Income tax return filing

In Pakistan, every Taxpayer is assessed with his income earned during the fiscal year (1 July through 30 June) and required to file an income tax return in a prescribed manner. Let us discuss the term ‘Tax’ before going into detailed discussion about ‘’Income Tax Return filling in Pakistan’’ So,

“Tax is a spontaneous fee levied on an individual or a corporation by the federal government. It may be regional, local, or national. Income tax is an extremely stable form of taxation. As per the prevailing law, all the persons are required to make their income tax every year, which comes under the Persons liable for filing their Income Tax returns.”

The government accumulates Income Tax for making consumption of this amount on those, which are the utmost vital. Income tax assists to minimize the economic gap of any country.

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20 - 04 - 2021

From whom does the income tax return needs to be filled in Pakistan?

Persons who need to file income tax returns in Pakistan are listed below;
  • Every registered person or company in Pakistan
  • An individual (other than a company) whose taxable income is exceeding the minimum limit, that is Rs. 400,000/- (Four Hundred thousand Rupees only)
  • Every individual which the owner of commercial or industrial electricity connections.
  • A welfare institution
  • Every individual who is in ownership of a Motor Vehicle above 1000 CC Engine capacity.
  • A non-profit organization is usually called NPO.
  • An individual who is in the ownership of an immovable property with a particular area (two hundred and fifty square yards or more)
  • Every individual having an NTN

Income tax return and wealth statement filling

Under Section 114 and 115 of income tax ordinance 2001, a person is required to furnish;
  1. Return of income for a tax year.
  2. Any individual can be required by the commissioner through notice to file wealth statement in the prescribed form duly verified in the prescribed manner within or on specific date mentioned in the notice.

Income Tax Return under the light of income tax ordinance 2001

As per Section 114 of income tax ordinance 2001;
A return of income;

  • shall be in the prescribed form and shall be accompanied by such annexures, statements or documents as may be prescribed;
  • shall fully state all the relevant particulars or information as specified in the form of return, including a declaration of the records kept by the Taxpayer; and
  • Shall be signed by the person, an individual, or the representative where section 172 applies

Contents of income tax return

Contents of an income tax return include the following;

  • Income from Salary
  • Income from Property
  • Income from Business
  • Income from Capital Gains
  • Income from Other Sources
  • Personal Expenses Financial Year (July to June)

Income from Salary:

This head includes any amount that an individual receives in return of services provided by him as per the contract of employment. This amount only succeeds to be considered eligible for income tax when an employer-employee relationship exists between the payer and the payee.
Following is also included in salary;
  • basic wages,
  • advance salary,
  • gratuity,
  • commission,
  • Perquisites as well as an annual bonus.
  • pension

Income from House Property

This head mainly includes rental income received from the properties.

Income from Business

Following is a brief list of the income which is chargeable under the head income from business:

  • Profits earned by the assesse during the assessment year
  • Gains on sale of a particular license
  • Benefits received in a business
  • Salary, profit or bonus received from a partnership in a firm
  • Cash acquired by an individual on export business under a government scheme
  • Profits on income by an organization

Income from Capital Gains

This consists of the gain from the sale of Capital Assets and Capital Assets can be real estate, bonds, stocks, Mutual funds, Gold etc.

Income from the Other Sources

Any income which could not be categorized in the aforementioned heads would be classified in this source of income.
Some of the instants can be, Profit on bank deposits, card games, lottery awards, gambling or other sports awards are part of this category.

Personal expenses

Personal expenses include the following;

  • Club
  • Vehicle Running / Maintenance
  • Medical
  • Travelling
  • Water
  • Electricity
  • Gas
  • Donation, Annuity, Profit on Debt, Life Insurance Premium, etc.
  • Telephone
  • Asset Insurance / Security
  • Educational
  • Rent
  • Functions / Gatherings
  • Other Personal / Household Expenses
  • Rates / Taxes / Charge / Cess
  • Contribution of Family Members in Expenses

Wealth statement under the light of income tax ordinance 2001

Every resident Taxpayer who is going to file its return of income for a tax year and who’s latest assessed or declared income or the declared income for the year is five hundred thousand rupees (Rs. 500,000/-) or more than it is required to furnish a wealth statement also for that respective tax year along with this return.

Contents of Wealth Statement

Contents of wealth statement are:

Personal Assets

  • Commercial, Industrial, Residential Property (Non-Business)
  • Agricultural Property
  • Equipment (Non-Business)
  • Animal (Non-Business)
  • Business Capital
  • Debenture / Deposit
  • Investment (Non-Business) (Account / Bond / Annuity / Certificate / Fund / Policy / Instrument / Share / Stock / Unit, etc.
  • Debt (Non-Business) (Advance / Deposit / Prepayment / Receivable / Debt/ Security)
  • Household Effect
  • Precious Possession
  • Any other asset i.e. Prize Bonds, Gold, Jewelry, etc.
  • Motor Vehicle (Non-Business)
  • Cash (Non-Business)
  • Assets in others' Name, i.e. Spouse, Children, Parents, Brother
  • Personal Item
  • Assets held outside Pakistan

Liabilities

Credit that may include Advance or Borrowing or Credit or Deposit or Loan or Mortgage or Overdraft and Payable.
Besides the aforementioned assets and liabilities, form of wealth statement also includes the wealth reconciliation statement through the income and expenses incurred during the respective tax year.

Tax Filer in Pakistan can Claim Refund/adjustment of followings while Filing

A Person while submitting his income tax return can claim the below mentioned refunds. An amount of refund must be clearly stated in the FBR online System, i.e. IRIS. The time for filing an application for refund is two years from the date of submitting of return or date of tax payment, whichever is later, and this application is filed separately in the Federal board revenue online IRIS system. Taxpayer is required to visit his Regional Tax Office in FBR for having the status of Application.
The filer will receive the following claims or refunds as listed below:
  • Tax in advance on sale or transfer of immovable property under section 236 C.
  • Cash Withdrawal from Bank under section 231
  • Tax in advance on function and gatherings under section 236D.
  • Income Tax/ Withholding Tax on Purchase, Registration, Transfer and Token of Motor Vehicles under section 234
  • Tax in advance on the purchase of Immoveable Property under section 236K
  • Collection of Advance Tax by Educational Institutions under section 236
  • Tax in advance on Domestic Electricity Consumption under section 235A
  • Tax in advance on Purchase of Air Ticket under section 236B
  • Advance Tax on International Air Ticket under section 236L
  • Advance Tax on Banking Transaction other than cash under section 236P
  • Withholding Tax paid on Mobile Phone Bills under section 236(1)(a)
  • Withholding Tax on Telephone Landline Bills under section 236

Benefits to a Tax Filer in Pakistan

There may be the following advantages for becoming a tax filer in Pakistan.
  • Fewer Taxes in Buying/Selling/Transfer of an Immovable Property.
  • Fewer Taxes on Registration/Transfer/Token of Motor Vehicles.
  • Fewer Taxes on WHT on Cash Withdrawal from Banks.
  • No Taxes on Issuance of Banking Instruments [Cheques, Demand Drafts, Pay order etc.] and Money Transfer.
  • Lesser Taxes on Bank Profits / Commission / Dividends / Saving Certificates / Prize Bonds winning etc.
  • Fewer Taxes on rendering professional Services.
  • Tax filers can take advantage in eligibility for entire loan applications from Banks
  • Entitlement for getting tenders of government and registration on corporate panels:
  • Easier assessment of Income of an Individual at the time of processing Visa Applications
  • Penalty for non-filing of Income Tax Return can be avoided.

The Penalty fee for Not Filing Income Tax Return and Wealth Statement

When an individual fails to furnish Income Tax Return within the due time, he has to pay the penalty, which is discussed as under;
Description Penalty
Income Tax Return 40,000Rs
Wealth Statement 100,000Rs

Cases of Unsuccessful Income Tax Returns

It is essential to understand that Income Tax Returns will not proceed in some cases. As per the Income Tax Ordinance 2001, every individual and company should furnish their details and particulars correctly while submitting their tax returns. False or deceptive information may result in the form of penalties on them. Always try to ensure the following listed guidelines before going to file your tax Returns

  • Your CNIC must be valid.
  • All the necessary sections or fields on the Tax must be filled correctly and those should not be empty.
  • Tax Return should be adequately signed or verified by the Taxpayer or its representative (in case of manual return).
  • Taxes should be adequately paid, and CPR must be correct.