Income Tax Exemption in Pakistan

Income tax is a crucial source of revenue for any country, and Pakistan is no exception. Income tax exemption is the amount of income that an individual or company can earn without paying any tax. In Pakistan, income tax exemption depends on various factors such as age, income bracket, and profession. In this blog, we will discuss income tax exemption in Pakistan in detail.

Basic Exemption:

The basic exemption for tax year 2022 in Pakistan is Rs. 600,000 for individuals below the age of 60 years. For individuals aged between 60 to 80 years, the basic exemption is Rs. 1,200,000. Moreover, individuals above the age of 80 years are exempt from income tax if their income is up to Rs. 1,500,000.

Agricultural Income:

Agricultural income is exempt from income tax in Pakistan. However, the term ‘agricultural income’ has been defined under the Income Tax Ordinance, 2001, and includes income from land used for agriculture, income from commercial crops, and income from farmhouses. If an individual earns income from any other source, such as renting out a property, it is not considered as agricultural income.

Charitable Donations:

Donations made to charitable organizations registered with the government of Pakistan are exempt from income tax. Moreover, donations made to the Prime Minister’s COVID-19 Relief Fund, 2020, are also exempt from income tax.

Retirement Benefits:

Retirement benefits such as gratuity, pension, commuted value of pension, and provident fund are exempt from income tax up to a certain limit. The limit for gratuity is 50% of the individual’s salary, while for the commuted value of pension, it is 50% of the pension. Moreover, if an individual withdraws funds from their provident fund after five years of service, it is also exempt from income tax.

Medical Expenses:

Medical expenses incurred by an individual or their dependents are exempt from income tax up to a certain limit. The limit for salaried individuals is 10% of their salary, while for self-employed individuals, it is 20% of their gross income.

Tax Credits:

Tax credits are available to certain individuals in Pakistan, which reduce their tax liability. For instance, individuals investing in National Savings Schemes can claim tax credits up to 25% of the amount invested. Moreover, tax credits are also available to individuals donating to recognized charitable organizations, investing in R&D, and employing people with disabilities.

Conclusion:

In conclusion, income tax exemption in Pakistan is available to individuals and companies based on various factors. The government of Pakistan has provided exemptions to encourage charitable donations, investments, and agricultural activities. Moreover, retirement benefits and medical expenses are also exempt from income tax up to certain limits. It is important for individuals to understand the income tax laws in Pakistan and take advantage of the available exemptions to minimize their tax liability.

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