Tax Book 2023

Income From Salary Chapter- 07

 The declaration shall be made by the due date for furnishing of employee’s return of income for

the tax year in which amount was received or by such later date as the Commissioner Inland

Revenue may allow.

Example:

In tax year 20 22 Mr. Amir was paid salary for 8 months i.e. Rs. 800,000. In tax year 20 23 he was paid

salary for 16 months (including salary of 4 months of tax year 20 23 ) i.e. Rs.1,600,000. Compute tax

payable by him in tax year 202 3.

Solution:

Mr. Amir

Computation of taxable income and tax liability:

Option A by including the arrear salary in current year income

TAX YEAR 20 22

Rs.

Income from salary 800,000

Computation of tax liability

Tax on Rs. 800,000 10 , 000

TAX YEAR 202 3

Rs.

Income from salary 1,600,000

Computation of tax liability

Tax on Rs. 1,600,000 [ 15 ,000 + 12.5% x (1,600,000 - 1, 2 00,000)] 65 ,000

Option B by offering the arrear salary in the respective year

TAX YEAR 20 22

Rs.

Income from salary 1,200,000

Computation of tax liability

Tax on Rs. 1,200,000 [5% x (1,200,000 - 600,000)] 30 ,0 00

TAX YEAR 2023

Rs.

Income from salary 1,200,000

Computation of tax liability

Tax on Rs. 1,200,000 [2.5% x (1,200,000 - 600,000)] 15 , 000

 Total tax payable as per option A ( 10 ,000 + 65 , 0 00) 75 , 000

 Total tax payable as per option B (30, 0 00 + 15 ,000) 45 , 000

Taxpayer shall pay tax as per option B with less tax payable.

Salary treated to have been paid and received: [U/s 12(5) and 69]

(A) A person (including an employer) shall be treated as having paid an amount, benefit or

perquisite if it is: [U/s 12(5)]

Paid by the person that may be a present, past or prospective, or an associate of the payer or a

third party under an arrangement with the payer.

(B) A person (including an employee) shall be treated as having received an amount, benefit

or perquisite if it is: [U/s 69]

 Actually received by the person.

 Applied on behalf of the person,