Income from salary in Pakistan means any income that is earned/received by a person against services rendered in relation to his employment.
Salary Income Tax Slabs are described in the First Schedule, Part I, Division I, clause (ii) of Division I, and clause (ii) of the Ordinance
What is Salary
Salary received by a person during a tax year excluding any income that is exempt under the Income Tax Ordinance 2001 is taxable under the head of income “Salary” as is defined in Section 12 of the aforesaid Ordinance.
Salary include pay, wages, or other remuneration provided to an employee by the employer that includes leave pay, payment in lieu of leave, overtime payment, bonus, commission, fees, gratuity, or work condition compensation e.g danger money or compensation of unpleasant work conditions.
Salary also includes perquisites in relation to the employment, whether convertible to money or not, allowances including a cost of living, subsistence, rent, utilities, education, entertainment or travel allowance, etc.
Any amount that the employer pays to the employee to meet expenditure that is incurred in the performance of the duty such as travel allowance and daily allowance is not included in the salary for the purpose of taxation.
Salary also includes the amount of any expenditure incurred by an employee that is paid or reimbursed by the employer, other than expenditure incurred on behalf of the employer in the performance of the employee’s duties. This means that any surplus or over and above amounts to the actual expense incurred by the employee during the performance of duty paid or reimbursed by the employer.
Salary also includes the amount of any profits in addition to, salary or wages, including any amount received as consideration for a person’s agreement to enter into employment or consideration regarding any change in the employment conditions. It also includes any benefit related to the termination of employment (voluntarily or under an agreement) such as golden handshake payments, etc. In such cases, the employee can avail option by giving a written application to the Commissioner Income Tax for application of tax rate on the basis of the average rate of past three years computed by the following formula:-
Tax = A/B %
where; ‘A’ is the total tax paid by the employee during the past three years and ‘B’ is the total taxable income of the employee during the past three years.
Salary Income Tax Slabs in Pakistan Tax Year 2022
In case the total income of a person from salary exceeds 70% of his total taxable income during a tax year, the rates of tax for salary in Pakistan will be applied for the calculation of tax payable as defined in the First Schedule, Part I, Division I, clause (ii) of Division I, and clause (ii) of the Ordinance. For tax rates for the tax year 2022, click the link below:-
Income Tax Rates for Tax Year 2022 in Pakistan