STOP! Don’t Pay Extra: Tax Deductions/Adjustments Under Income Tax Ordinance 2001

STOP! Don’t Pay Extra: Tax Deductions/Adjustments Under Income Tax Ordinance 2001

Understanding tax laws and regulations isn’t easy, and nowhere is this truer than in Pakistan, where a lack of knowledge often leads taxpayers to pay more than their fair share of taxes.

Despite being educated, a vast number of salaried individuals in the country are still  unaware of a simple yet effective way to save on taxes – through adjustments provided by their employers as mandated by the law. 

Typically, employers deduct income tax from salaries and forward it to the Federal Board of Revenue (FBR), but they often overlook tax adjustments for deductions made by various agencies like banks, telecom companies, educational institutions, and more. 

By knowing the relevant laws, you can reduce your tax burden by providing evidence of these deductions to your employer. However, it’s crucial to act before June to ensure these adjustments are applied before the year’s end. In this blog, we’ll delve deeper into the world of tax adjustments, helping you unlock potential savings and demystify the taxation process.

  1. Purchase and transfer of Immovable Property – When buying property, there’s an upfront tax collected when you make the payment. If you’re a tax filer, it’s 3% of the property’s value, but if you’re not a tax filer, it’s 6%. This tax is an advance payment that you can later deduct from your overall tax liability.
  1. Purchase of International and Domestic Air Ticket – When you buy an air ticket, whether for domestic or international travel, the airlines are required by the FBR to collect tax, which you can later use to offset your tax liability. For domestic tickets, it’s 5%, and for international travel in economy and business class, it’s either Rs.12,000 or Rs.16,000 respectively. 
  1. Advance Tax on General and Life Insurance Premium – According to FBR guidelines, insurance companies must collect advance tax on both General and Life insurance premiums from individuals who are not tax filers. The good news is that this tax can be used to offset your income tax liability later on.
  1. Electricity Bill of Domestic User – For non-filers, if your monthly electricity bill at home is Rs.25,000 or more, you’re expected to pay a 7.5% advance tax every month. The good part is that this tax can be used to reduce your overall tax liability later on.
  1. Mobile, Telephone, and Internet bills – Telecom companies and internet service providers collect a 15% advance tax from all their users. The important thing to know is that this advance tax can be used to offset your income tax liability.
  1. Motor Vehicle Registration Fee – When you register, transfer, or sell a motor vehicle, there’s an advance tax charged, but you can later use it to lower your income tax liability.

This is the current advance income tax on the registration of vehicles:

Engine CapacityTax
Upto 850 ccRs.10,000
851cc to 1000ccRs.20,000
1001cc to 1300ccRs.25,000
1301cc to 1600ccRs.50,000
1601cc to 1800ccRs.150,000
1801cc to 2000ccRs.200,000
2001cc to 2500cc6% of the value
2501cc to 3000cc8% of the value
Above 3000cc10% of the value

Other Deductions

  1. Medical Exemption – If you’re reimbursed for medical treatment or hospitalization, it’s exempt from tax. Additionally, if you don’t have access to reimbursement, you can get a tax exemption on medical allowance up to 10% of your basic salary.
  1. Donations – Individuals can get a tax rebate when they make donations to approved non-profit organizations. This rebate is based on the average tax rate and applies to the lower of the donation amount or 30% of the individual’s taxable income. However, if the donation is made to an associate, the eligible amount for tax credit is limited to 15% of the individual’s taxable income

Tax matters are complicated, and therefore, many choose to avail the professional services of tax consultants and lawyers in Pakistan. While every effort has been made to keep this list comprehensive, up-to-date, and accurate, due to frequent changes, you may want to consult a professional tax consultant or lawyer when filing your tax returns.

You may also like to read:

Property News: Withholding Tax Increased on Immovable Properties

Making Section 7E Easy to Understand: Your Guide to the 2001 Income Tax Ordinance!

Revised Tax Rates for Non-Active Taxpayers: What You Need to Know

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