
benefits, except exempt items are to be included in the salary and such gross figure
shall be treated as the taxable salary income of a taxpayer.

Following allowances are presently exempt from tax, subject to certain conditions:

Medical Allowance
Exempt upto 10% of basic salary, if free medical treatment or hospitalization or re-imbursement
of medical or hospitalization charges is not provided.
(See Clause (139)(b) of Part I of Second Schedule of ITO 2001)

Special Allowance
Exempt if granted to meet expenses for the performance of official duties.
(See Clause (39) of Part I of Second Schedule of ITO 2001)

Teacher or Researcher
A reduction of 75% of tax on income from salary is available to a full time teacher or
researcher, employed in a

 non-profit education or research institution duly recognized by HEC;
 a board of education or a university recognized by HEC, including government
training and research institution.

(See Clause (2) of Part III of Second Schedule of ITO 2001)


RATES OF TAXATION

The tax on salary income is calculated at the rates prescribed in Income Tax Ordinance, 2001.
Through Finance Act 2012 rates for the TY 2013 are amended.

The rates for Tax Year 2013 are as follows:

[TABLE="width: 671"]
[TR]
[TD]S.No.[/TD]
[TD]Taxable Income (Annual)[/TD]
[TD]Rate of Tax[/TD]
[/TR]
[TR]
[TD]1[/TD]
[TD]Where the taxable income does not exceed Rs. 400,000.[/TD]
[TD]0%[/TD]
[/TR]
[TR]
[TD]2[/TD]
[TD]Where the taxable income exceeds Rs. 400,000 but does not exceed Rs. 750,000.[/TD]
[TD]5% fo the amount exceeding Rs. 400,000.[/TD]
[/TR]
[TR]
[TD]3[/TD]
[TD]Where the taxable income exceeds Rs.750,000 but does not exceed Rs. 1,500,000.[/TD]
[TD]17,500 + 10% fo the amount exceeding Rs. 750,000.[/TD]
[/TR]
[TR]
[TD]4[/TD]
[TD]Where the taxable income exceeds Rs. 1,500,000 but does not exceed Rs. 2,000,000.[/TD]
[TD]95,000 + 15% of the amount exceeding Rs. 1,500,000.[/TD]
[/TR]
[TR]
[TD]5[/TD]
[TD]Where the taxable income exceeds Rs. 2,000,000 but does not exceed Rs. 2,500,000.[/TD]
[TD]175,000 + 17.5% of the amount exceeding Rs. 2,000,000.[/TD]
[/TR]
[TR]
[TD]6[/TD]
[TD]Where the taxable income exceeds Rs. 2,500,000.[/TD]
[TD]420,000 + 20% of the amount exceeding Rs. 2,500,000.[/TD]
[/TR]
[/TABLE]

Senior Taxpayers
If the age of the taxpayer on the first day of a tax year is 60 years or more and taxable
income does not exceed Rs.1,000,000 the gross tax qualifies for a reduction of 50%.
(See Clause (1A) of Part III of Second Schedule of ITO 2001)

FILING OF TAX RETURN / EMPLOYER’S CERTIFICATE

When income exceeds the taxable limit in a tax year and is exclusively derived from “salary” being less than Rs. 500,000, one may file an Employer’s Certificate in lieu of a return of income by the due date. (i.e. August 31 next following the tax year) if the employer has not furnished the Annual Statement of Deduction of Income Tax from Salary. The salaried taxpayer is not required to even furnish Employer’s Certificate if his/her taxable salary income is less than Rs. 500,000 and his/her employer has filed an Annual Statement of Deduction of Income Tax from Salary as prescribed under the Income Tax Rules.

However, if a person exclusively deriving income from salary and the salary income for the tax year is Rs. 500,000 or more, the taxpayer shall file return of income electronically in the prescribed form and it shall be accompanied by the proof of deduction or payment of tax.

The deduction of tax at source by an employer from the salary is a final discharge of employee’s obligation in case if the employee’s salary is less than Rs. 500,000 , his/her employer has deducted proper tax due from him/her and filed an annual statement of deduction of tax from salary. In other cases such a deduction of tax should not be the final discharge of employee’s obligation and such an employee is liable to file the employer’s certificate on prescribed form or e-file his/her return of income on due date as the case may be.


Other important information can be obtained at:
Pakistan Salary/Income Tax Calculator: http://www.taxcalculator.com.pk/

New Proposed Income Tax Slab Rates for Salaried Class in Pakistan 2013-14:
http://masoodandmasood.com/new-prop...rates-for-salaried-class-in-pakistan-2013-14/

 

[Night_Hawk]

Would you be kind enough to provide the source link of these charts

 

[jayerjes]

Would you be kind enough to provide the source link of these charts

Income Tax Ordinance 2001:
https://www.bmf.gv.at/steuern/int-steuerrecht/rueckerstattung/Pakistan-Info.pdf?3vfixb

You can find the definitions and tax brackets on number of websites like FBR, Government Finance website, on various Chartered Accountants Websites:
http://asalamjan.com/

Other important information can be obtained at:
Pakistan Salary/Income Tax Calculator: http://www.taxcalculator.com.pk/

New Proposed Income Tax Slab Rates for Salaried Class in Pakistan 2013-14:
http://masoodandmasood.com/new-prop...rates-for-salaried-class-in-pakistan-2013-14/

 

[yasirmaliq]

In Pakistan the employer is responsible for submitting taxes on behalf of the employee. The deduction of salaries at source is very good thing because it take all the accounting and book keeping stuff away from the employee.

Now what really happens in Pakistan?
- Employer prefer to pay salary by cash (to avoid taxes).
- Sometime Employer pay half salary via banking and rest via cash. This also help to avoid tax on income and in some cases it completely remove you from tax slap.

Now the question is, why employers facilitates employee in this thing? Well, the point is very simple rather then paying money to the government they simply prefer to pay that money to employee as "salary" which make them feel that we are getting paid better.

For Example: If I am offered 700K salary a year. So rather then deducting tax on this salary my employer will facilitate me get all this money by paying 400K by bank and rest via cash during the whole year. This practice will keep me away from the tax very easily. Plus I will be very happy that my employer is paying me 'good' package!!!

This story applies to all businesses starting small to corporate.

 

[Hassan1967]

Respectable people pay tax and then request Government for facilities. To inculcate simplicity, indirect tax must even be made higher on luxury items/activities.

 

[Ebrahiem]

When i was working in a bank, my salary slip clearly showed income tax deducted at source, as income tax law states we are bound to file a return if our annual taxable income is greater than Rs. 500,000.00.

 

[jayerjes]

In Pakistan the employer is responsible for submitting taxes on behalf of the employee. The deduction of salaries at source is very good thing because it take all the accounting and book keeping stuff away from the employee.

Now what really happens in Pakistan?
- Employer prefer to pay salary by cash (to avoid taxes).
- Sometime Employer pay half salary via banking and rest via cash. This also help to avoid tax on income and in some cases it completely remove you from tax slap.

Now the question is, why employers facilitates employee in this thing? Well, the point is very simple rather then paying money to the government they simply prefer to pay that money to employee as "salary" which make them feel that we are getting paid better.

For Example: If I am offered 700K salary a year. So rather then deducting tax on this salary my employer will facilitate me get all this money by paying 400K by bank and rest via cash during the whole year. This practice will keep me away from the tax very easily. Plus I will be very happy that my employer is paying me 'good' package!!!

This story applies to all businesses starting small to corporate.

I agree to the logic u presented. However, I personally think that these are the tricks that employers together with employees play to cheat the tax law. Therefore, we can deduce that both the employer and employee are not sincere with the government. Employer does this because he can attract a good employee and good employee wants to work at higher wages and higher wages employer can pay only by cheating the government by paying the employee a lower basic salary and higher tax-deductible allowances. If you allow me, can i go further to say that corruption is in our roots and self-interests are above everything else. So both the employer and employee are hand-in-hand in cheating the system.

Another question related to responsibility of all tax payers who have paid tax at source is to file the return. The matter of the fact is that people claim that they have paid taxes and it is right salaried people have paid taxes as their tax is deducted at source. But the law requires us to file a return with the Income Tax Authorities that how much was the total income, total taxable income, allowances, etc, and how much tax was paid at source. If the tax paid at source exceeds the tax actually payable, one can ask for tax refund. However, it becomes duty to pay additional taxes if the taxes paid at source are less than the taxes payable on the net taxable income.

Once we are educated about these things, then we can see the difference. Moreover, the main component of government's revenue should be income taxes, which is not the case in Pakistan. With these revenue collections, government's allocation strategy for different sectors is devised. If we want job creation, larger development projects, more energy, growth in education, healthcare, and science, and improvement in infra-structure and law and order, we would need to educate ourselves to be honest and then ask for accountability of government.

I hope that we can educate on these matters the elderly, young and the children who will be the future youth, young, leaders, and managers of this country's resources.

 

[yasirmaliq]

Yes, I agree what ever you said but I personally believe that people will pay tax if they find something good in return as well. When we see the corporate taxes are decreasing while the tax on salary is increasing it make things a lot difficult. Also I have seen many 'educated' people showing great fear about tax.

I hired a tax consultant last year when our company started to get into complex income and expense system. The first thing from where he started was not how we should pay the tax but how we can save the tax. He was not telling me anything wrong but legitimate ways and loop holes in our system.

I agree to the logic u presented. However, I personally think that these are the tricks that employers together with employees play to cheat the tax law. Therefore, we can deduce that both the employer and employee are not sincere with the government. Employer does this because he can attract a good employee and good employee wants to work at higher wages and higher wages employer can pay only by cheating the government by paying the employee a lower basic salary and higher tax-deductible allowances. If you allow me, can i go further to say that corruption is in our roots and self-interests are above everything else. So both the employer and employee are hand-in-hand in cheating the system.

Another question related to responsibility of all tax payers who have paid tax at source is to file the return. The matter of the fact is that people claim that they have paid taxes and it is right salaried people have paid taxes as their tax is deducted at source. But the law requires us to file a return with the Income Tax Authorities that how much was the total income, total taxable income, allowances, etc, and how much tax was paid at source. If the tax paid at source exceeds the tax actually payable, one can ask for tax refund. However, it becomes duty to pay additional taxes if the taxes paid at source are less than the taxes payable on the net taxable income.

Once we are educated about these things, then we can see the difference. Moreover, the main component of government's revenue should be income taxes, which is not the case in Pakistan. With these revenue collections, government's allocation strategy for different sectors is devised. If we want job creation, larger development projects, more energy, growth in education, healthcare, and science, and improvement in infra-structure and law and order, we would need to educate ourselves to be honest and then ask for accountability of government.

I hope that we can educate on these matters the elderly, young and the children who will be the future youth, young, leaders, and managers of this country's resources.

 

[jayerjes]

Yes, I agree what ever you said but I personally believe that people will pay tax if they find something good in return as well. When we see the corporate taxes are decreasing while the tax on salary is increasing it make things a lot difficult. Also I have seen many 'educated' people showing great fear about tax.

I hired a tax consultant last year when our company started to get into complex income and expense system. The first thing from where he started was not how we should pay the tax but how we can save the tax. He was not telling me anything wrong but legitimate ways and loop holes in our system.

Ye almiya hay hamara dear.
I know there are many loop-holes in the system. We find the loop-holes to exploit them rather we should find them and identify them to the tax authorities and the people concerned so that dishonesty can be avoided and system can be improved.
Thanks,

 

[adnan_younus]

you are one dumb person who shud not be asking abt taxes...... get some basics right before being a couch analyst....

 

[adnan_younus]

whole world uses tax avoidance with these loopholes.... sportsmen google starbucks... but they do file it... paksitan problem is not using teh loopholes but not paying tax at all by businesses...

Ye almiya hay hamara dear.
I know there are many loop-holes in the system. We find the loop-holes to exploit them rather we should find them and identify them to the tax authorities and the people concerned so that dishonesty can be avoided and system can be improved.
Thanks,

 

[Qureshi_1975]

Govt and multi national companies deduct taxes at source. Some private companies deduct at source as well and some report it CBA as their business expenses with employees name so CBA can reconcile when company emploee pay their taxes.