Tax Credits Chapter- 15
An eligible person deriving salary income or business income shall be allowed a tax credit in
respect of contribution to a pension fund approved by Voluntary Pension System Rules, 2005 shall be
lesser of the following at average rate of tax:
(a) Contribution or premium paid, or
(b) 20% of taxable income,
Provided if an eligible person joining the pension fund at the age of 41 years or above, during the
first 10 years starting from July 01, 2006 shall be allowed additional contribution of 2% p.a. for each
year of age exceeding 40 years. Provided further that the total contribution allowed to such person
shall not exceed 50% of the total taxable income of the preceding year.
Provided also that the additional contribution of 2% per annum for each year of age exceeding 40
years shall be allowed upto the 30th June, 2019 subject to the condition that the total contribution
allowed to such person shall not exceed 30% of the total taxable income of the preceding year.
In this section "Eligible Person" , means an individual Pakistani who holds a valid NTN or CNIC or
NIC for Overseas Pakistanis issued by the National Database and Registration Authority:Example: Mr Bilal Idrees’ business income for the tax year 202 3 is Rs. 8 50,000 and he made
contribution of Rs.10,000 to a pension fund approved by Voluntary Pension System Rules, 2005. The
taxable income of tax year 2022 was Rs. 430,000. Mr. Bilal Idrees age was 45 years when he joined
the pension fund.
Required: Compute tax liability of Mr. Bilal Idrees for the tax year 202 3.Solution:
Mr. Bilal Idrees
Computation of taxable income and tax liability: Rs.
Income 8 50,000
Computation of tax liability:
Tax on Rs. 8 50,000 16 , 250
Less: Tax credit on contribution to approved pension fund:Tax credit shall be allowed on lower of:
(a) Actual amount of contribution i.e. Rs. 10,000 or
(b) 30 % (instead of 20% with each year above 40 years there is 2%
increase in percentage) of taxable income i.e. Rs. 255 ,000 with cap of
3 0% of preceding year taxable income 129,000 (i.e. Rs. 430,000 x 3 0%)
Hence the lower is Rs.10,000 entitled for tax credit under this section:
Tax credit (10,000 x 16 , 250 / 8 50,000) 191
Tax liability 16 , 059- Tax credit for employment generation by manufacturers (Section 64B)
For encouragement of establishing new manufacturing units, a tax credit for ten years has been
provided through Finance Act, 2015 by inserting a new section 64B. According to the
provisions of this section, where a company is formed for establishing and operating new
manufacturing unit set up between tax year 2016 to tax year 201 9 (1st July 2015 to 30th June,
2019 ), it shall be given a tax credit of 2% of tax payable for every fifty (50) employees from the date
on which the manufacturing unit is ready to go into production (trial or commercial) subject to
the fulfilment of the following conditions;