FBR issues calculation for salaried persons for collection under enhanced tax rates

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ISLAMABAD: Federal Board of Revenue (FBR) has issued procedure to calculate tax on salary income after enhance in rate through Finance Supplementary (Amendment) Act, 2018 for the remaining nine months of current fiscal year.

 

 

The government enhanced the tax rates for salaried income for those persons deriving annual income above Rs2.4 million through the amended act. The enhanced tax rates can be downloaded here.
The FBR said that the revised rates have been applicable from July 01, 2018.

As per procedure the tax amount shall be calculated as per following formula:

A/B, where

A: is the tax that would be computed according to the new tax rates as given in the table, effective from July 01, 2018, in respect of the employee’s taxable income for a tax year and;

B: is the employee’s estimated income under the head ‘salary’ for the tax year.

The FBR said that prior to the introduction of the Finance Supplementary (Amendment) Act, 2018 the average rate of tax for purposes of deduction of tax under Section 149 of the Income Tax Ordinance, 2001 was being computed on the basis of the tax rates introduced through the Finance Act, 2018 i.e. the average rate of tax for the months of July, August and September 2018 was based upon the tax rates introduced through the Finance Act, 2018.

However, pursuant to the Finance Supplementary (Amendment) Act, 2018, the average tax rates for purposes of deduction under section 149 of the Ordinance is required to be recalculated for the entire tax year on the basis f the new tax rates for salaried individuals introduced through the Finance Supplementary (Amendment) Act, 2018 as delineated in the foregoing paragraph.

For the remaining months of the ongoing tax year, tax under section 149 of the ordinance is to be deducted at an average rate of the tax which would ensure that by the end of the tax year, tax on estimated income under the head ‘salary’ is deducted at an average rte of tax based upon the rates introduced through the Finance Supplementary (Amendment) Act, 2018 which are applicable with effect from July 01, 2018.

In order to further elucidate the matter the FBR issued the following example:

Taxable salary income Rs4,800,000
Monthly salary paid or payable Rs400,000
Average rate of tax under the Finance Act, 2018 (Rs300,000/4,800,000X100=6.25 percent) 6.25 percent
Average rate of tax under the Finance Supplementary (Amendment) Act, 2018 (Rs450,000/4,800,000X100=9.375 percent) 9.375 percent
Tax deducted at average tax rate of 6.25 during July 2018 upon payment of salary of Rs400,000 Rs25,000
Total tax deducted during the months of July, August & September 2018 at average tax rate of 6.25 percent upon payment of salary of Rs1,200,000 for these three months Rs75,000
Monthly tax required to be deducted at average tax rate of 9.375 percent computed on the basis of the Finance Supplementary (Amendment) Act, 2018 Rs37,5000
Total tax payable for the entire tax year at the average rate of tax of 9.375 percent computed on the basis of the Finance Supplementary (Amendment) Act, 2018 Rs450,000
Tax already deducted during the months of July, August and September at average rate of tax of 6.25 percent Rs75,000
Balance tax to be deducted in the remaining months of the ongoing tax year (Rs450,000-Rs75,000=Rs375,000) Rs375,000
Tax to be deducted / withheld under Section 149 of the Ordinance upon payment of monthly salary of Rs400,000 during the remaining months of the tax year Rs41,667
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