Income Tax Return Filing in Pakistan: Things To Know for Income Tax Returns Filing
An individual should be familiar with these processes before registration of NTN and income tax returns filing. It is important to have a basic understanding of concepts so that the tasks can be performed efficiently and in accordance with the prescribed procedures.
An individual’s Taxable Income is calculated by dividing total income by the number of donations that qualify for deductions straight away and certain allowances for deductions.
Under each head of income, there is an aggregate amount of income that is taxable.
Heads of Revenue
It is generally accepted that all income is commonly divided into the following five categories under the Income Tax Ordinance, 2001:
- The Salary;
- Property Income;
- Amounts earned from business;
- Gains on capital; and
- Other sources of income
- For a tax year, an individual is a resident if:
- During the tax year, the individual is present in Pakistan for at least one hundred and eighty-three days;
- During the tax year, the individual has been present in Pakistan for a period of at least one hundred and twenty days, or a period of at least three months, or has been in Pakistan for at least three hundred sixty-five days in the four years prior to the tax year; or
- Are you a federal or provincial government employee or officially posted abroad during the tax year?
- For a tax year, a person is resident if, at any time during the year, he or she is controlling and managing the affairs of that person.
- During a tax year, a company is a resident if:
- Pakistani law governs its incorporation or formation;
- At any time of the year, its management and control are based entirely in Pakistan; or
- It is a local or provincial government in Pakistan.
Companies, associations of persons, and individuals are non-residents if they are not residents for a particular tax year.
Pakistan Source Income
The Income Tax Ordinance, 2001 defines section 101 as the portion that refers to income under a variety of heads and circumstances. These are some of the most common Pakistani sources of income:
- In Pakistan, any salary received or payable from employment;
- Employees are paid salaries by, or on behalf of, governmental entities such as a National Government, a Provincial Government, or a municipality in Pakistan, regardless of where they are employed;
- The resident company pays dividends;
- The profit on debts paid by residents;
- In Pakistan, income from property or rental rentals;
- A resident or permanent establishment of a non-resident pays or is entitled to receive a pension or annuity.
Foreign Source Income
Does anyone earn income from sources other than Pakistan?
- As an individual;
- The incorporation, formation, organization, or establishment of a company or association;
- Public international organizations, foreign governments, or political subdivisions of foreign governments
- An organization that meets the definition provided in the Companies Ordinance, 1984, (XLVII of 1984);
- A legal entity formed in Pakistan under any law;
- The modaraba;
- Company formed under the laws of a country outside Pakistan with respect to company formation;
- As a result of amendments made to the Finance Act of 2013, the definition of a company has been expanded. The following is a list of what a company includes as per the Income Tax Ordinance, 2001:
- Societies such as co-operatives, finance societies, or any other kind of organization;
- Organizations that are not-for-profit;
- Any trust, entity, or group of persons constituted or established by or under any law currently in effect.
- In accordance with this Ordinance, the Board may declare a foreign association to be a company, whether incorporated or not;
- Governments at the provincial level;
- In Pakistan, a local government;
- Company of Small Size
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An Association Of Persons
This definition covers any body of persons, organized under foreign law, which is set up to act as a legal partnership (either by all or by any of them acting on behalf of all), a Hindu undivided family, any artificial juridical person, or any body of persons. However, it does not cover a company.
It is defined as a period of twelve months ending on the 30th day of June, i.e. the calendar year in which the said date falls, which is also known as the financial year. As an example, the calendar year 2018 shall be used for the tax year from July 01, 2017, to June 30, 2018, the calendar year 2019 shall be used for the tax year from 2018, and the calendar year 2019 shall be used for the tax year from July 01, 2018, to June 30, 2019. It is referred to as a normal tax year.
Special Tax Year
In the Normal Tax Year in which the ending date of the Special Tax Year falls, the Special Tax Year refers to any period of twelve months. A Tax Year is defined as the twelve-month period from January 01, 2017, to December 31, 2017, and a Tax Year is defined as the twelve-month period from October 01, 2017, to September 30, 2018.