Income From Salary Chapter- 07
Already covered above in retirement benefits portion.
1.5 Computation of pension – clause 12 & Gratuity or computation of pension on retirement
of employee – clause 13
Already covered above in retirement benefits portion.
1 .6 Pension to dependents of Armed Forces Shaheeds – clause 16 &Pension / income of
dependents of Civil Armed Forces Shaheeds – clause 1 7
Already covered above in retirement benefits portion.
1.7 Leave encashment – clause 19
This is taxable whenever received or right to receive is exercised by the employee. Leave
encashment. The only exemption is for the members of the Armed Forces of Pakistan or an
employee of the Federal Government or a Provincial Government for any sum representing
encashment of leave preparatory is exempt.
1.8 Annuity – clause 20
Exemption omitted from tax year 2016.
1.9 Receipt of amount under voluntary pension system – clause 23A
The accumulated balance up to 50% received from the voluntary pension system offered by a
pension fund manager under the Voluntary Pension System Rules, 2005 at the time of eligible
person's -
(a) retirement; or
(b) disability rendering him unable to work; or
(c) death by his nominated survivors.
Provided that, excluding the cases mentioned in sub clauses (b) and (c), in case of
withdrawal before retirement age or withdrawal at the time of or after retirement age in
excess of 50% of the accumulated balance, tax shall be charged at the rate specified in
sub-section (6) of section 12 and the pension fund manager shall at the time of making
payment deduct tax at the said rate.
1.10 Receipt of monthly instalment from a payment plan out of accumulated balance – clause
23B – Finance Act, 2022 has withdrawn exemption under this section
The amounts received as monthly instalment from an income payment plan invested out of
the accumulated balance of an
(a) individual pension accounts with a pension fund manager or
(b) an approved annuity plan or
(c) another individual pension account of eligible person or
(d) the survivors pension account maintained with any other pension fund manager
as specified in the Voluntary Pension System Rules 2005 shall be exempt from tax provided
accumulated balance is invested for a period of 10 years:
Provided that where any amount is exempted under this clause and subsequently it is
discovered, on the basis of documents or otherwise, by the Commissioner that any of the
conditions specified in this clause were not fulfilled, the exemption originally allowed shall
be deemed to have been wrongly allowed and the Commissioner may, notwithstanding
anything contained in this Ordinance, re-compute the tax payable by the taxpayer for
the relevant ears and the provisions of this Ordinance shall, so far as may be, apply
accordingly.
1.11 Withdrawal accumulated balance of exempt approved provident Fund – clause 23C
Any withdrawal of accumulated balance from approved pension fund that represent the
transfer of balance of approved provident fund to the said approved pension fund under
the Voluntary Pension System Rules , 2005.