How to File Tax Return?

Income tax ordinance, 2001 consists of 242 sections and 14 schedules. Today we will discuss basics of Pakistan Taxation for tax year 2024 and then in detail will explain 5 heads of income as per Income tax Ordinance, 2001 which will help you in understanding and filing of your tax returns professionally.

Tax on taxable income

Section 4 of Income tax ordinance 2001 described that the income tax shall be imposed for each tax year, at the specified rates, on every person who has taxable income for the year.

Taxable income

The taxable income as per section 9 of the ordinance shall be the total income of the person for the year reduced (but not below zero) by the total of any deductible allowances.

Total Income

The total income as per section 10 of the Ordinance shall be the sum of the person’s income under all heads of income for the year and person’s income exempt from tax under any of the provisions of this Ordinance.

Following are also stated in section 11.
• the income of a person under a head of income for a tax year shall be the total of the amounts derived by the person in that year that are chargeable to tax under the head as reduced by the total deductions, if any, allowed under this Ordinance.
• where the total deductions allowed under this Ordinance exceed the total of the amounts derived by the person in that year, the person shall be treated as sustaining a loss for that head for that year of an amount equal to the excess.
• the income of a resident person under a head of income shall be computed by taking into account amounts that are Pakistan-source income and amounts that are foreign-source income.
• the income of a non-resident person under a head of income shall be computed by taking into account only amounts that are Pakistan-source income.

Heads of Income

Income Tax Ordinance, 2001, describes 5 heads of income in section 11 as detailed below:

1. Salary – Section 12
2. Income from property – Section 15
3. Income from business – Section 18
4. Capital gains – Section 37
5. Income from Other Sources – Section 39

Salary – Section 12

Any salary received by an employee other than salary that is exempt from tax shall be chargeable to tax in that year under the head “Salary”.

Salary includes:
• any pay, wages or other remuneration provided to an employee,
• leave pay, payment in lieu of leave,
• overtime payment,
• bonus,
• commission,
• fees,
• gratuity or work condition supplements (such as for unpleasant or dangerous working conditions),
• the amount of any allowance including a cost of living, subsistence, rent, utilities, education, entertainment or travel allowance.

According to the updated tax slabs for Year 2023-24, the following are the new rates:

Taxable Income | Rate of Tax for 2023-24

• Up to Rs600,000 | 0%
• Rs600,001 – 1,200,000     | 2.5% of the amount exceeding Rs600,000
• Rs1,200,001 – 2,400,000 | Rs15,000 + 12.5% of the amount exceeding Rs1,200,000
• Rs2,400,001 – 3,600,000| Rs165,000 + 22.5% of the amount exceeding Rs2,400,000
• Rs3,600,001 – 6,000,000| Rs435,000 + 27.5% of the amount exceeding Rs3,600,000
• If > Rs6,000,001                  | Rs1,095,000 + 35% of the amount exceeding Rs6,000,000

Income from property – Section 15

Any rent received or receivable by a person in a tax year, other than rent exempt from tax under this Ordinance, shall be chargeable to tax in that year under this head.

This section shall not apply to any rent in respect of the lease of a building together with plant and machinery and such rent shall be taxed under the head ‘Income from Other Sources’.
Similarly, where any rent received for the provision of amenities, utilities or any other service connected with the renting of the building, such amount shall be chargeable to tax under the head ‘Income from Other Sources’.

Deductions Allowed

There are certain deductions allowed in computing income chargeable under the head “Income from Property” are as below:
• repair allowance equal to one-fifth of the rent chargeable to tax in respect of the building for the year, computed before any deduction allowed under this section,
• any Insurance premium paid,
• any local rate, tax, charge or cess in respect of the property or the rent from the property paid or payable,
• Other as explained in section 15 (A) including mortgage interest etc.
Please also refer section 155 on Rent of immoveable property.

Following are the tax slabs of Income from Property for individuals and AOP.

Kindly view my blog on Income from business – Section 18, Capital gains – Section 37 & Income from Other Sources – Section 39 here: https://accountingblogger.com/how-to-file-tax-return-pakistan/

Humayun Atif | CMA, CPA, CA (FIN), MS-IT, CA Articles from Big 4, Certified Forensic Accountant (USA), Six Sigma & Oracle Certified.

Atif is passionate about Business, Tech, and the written word. He is also a published author of the book ‘IFRS Made Easy’. Atif has worked with some of the world’s largest brands in Canada and Dubai. He is a tax and IFRS coach and the founder of accountingblogger.com