8/10/2025

Income from Salary

Scope of ▪ What is included.

1H ▪ What is excluded.
of Income
Heads of
▪ Allowed.
Income 2 Deductions ▪ Not allowed.
1. Salary
2. Income from property
3. Income from business Basis of ▪ Receipts basis.
3 ▪ Accrual basis.
4. Capital gains Chargeability
5. Income from other
sources
▪ NTR basis.
4 Taxability ▪ FTR basis.
2

By Zahid Qavi.FCA 1
 8/10/2025

When an amount shall be treated to be received ?

A person shall 1 Actually received by the person

be treated as
having received Applied on behalf of the person,
2 at the instruction of the person
an amount, or under any law
benefit, or
perquisite if it is 3 Made available to the person.
3

Taxation of Allowances

Taxable Non-Taxable
Any allowance including Any allowance solely expended in
the performance of the employee’s
Cost of Living allowance
duties of employment
Subsistence allowance The allowance solely expended in the
performance of the employee’s duty
Rent allowance
does not include
Utilities allowance I. allowance which is paid in monthly
salary on fixed basis or percentage of
Education allowance salary; OR
II. allowance which is not wholly,
Entertainment allowance exclusively, necessarily or actually
spent on behalf of the employer.
Travel allowance 4

By Zahid Qavi.FCA 2
 8/10/2025

Taxation of Allowances
Fixed Monthly Allowance Specific Allowance
(Disallowed Entirely) (Allowed Based on Actual Use)

▪ Paid as fixed or % of salary ▪ Given for official duties, not in salary

▪ Fully taxable, even if spent for work as fixed or % of salary
▪ Treated as part of salary, not ▪ Only actual amount spent is exempt
reimbursement ▪ Treated as reimbursement, proof
required

Mr. Bilal is an employee at Dynamic Solutions, a tech company in Pakistan. His employer
provides him with various allowances as part of his compensation package. His basic
monthly salary is Rs. 120,000. Below are the details of the allowances provided:
1. Cost of Living Allowance: Rs. 20,000 per month.
2. Subsistence Allowance: Rs. 120,000, explicitly used for meals during business travel.
3. Rent Allowance: Rs. 30,000 per month.
4. Utility Allowance: Rs. 5,000 per month.
5. Education Allowance: Rs. 15,000 per month, used exclusively for his children’s schooling
fees.
6. Entertainment Allowance: 10% of basic salary.
7. Travel Allowance: Rs. 144,000, reimbursed against actual mileage and travel expenses
incurred exclusively for business trips.

By Zahid Qavi.FCA 3
 8/10/2025

Basic Salary Fully taxable 120,000 X 12 1,440,000

Cost of Living Taxable as it is a fixed benefit and does not 20,000 X 12 240,000
Allowance relate directly to the performance of duties
Subsistence Not taxable if fully verified as spent 120,000 Not Taxable
allowance exclusively during official business travel
Rent Taxable as it is a fixed benefit not 30,000 X 12 360,000
allowance necessarily expended for employment
Utilities Taxable as it is a fixed benefit not 5,000 X 12 60,000
allowance necessarily expended for employment
Education Taxable as it is a fixed benefit not 15,000 X 12 180,000
allowance necessarily expended for employment
Entertainment 10% of basic salary(Taxable as it is paid as a 1,440,000 X 10% 144,000
allowance % of salary).
Travel Not taxable, reimbursed against actual expenses 144,000 Not Taxable
allowance incurred exclusively for business trips and fully
documented
7

Travelling allowance of Rs. 20,000 per month. 60% of the amount was spent in the
performance of official duties.

Travelling allowance [S.12(2)(c)] 20,000 x 12 240,000

A special allowance of Rs. 50,000 was paid to meet expenses necessarily to be

incurred in the performance of his official duties. Actual expenditure was Rs. 40,000.

Special allowance [S.12(2)(c)] 50,000 – 40,000 10,000

During the year, daily allowance of Rs.40,000 was received to meet the expenses for
working on assignments at ZTL‟s factories located in Lahore and Multan. 25

daily allowance Taxable 40,000 40,000

By Zahid Qavi.FCA 4
 8/10/2025

On 2 July 2020, he was paid relocation allowance of Rs. 40,000.

Relocation allowance 40,000 Exempt
It is assumed that the relocation allowance was reimbursed for actual expenses wholly, exclusively & necessarily.

Allowance equal to 5% of salary solely expended in the performance of his duties of

employment.
Allowance @ 5% of salary 4,270,000×5% 213,000
Training of three-week culinary chef course. Salman attended this course in Dubai, for
which TC paid a course fee of Rs. 500,000. In relation to his stay in Dubai, he was
provided a travel allowance of Rs. 250,000. However, Salman opted to stay at a
relative’s house in Dubai and only spent Rs. 100,000 out of the total travel allowance
provided by TC.
Travelling Allowance 250,000 – 100,000 150,000
A special allowance of Rs. 5,000 per month to meet expenses wholly and necessarily
incurred in the performance of his official duties.
Special Allowance- 5,000 X 9 45,000
9

Payment or reimbursement
of expenses
Taxable payment/Reimbursement Non-taxable payment/Reimbursement
(Personal Benefit) (Official/Employer’s Duty)

▪ Expenditure incurred for personal ▪ Expenditure incurred on behalf of

benefit paid or reimbursed by the employer in the performance of
employer is taxable as salary. duties paid or reimbursed by
▪ Employee buys personal laptop and employer.
gets reimbursed ▪ Employee pays hotel bill during
▪ Gym membership or wellness official outstation visit and gets
program paid by employer reimbursed
▪ Reimbursement of children ▪ Buying office supplies and claiming
education expenses the cost
▪ Travel expenses to attend a business
meeting for the employer 10

10

By Zahid Qavi.FCA 5
 8/10/2025

Salman, an employee of ABC Ltd., incurred the following expenses during the tax year
which were either paid or reimbursed by the employer:
1. Rs. 20,000 paid directly by ABC Ltd. for Salman's hotel stay during an official
assignment in Lahore.
2. Rs. 30,000 reimbursed to Salman for purchasing a new personal laptop
3. Rs. 25,000 travel expenses reimbursed to Salman for attending an industry seminar
approved by the employer.
4. Rs. 15,000 reimbursed for gym membership as part of the company's employee
wellness initiative.
5. Rs. 10,000 paid by ABC Ltd. for stationery purchased by Salman for company use
during an out-of-office training.
Required: Classify each payment as taxable or exempt with reasons

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11

Answer & Tax Treatment:

Item Taxable / Exempt Reason

Incurred wholly and actually during
1. Rs. 20,000 (hotel stay for official
Exempt performance of employer’s business; paid
duty)
directly by employer.
Personal asset; not wholly/exclusively for
2. Rs. 30,000 (personal laptop
Taxable employer; not incurred on behalf of
reimbursement)
employer.
3. Rs. 25,000 (industry seminar Employer-approved, work-related travel;
Exempt
travel) incurred exclusively for employer’s business.
Personal benefit, not necessary or exclusive
4. Rs. 15,000 (gym membership) Taxable
to job duties.
Wholly and actually incurred for employer's
5. Rs. 10,000 (stationery for training) Exempt
use during official duty.
12

12

By Zahid Qavi.FCA 6
 8/10/2025

Mr. Adeel was employed at Nishat Mills Limited. during the tax year. During current Tax
year he received the following payments from the employer at different stages of his
employment:
1. Rs. 250,000 joining bonus for accepting the offer and agreeing to a two-year minimum
service period.
2. Rs. 100,000 relocation grant, paid directly to cover house shifting upon joining, with
no requirement to submit receipts.
3. Rs. 75,000 reimbursed after submitting receipts for official travel for a client meeting.
4. Rs. 200,000 lump-sum payment made mid-year for agreeing to switch to a less
preferred department.
5. Rs. 600,000 severance pay on termination of employment under a mutual separation
agreement.
Required: Classify each payment as taxable or exempt, with reasons referring to relevant
provisions on profits in lieu of salary and reimbursements.

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13

Item Amount (Rs.) Taxable / Exempt Reason

Consideration for entering
1. Joining bonus 250,000 Taxable employment – profit in lieu of
salary
2. Relocation grant Treated as allowance – not actually
100,000 Taxable
(no receipts) verified or spent for employer
3. Travel Spent wholly and actually in
75,000 Exempt
reimbursement performance of duties with proof
4. Payment for
Consideration for change in
accepting 200,000 Taxable
employment condition
department change
Payment on termination – profit in
5. Severance pay 600,000 Taxable
lieu of salary

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14

By Zahid Qavi.FCA 7
 8/10/2025

Important points regarding computation

1. If the starting date of employment isn't specified, it's assumed that the job lasted
the entire year, and the monthly salary will be multiplied by 12 to calculate the
annual salary. If the starting and/or ending dates are given, the salary will be
calculated accordingly.
2. If the exact date of salary payment isn't mentioned, it's assumed that the salary was
paid on the last day of each month. If the monthly salary was paid on any day in the
following month, the current tax year's June salary will be excluded. The previous
year's June salary will be included, as it was received in the current tax year. Be
mindful of any annual salary increases when making these adjustments.
3. While calculating the annual salary, it's important to consider whether the provided
figures are monthly, quarterly, or annual amounts. The figures will be converted into
annual values based on their frequency.

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15

Question 1
Mr. Ali earns a monthly salary of Rs. 80,000 and receives an annual bonus of
Rs. 120,000. Calculate annual taxable salary.

Basic Salary 80,000 X 12 960,000

Annual Bonus 120,000
Taxable Salary 1,080,000

Since no starting date is mentioned, it's assumed that Mr. Ali worked the entire year.

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16

By Zahid Qavi.FCA 8
 8/10/2025

Question 2
Ms. Ayesha's employment started on July 1, 2024, and ended on December
31, 2024. She received a quarterly bonus of Rs. 30,000 and a monthly salary
of Rs. 100,000. Calculate total taxable salary for the tax year ending June 30,
2025.

Basic Salary 100,000 X 6 600,000

Quarterly Bonus 30,000 X 2 60,000
Taxable Salary 660,000
Since starting and ending date is mentioned, calculation is performed accordingly

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17

Question 3
Mr. Imran earns a monthly salary of Rs. 90,000. His June salary was paid on
July 5, 2025. The previous year's June salary was Rs. 80,000, which was paid
on July 5, 2024. Calculate Taxable Income for the tax year ending June 30,
2025?

Basic Salary 90,000 X 11 + 80,000 X 1 1,070,000

Taxable Salary 1,070,000

As Mr. Imran's June salary was paid in July, his current tax year's June salary will be
excluded. Instead, the previous year's June salary will be included

18

18

By Zahid Qavi.FCA 9
 8/10/2025

Question 3
Mr. Imran earns a monthly salary of Rs. 120,000. Salary is paid on 5th of the
following month. Mr. Imran get a 15% increase in his salary from 1st July 2024.
Calculate Taxable Income for the tax year ending June 30, 2025.

Basic Salary 120,000 X 11 1,320,000

120,000/ 1.15 = 104,348 104,348
Taxable Salary 1,424,348

As Mr. Imran's June salary was paid in July, his current tax year's June salary will be
excluded. Instead, the previous year's June salary will be included

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19

Cost will be considered at

If vehicle is not provided Issues related to the time of purchase of
for whole year amount
will be added on pro rata
conveyance vehicle not FMV at the
basis (proportionate ) time vehicle was provided.

Provision of a Running & Transfer of

Driver’s Salary
motor vehicle maintenance Vehicle
Sec 12(d) Sec13(5). The Salary FMV- Purchase price
Sec 13(3) and Rule 5 Actual personal paid by the employer Will be added in
5% or 10% irrespective usage will be added will be added to the salary.
of actual usage. to the salary. salary if provided for
domestic purposes.
If some amount was deducted for above facility it will be deducted from the
amount arrived for addition in all above cases. 20

20

By Zahid Qavi.FCA 10
 8/10/2025

Comprehensive Scenario on Conveyance Provided by Employer

ABC Ltd. provides its employee, Mr. Ali, with a company-owned motor vehicle for both
official and personal use starting 1st January 2024. The motor vehicle was purchased by
the company for Rs. 5,000,000 on 1st July 2022, whereas the fair market value (FMV) on
1st January 2024 was Rs. 4,000,000.
During the period of use, ABC Ltd. incurs Rs. 250,000 as running and maintenance costs
for the vehicle. The company also employs a driver for the vehicle and pays Rs. 30,000
per month as the driver’s salary. The driver is available to Mr. Ali for personal use as well
as official use. ABC Ltd. Deducts Rs. 5,000 per month from Mr. Ali's salary for the
personal usage of the motor vehicle, which is estimated to be 40% of the total usage.
What amount should be added to salary for above facility provided by employer.

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21

Provision of vehicle 5,000,000 X 5% X 6/12 125,000

Running expenses 250,000 X 40% 100,000

Drivers Salary 30,000 X 6 X 40% 72,000

Less amount paid by employee 5,000 X 6 (30,000)

Amount added to salary 267,000

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22

By Zahid Qavi.FCA 11
 8/10/2025

Accommodation [Sec 13(12) and Rule 4]

If accommodation or housing is provided by an employer to an
employee (including director), the amount chargeable to tax
under the head salary shall include higher of the following:
Amount that would have been paid in case if such
1 accommodation was not provided; OR
45% of the minimum of time scale (MTS) of the basic salary or
2 the basic salary if there is no MTS.

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Domestic servants [Section 13(5)]

In case services of housekeeper, gardener, driver, or other domestic
assistant is provided by an employer to the employee, the amount
chargeable to tax under the head salary shall include the amount
of total salary paid by employer (Not FMV) to housekeeper,
gardener, driver, or other domestic assistant as reduced by any
payment made by the employee to the employer for such services.

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24

By Zahid Qavi.FCA 12
 8/10/2025

Domestic servants [Question]

Mr. Jamal is a senior manager at XYZ Corporation in Islamabad. As part of his employment
package, the company provides him following domestic services.
Salary paid to the housekeeper: Rs. 30,000 per month.
Salary paid to the gardener: Rs. 15,000 per month.
Salary paid to the driver: Rs. 25,000 per month.
Reimbursement by Mr. Jamal to the employer for these services: Rs. 20,000 per month.
Question:
Calculate the amount that will be added to Mr. Jamal’s taxable income.

Amount paid by employer (30,000+15,000+25,000) x 12 840,000

Less amount paid by employee 20,000 x 12 (240,000)

Amount to be added in salary 6000,000

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25

Utilities [Section 13(5)]

Where, in a tax year, utilities are provided by an employer to an

employee, the amount chargeable to tax to the employee under
the head “Salary” for that year shall include the fair market value of
the utilities provided, as reduced by any payment made by the
employee for the utilities.

“Utilities” includes electricity, gas, water and telephone.

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26

By Zahid Qavi.FCA 13
 8/10/2025

Utilities [Question]
Mr. Irfan is an employee at TechSolutions Pvt. Ltd. in Lahore. His employer provides the
following utilities at his residence as part of his employment benefits.
Electricity: Fair market value Rs. 125,000 per annum
Gas: Fair market value Rs. 3,000 per month.
Water: Fair market value Rs. 1,500 per month.
Telephone: Fair market value Rs. 25,000 per annum.
Annual deduction against above utilities: Rs. 50,000
Calculate the amount that will be added to Mr. Irfan’s taxable income.
Fair value of utility 125,000+3,000 x 12+1500 x 12+ 25,000 187,500

Less amount paid by employee (50,000)

Amount to be added in salary 137,500

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Interest Free OR Concessional Loan

[Sec 13(7), (8) & (14)]

Interest free loan Interest is less than Interest is higher or

benchmark rate equal to benchmark
(10%) rate (10%)

Interest at bench The difference Nothing will be added

mark rate (10%) of between interest paid in the income.
loan. and benchmark rate.

Deemed income = Outstanding amount of loan X Rate calculated by above formula

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28

By Zahid Qavi.FCA 14
 8/10/2025

The above provision shall not apply

1. Loans of Rs. 1,000,000 or less.
2. Where such benefit is extended by the employer due to
waiver of interest by such employee on his accounts
maintained with the employer e.g. Provident Fund etc.

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If the amount is added in salary against loan and

loan is utilised to acquire the assets generating
income chargeable to tax

Interest free loan Interest is less than Interest is higher

or equal to than benchmark
benchmark rate rate (10%)
(10%)
Interest on bench Interest on bench Actual interest rate will
mark rate (10%) will be mark rate (10%) will be be allowed as expense
allowed as expense allowed as expense from that income.
from that income from that income As general rule.

This expense will be allowed from that head of income in which asset is used
This expense will be allowed - Higher of 10% or Actual interest paid 30

30

By Zahid Qavi.FCA 15
 8/10/2025

Mr. Haris is an employee at Innovative Designs Ltd. in Karachi. He received a subsidized

loan from his employer of Rs. 5,000,000 with an interest rate of 4% per annum to
purchase a rental property.
a. Calculate the amount that will be added to Mr. Haris’s salary due to the above loan.
b. Determine the amount of interest expense that would be allowed as a deduction
against the income from the property due to the above loan if the whole amount is
used to purchase the property.

Income chargeable under the 5,000,000 x 6% 300,000

head salary

Interest allowed under income 5,000,000 x 10% 500,000

from property

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31

Mr. Haris is an employee at Innovative Designs Ltd. in Karachi. He received a loan from his
employer of Rs. 5,000,000 with an interest rate of 15% per annum to purchase a rental
property.
a. Calculate the amount that will be added to Mr. Haris’s salary due to the above loan.
b. Determine the amount of interest expense that would be allowed as a deduction
against the income from the property due to the above loan if the whole amount is
used to purchase the property.

Income chargeable under the As interest rate is higher the benchmark rate of Nill
head salary 10% nothing will be added in salary

Interest allowed under income 5,000,000 x 15% 750,000

from property

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32

By Zahid Qavi.FCA 16
 8/10/2025

Obligation waved or paid

by employer
Obligation waved Obligation paid
13(9) 13(10)
▪ If an employer waives an employee’s ▪ If an employer pays an employee’s
obligation (towards employer) in a personal obligation to someone else,
tax year, the waived amount is the amount paid is taxable as part of
taxable as part of the employee’s the employee’s salary income.
salary income. ▪ If obligation is paid by employer but
later recovered from employees
than provisions interest free loan
will apply.

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33

Obligations waiver / settlement [Sec 13(9), (10)]

▪ Any obligation waived of which an employee owed to the

employer shall be included in the salary income of the
employee, equal to the amount waived.
▪ Any repayment by the employer to another person on account
of an obligation of the employee shall be included in the
salary income of the employee equal to the amount repaid.

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34

By Zahid Qavi.FCA 17
 8/10/2025

Obligations waiver/settlement [Question]

Mr. Asad is an employee at Tech Solutions Ltd. in Lahore. During the tax year, two financial
events occurred concerning Asad and his employer:
Loan Waiver: Asad had previously taken a loan of Rs. 200,000 from his employer for
personal reasons. This year, the employer decided to waive the loan as a gesture of
goodwill due to Asad’s excellent performance.
Repayment of Employee’s Debt: Asad was also facing legal fees for a personal lawsuit
which amounted to Rs. 50,000. To assist him, Tech Solutions Ltd. decided to repay this debt
on his behalf. Calculate the amount that will be included in Mr. Asad’s salary in the context
of the above transactions. Asad has to repay a personal loan of Rs. 1,500,000 to one of the
friend who is threatening him to file a law suit. Employer has repaid this loan on 31
December and amount will be recovered in five equal instalment starting from next year.
Loan waiver The loan amount of Rs. 200,000, which was waived by the 200,000
employer, should be included in Mr. Asad’s salary

Repayment of The amount of Rs. 50,000 paid by the employer for Asad’s legal 50,000
employee’s debt. fees should also be included in his salary.
Loan repayment Interest free loan 1,500,000 X 10% X 6/12 75,000
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35

Transfer of Property or
provision of Services
by Employer

Transfer of Property Provision of Services

▪ If an employer transfers property ▪ If an employer provides any service

(e.g., car, house, equipment) to an to an employee.(tax planning, map
employee, designing services)
▪ The fair market value (FMV) of the ▪ The FMV of the service at the time it
property at the time of transfer is was provided is taxable as part of
taxable as salary income, salary.
▪ Less any amount paid by the ▪ Less any amount paid by the
employee for that property. employee for that service.

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36

By Zahid Qavi.FCA 18
 8/10/2025

Transfer of property or provision of services to employees

[Sec 13(11)]

If any property is transferred or any services are rendered by an

employer to an employee, the amount chargeable to tax to the
employee under the head salary for that year shall include the fair
market value of the property or services determined at the time
the property is transferred or the services are provided, less any
payment made by the employee for the property or services.

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37

Transfer of property or provision of services to employees.

Mr. Abid is an employee at Vertex Innovations, a software company based in Karachi. As part of a
company-wide incentive, Vertex Innovations decides to provide its employees with laptops for
personal use. Additionally, the company also offers consultancy services to help employees with
personal tax planning, which is rendered by the company's in-house finance experts.
Laptop - Fair Market Value: Rs. 100,000
Cost of Tax Planning Services: Rs. 30,000
Payment Made by Mr. Abid for the Laptop: Rs. 20,000
Payment Made by Mr. Abid for the Services: Rs. 5,000
Calculate the amount that will be included in Mr. Abid’s salary due to the above transactions.

Fair Market Value of Laptop 100,000 80,000

Less payment by Abid (20,000)

Fair Market Value of Services 30,000 25,000

Less payment by Abid (5,000)

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38

By Zahid Qavi.FCA 19
 8/10/2025

Any other perquisite [Sec 13(13)]

Where an employer has provided an employee with a perquisite

which is not covered otherwise the amount calculated as below
shall be included in the income of the employee;
Fair market value of the perquisite xxx
Less: Payment made by the employee if any (xx)
Amount to be included in salary income xxx

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Self-hiring of property [Sec 15(5)]

Where an employee or his spouse is the owner of any such building
that is given on rent to the employer and the employer has provided
the same building to the employee against his entitlement for a rent
free accommodation, then it will have following effect
1. Receipt of rent of building is chargeable to tax under the head
income from property. Any rent received by the employee or his
spouse shall be property income of the recipient and be treated
accordingly.
2. The building is provided by the employer to his employee as a rent
free accommodation. It will be a perquisite and added in the
salary income of the employee as per the rule of accommodation.
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40

By Zahid Qavi.FCA 20
 8/10/2025

41

41

Self-hiring of property [Practice Question]

Mr. Asif is employed by XYZ Company and earns a monthly salary of Rs.
150,000. He resides in a building owned by his wife, Mrs. Amina. To
accommodate Mr. Asif as part of his employment benefits, XYZ Company rents
this building from Mrs. Amina for Rs. 25,000 per month, though the fair market
rent for the property is assessed at Rs. 75,000 per month.
Evaluate the tax implications for both Mr. Asif and Mrs. Amina under the
Income Tax Ordinance,2001.
Taxation of Mr. Asif:
Perquisite Valuation: 45% of Mr. Asif's basic salary will be added as a taxable perquisite
due to the provision of rent-free accommodation, the calculation would be:
45% of Rs. 150,000 x 12 (basic salary) = Rs. 810,000
Taxation of Mrs. Amina:
Tax Treatment of Rent Received: Mrs. Amina must declare the Rs. 25,000 monthly rent
received from XYZ Company as income from property. The fair market value of rent is not
relevant in this regard. 42

42

By Zahid Qavi.FCA 21
 8/10/2025

Certain Perquisites by virtue of employment

(Clause 53A Part I of 2nd Sch.)

The following perquisites received by an employee by virtue of his

employment are exempt from tax.
(i) Free or subsidized food provided by hotels and restaurants to
its employees during duty hours
(ii) Free or subsidized education provided by an educational
institution to the children of employees
(iii) Free or subsidized medical treatment provided by a hospital or
clinic to its employees
(iv) Any other perquisite for which the employer does not have to
bear any marginal cost, as notified by the Board
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Medical

1 2 3
Medical Facility Medical Facility Medical Allowance
(As per terms) (Not in terms) (Cash)
Exempt
If NTN mentioned on Exempt upto
bills and employer Fully Taxable
10% of BS
certified the bills
1 3 1 Exempt
Medical Facility + Medical Allowance = 3 Fully Taxable
As per terms

2 3 2 Fully Taxable
Medical Facility + Medical Allowance = 3 Exempt 10% BS
Without terms 44

44

By Zahid Qavi.FCA 22
 8/10/2025

You are a tax advisor at a corporate consultancy. Your client, M/s Zeal Enterprises
(Pvt.) Ltd., seeks your assistance in computing the taxable portion of medical
benefits paid to its employees under various arrangements. All employees have a
Basic Salary of Rs. 1,000,000 for tax year 2025.

Mentioned in
Medical Facility Value Medical Bills Certified with
Employee Employment
(Rs.) Allowance (Rs.) NTN?
Terms?
A 120,000 100,000 Yes Yes
B 130,000 80,000 No No
C – 120,000 N/A N/A
D 200,000 - Yes Yes
E 100,000 - No No

Required: Compute the taxable amount of medical benefits for each employee.

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Facility Allowance
Employee Exempt (Rs.) Taxable (Rs.) Reason / Legal Basis
(Rs.) (Rs.)
120,000 100,000 Facility exempt
A 120,000 100,000
(Facility) (Allowance) Allowance fully taxable
Facility taxable – no
80,000 130,000 terms
B 130,000 80,000
(Allowance) (Facility) Allowance exempt (upto
10% of BS)
100,000 (10%
C – 120,000 20,000 Exempt upto 10% of BS
of BS)
Facility exempt as per
200,000
D 200,000 - - terms of employment.
(Facility)
Verified with NTN
Facility taxable due to
100,000
E 100,000 - not in terms.
(Facility)
46

46

By Zahid Qavi.FCA 23
 8/10/2025

Leave Encashment
(Clause 19 Part I of 2nd Sch.)

Received by a Government Received by other than

employee. Government employee.
Fully Exempt Fully Taxable

Encashment of leave preparatory to retirement refers to the

financial compensation received by an employee for any accrued but
unused leave days at the time of retirement.

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47

Retirement benefits schemes

Retirement benefits generally include
▪ Payments on account of gratuity,
▪ Provident fund and
▪ Golden handshake schemes- employees are encouraged
to retire voluntarily against payments

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48

By Zahid Qavi.FCA 24
 8/10/2025

Gratuity

It is a "lump-sum" amount of money payable to a worker

on leaving service (through retirement, death or
termination of service) based on salary and period of
service.
Gratuity is actually a benefit for services rendered in the
past.

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Tax treatment
Gratuity type Clause(13) Second Schedule – Part I

Government employees Fully exempt

a Local Government, a statutory body or corporation
established by any law for the time being in force,

Gratuity Fund approved by the Fully exempt

Commissioner Inland Revenue

Gratuity Scheme approved by the Exempt upto Rs. 300,000

Board- applicable to all employees
Unapproved gratuity scheme Exempt upto 75,000 or 50% of
the amount receivable
whichever is lower
50

50

By Zahid Qavi.FCA 25
 8/10/2025

Comprehensive Question. Claus (13) of Second Schedule – Part I

Mr. Arshad, Mr. Bilal, Ms. Noor, and Mr. Saeed are four employees who recently
retired and received gratuity payments. They have consulted you regarding tax
treatment of their gratuity payments.
i. Mr. Arshad is a government employee who retired after 25 years of service.
He received Rs. 2,000,000 as gratuity according to the service rules.
ii. Mr. Bilal worked in a private company with a gratuity fund approved by the
Commissioner. He received a gratuity payment of Rs. 500,000 upon
retirement.
iii. Ms. Noor is employed at a company with a gratuity scheme approved by
the Board. She received a gratuity of Rs. 450,000, but she previously
received a gratuity of Rs. 150,000 from another employer 10 years ago.

51

51

iv. Mr. Saeed was a director at a firm, not a regular employee. He received Rs.
200,000 as gratuity from an unapproved fund while living and working
outside Pakistan.
v. Mr. Kamran received Rs. 550,000 from an unapproved gratuity fund upon
retirement. He had previously received Rs. 600,000 from another
employer under an approved gratuity fund approved by the
Commissioner.
Questions:
What is the taxable gratuity amount for each of the above persons?

52

52

By Zahid Qavi.FCA 26
 8/10/2025

Total Gratuity Exempt Taxable

Individual Gratuity Type
Received Amount Amount
Government
Mr. Arshad Rs. 2,000,000 Fully Exempt Rs. 0
employee
Approved gratuity
Mr. Bilal Rs. 500,000 Fully Exempt Rs. 0
fund
Board-approved
Ms. Noor Rs. 450,000 Rs. 300,000 Rs. 150,000
scheme
Director,
Mr. Saeed unapproved fund, Rs. 200,000 Rs. 0 Rs. 200,000
non-resident
Unapproved
Mr. Kamran Rs. 550,000 Rs. 0 Rs. 550,000
gratuity fund
53

53

A pension is a retirement plan that provides a

Pension monthly income in retirement.
Clause(8) 2nd Sch – Part I

1. Pension received by the citizen of Pakistan from the former

employer shall be exempt from tax except where the person
continues to work for the same employer or an associate of the
employer. Where a person receives more than one pension, the
exemption shall apply to higher of such pensions.
2. For a person over 60 years of age, all such pensions are exempt
irrespective of the above mentioned conditions (Circular 28 of
1991)
3. Pension received in respect of services rendered by a member
of Armed Forces of Pakistan or Federal Government or a
Provincial Government is exempt from tax. 54

54

By Zahid Qavi.FCA 27
 8/10/2025

Comprehensive Scenario-Based Question on Pension.

Mr. Arshad, Mr. Bilal, Ms. Noor, and Mr. Saeed are four retired individuals receiving
pensions from their former employers under different conditions. Calculate the amount
of pension that will be taxed during current tax year.
1. Mr. Arshad retired from the Federal Government at the age of 58 and receives a
monthly pension of Rs. 50,000. He does not work for his former employer or any
associated organization.
2. Mr. Bilal retired at the age of 62 from a private corporation where he worked for
over 30 years. He receives a monthly pension of Rs. 40,000 from his former
employer. Additionally, he also receives a monthly pension of Rs. 30,000 from a
former associate company of his employer, where he briefly worked post-
retirement.
3. Ms. Noor is 55 years old and receives a monthly pension of Rs. 45,000 from her
former private-sector employer. After retirement, she started working as a
consultant for the same company.
4. Mr. Saeed, a retired officer from the Armed Forces of Pakistan, receives a monthly
pension of Rs. 60,000. He has not taken any post-retirement job. 55

55

Taxation of Pension
Pension Exempt Taxable
Individual Age Source of Pension
received Status Amount
Mr. Arshad 58 Federal Government 600,000 Fully Exempt -
Private employer and
Mr. Bilal 62 840,000 Fully Exempt -
associate company
Private-sector
Ms. Noor 55 450,000 Not Exempt 450,000
employer
Armed Forces of
Mr. Saeed N/A 720,000 Fully Exempt -
Pakistan

If requirement of the question is to discuss the taxability of the above

transaction. For this please move to next slide.
56

56

By Zahid Qavi.FCA 28
 8/10/2025

Provident fund is a defined contribution plan for retirement

benefits.

Provident fund

Employees Employers Interest Payment to

Contribution Contribution earned employee

57

57

Provident fund

Government Recognized Unrecognized

PF PF PF

58

58

By Zahid Qavi.FCA 29
 8/10/2025

Government PF

Employees Employers Interest Payment to

Contribution Contribution earned employee

No treatment Exempt Exempt Exempt

as the amount Without Without Without
is already limit limit limit
included in
salary.
59

59

Recognized PF

Employees Employers Interest Payment to

Contribution Contribution earned employee

No treatment Exempt lower of Exempt higher of: Exempt

as the amount 1. Rs.150,000. 1. 16% interest on
is already 2. 1/10th of (basic accumulated
included in salary + dearness balance.
salary. allowance) 2. 1/3rd of (basics
salary + dearness
allowance). 60

60

By Zahid Qavi.FCA 30
 8/10/2025

Unrecognized PF

Employees Employers Interest Payment to

Contribution Contribution earned employee

No treatment No treatment No treatment Only the employer’s

as the amount contribution and
is already interest on
included in accumulated
salary. balance is taxable in
the year of receipt.
Final amount received –
employee contribution
61

61

Mr. Kamran got retired on 31st March, 2025 and has provided the
following data:
2025 2024 2023
Basic salary/Month 90,000 80,000 70,000
Dearness allowance/month 20,000 15,000 10,000
Data regarding provident fund:
Employer contribution 121,500 144,000 126,000
Employee contribution 121,500 144,000 126,000
Interest is credited @ 17% 58,000 60,000 40,000
Calculate taxable income assuming:
1) He is working in a private company where the provident fund is recognized and
he has received the whole amount from the fund at the time of retirement.
62

62

By Zahid Qavi.FCA 31
 8/10/2025

Tax Year 2023 Taxable Income

Basic salary 70,000 X 12 840,000
Dearness allowance 10,000 X 12 120,000

Provident Fund
Employees contribution No treatment -
Employer’s contribution- actual 126,000
Exempt –Lower of
10% 0f (BS+DA) 10%(960,000) 96,000

Rs 150,000 150,000 (96,000) 30,000

63

63

Interest 40,000
Exempt –Higher of
1/3 0f (BS+DA) 1/3(960,000) 320,000

40,000/17% X 16% 37,647 (320,000) -

64

64

By Zahid Qavi.FCA 32
 8/10/2025

Tax Year 2024 Taxable Income

Basic salary 80,000 X 12 960,000
Dearness allowance 15,000 X 12 180,000

Provident Fund
Employees contribution No treatment -
Employer’s contribution 144,000
Exempt –Lower of
10% 0f (BS+DA) 10%(1,140,000) 114,000

150,000 (114,000) 30,000

65

65

Interest 60,000
Exempt –Higher of
1/3 0f (BS+DA) 1/3(1,140,000) 380,000

60,000/17% X 16% 56,471 (380,000) -

66

66

By Zahid Qavi.FCA 33
 8/10/2025

Tax Year 2025 Taxable Income

Basic salary 90,000 X 9 810,000
Dearness allowance 20,000 X 9 180,000

Provident Fund
Employees contribution No treatment -
Employer’s contribution 121,500
Exempt –Lower of
10% 0f (BS+DA) 10%(990,000) 99,000

150,000 (99,000) 22,500

67

67

Interest 58,000
Exempt –Higher of
1/3 0f (BS+DA) 1/3(990,000) 330,000

58,000/17% X 16% 54,588 (330,000) -

Amount received from 941,000 Exempt -

PF

68

68

By Zahid Qavi.FCA 34
 8/10/2025

Mr. Kamran got retired on 31st March, 2025 and has provided the
following data:
2025 2024 2023
Basic salary/Month 90,000 80,000 70,000
Dearness allowance/month 20,000 15,000 10,000
Data regarding provident fund:
Employer contribution 121,500 144,000 126,000
Employee contribution 121,500 144,000 126,000
Interest is credited @ 17% 58,000 60,000 40,000
Calculate taxable income assuming:
1) He is working in a private company where the provident fund is not recognized
and he has received the whole amount from the fund at the time of retirement.
69

69

Tax Year 2023 Taxable Income

Basic salary 70,000 X 12 840,000
Dearness allowance 10,000 X 12 120,000

Will be Taxed when

Provident Fund received

70

70

By Zahid Qavi.FCA 35
 8/10/2025

Tax Year 2024 Taxable Income

Basic salary 80,000 X 12 960,000
Dearness allowance 15,000 X 12 180,000

Will be Taxed when

Provident Fund received

71

71

Tax Year 2025 Taxable Income

Basic salary 90,000 X 9 810,000
Dearness allowance 20,000 X 9 180,000

Provident Fund
Amount received 391,500 X 2+158,000 941,000 -

Less Employee (391,500) 549,500

contribution

72

72

By Zahid Qavi.FCA 36
 8/10/2025

Mr. Kamran got retired on 31st March, 2025 and has provided the
following data:
2025 2024 2023
Basic salary/Month 90,000 80,000 70,000
Dearness allowance/month 20,000 15,000 10,000
Data regarding provident fund:
Employer contribution 121,500 144,000 126,000
Employee contribution 121,500 144,000 126,000
Interest is credited @ 17% 58,000 60,000 40,000
Calculate taxable income assuming:
1) He is working in a Government organization and he has received the whole amount
from the fund at the time of retirement.
73

73

Tax Year 2023 Taxable Income

Basic salary 70,000 X 12 840,000
Dearness allowance 10,000 X 12 120,000

Exempt
Provident Fund

74

74

By Zahid Qavi.FCA 37
 8/10/2025

Tax Year 2024 Taxable Income

Basic salary 80,000 X 12 960,000
Dearness allowance 15,000 X 12 180,000

Exempt
Provident Fund

75

75

Tax Year 2025 Taxable Income

Basic salary 90,000 X 9 810,000
Dearness allowance 20,000 X 9 180,000

Provident Fund
391,500 X 2+158,000 941,000 Exempt
Amount received -

76

76

By Zahid Qavi.FCA 38
 8/10/2025

Employee Share Scheme

Share without Share with

Sales of Option
restriction restriction

▪ The option is not Relevant FMV Relevant FMV

taxable until it is is at the time is at the time
sold. share are restriction was
▪ Taxable when sold issued. removed.
77

77

Different dates of Fair Market Values

Fair Market Fair Market Fair Market Fair Market

Value when Value when Value when Value when
the Option the Option shares are restriction
granted exercised issued removed

Same if both are not separately

mentioned
Same if both are not separately
78
mentioned
78

By Zahid Qavi.FCA 39
 8/10/2025

Different dates of Fair Market Values

1 2 3 4
Fair Market Fair Market Fair Market Fair Market
Value when Value when Value when Value when
the Option the Option shares are restriction
granted exercised issued removed
If 1 & 2 is given 2 will be used
If 1,2 & 3 is given 3 will be used

If 1,2 ,3 & 4 is given 4 will be used

79

79

Capital gain
Capital gains

Total Profit

With Restriction
Profit under Salary

Without Restriction
Profit under Salary

80

80

By Zahid Qavi.FCA 40
 8/10/2025

Fauji Fertilizer Company Limited(FFC), a listed company on the Pakistan Stock

Exchange, announced an employee share scheme on 1st July 2024. Mr. Imran
Khan, was granted an option to acquire 5,000 shares at a price of Rs. 200 per
share. The option could be exercised until 30th September 2024. The fair market
value (FMV) of the shares on the date of grant was Rs. 250 per share. Mr. Imran
Khan exercised the option on 31st August 2024, when the FMV of the shares was
Rs. 250 per share, and the company issued the shares to him on 30th September
2024, when the FMV of the shares was Rs. 350 per share. On 31st March 2025,
Mr. Imran Khan sold the shares for Rs. 500 per share.
(a) Discuss the taxability of the employee share scheme at the following stages:
i. On the grant of the option.
ii. On the exercise of the option.
iii. On the issue of shares.
iv. On the disposal of shares.

81

81

a. On Grant of the Option (1st July 2024):

As per the Income Tax Ordinance, 2001, the value of the option
granted under an employee share scheme is not chargeable to tax.
No tax liability arises on 1st July 2024.
b. On Exercise of the Option (31st August 2024)
Taxable amount is determined when the shares are issued, not when
the option is exercised. Therefore, no tax arises at the time of exercise.
No tax liability arises on 31st August 2024.

82

82

By Zahid Qavi.FCA 41
 8/10/2025

c. On Issue of Shares (30th September 2024):

Taxable amount is the FMV at the time of issue, reduced by the consideration
paid by the employee.
Taxable Amount under Salary. (350 - 200) × 5,000 = Rs. 750,000.
Rs. 750,000 is chargeable to tax under the head “Salary” for the tax year
2025.
d. On Disposal of Shares (31st March 2025)
If shares are disposed of other than the date on which free disposal is
allowed under the employee share scheme then gain on disposal will be
taxed as Capital gains.
Sale Price =500
Cost of Shares, Exercise Price = 200.
Add Taxable Amount under salary = 150
Total Cost = 350 per share.
Capital Gain: (500 - 350) × 5,000 =750,000. 83

83

b. Assume that the shares issued to Mr. Imran Khan were subject to a
restriction on transfer until 31st December 2024, and the FMV of the
shares on 31st December 2024 was Rs. 450 per share. Mr. Imran Khan
sold the shares on 31st March 2025 for Rs. 500 per share.
i. On the grant of the option.
ii. On the exercise of the option.
iii. On the issue of shares.
iv. On removal of restriction
v. On the disposal of shares.

84

84

By Zahid Qavi.FCA 42
 8/10/2025

i. On the grant of the option.

As per Income Tax Ordinance, 2001, the value of the option granted under an
employee share scheme is not chargeable to tax.
ii. On Exercise of the Option (31st August 2024)
No tax arises at this stage due to the restriction.
iii. On Issue of Shares (30th September 2024)
No tax arises at this stage due to the restriction.
iv. On Removal of Restriction (31st December 2024):
The FMV of the shares on 31st December 2024 =450 per share.
Exercise Price. =200 per share.
Taxable under salary (450 - 200) × 5,000 = Rs. 1,250,000

85

85

v. On Disposal of Shares (31st March 2025)

If shares are disposed of other than the date on which free disposal is
allowed under the employee share scheme then gain on disposal will be
taxed as Capital gains.
Sale Price =500
Cost of Shares, Exercise Price = 200.
Add Taxable Amount under salary = 250
Total Cost = 450 per share.
Capital Gain: (500 - 450) × 5,000 =250,000.

86

86

By Zahid Qavi.FCA 43
 8/10/2025

(500-3500= 750,000

(500-450)=250,000
Total Profit 1,500,000
With Restriction

(450-200)= 1,250,000
Without Restriction
(350-200)=750,000

87

87

To calculate capital gain, the holding period of shares acquired under the employee
share scheme shall be calculated from the date we acquired the shares or purchased
the shares or exercised the right and not the date when the restriction was released.

88

By Zahid Qavi.FCA 44
 8/10/2025

Tax rates for non-salaried individuals and Association of Persons

Sr. No. Taxable Income (Rs.) Rate of Tax
1 Where the taxable income does not exceed 0%
Rs.600,000
2 Where the taxable income exceeds Rs.600,000 15% of the amount exceeding Rs.600,000
but does not exceed Rs.1,200,000
3 Where taxable income exceeds Rs.1,200,000 but Rs.90,000 plus 20% of the amount
does not exceed Rs.1,600,000 exceeding Rs.1,200,000
4 Where taxable income exceeds Rs.1,600,000 but Rs.170,000 plus 30% of the amount
does not exceed Rs.3,200,000 exceeding Rs.1,600,000
5 Where taxable income exceeds Rs.3,200,000 but Rs.650,000 plus 40% of the amount
does not exceed Rs.5,600,000 exceeding Rs.3,200,000
6 Where taxable income exceeds Rs.5,600,000 Rs.1,610,000 plus 45% of the amount
exceeding Rs.5,600,000

89

89

Tax free salary

Tax is born by Fix amount of tax is

employer born by employer

90

90

By Zahid Qavi.FCA 45
 8/10/2025

Mr. A provided following:

Basic Salary 340,000/m
House Rent allowance 130,000/m
Tax on salary is to be borne by employer.

Basic Salary 340,000 X 12 4,080,000

House Rent 130,000 X 12 1,560,000
5,640,000
Add Tax Benefit (W) 1,824,428
Salary Income 7,464,428
91

91

Step Taxable salary Tax on taxable income

Step 1 5,640,000 1,239,000

Step 2 5,640,000+1,239,000 1,672,650

= 6,879,000

Step 3 5,640,000+1,672,650 1,824,428

=7,312,650

92

92

By Zahid Qavi.FCA 46
 8/10/2025

Salary Income 7,464,428

Tax ((7,464,428-4,100,00)x35%)+700,000 1,877,550

Tax already paid by (1,824,428)
the employer
Tax payable with 53,122
return by employee

93

93

Basic Salary 500,000/m

House Rent allowance 100,000/m
Capital Gain 600,000
Tax on salary is to be borne by employer
Basic Salary 500,000 X 12 6,000,000
House Rent 100,000 X 12 1,200,000
7,200,000
Add Tax Benefit (W) 2,628,413
Capital Gain 600,000
Taxable Income 10,428,413
Tax ((10,428,413-4,100,000)x35%)+700,000 2,914,945
Paid by employer (2,628,413)
94

94

By Zahid Qavi.FCA 47
 8/10/2025

Step Taxable salary Tax on taxable income

Step 1 7,200,000 1,785,000

Step 2 7,200,000+1,785,000 2,409,750

= 8,985,000

Step 3 7,200,000+2,409,750 2,628,413

=9,609,750

95

95

Mr. A provided following:

Basic Salary 340,000/m
House Rent allowance 130,000/m
Tax of Rs 800,000 is to be borne by employer.

Basic Salary 340,000 X 12 4,080,000

House Rent 130,000 X 12 1,560,000

Add Tax Benefit 800,000

Salary Income 6,440,000

96

96

By Zahid Qavi.FCA 48
 8/10/2025

Tax Payable ((6,440,000-4,100,000)x35%)+700,000 1,519,000

Tax already paid by (800,000)

the employer
Tax payable with 719,000
return by employee

97

97

Termination of employment [Sec 12(6)]

An employee who has received an amount on termination of
employment, including compensation for redundancy or loss of
employment and golden handshake may, by notice to
Commissioner, elect for the amount to be taxed at following rate:
(A/B)%
▪ A is the tax paid by the employee on the employee’s taxable
income for 3 preceding tax years
▪ B is the employee’s taxable income for 3 preceding tax years.
The above option can be exercised by due date of furnishing return
of income. Commissioner may allow a longer period.
98

98

By Zahid Qavi.FCA 49
 8/10/2025

Receipts Eligible for Optional Taxation under Section 12(5)

Type of Receipt Description Reason
Golden Handshake Lump-sum benefit given to encourage voluntary early
Explicitly Allowed
Payment retirement.
Compensation for Paid when terminated due to downsizing, automation, or
Explicitly Allowed
Redundancy business closure.
Loss of Employment Paid when employment is terminated for reasons not related
Explicitly Allowed
Compensation to employee misconduct.
Allowed if paid upon job
Severance Pay Payment for loss of job without fault of the employee.
termination
Allowed if structured as
Voluntary Separation Paid when employee opts to leave under a VSS offered by
redundancy/termination
Scheme the employer.
compensation
Termination General lump sum for ending employment—often part of
Compensation employment contract or mutual agreement.
Ex-gratia Payment on Voluntary payment made by employer to employee upon
Termination termination, without legal obligation.

99

99

Receipts Not Covered under Section 12(5)

“A general provision does not override a specific provision.”
Receipt Type Reason
Specifically taxed under Clause 13 of Part I, Second Schedule with
Gratuity (Approved/Unapproved)
separate exemptions.
Taxed under regular salary provisions unless received by
Leave Encashment
government employee on retirement.
Governed under Clause 8–10, Second Schedule—separate
Provident Fund Payment
exemptions and treatments.
Governed under Clause 8, 12, 13—partially or fully exempt
Pension or Commuted Pension
depending on type and source.
Bonus or Salary Arrears Regular salary components—not related to termination.

100

100

By Zahid Qavi.FCA 50
 8/10/2025

Tax rates for salaried Sr. No. Taxable Income Rate of Tax
1 Where the taxable income does 0%
individual not exceed Rs. 600,000
Where the income of an 2 Where taxable income exceeds 5% of the amount exceeding Rs.
individual chargeable Rs. 600,000 but does not 600,000
under the head “salary” exceed Rs. 1,200,000
3 Where taxable income exceeds Rs. 30,000 plus 15% of the amount
exceeds 75% of his Rs. 1,200,000 but does not exceeding Rs. 1,200,000
taxable income, the exceed Rs. 2,200,000
rates of tax to be 4 Where taxable income exceeds Rs. 180,000 plus 25% of the
applied shall be as set Rs. 2,200,000 but does not amount exceeding Rs. 2,200,000
exceed Rs. 3,200,000
out in the following 5 Where taxable income exceeds Rs. 430,000 plus 30% of the
table, namely: Rs. 3,200,000 but does not amount exceeding Rs. 3,200,000
exceed Rs. 4,100,000
6 Where taxable income exceeds Rs. 700,000 plus 35% of the
Rs. 4,100,000 amount exceeding Rs. 4,100,000

101

101

Munir resigned from his employment with Ali Industries Limited (AIL) with effect from 31
December 2014. He received following amounts in final settlement:
▪ Rs.150,000 as Leave Encashment.
▪ Rs.4,000,000 under a Golden Handshake Scheme.
Munir had received a salary of Rs. 350,000 per month for a period of six months upto
December 2014. His taxable income and tax liability during the preceding five tax years were
as under:
Tax year 2010 2011 2012 2013 2014
Total taxable income (Rs) 2,000,000 2,450,000 2,700,000 3,100,000 3,650,000
Total tax paid 90,000 100,000 273,000 130,000 185,000
Required:
As a tax consultant, advise Munir about the amount of income tax payable by him for the
tax year 2015, under the Income Tax Ordinance, 2001. (06) (Q.3 March 2015)
102

102

By Zahid Qavi.FCA 51
 8/10/2025

Mr. Munir
Taxable Income and tax thereon
TY 2015
Option-1 Treating golden handshake in normal way
Basic salary (350,000 x 6) 2,100,00
Leave Encashment 150,000
Golden hand shake 4,000,000
Taxable income 6,250,000

Mr. Munir
Taxable Income and tax thereon
TY 2015
Option-1 Treating golden handshake in normal way
Income from salary (W-1) 6,250,000
Taxable income 6,250,000
Tax (Table 2) (700,000 + 35% x 2150,000) 1,452,500

103

103

Option-2 Treating golden handshake as separate block

Income from salary (W-1) 6,250,000
Total income 6,250,000
Less: Golden handshake - taxable separately (4,000,000)
Taxable income – under NTR 2,250,000
Tax on above (Table 2) (180,000 + 25% x 50,000) ` 192,500
192,500
Add: Tax on golden handshake (4,000,000 x 6.22%) 248,800
248,800
441,300

Taxable income Tax

TY 2014 3,650,000 185,000
TY 2013 3,100,000 130,000
TY 2012 2,700,000 273,000
9,450,000 588,000

Rate (588,000/9,450,000) 6.22%

104

104

By Zahid Qavi.FCA 52
 8/10/2025

A nationalized bank after privatization has announced a Golden

Hand Shake Scheme for its employees under which lump sum
payments are proposed to be made to employees who opt for the
scheme. Discuss the chargeability of above amounts in the hands
of employees. (4) (Q.8 September 2005)

105

105

Salary received in arrears

If:
I. An employee receives salary in arrears, and
II. Because of this, a higher tax slab will apply in the year of receipt.
Then the employee can choose to be taxed at the rate that applied in the year when the
salary was actually earned, not when it was received.
Conditions:
The above option can be exercised by due date of furnishing return of income.
Commissioner may allow a longer period. [S.12 (8)]

106

106

By Zahid Qavi.FCA 53
 8/10/2025

Kamran has a monthly salary of Rs 200,000 per month. Salary received during Tax year
2025 includes Rs 500,000 relating to salary of Tax year 2024.
2024 2025
Salary received 1,900,000 2,900,000

Tax slabs are as follows

Sr. No. Taxable Income Rate of Tax
1 Where the taxable income does not exceed Rs. 0%
600,000
2 Where taxable income exceeds Rs. 600,000 but does 5% of the amount exceeding Rs. 600,000
not exceed Rs. 1,200,000
3 Where taxable income exceeds Rs. 1,200,000 but does Rs. 30,000 plus 15% of the amount
not exceed Rs. 2,200,000 exceeding Rs. 1,200,000
4 Where taxable income exceeds Rs. 2,200,000 but does Rs. 180,000 plus 25% of the amount
not exceed Rs. 3,200,000 exceeding Rs. 2,200,000

107

107

Option 1 Tax on Receipt basis 2024 2025

Salary 1,900,000 3,100,000

Tax 135,000 405,000

30,000+700,000 X 15% 180,000+900,000 X 25%

Tax for both years 540,000

Option 2 Tax on accrual basis 2024 2025

Salary 2,400,000 2,600,000

Tax 230,000 280,000

180,000+200,000 X 25% 180,000+400,000 X 25%

Tax for both years 510,000

108

108

By Zahid Qavi.FCA 54
 8/10/2025

Foreign source salary of resident individuals [Sec. 102]

(1) Any foreign-source salary received by a resident individual shall be
exempt if the individual has paid foreign income tax on salary.
(2) It will be assumed that resident individual has paid foreign income tax
if tax is withheld from salary by the employer and paid to the revenue
authority of the foreign country.

109

109

[Section 51(2)]
Where a citizen of Pakistan leaves Pakistan during a tax year and remains
abroad during a tax year than salary income earned outside Pakistan
during that year shall be exempt from tax.
Note: In this case even if no tax is paid the foreign source salary income
will remain exempt

1st July 2020 to 27th October 2020 28th October 2020 to 30th June 2021

1st July 2020 to 26th Dec 2020 27th Dec 2020 to 30th June 2021

110

110

By Zahid Qavi.FCA 55
 8/10/2025

Mr. Kamran a citizen of Pakistan is employed in XYZ company. He worked

in XYZ company from Jul 1, 2020 to January 31, 2021. He got a job in Saudi
Arabia where he joined on March 1, 2021. He departed from Pakistan on
February 20, 2021. His monthly salary in Pakistan is Rs. 100,000 per
month. His monthly salary in Saudi Arabia is Rs. 280,000 in Pak rupees. As
on June 30th he was still in Saudi Arabia. He did not paid any tax on his
salary in Saudi Arabia. Calculate his taxable income?
Answer-1
Salary income (PSI) (100,000x7) 700,000
Salary income (FSI) Exempt –
Taxable Income 700,000

111

111

Mr. Amjad a citizen of Pakistan is employed in XYZ company. He worked in

XYZ company from Jul 1, 2020 to January 31, 2021. He got a job in Saudi
Arabia where he joined on March 1, 2021. He departed from Pakistan on
February 20, 2021. His monthly salary in Pakistan is Rs. 100,000 per
month. His monthly salary in Saudi Arabia is Rs. 200,000 in Pak rupees. On
May 31, 2011 he decided to resign from the Saudi job and came back in
Pakistan on the same date. Since then he has yet not got any job. He did
not paid any tax on his salary in Saudi Arabia as there is no tax on salaries
there. Calculate his taxable income for TY 2021? Answer-2
Salary income (PSI) (100,000x7) 700,000
Salary income (FSI) (200,000x3) 600,000
Taxable Income 1,300,000

112

112

By Zahid Qavi.FCA 56
 8/10/2025

Mr. Amjad a citizen of Pakistan is employed in XYZ company. He worked in

XYZ company from Jul 1, 2020 to January 31, 2021. He got a job in UK
where he joined on March 1, 2021. He departed from Pakistan on
February 20, 2021. His monthly salary in Pakistan is Rs. 100,000 per
month. His monthly salary in UK was Rs. 500,000 in Pak rupees. On May
31, 2011 he decided to resign from the UK job and came back in Pakistan
on the same date. Since then he has yet not got any job. He paid Rs 75,000
as tax on his salary in UK which was deposited with revenue authority.
Calculate his taxable income for TY 2021? Answer-2
Salary income (PSI) (100,000x7) 700,000
Salary income (FSI) (500,000x3) Exempt
Taxable Income 700,000

113

113

Question-11
Briefly explain the provisions of the Income Tax Ordinance, 2001 and Rules
made thereunder relating to interest free loan provided by an employer to
its employee for marriage of his/her daughter. (02) (Q.4(b)(i) March 2021)
Answer-
Where a loan is provided by an employer to an employee and no profit
(interest) on loan is paid by an employee the salary shall include interest
on loan calculated at bench mark rate. However nothing will be added in
the salary income if:
▪ the loan is upto Rs. 1,000,000.
▪ the interest benefit is arising because employee has waived the interest
to employer when employee had provided the loan to the employer

114

114

By Zahid Qavi.FCA 57
 8/10/2025

Tax Credit

115

115

Different Tax
Regimes

Normal Tax Regime Separate Block Final Tax Regime

NTR SBI FTR

✓ Under this regime income The following incomes are The following income are
from different sources falling charged under SBI chargeable under NTR:
under NTR are added ✓ Gain on disposal of ✓ Dividend Income.
together to calculate Total immovable property. ✓ Fee for technical service
Income. ✓ Gain on disposal of earned by non-resident.
✓ Relevant rate for salaried or securities. ✓ Profit on debt in certain cases
non-salaried individual will A separate rate is available for Under this regime, tax will be
be applied. each head. deducted at the time of
transaction by applying rate on
gross receipt normally.

116

116

By Zahid Qavi.FCA 58
 8/10/2025

Deductible allowances (Sec 60, 60A, 60B, 60C & 60D)

Taxable income of a person for a tax year shall be the total income other than exempt
income of the person reduced (but not below zero) by following deductions.
1. Zakat
2. Workers’ welfare fund
3. Workers’ participation fund
4. Education expenses.

117

117

Zakat (Sec 60)

1. A person can claim a deductible allowance for the amount of Zakat paid under the
Zakat and Ushr Ordinance, 1980, in a tax year.
2. If Zakat is deducted from profit on debt (taxed under Income from Other Sources),
then it is not deducted from total income.Instead, it is deducted within the head
“Income from Other Sources” when computing that income.
3. If Zakat paid exceeds total income, the extra amount is not refundable, not carried
forward, and not carried back.
4. Zakat payments made directly to poor family members or other individuals are not
deductible for tax purposes, as they do not comply with the procedures set forth in
the Zakat and Ushr Ordinance, 1980.

118

118

By Zahid Qavi.FCA 59
 8/10/2025

Worker’s welfare fund (WWF) – Section 60A

A person can claim a deductible allowance for WWF paid in the tax year under:
Workers’ Welfare Fund Ordinance, 1971, or
Any provincial WWF law (enacted after the 18th Constitutional Amendment, 2010).
No deduction is allowed if the payment is made by a trans-provincial organization
(a business operating in more than one province) to a province under a provincial WWF law.

Entity Type WWF or WPF Paid To Deduction Allowed?

Single-province entity Province Yes
Trans-provincial entity Federal Govt (1971 law) Yes
Trans-provincial entity Province (any province) No

119

119

Worker’s Participation Fund (WPF) – Section 60B

A person can claim a deductible allowance for WPF paid in the tax year under:
Companies Profit (Workers’ Participation) Act, 1968, or
Any provincial WPF law (enacted after the 18th Constitutional Amendment, 2010).
No deduction is allowed if the payment is made by a trans-provincial organization (i.e.,
a company operating in more than one province) to a province under a provincial WPF law.

Entity Type WPF Paid To Deduction Allowed?

Single-province entity Province Yes
Trans-provincial entity Federal Govt (1968 Act) Yes
Trans-provincial entity Province (any province) No

120

120

By Zahid Qavi.FCA 60
 8/10/2025

Allowance for educational expenses [Sec. 60D]

1. (1) Every individual is entitled to a deductible allowance for tuition fee paid if the
taxable income of individual is less than Rs. 1,500,000.
2. The allowance allowed shall be lower of:
(a) 5% of the total tuition fee paid by the individual in the year;
(b) 25% per cent of the person‟s taxable income for the year; and
(c) an amount computed by multiplying Rs. 60,000 with number of children of
individual.
3. An allowance which is not able to be deducted shall not be carried forward to a
subsequent year.
4. Allowance shall be allowed to either of the parents on furnishing national tax number
(NTN) or name of the educational institution.
5. The allowance shall not be considered for calculating tax deduction under the head
salary.

121

121

Computation of taxable income.

Income from Salary W-1 XXX
Income from property (PSI+FSI) W-2 XXX
Income from business (PSI+FSI) W-3 XXX
Capital gain (PSI+FSI) W-4 XXX
Income from other sources (PSI+FSI) XXX
Total Income XXX
Less income from (FTR+ SBI+ Exempt Income) (XXX)
Less Deductible allowances
Zakat Sec 60 (XXX)
Worker’s welfare fund Sec 60A (XXX)
Worker’s participation fund – Sec 60 B (XXX)
Allowance for educational expenses – Sec 60D (XXX)
Taxable Income (XXX) 122

122

By Zahid Qavi.FCA 61
 8/10/2025

Computation of taxable income.

Where the income of
Income from Salary W-1 890,000
an individual
Income from property (PSI+FSI) W-2 200,000
chargeable under the
Income from business (PSI+FSI) W-3 100,000
head ―salary exceeds
Capital gain (PSI+FSI) W-4 50,000
seventy-five per cent
Income from other sources (PSI+FSI) 110,000
of his taxable income,
Exempt Income- Agriculture Income
person is called
Total Income 1,350,000
salaried Individual.
Less Separate Block of Income.
Immovable property & Securities & Exempt Income Salaried -Correct
Less Deductible allowances =890,000/1,170,000
Zakat 75,000 76%
Worker’s welfare fund 25,000
Worker’s participation fund 50,000 Salaried - wrong
Allowance for educational expenses 30,000 (180,000) =890,000/1,350,000
Taxable Income under NTR 1,170,000 65.9%

123

123

Deductible allowance vs Tax credit

Deductible Allowance Tax Credit

Amount of deductible allowance is Amount of tax credit is not deducted

deducted from Income which means from Income rather a tax credit on
No tax will be calculated on it. average rate of tax is allowed as a
deduction of tax liability..

Tax on Taxable Income

Average rate of tax =
Taxable Income
124

124

By Zahid Qavi.FCA 62
 8/10/2025

Total Income- Non Salaried Rs.2,300,000

Calculate his tax liability if Rs. 300,000 is allowed as
Deductible allowance?
Eligible for tax credit?
4 Where taxable income exceeds Rs.1,600,000 but Rs.170,000 plus 30% of the amount
does not exceed Rs.3,200,000 exceeding Rs.1,600,000

Deductible allowance Total Income 2,300,000

Total Income 2,300,000 Deductible allowance -
Deductible allowance (300,000) Taxable Income 2,300,000
Taxable Income 2,000,000 Tax 380,000
Tax 290,000 (170,000+700,000 x 30%)
(170,000+400,000 x 30%) Tax credit =380,000/2,300,000 x 300,000
(49,565)
Tax liability 330,435
125

125

Sr. No. Taxable Income Rate of Tax

1 Where the taxable income does not exceed Rs. 0%

600,000

2 Where taxable income exceeds Rs. 600,000 but 5% of the amount exceeding Rs. 600,000
Salaried Person

does not exceed Rs. 1,200,000

3 Where taxable income exceeds Rs. 1,200,000 but Rs. 30,000 plus 15% of the amount
does not exceed Rs. 2,200,000 exceeding Rs. 1,200,000

4 Where taxable income exceeds Rs. 2,200,000 but Rs. 180,000 plus 25% of the amount
does not exceed Rs. 3,200,000 exceeding Rs. 2,200,000

5 Where taxable income exceeds Rs. 3,200,000 but Rs. 430,000 plus 30% of the amount
does not exceed Rs. 4,100,000 exceeding Rs. 3,200,000

6 Where taxable income exceeds Rs. 4,100,000 Rs. 700,000 plus 35% of the amount
exceeding Rs. 4,100,000

126

126

By Zahid Qavi.FCA 63
 8/10/2025

Sr. No. Taxable Income (Rs.) Rate of Tax

1 Where the taxable income does not exceed 0%
Rs.600,000
Non- Salaried Person

2 Where the taxable income exceeds Rs.600,000 15% of the amount exceeding Rs.600,000
but does not exceed Rs.1,200,000

3 Where taxable income exceeds Rs.1,200,000 but Rs.90,000 plus 20% of the amount
does not exceed Rs.1,600,000 exceeding Rs.1,200,000

4 Where taxable income exceeds Rs.1,600,000 but Rs.170,000 plus 30% of the amount
does not exceed Rs.3,200,000 exceeding Rs.1,600,000

5 Where taxable income exceeds Rs.3,200,000 but Rs.650,000 plus 40% of the amount
does not exceed Rs.5,600,000 exceeding Rs.3,200,000

6 Where taxable income exceeds Rs.5,600,000 Rs.1,610,000 plus 45% of the amount
exceeding Rs.5,600,000
127

127

Charitable Donations Sec -61 Tax Credit = (A/B) x C Conditions

A person shall be entitled to a tax credit for a C is the lower of 1. The fair market
tax year for amount paid or property given as a 1. the amount of the donations in value of property
the year, including the fair market shall be
donation to: value of property given determined at the
(a) any board of education or any university in where the person is – time it is given.
Pakistan established by, or under, a Federal a) an individual or AOP, 30% of 2. Cash paid will
or a Provincial law; taxable income only qualify for
b) a company, 20% of taxable tax credit if
(b) any educational institution, hospital or income amount is paid by
relief fund established in Pakistan by If amount or property is donated by a crossed cheque.
Federal, Provincial or a Local Government; associate C shall be in the case of –
or a. an individual or AOP, 15% of
(c) any non-profit organization or any person taxable income
b. a company, 10% of taxable
eligible for tax credit under section 100C of income
this Ordinance
(d) entities, organizations and funds mentioned
in the 13th Schedule to this Ordinance.

A- is the amount of tax payable for the tax year before allowance of any tax credit.
B- is the person’s taxable income for the tax year. 128

128

By Zahid Qavi.FCA 64
 8/10/2025

Mr. Kamran has disclosed taxable income from Salary of Rs. 2,500,000 and from
property 200,000 for TY 2022. Zakat paid during the year under Zakat and usher
ordinance was Rs 100,000 and donation to charitable institutions Rs 500,000. Calculate
tax liability for tax year 2022?
Total Income 2,500,000+200,000 2,700,000
Deductible Allowances
Zakat paid (100,000)
Taxable Income 2,600,000
Tax on Taxable Income 180,000+ 400,000 x 25% 280,000
Tax Credit for donation
A/B x C 280,000/2,600,000 x 500,000 (53,846)
Donation 500,000
30% of taxable income 780,000
Tax Payable 226,154
129

129

Contribution to approved Tax Credit = (A/B) x C Conditions

pension fund S-63

An eligible person earning income C is the lower of The transfer by
from salary or business shall be a. the premium paid by the person the members
allowed a tax credit for premium in the year of old schemes
paid in approved pension fund b. 20% of the taxable income of of their old
under the Voluntary Pension the person for relevant tax year. balance to the
System Rules, 2005. "Eligible new individual
Person" means an individual pension
Pakistani who holds a valid National account shall
Tax Number or Computerized NIC not qualify for
or NIC for Overseas Pakistanis tax credit
issued by NADRA.

130

130

By Zahid Qavi.FCA 65
 8/10/2025

Contribution to approved pension fund S-63 Tax Credit = (A/B) x C Conditions

For Tax Year 2020 and onwards.
An eligible person earning income C is the lower of The transfer by
from salary or business shall be a. the premium paid by the the members of
allowed a tax credit for premium paid person in the year old schemes of
in approved pension fund under the b. 20% of the taxable income their old balance
Voluntary Pension System Rules, 2005. of the person for relevant to the new
"Eligible Person" means an individual tax year. individual
Pakistani who holds a valid National pension account
Tax Number or Computerized NIC or shall not qualify
NIC for Overseas Pakistanis issued by for tax credit
NADRA.

131

131

Mr. Anzar has disclosed taxable salary income of Rs. 2,600,000 for TY 2024. He also informed
you that he joined the pension fund at the age of 43 years in TY 2017.In TY 2024 he
contributed in pension fund Rs 690,000.His taxable income in TY 2023 was Rs.2,400,000
Required: Calculate his tax liability for TY 2024?
Total Income 2,600,000
Deductible Allowances-
Not given in question

Taxable Income 2,600,000

Tax on Taxable Income 180,000+ 400,000 x 25% 280,000
Tax Credit for Investment
A/B x C 280,000/2,600,000 x 520,000 (56,000)
Contribution 690,000
Lower
Of 20% of taxable income 520,000
2,600,000 X 20%
132

132

By Zahid Qavi.FCA 66
 8/10/2025

64D. Tax credit for point of sale machine.—

1. All Tier 1 retailers are required to integrate with Board's Point of Sale
online real time reporting system. A tax credit for POS machines will be
allowed to them.
2. The tax credit will be allowed for the tax year in which the point of sale
machine is installed, integrated and configured with the FBR‟s
computerized system, at the lower of:
i. amount actually invested in purchase of point of sale machine; or
ii. Rs. 150,000/ machine.
3. Point of sale machine‟ is a machine made for processing and recording
the sale transactions for goods or services, either in cash or through credit
and debit cards or online payments (in an internet enabled environment).

133

133

Tax credit for certain persons [Sec 65F]

(1) Following taxpayers shall be allowed 100% tax credit (including minimum tax and final
taxes) upon fulfillment of certain conditions/limitations:
(i) Persons engaged in coal mining projects in Sindh supplying coal to power generation
projects;
(ii) A startup (as defined in Clause (62A) of Section 2) which is certified by the Pakistan
Software Export Board. Credit will be allowed in the year of startup and for the following
two years;
(2) Following are the conditions:
(i) Annual return of income has been filed.
(ii) Withholding tax statements for relevant tax year have been filed, if person is withholding
agent; and
(iii) Monthly sales tax returns for the tax periods (corresponding to the relevant tax year)
have been filed.

134

134

By Zahid Qavi.FCA 67
 8/10/2025

Tax Credit for Green Field and Renewable Energy Industrial Undertakings
Eligibility for Tax Credit:
Green Field Industrial Undertakings:
1. Must be involved in manufacturing goods or significantly altering
materials, including shipbuilding.
2. Must be incorporated between June 30, 2019, and June 30, 2024.
3. Should not be formed by splitting or reconstituting an existing business
or transferring assets from an old business.
4. Tax Credit: 25% of the eligible investment amount, applicable for one
year. Unused tax credit can be carried forward for up to two years.

135

135

Renewable Energy Industrial Undertakings:

▪ Must be set up by June 30, 2023.
▪ Must be involved in manufacturing equipment specifically for solar and
wind energy generation.
Tax Credit: 25% of the eligible investment amount, applicable for a period
of five years from the setup date.
Tax Credit Details:
Eligible Investments: Include new machinery, buildings, equipment,
hardware, and software (excluding self-created software and used capital
goods).
Utilization of Tax Credit: Can be used against taxes payable, including
minimum and final taxes.
Carry Forward: Unused tax credit for green field undertakings can be
carried forward for up to two years.
136

136

By Zahid Qavi.FCA 68
 8/10/2025

Greenfield industrial undertaking” means-

(a) a new industrial undertaking which is:
(i) setup on land that is not previously used for any commercial, industrial or
manufacturing activity (and is free from constraints imposed by any prior
work);
(ii) built without demolishing, revamping, renovating, upgrading, remodeling
or modifying any existing structure or plant;
(iii) not formed by the splitting up or reconstitution of an undertaking already
in existence
(iv) using any process or technology that has not earlier been used in Pakistan
and is approved by the Engineering Development Board; and
(b) approved by the Commissioner
This definition is applicable from July 1, 2019 and onwards.

137

137

Full Time Teacher Allowance

The tax payable by:
a full time teacher or a researcher who is employed in a non-profit education
or research institution duly recognized by:
▪ Higher Education Commission,
▪ a Board of Education or
▪ a University recognized by the Higher Education Commission, including
government research institution, shall be reduced by 25% of tax payable on
his “INCOME FROM SALARY”.
This clause shall not apply to teachers of medical profession who:
▪ derive income from private medical practice or
▪ receive share of consideration received from patients.
Note for students: 25% reduction will always be calculated using salaried case
Table provided in previous slides.
138

138

By Zahid Qavi.FCA 69
 8/10/2025

Women Enterprise and its taxation [Clause 19 Part III of

Second Schedule]
Definition
Woman enterprise means a start-up established on or after first day of July 2021 as:
▪ sole proprietorship concern owned by a woman or
▪ an AOP all of whose members are women or
▪ a company whose 100% shareholding is held or owned by women
Taxation
Tax payable by women enterprise on profits and gains of business shall be reduced by 25%.
This benefit will not be
available to business that is formed by the transfer or reconstitution or splitting up of an
existing business.

139

139

Foreign tax credit [Sec. 103]

1. Where a resident taxpayer derives taxable foreign source income on
which foreign income tax is paid, a tax credit will be allowed at lower of –
(a) the foreign income tax paid; or
(b) the Pakistan tax payable in respect of the income.
foreign income tax includes a foreign withholding tax
2. The Pakistan tax shall be calculated by multiplying the average rate of
Pakistan income tax to the net foreign source income.
Average rate of Pakistan income tax is the % that Pakistani income tax is of
the taxable income for the year;
Net foreign-source income means the total chargeable foreign-source
income less deductions allowed that relate exclusively and can reasonably be
allocated to the derivation of the foreign-source income.

140

140

By Zahid Qavi.FCA 70
 8/10/2025

Foreign and Local Tax credit Rs.

Pakistani Source Income XXX
Salary XXX
Average rate for
Income from business XXX
foreign tax credit.
Capital Gain-NTR XXX
Foreign Source Income XXX
Business Income XXX
Capital Gain XXX
Total Income XXX
Deductions (XXX)
Taxable income B XXX
Tax on Taxable income ( PSI + FSI ) A XXX
Foreign Tax Credit = A/B x Allowed amount (XXX)

141

141

Mr. Aslam has disclosed the following information for TY 2021.

Income from business – Pakistan 1,500,000
Income from business – UK 500,000
Income from capital gain – Pak 300,000
Foreign tax paid in UK. 40,000
Zakat paid. 100,000
Required: Calculate tax liability?

4 Where taxable income exceeds Rs.1,600,000 but Rs.170,000 plus 30% of the amount
does not exceed Rs.3,200,000 exceeding Rs.1,600,000

142

By Zahid Qavi.FCA 71
 8/10/2025

Foreign and Local Tax credit Rs.

Pakistani Source Income
Income from business 1,500,000
Capital Gain-NTR 300,000
Business Income-UK 500,000
Total Income 2,300,000
Deductions - Zakat (100,000)
Taxable income B 2,200,000
Tax on Taxable income (PSI+ FSI) (170,000+600,000 x30%) A 350,000
Foreign Tax Credit W-1 (A/B) (40,000)
Net Tax Payable 235,000

Foreign Tax Credit (W-1)

Foreign Tax paid 40,000
Propionate Pakistani tax A/B x 500,000 79,545
Foreign Tax Credit- Lower of the above two 40,000
143

143

Mr. Aslam has disclosed the following information for TY 2021.

Income from business – Pakistan 1,800,000
Income from business – UK 1000,000
Income from capital gain – Pak 500,000
Foreign tax paid in UK. 40,000
Zakat paid. 200,000
Required: Calculate tax liability?

4 Where taxable income exceeds Rs.1,600,000 but Rs.170,000 plus 30% of the amount
does not exceed Rs.3,200,000 exceeding Rs.1,600,000

144

144

By Zahid Qavi.FCA 72
 8/10/2025

Foreign and Local Tax credit Rs.

Pakistani Source Income
Income from business 1,800,000
Capital Gain-NTR 500,000
Business Income-UK 1,000,000
Total Income 3,300,000
Deductions - Zakat (200,000)
Taxable income B 3,100,000
Tax on Taxable income (PSI+ FSI) (170,000+1,500,000 x30%) A 620,000
Foreign Tax Credit W-1 (A/B) (100,000)
Net Tax Payable 520,000

Foreign Tax Credit (W-1)

Foreign Tax paid 100,000
Propionate Pakistani tax A/B x 1,000,000 200,000
Foreign Tax Credit- Lower of the above two 100,000
145

145

3. Where a taxpayer has foreign income under more than one head, the
calculation for each head of income shall be separately made.
4. For the above provision, speculation business shall be treated as a
separate head of income.

146

146

By Zahid Qavi.FCA 73
 8/10/2025

Mr. Sultan has disclosed the following information for TY 2021.

Income from business – Pakistan 1,500,000
Income from business – UK 500,000
Capital gain – UK 200,000
Foreign tax paid in UK.
Business Income 30,000
Capital Gain 50,000
Required: Calculate tax liability?

4 Where taxable income exceeds Rs.1,600,000 but Rs.170,000 plus 30% of the amount
does not exceed Rs.3,200,000 exceeding Rs.1,600,000

147

147

Foreign and Local Tax credit Rs.

Pakistani Source Income
Income from business 1,500,000
Foreign Source Income
Business Income-UK 500000
Capital Gain 200,000
Total Income 2,200,000
Taxable income B 2,200,000
Tax on Taxable income (PSI+FSI) A 350,000
(170,000+600,000 x30%)
Business Income-Foreign Tax Credit W-1 (30,000)
Capital Gain-Foreign Tax Credit W-2 (31,818)
Net Tax payable 288,182

148

148

By Zahid Qavi.FCA 74
 8/10/2025

Business Income -Foreign Tax Credit (W-1)

Foreign Tax paid 30,000
Propionate Pakistani tax 350,000/2,200,000 x 500,000 79,545
Foreign Tax Credit 30,000

Capital Gain -Foreign Tax Credit (W-2)

Foreign Tax paid 50,000 50,000
Propionate Pakistani tax 350,000/2,200,000 x 200,000 31,818
Foreign Tax Credit Lower of two 31,818
For understanding only 61,818

Foreign Tax Credit- Consolidated Income NOT ALLOWED

Foreign Tax paid 30,000+50,000 80,000
Propionate Pakistani tax 350,000/2,200,000 x 700,000 111,363
Foreign Tax Credit Lower of two 80,000
149

149

Following is the order for tax credits:

(a) foreign tax credit (allowed under section 103); then
(b) tax credit allowed on charitable donations, tax credit for investment in shares and
insurance, tax credit for investment in health insurance and tax credit on
contribution to approved pension fund (u/s 61- 63); and then
(c) tax credit for advance tax paid (u/s 147).
The foreign tax credit shall not be:
▪ refunded,
▪ carried back to the preceding tax year, or
▪ carried forward to the following tax year.
A credit shall be allowed only if the foreign income tax is paid within 2 years after the
end of the tax year in which the foreign income was derived. Practically speaking foreign
tax credit

150

150

By Zahid Qavi.FCA 75
 8/10/2025

Foreign and Local Tax credit Rs.

Pakistani Source Income XXX
Salary XXX
Average rate for
Income from business XXX
foreign tax credit.
Capital Gain-NTR XXX
Foreign Source Income XXX
Business Income XXX
Average rate for
Capital Gain XXX
Local tax credit.
Total Income XXX
Deductions (XXX)
Taxable income B XXX
Tax on Taxable income ( PSI + FSI ) A XXX Taxable income
Foreign Tax Credit = A/B (XXX) (A) will remain
Tax liability after foreign tax credit ( B – FTC ) C XXX same in both
Local Tax Credits = C/B (XXX) calculation
Net Tax liability XXX
151

151

Mr. Aslam has disclosed the following information for TY 2021.

Income from business – Pakistan 1,500,000
Income from business – UK 500,000
Income from capital gain – Pak 300,000

Foreign tax paid in UK. 30,000

Charitable Donation. 100,000
Zakat paid. 100,000
Required: Calculate tax liability?

4 Where taxable income exceeds Rs.1,600,000 but Rs.170,000 plus 30% of the amount
does not exceed Rs.3,200,000 exceeding Rs.1,600,000

152

152

By Zahid Qavi.FCA 76
 8/10/2025

Foreign and Local Tax credit Rs.

Pakistani Source Income
Income from business 1,500,000
Capital Gain-NTR 300,000
Foreign Source Income
Business Income-UK 500,000
Total Income 2,300,000
Deductions
Zakat (100,000)
Taxable income B 2,200,000
Tax on Taxable income (PSI+ FSI) A 350,000
(170,000+600,000 x30%)
Foreign Tax Credit(A/B) W-1 (30,000)
Tax liability after foreign tax credit C 320,000
Local Tax Credits (C/B) W-2 (14,545)
Net Tax payable 305,455
153

153

Foreign Tax Credit (W-1)

Foreign Tax paid 30,000
Propionate Pakistani tax A/B x 500,000 79,545
Foreign Tax Credit – Lower of the above two 30,000

Tax Credit Charitable donation

Amount of donation 100,000
30 % of taxable income 2,200,00 660,000
Lower of two C/B x 100,000 14,545
320,000/2,200,000 X 100,000

154

154

By Zahid Qavi.FCA 77
 8/10/2025

Mr. Sultan has disclosed the following information for TY 2021.

Income from business – Pakistan 1,700,000
Income from business – UK 500,000
Foreign tax paid in UK.
Business Income 40,000
Charitable donation 200,000
Required: Calculate tax liability for TY 2021?

4 Where taxable income exceeds Rs.1,600,000 but Rs.170,000 plus 30% of the amount
does not exceed Rs.3,200,000 exceeding Rs.1,600,000

155

155

Foreign and Local Tax credit Rs.

Pakistani Source Income
Income from business 1,700,000
Foreign Source Income
Business Income-UK 500000
Total Income 2,200,000
Taxable income B 2,200,000
Tax on Taxable income (PSI+FSI) A
(170,000+600,000 x30%)
Business Income-Foreign Tax Credit W-1 [A/B]
Tax payable after FTC C
Charitable donation W-2 [C/B]
Net Tax payable
156

156

By Zahid Qavi.FCA 78
 8/10/2025

Business Income -Foreign Tax Credit (W-1)

Foreign Tax paid 40,000
Propionate Pakistani tax A/2,200,000 x 500,000
Foreign Tax Credit

Charitable donation (W-2)

Actual amount 200,000
30% of 2,200,000 660,000
Tax Credit C/2,200,000 x 200,000

157

157

Mr. Sultan has disclosed the following information for TY 2021.

Income from business – Pakistan 2,200,000
Income from business – UK 800,000
Foreign tax paid in UK. 60,000
Charitable donation 500,000
Zakat Paid 800,000
Advance Tax deducted 100,000
Required: Calculate tax liability for TY 2021?

158

158

By Zahid Qavi.FCA 79
 8/10/2025

Foreign and Local Tax credit Rs.

Pakistani Source Income
Income from business 2,200,000
Foreign Source Income
Business Income-UK 800,000
Total Income 3,000,000
Deductions
Zakat paid (800,000)
Taxable income B 2,200,000
Tax on Taxable income (PSI+FSI) A
Foreign Tax Credit = A/B
Tax liability after foreign tax credit C
Local Tax Credits = C/B
Advance tax deducted
Net tax payable.

159

159

Business Income -Foreign Tax Credit (W-1)

Foreign Tax paid 60,000
Propionate Pakistani tax A/2,200,000 x 800,000
Foreign Tax Credit

Charitable donation (W-2)

Actual amount 500,000
30% of 2,400,000 720,000
Tax Credit C/2,200,000 x 500,000

160

160

By Zahid Qavi.FCA 80
 8/10/2025

Mr. Qateel, a resident individual, is engaged in manufacturing various

consumer goods under the name and style Qateel Enterprises (QE). The
following information has been extracted from the records of QE for the
financial
year ended 30 June 2023. Rupees
Total turnover 28,500,000
Cost of sales (26,155,000)
Gross profit 2,345,000
Operating expenses (4,500,000)
Operating loss (2,155,000)
Finance charges on lease of machinery (35,703)
Other income 5,000,000
Profit before tax 2,809,297

161

161

(i) Cost of sales includes:

▪ Rs. 45,000 paid as fine for violation of contract with a customer for delay in supply of
goods.
▪ accounting depreciation of Rs. 2,498,940 (including depreciation on leased assets).
(ii) Operating expenses include:
▪ Rs. 450,000 paid for renewal of a license for fifteen years.
▪ vehicle tax paid in cash amounting to Rs. 255,000 for eight office cars.
▪ Rs. 185,000 paid as security deposit to K-Electric (KE) for replacement of transformer at
the factory.
▪ Rs. 300,000 collected by KE as advance tax through monthly electricity bills.
▪ cash donation to poor families amounting to Rs. 64,600 and Zakat of Rs. 1,401,060 paid
under Zakat & Ushr Ordinance.
▪ Charitable donation of Rs 500,000 to organization mentioned in the 13th Schedule to this
Ordinance.
▪ penalty of Rs. 25,000 imposed by the Commissioner Inland Revenue for late filing of
annual return of income for the tax year 2022.
▪ entertainment expenditure of Rs. 128,000 incurred on arrival of foreign customers for
business purposes. 162

162

By Zahid Qavi.FCA 81
 8/10/2025

(iii) Other income includes:

▪ Income from a business in the UK of Rs.800,000 and tax paid in the UK Rs 120,000.
▪ Capital gain of Rs. 1,200,000 from the sale of private limited company shares.
(iv) On 30 June 2023, leased machinery was transferred to Qateel on the maturity of the
lease. The leasing company was asked to adjust the security deposit amount against the
residual value of Rs. 100,000. The date of commencement of the lease was 1 July 2018.
Lease rentals paid during the year amounted to Rs. 270,000. On the date of maturity, the
accounting written down value and market value of the machinery was Rs.590,490 and Rs.
800,000 respectively.
(v) During the year, a warehouse was constructed for storage of goods at a cost of Rs.
4,888,000. No accounting depreciation has been recorded on it.
(vi) Tax depreciation for the tax year 2023 without considering the effect of para (iv) and (v)
above, amounted to Rs. 1,560,000.
(vii) Advance income tax paid during the year amounted to Rs. 480,000.
Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder,
compute the total income, taxable income and net tax payable by or refundable to QE for
163
the year ended 30 June 2023. (18)
163

164

164

By Zahid Qavi.FCA 82
 8/10/2025

Q.2 (B) March 2025

Question-17
For the purpose of this question, assume that the date today is 31 August 2025.
Asjad joined Premiere Textiles Limited (PTL) on 1 July 2024. He received the following salary
from PTL during the year ended 30 June 2025:
Rupees
Basic salary per month 1,500,000
Medical allowance per month 150,000
Additional information:
i. As per the terms of employment, Asjad received medical reimbursement of Rs. 800,000
from PTL.
ii. PTL also provided accommodation to Asjad by renting a property owned by him through a
rental agreement. PTL paid a monthly rental of Rs. 200,000 to Asjad, while the fair
market value of rent for a similar property was Rs. 250,000 per month.
iii. During the year, Asjad sold 100,000 shares of his ex-employer, Marvel Paints Limited
(MPL), a listed company, at Rs. 100 per share (net of expenses). These shares were issued
to him under an Employee Share Scheme in the tax year 2021 at Rs. 25 per share. The
market value of the shares on the issuance date was Rs. 40 per share.
165

iv. During the year, Asjad received Rs. 500,000 from an unapproved gratuity scheme of MPL.
Required:
Under the provisions of the Income Tax Ordinance, 2001 and the Rules made thereunder,
compute the total and taxable income of Asjad under the appropriate head of income for
the tax year 2025. (Show all relevant exemptions, exclusions, and disallowances)
(07) (Q.2 (B) March 2025)

51%
34%

166

By Zahid Qavi.FCA 83
 8/10/2025

Rupees
(W-1)Income from salary
Basic salary (Rs. 1,500,000 × 12) 18,000,000
Medical allowance (Rs. 150,000 × 12) 1,800,000
Medical reimbursement -
Furnished accommodation
Higher of:
- FMV rentals (Rs. 250,000 × 12 = 3,000,000) or 8,100,000
- 45% of Basic Salary (Rs. 18,000,000 × 45% = 8,100,000)
Gratuity 500,000
Less: Exempt [75,000 or 250,000 (50% of 500,000) whichever is (75,000)
lower] 425,000
Income from salary 28,325,000

167

(W-2)Income from property

Rental income from PTL [(Rs. 200,000 × 12) [FMV of Rs. 250,000 ignored 2,400,000
considering section 15(5)]
Less: Repairs allowance 1/5th of rental income (480,000)
1,920,000

(W-3)Capital Gains
Disposal of MPL's shares 100,000×60(100–40) 6,000,000

168

By Zahid Qavi.FCA 84
 8/10/2025

Answer-17
Mr. Asjad
Computation of Taxable income
For the tax year 2025
Rupees
Income from salary (W-1) 28,325,000
Income from property (W-2) 1,920,000
Capital Gain (W-3) 6,000,000
Total Income 36,245,000
Less: Capital gain (Separate block of income) (6,000,000)
Taxable income 30,245,000

169

Q.1 September 2024

Question-16
On 1 July 2023, Saleem Khan joined Solar Energy Limited (SEL) as a Quality
Control Manager with a gross monthly salary of Rs. 500,000, which includes a
medical allowance of Rs. 45,000 i.e. 15% of the basic salary. The salary for each
month is credited to his bank account at the beginning of the following month.
In addition to the abovementioned salary, Saleem Khan also received the
following benefits:

i) A company maintained car which was 60% used for personal and 40%
for company purposes. The car was provided on 1 January 2024, when
the fair market value of the car was Rs. 5,500,000. SEL had purchased
the car in July 2023 for Rs. 5,000,000. To account for his personal use of
the car, a total deduction of Rs. 100,000 was made from Saleem Khan’s
salary up to 30 June 2024.
170

By Zahid Qavi.FCA 85
 8/10/2025

ii) A right to acquire 5,000 shares in SEL under the employee share
scheme, granted on 1 May 2024. The right can be exercised upon
payment of Rs. 80 per share within a year. On the grant date, the fair
market value of each right to acquire a SEL’s share was Rs. 230. On 30
June 2024, instead of exercising the rights, Saleem Khan disposed them
of at Rs. 120 per share.
Other information:
i) Prior to joining at SEL, Saleem Khan served as a Production Manager
at Hydro Energy Limited (HEL). He retired from HEL on 25 June 2023,
and became entitled to a monthly pension of Rs. 40,000, starting on 1
July 2023. This pension is deposited into his bank account at the end
of each month.
ii) He paid Zakat under the Zakat and Ushr Ordinance, 1980, amounting
to Rs. 182,500.

171

Required:
Under the provisions of the Income Tax Ordinance, 2001 and the Rules made
thereunder, compute under the correct head of income, the taxable income
of Saleem Khan for the tax year 2024. Also, provide reasons for ignoring any
of the above benefits. (07)

172

By Zahid Qavi.FCA 86
 8/10/2025

Rupees
W-1;Income from Salary:
Basic salary (w-1) 300,000 x 11 5,005,000
Other allowances (W-1) 155,000 x 11 1,7055,000
Medical allowances 45,000 x 11 495,000
Exempt upto 10% of basic salary (330,000) 165,000
Perquisite representing car 25,000
5% of the cost (5,000,000 × 5% x 6/12)= 125,000-100,000
Employee Share scheme 5,000 x (120-0) 600.000
Pension (Note 1)
Taxable income 5.795,000

173

Income from Salary Rupees

Basic salary 300,000*
Other allowances Bal. 155,000
Medical allowances 45,000
500,000

Note-1:
Any amount or perquisite paid by a past employer is treated as received by an employee
from employment and is classified as salary. Therefore, Saleem Khan received Rs. 480,000
(Rs. 40,000 × 12) from HEL as his pension for the tax year 2024 is considered part of his
salary income. However, Rs. 480,000 is exempt because it was received by Saleem, a
citizen of Pakistan, from his previous employer, HEL, and he is no longer employed by HEL
or any of its associates.

174

By Zahid Qavi.FCA 87
 8/10/2025

Answer-16
Saleem Khan
Computation of total and taxable income
For tax year 2024
Rupees
Income from salary (W-1) 5,795,000
Total Income 5,795,000
Less: Zakat (182,500)
Taxable income 5,612,500

175

Q.3 March 2024

Question-15
Najeeb is a resident individual who had been working at PGA Limited (PGAL) for the past 8
years. On 31 July 2023, he retired from PGAL and received his final settlement on 15 August
2023. Following are the details of his final settlement amount:
Rupees
Gross salary for July 2023 180,000
Fuel allowance for July 2023 27,000
Leave encashment 140,000
Provident fund balance – Principal amount
3,000,000
(50% contributed by the employer)
Provident fund balance – Interest amount 600,000
Gratuity 900,000
PGAL’s provident fund is recognized and its gratuity fund is approved by the
Commissioner Inland Revenue.

176

By Zahid Qavi.FCA 88
 8/10/2025

Additional information:
i. Najeeb had obtained an interest-free loan amounting to Rs. 2,000,000 from
PGAL. 80% of the amount had been recovered by PGAL, and the remaining
amount was waived by PGAL at the time of his retirement.
ii. As per PGAL’s policy, Najeeb purchased the company-owned laptop, which he
had been using, at a written down value of Rs. 50,000, even though its fair
market value upon purchase stood at Rs. 110,000.
iii. On 5 August 2023, Najeeb received a watch worth Rs. 80,000 from PGAL as a
gift at his farewell party.
Required:
Under the provisions of the Income Tax Ordinance, 2001 and the Rules made thereunder:
a. compute the taxable income of Najeeb for the tax year 2024. (05)
b. how would you treat the amount received from the provident and
gratuity funds if they are unrecognized and unapproved, respectively?
(02)

177

Answer-15 (A)
Mr. Najeeb
Computation of taxable income
For TY 2024
Salary income Rupees
Salary 180,000
Fuel allowance 27,000
Leave encashment 140,000
Provident fund balance – Principal amount -
Provident fund balance – Interest amount -
Gratuity -
Profit on loan at benchmark rate (2,000,000×10%÷12) 16,667
Interest-free loan waived (2,000,000 × 20%) 400,000
Company owned laptop (110,000 – 50,000) 60,000
Farewell gift 80,000
Taxable income 903,667
178

By Zahid Qavi.FCA 89
 8/10/2025

(B) Unrecognised provident fund:

Employer contribution of 1,500,000 (3,000,000×50%) and the entire interest amount of
Rs. 600,000 would be chargeable to tax.
Unapproved gratuity fund:
Lower of Rs. 75,000 or Rs. 450,000 (900,000 × 50% would be exempt so Rs. 825,000
(900,000–75,000) would be chargeable to tax.

179

Q.1 September 2023

Question-14
Salman works as the head chef at Tasty Café (TC), which is owned by
Zameendar Limited (ZL), a company listed on the Pakistan Stock
Exchange. He received the following emoluments from TC during the
year ended 30 June 2023:

Rupees
Basic salary 2,400,000
House rent allowance 600,000
Annual bonus 480,000
• In addition to the above, TC also provided him with the following benefits:
Free meals while on duty worth Rs. 450,000.
• Staff discounts across all restaurants owned by ZL. Salman availed discount
worth Rs. 40,000 during the year.
180

By Zahid Qavi.FCA 90
 8/10/2025

• Health insurance up to the amount of Rs. 500,000 covering his spouse

and two children as per terms of his employment. The insurance
premium related to this benefit amounted to Rs. 70,000. During the
year, the insurance company incurred expenses of Rs. 300,000 on
hospitalization of his dependents.
• A company-maintained car which was purchased by TC for Rs.
2,000,000. The fair market value (FMV) of the car on 30 June 2023 is
Rs. 5,500,000. The car is used partly for official purposes and partly for
personal use.
• An option to acquire 12,000 shares of ZL at a price of Rs. 98 per share
under an employee share scheme. The option was granted on 1
February 2023 when the FMV of the shares was Rs. 104 per share.
Salman exercised the option on 1 March 2023 when the FMV was Rs.
110 per share.

181

• Provident fund contribution at 8% of the basic salary in a recognized

provident fund. During the year, 22% profit was credited to Salman’s
account. His balance in the fund amounted to Rs. 960,000.
• Training of three-week culinary chef course. Salman attended this
course in Dubai, for which TC paid a course fee of Rs. 500,000. In
relation to his stay in Dubai, he was provided a travel allowance of Rs.
250,000. However, Salman opted to stay at a relative’s house in Dubai
and only spent Rs. 100,000 out of the total travel allowance provided
by TC.
Additional information:
• During the year, Salman received an interest income of Rs. 765,000 from
his bank account. The amount was net of withholding income tax at the
rate of 15%.

182

By Zahid Qavi.FCA 91
 8/10/2025

• Salman paid Rs. 300,000 as a donation to a non-profit organisation listed

in the Thirteenth Schedule of the Income Tax Ordinance, 2001. 80% of
the amount was paid through a crossed cheque, and the remaining
amount was paid in cash.
• During the year, TC withheld Rs. 400,000 in tax from his salary.
Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made
thereunder, compute under the correct head of income, the total income,
the taxable income, and net tax payable by or refundable to Salman for the
tax year 2023. (Show all relevant exemptions, exclusions and
disallowances) (14)
Pass
73%

183

(W-1) Income from salary: Calculation Rupees

Basic salary 2,400,000
House rent allowance 600,000
Annual bonus 480,000
Free meals while on duty - -
exempt
Staff discount 40,000
Health insurance – exempt -
Company maintained car (2,000,000×5%) 100,000
Employee share scheme [12(110–98) × 12,000] 144,000

184

By Zahid Qavi.FCA 92
 8/10/2025

PF contribution (2,400,000 × 8%) =192,000 42,000

Less lower of a. 150,000 OR
b. 1/10 BS 2,400,000 =240,000
=192,500-150,00
Profit on provident fund Actual(960,000×22%) =211,200 -
Less Higher of a. (960,000×16%) =153,600
rd
b. 1/3 BS (2,400,000÷3) = 800,000

Culinary chef course -

Travelling allowance – not (250,000 – 100,000) 150,000
spent on behalf of the
employer
3,956,000

185

Answer-14
Mr. Salman
Computation of total income, taxable income and net tax payable
For TY 2023
Discription Rupees
Income from salary (W-1) 3,956,000
FTR Income;
Interest income (765,000÷0.85) 900,000
Total income 4,856,000
Less; FTR Income (900,000)
Taxable income 3,956,000
Tax liability (430,000+((3,956,000-3,200,000)x30%) 656,800

186

By Zahid Qavi.FCA 93
 8/10/2025

Tax on interest income (900,000×15%) 135,000

Less: Tax credit on donations:
Tax credit [(656,800÷ 3,956,000) × 240,000, being lower]=39,846 (39,846)
Lower of
Donations amount through cheque (300,000×80%) =240,000
30% of taxable income (3,956,000×30%) =1,186,800

Tax payable 751,954

Less: Tax withheld by TC (400,000)
Less: Tax withheld by Bank (135,000)
Net Tax payable 216,954

187

Examiner comments
▪ Free meals while on duty were not considered exempt and/or staff discounts were
considered exempt.
▪ In the calculation of total income, interest income was considered after deducting
withholding tax rather than including it in its gross form.
▪ Incorrect amounts of provident fund contribution and profit were offered for tax.
▪ In respect of the employee share scheme, FMV on the date of grant of options
instead of exercising the options were taken.
▪ Health insurance was subject to tax.

188

By Zahid Qavi.FCA 94
 8/10/2025

Marking Scheme
Income from salary: Marks
Income subject to tax 5.0
Exempt income 4.0
Income subject to FTR 1.0
Tax liability 1.0
Tax credit 2.0
Net tax payable 1.0

189

Q.1 March 2023

Question-13 For the purpose of this question, assume that the date today is 30 Sep 2023.
Cheng, a Chinese citizen, has been in Pakistan since the year 2015. For career growth, he left his
employment with Hope Limited (HL), an unlisted FMCG, on 30 September 2022 and joined a
leading chain of hotels namely Desire Hotels (DH) on 1 October 2022. The details of his
emoluments during the year ended 30 June 2023 are as follows:
Particulars HL DH
Basic salary per month 350,000 450,000
Medical allowance per month 35,000 60,000
Utilities allowance per month 20,000 30,000
Lunch provided by the employer at subsidized rate – per month cost 10,000 25,000
to employer
Company-maintained car (for both official & personal)
Cost 3,000,000 5,000,000
Fair market value as on 30 June 2023 2,500,000 6,000,000
Annual bonus related to the tax year 2022 350,000 -
Gratuity under an unapproved scheme 1,225,000 -
190

By Zahid Qavi.FCA 95
 8/10/2025

Additional information (other benefits provided by DH):

i) Two return air tickets to China to the extent of Rs. 600,000 for Cheng
and his spouse.
ii) During the year, he incurred Rs. 550,000 on account of his traveling to
China.
iii) Rs. 750,000 received for signing a bond with DH, according to which
Cheng cannot leave the organization before 30 June 2024.
iv) Rs. 400,000 received from DH as commission for securing a large
contract.
v) Payment of the outstanding loan of Rs. 3,800,000 by DH as per the terms
of the employment contract. Cheng had obtained this interest free loan
from HL, for the construction of a house. On 1 July 2019, the house was
given on rent under a 5-year rental agreement at an annual rental of Rs.
800,000.
191

Other information:
i) During the year, he received CNY 31,500 (net of 30% tax) equivalent to Rs. 1,260,000 in
his Pakistani bank account being a share of profit from a business in China.
ii) During the year, he received cash dividend of Rs. 97,750 (net of withholding tax at the
rate of 15%) and bonus dividend of 2,000 shares from Ambitious Limited (AL), a
company listed on the Pakistan Stock Exchange. The fair market value of AL’s share on
the date of entitlement of bonus shares and on 30 June 2023 were Rs. 25 and Rs. 20
respectively.
iii) He transferred an amount of Rs. 600,000 to the bank account of a non-profit
organization as donation for the flood affectees.
iv) On 25 June 2023, he paid an annual premium of Rs. 300,000 on a life insurance policy.
Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder,
compute total income, taxable income and tax payable by or refundable to Cheng for
the tax year 2023. (Show all relevant exemptions, exclusions and disallowances) (19)

192

By Zahid Qavi.FCA 96
 8/10/2025

Mr. Chang
Computation of total income, taxable income and tax liability
For TY 2023
Pakistan Source Incomes: Rs.
Income from salary –PSI- (W-1) 12,915,000
Income from other property-PSI (W-2) 545,000
Income from business -FSI (W-3) 1,800,000
Dividend & bonus share Income-PSI- FTR (W-4) 165,000
Total Income 15,425,000
Less FTR Income (165,000)
Taxable Income- B 15,260,000

193

Taxable Income- B 15,260,000

Tax liability 700,000+11,160,000 x 35% 4,606,000

Add Surcharge 4,606,000 x 10% 460,600
Tax liability- A 5,066,600
Less Foreign tax Credit- Lower Foreign tax paid(1,88,000 – 1,260,000) = 540,000 (540,000)
A/B Average rate 5,066,600 ÷ 15,260,000) x 1,800,000 =597,633
Tax liability after Foreign Tax- C 4,526,600
Tax Credit on Donation Donation 600,000 (177,979
C/B 30% 0f taxable income 15,260,000 X 30% = 4,578,000
(4,526,600/15,260,000) x 600,000 = 177,979
Tax liability NTR 4,348,621
Tax liability NTR 4,348,621
Tax liability FTR Dividend (115,000 x 15%) =17,250 22,250
Tax on bonus share (50,000 x 10%)= 5,000
Total Tax liability. 3,691,421
Less Tax liability FTR (22,250)
Tax Payable 4,348,621
194

By Zahid Qavi.FCA 97
 8/10/2025

(W-l) Income from salary: HL DH Total

Basic salary 1,050,000 4,050,000 5,100,000
(350,000×3) (450,000×9)
Medical allowance 105,000 540,000
(35,000×3) (60,000×9)
Less: 10% Exempt (105,000) (405,000) 135,000
- 135,000
Utilities allowance 60,000 270,000 330,000
20,000×3 30,000×9
Subsidized food provided by the 30,000 Exempt 30,000
employer 10,000×3
Company maintained car 37,500 187,500 225,000
150,000(3,000,000 250,000(5,000,00
×5%)×(3/12) 0×5%)×(9/12)
Annual bonus 350,000 - 350,000

195

Gratuity under an unapproved scheme HL DH Total

Gratuity under an unapproved scheme 1,225,000
Less Exempt (75,000)
Taxable 1,150,000 1,150,000
Return tickets to China 550,000 550,000
Amount received for signing a bond 750,000 750,000
Commission for securing a contract 400,000 400,000
Loan paid off by DH 3,800,000 3,800,000
Interest free loan 95,000 95,000
(3,800,000×10%×3/12)
Salary Income 12,915,000

196

By Zahid Qavi.FCA 98
 8/10/2025

(W-2) Income from property:

Rent 800,000
Less: Repair allowance @ 1/5 (160,000)
Less: Profit on loan (as above) (95,000)
545,000

(W-3) Income from business:

Foreign source income
Share of profit in business 1,260,000 ÷ 0.7 1,800,000

(W-4) FTR income:

Dividend from a listed company 97,750÷0.85 115,000
Bonus shares 2,000 x 25 50,000
Total FTR 165,000

197

▪ The entire medical allowance was subject to tax, and it was not exempt
up to 10% of the basic salary.
▪ The company-maintained car was subject to tax by considering its fair
value instead of cost. Further, the calculated tax amount was not
adjusted to reflect the duration of use.
▪ The entire gratuity was considered exempt, rather than having a limit of
Rs. 75,000.
▪ The payment of Cheng’s loan, payable to HL, was not subject to tax.
▪ Interest on loan at the benchmark rate of 10%, being deemed income,
was not subject to tax under ‘Salary’. On the other end, the same was
not deducted as an allowable expense under ‘Income from property’.
▪ The amounts related to the share of a business in China and dividend
income were included in the total income on a net-of-tax basis.
▪ The calculation of the foreign tax credit was ignored

198

By Zahid Qavi.FCA 99
 8/10/2025

Question – Ms. Li Na (李娜)

Assume that today’s date is 30 September 2025.
Li Na (李娜), a Chinese citizen, arrived in Pakistan for the first time and commenced employment
on 1 July 2024 with Prime Textiles Industries (PTI), a large textile manufacturer. After serving
for eight months, she joined Progressive Minds Learning Network (PMLN), an educational
instituation, as Manager Finance on 1 March 2025. The following information relates to the tax
year ended 30 June 2025:
Particulars PTI PMLN
Basic salary per month Rs. 400,000 Rs. 500,000
House rent allowance per month Rs. 75,000 Not provided
Rent-free furnished Not provided Provided
accommodation provided (Note 3)
Educational support for children Rs. 60,000/month (fee paid) Free education at PMLN (same
value)
Free Lunch during office hours Rs. 30,000 per month Rs. 50,000 per month
Loan granted to employee Rs. 5,000,000 @ 4% p.a. –
Loan repayment by PMLN (Note-2) – Full payment on joining
Conveyance allowance per month – Rs. 60,000 per month
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Additional Information:
1. Vehicle Provided by PTI
PTI provided a company-owned vehicle, purchased two years earlier for Rs. 9,000,000, used
partly for business and partly for personal purposes. On exit, Ms. Li Na purchased the
vehicle for Rs. 7,500,000, which was its fair market value. The book value was Rs. 7,000,000
at the time of transfer.
2. Loan Repayment
The outstanding loan of Rs. 5,000,000 was paid by PMLN at the time of joining.
As per agreement, this amount will be deducted from Ms. Li Na’s salary in 12 equal
instalments starting next year, and no further interest will be charged.
3. Rent-Free Accommodation by PMLN
Ms. Li Na received rent-free furnished accommodation from 1 March 2025, with a fair
market rental value of Rs. 150,000 per month. She did not pay any rent
4. Foreign Source Rental Income
Ms. Li Na earned Rs. 6,000,000 (in Pak Rupee equivalent) from rental property located in
China. She paid Rs. 500,000 as tax in China, but the income was not brought to Pakistan
during the tax year.

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By Zahid Qavi.FCA 100

 8/10/2025

5. Donation to Approved Charity

She donated Rs. 700,000 to a charity approved under the Thirteenth Schedule of
the Income Tax Ordinance, 2001.
6. Residency
Li Na qualifies as a resident individual under the Income Tax Ordinance, 2001 for the
tax year 2025.
Required:
a) Compute Li Na’s (李娜) taxable income and tax payable for the tax year 2025,
applying relevant provisions of the Income Tax Ordinance, 2001.
b) What will be your answer if the tax year 2025 were Li Na’s fourth tax year in Pakistan?

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Answer-Ms. Li Na
(A)
Ms. Li Na
Computation of taxable income and tax payable
For tax year 2025
Amount(“Rs”)
Income from salary (W-1) 8,526,667
Income from property* Exempt
Total income 8,526,667
Taxable income 8,526,667
Tax liability ((8,526,667-4,100,000) x 35%) +700,000 2,249,333
Less: Tax credit (186,116)
Donation A/B x C (2,249,333/8,460,000 x 700,000)
C is lower of
▪ Actual amount paid 700,000
▪ 30% of taxable income 2,528,000
Tax liability 2,063,217
202

By Zahid Qavi.FCA 101

 8/10/2025

*As he arrived in Pakistan for first time his Pakistan source income will be fully taxable and
his foreign source salary income will exempt for three year (sec 50), therefore his income
from property will not taxable.

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(W-1)Particular PTI PMLN Total income

Basic salary 3,200,000 2,000,000 5,200,000
400,000 x 8 500,000 x 4
House rent 600,000 900,000 1,500,000
allowance 75,000 x 8 Higher of 45% of BS=900,000
F.M.V 150,000 x 4=600,000
Education support 480,000 Exempt 480,000
60,000 x 8
Lunch 240,000 200,000 440,000
(30,000 x 8) (50,000 x 4)
Loan granted 200,000 166,667 366,667
5,000,000 x 6% x 8/12 5,000,000 x 10% x 4/12
Conveyance 300,000 240,000 540,000
9,000,000 x 5% x 8/12 60,000 x 4
Conveyance provided 0 -- ---
7,500,000-7,500,000
Income from salary 8,526,667
204

By Zahid Qavi.FCA 102

 8/10/2025

(B). Foreign source income of a short term resident individuals

Section 50 of the Income Tax Ordinance states that:
1. Foreign source income of an individual shall be exempt from tax in Pakistan if he is:
I. a resident individual solely by reason of the individual’s employment; and
II. present in Pakistan for a period or periods not exceeding three years,
2. The above exemption shall not apply to:
▪ any income derived from a business of the person established in Pakistan; or
▪ any foreign-source income brought into or received in Pakistan by the person

Amount(“Rs”)
Income from salary (W-1) 8,526,667
Income from property* 6,000,000
Total income 14,526,667
Taxable income 14,526,667
Tax liability ((14,526,667-5,600,000) x 45%) +1,610,000 5,627,000

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Amount(“Rs”)
Income from salary (W-1) 8,526,667
Income from property* 6,000,000
Total income 14,526,667
Taxable income 14,526,667
Tax liability ((14,526,667-5,600,000) x 45%) +1,610,000 5,627,000

Less: Tax credit (500,000)

Foreign tax credit at lower
Foreign tax paid 500,000
Average tax (5,627,000/14,526,667 x 6,000,000) 2,324,139
Tax liability after foreign tax credit 5,127,000
Donation A/B x C (5,127,000/14,526,667 x 700,000) (247,056)
C is lower of
▪ Actual amount paid 700,000
▪ 30% of taxable income 2,528,000
Tax liability 4,879,944

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By Zahid Qavi.FCA 103