FBR urged to allow any wage income tax adjustment

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KARACHI: The Federal Board of Revenue (FBR) has been asked to allow a full tax adjustment at the time of the employee’s deduction of time paid as wages under Section 149 of the 2001 income tax.

The Karachi Tax Bar Association (KTBA) in its proposals for the 2022/2023 budget has informed the FBR in accordance with Section 149, anyone who pays salary to an employee shall deduct tax from the amount paid at the specified rate after having made a U/s tax credit tax adjustment. 61, 62, 63 and 64 and other adjustments.

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Full tax credits, while legally available, are not adjusted in payroll, the tax bar said.

“This section should include all tax credits under Part X, Chapter III, which are allowable on wage income,” he suggested.

The current regime apparently missed the U/s tax credit. 62A. The proposed amendment would cover all current credits and those to be introduced from time to time.

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The Tax Bar has also suggested an amendment relating to the employer’s contribution to the provident fund under section 12 of the Income Tax Ordinance 2001.

Under Clause (3), Part I, Sixth Schedule, employer’s contribution to the recognized provident fund in excess of Rs 150,000 (increased by Rs 100,000 by Finance Act 2016) is deemed to be income of the employee.

This provision is invalid because the accumulated balance (including the employer’s contribution) due and becoming payable to an employee participating in a recognized provident fund is fully exempt from tax under clause (23), part I, second appendix.

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Without prejudice to the foregoing, since the employer’s contribution does not constitute actual revenue as it is not available to an employee and therefore the tax incidence should not be levied at the time of contribution.

Clause (3) Part 1, Sixth Schedule be amended to exempt the employer’s contribution to bring it on par with Clause (23) Part 1, Second Schedule.

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Alternatively, the threshold is based on Rs 150,000 or 1/10th of salary, whichever is greater.

Since the employer’s contribution does not constitute actual revenue as it is not available to an employee and therefore the tax incidence should not be levied at the time of the contribution , the tax bar said.

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