Income Tax Ordinance 2001: tax credit for investment in shares, insurance

KARACHI: The tax authorities have allowed tax credit for an individual against investment made in shares and insurance.

 

 

Federal Board of Revenue (FBR) recently updated Income Tax Ordinance, 2001 explaining the tax credit to individuals for investment in shares and insurance.

Section 62: Tax credit for investment in shares and insurance

Sub-Section (1): A resident person other than a company shall be entitled to a tax credit for a tax year either—

(i) in respect of the cost of acquiring in the year new shares offered to the public by a public company listed on a stock exchange in Pakistan, provided the resident person is the original allottee of the shares or the shares are acquired from the Privatization Commission of Pakistan;

(ia) in respect of cost of acquiring in the tax year, sukuks offered to the public by a public company listed and traded on stock exchange in Pakistan, provided the resident person is the original allottee of the sukuks; or

(ii) in respect of any life insurance premium paid on a policy to a life insurance company registered by the Securities and Exchange Commission of Pakistan under the Insurance Ordinance, 2000 (XXXIX of 2000), provided the resident person is deriving income chargeable to tax under the head “salary” or “income from business:

Provided that where tax credit has been allowed under this clause and subsequently the insurance policy is surrendered within two years of its acquisition, the tax credit allowed shall be deemed to have been wrongly allowed and the Commissioner, notwithstanding anything contained in this Ordinance, shall re-compute the tax payable by the taxpayer for the relevant tax years and the provisions of this Ordinance, shall, so far as may, apply accordingly.

Sub-Section (2): The amount of a person’s tax credit allowed under sub-section (1) 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 any tax credit under this Part;

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

C is the lesser of —

(a) the total cost of acquiring the shares, or sukuks, or the total contribution or premium paid by the person referred to in sub-section (1) in the year;

(b) twenty per cent of the person’s taxable income for the year; or

(c) two million rupees.

Sub-Section (3): Where —

(a) a person has been allowed a tax credit under sub-section (1) in a tax year in respect of the purchase of a share; and

(b) the person has made a disposal of the share within twenty-four months of the date of acquisition, the amount of tax payable by the person for the tax year in which the shares were disposed of shall be increased by the amount of the credit allowed.

Section 62A: Tax credit for investment in health insurance

Sub-Section (1): A resident person being a filer 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 (XXXIX of 2000), provided the resident person being a filer is deriving income chargeable to tax under the head “salary” or “income from business”.

Sub-Section (2): The amount of a person’s tax credit allowed under sub-section (1) 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 to in sub-section (1) in the year;

(b) five per cent of the person’s taxable income for the year; and

(c) one hundred and fifty thousand rupees.

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