Tax Book 2023

Tax Credits Chapter- 15

(c) Rs. 2 , 0 00,000.

Example: Following information is related to Mr. Iqbal.

a. Income from business Rs. 450,000,

b. Investment made in shares of a listed company Rs. 10,000

c. Life insurance premium paid Rs. 8,000

Required: Compute tax liability of Mr. Iqbal for tax year 202 2 as the same is not applicable from tax

year 2023.

Solution:

Note: Law is silent about a situation where a person has made investment in shares and also paid

insurance premium. Hence in this case, tax credit shall be calculated at higher of these two amounts.

Mr. Iqbal

Computation of taxable income and tax liability: Rs.

Income 450,000

Computation of tax liability:

Tax on Rs. 450,000 2 , 500

Less: Tax credit on investment in shares and insurance:

Tax credit shall be allowed on lower of (A) or (B) as under:

(A)

Higher of investment in share or premium paid i.e. Rs. 10,000 or

(B)

• 20% of taxable income i.e. Rs. 90,000 or


• Rs. 2 , 0 00,000
  Hence tax credit shall be on lower of (A) or (B) (10,000 x 2 , 5 00 / 450,000) 56
  Tax liability 2,444

6. Tax credit for investment in health insurance [Section 62A] - omitted by FA, 2022

A resident person other than a company shall be entitled to a tax credit for a tax year in respect of

any health insurance premium or contribution paid to any insurance company registered by the

Securities and Exchange Commission of Pakistan under the Insurance Ordinance, 2000, provided

the resident person is deriving income chargeable to tax under the head salary or income from

business.

The amount of a person‘s tax credit allowed as above for a tax year shall be computed according to

the following formula, namely: —

(A/B) x C

where—

A is the amount of tax assessed to the person for the tax year before allowance of tax credit under

this section;

B is the person‘s taxable income for the tax year; and

C is the lesser of —

(a) the total contribution or premium paid by the person referred as above in the year;

(b) 5% of the person‘s taxable income for the year; and

(c) Rs. 150,000.

7. Tax credit for Contribution to an approved pension fund (Section 63)