Deductible allowance against income tax liability of a person has been explained under Section 60 of Income Tax Ordinance, 2001.
The Federal Board of Revenue (FBR) issued the Income Tax Ordinance, 2001 updated up to June 30, 2021. The Ordinance incorporated amendments brought through Finance Act, 2021.
In Pakistan, the Income Tax Ordinance, 2001 plays a pivotal role in regulating income taxation for individuals and entities. Section 60 of this ordinance holds a special place, as it outlines deductible allowances against income tax liability for various payments and contributions. These deductions aim to provide financial relief to taxpayers and promote certain social and economic initiatives. Let’s delve into the details of Section 60 and its various provisions.
Section 60: Zakat Deduction
(1) Under this section, individuals can claim a deductible allowance for the amount of Zakat they have paid in a tax year as per the Zakat and Ushr Ordinance, 1980 (XVIII of 1980). Zakat is a mandatory Islamic almsgiving meant to support the less fortunate in society.
(2) However, this deduction does not apply to Zakat amounts already considered under sub-section (2) of section 40.
(3) Importantly, any allowance or portion thereof that cannot be deducted in the current tax year cannot be carried forward to future years or carried back to preceding years.
Section 60A: Workers’ Welfare Fund Deduction
This section allows individuals to claim a deductible allowance for the amount of Workers’ Welfare Fund paid in a tax year under the Workers’ Welfare Fund Ordinance, 1971 (XXXVI of 1971), or under any provincial law related to the Workers’ Welfare Fund enacted after the eighteenth Constitutional Amendment Act, 2010. However, it does not apply to funds paid to provinces by trans-provincial establishments.
Section 60B: Workers’ Participation Fund Deduction
Similarly, this section permits individuals to claim a deductible allowance for the amount of Workers’ Participation Fund paid during a tax year, as per the provisions of the Companies Profit (Workers’ Participation) Act, 1968 (XII of 1968) or under any provincial law related to the Workers’ Profit Participation Fund introduced after the eighteenth Constitutional Amendment Act, 2010. This deduction is also not applicable to funds paid to provinces by trans-provincial establishments.
Section 60C: Deductible Allowance for Profit on Debt
Under this section, individuals can claim a deductible allowance for the profit or share in rent and share in appreciation for the value of a house paid in a tax year on a loan provided by a scheduled bank, non-banking finance institution regulated by the Securities and Exchange Commission of Pakistan, or advanced by the Government or a local, provincial, or statutory body. This allowance is applicable when the loan is used for the construction of a new house or the acquisition of a house.
The amount of the deductible allowance allowed under this section cannot exceed fifty percent of taxable income or two million rupees, whichever is lower.
Section 60D: Deductible Allowance for Education Expenses
In this section, individuals with a taxable income of less than one and a half million rupees are entitled to a deductible allowance for tuition fees paid in a tax year. The amount of this allowance is subject to certain conditions:
It cannot exceed either five percent of the total tuition fees paid, twenty-five percent of the person’s taxable income, or an amount calculated by multiplying sixty thousand by the number of children.
The allowance must be claimed against the tax liability of the parent making the fee payments, and they should provide their national tax number (NTN) or the name of the educational institution.
Importantly, this allowance does not affect the computation of tax deductions under section 149.
It’s crucial to note that while these provisions are outlined in the Income Tax Ordinance, 2001, the specifics of deductions may change over time based on government policies and legislative amendments. Therefore, it’s advisable to consult with tax professionals or refer to the latest updates from the Federal Board of Revenue (FBR) for accurate and up-to-date information regarding deductible allowances.
