Karachi, August 17, 2023 – The Federal Board of Revenue (FBR), Pakistan’s foremost tax authority, has unveiled the distinct categories of income for taxation purposes during the fiscal year 2023-24.
In a significant move, the FBR has introduced these income classifications as part of the updated Income Tax Ordinance, 2001, which came into effect on July 1, 2023.
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The updated ordinance is aimed at refining the country’s tax framework and streamlining the taxation process, with a focus on fairness, clarity, and efficiency. One of the key aspects of this update is the identification of specific “heads of income,” which determine how different types of earnings are categorized and subsequently taxed.
Under Section 11 of the updated ordinance, the heads of income have been outlined as follows:
Salary: Income derived from employment or services rendered under an employer.
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Income from Property: Earnings generated from owning or leasing out properties, such as rental income.
Income from Business: Profits arising from business activities, including trading, manufacturing, and professional services.
Capital Gains: The proceeds gained from the sale of capital assets, such as real estate or investments.
Income from Other Sources: Miscellaneous income sources not covered by the other categories, including gifts, dividends, and winnings.
The ordinance further elucidates the mechanisms for calculating taxable income within these heads:
Sub-section (2): This stipulates that a taxpayer’s income under a particular head for a tax year will be the total amount earned within that category, subject to deductions permitted by the ordinance.
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Sub-section (3): Should the deductions allowed under the ordinance exceed the total earnings within a particular head, the taxpayer is deemed to have incurred a loss equivalent to the surplus deduction.
Sub-section (4): Guidelines for handling a loss under a specific head are provided in Part VIII of the ordinance.
Sub-section (5): For resident individuals, both Pakistan-source and foreign-source income will be considered when computing taxable income under a specific head.
Sub-section (6): Non-resident individuals are only required to consider Pakistan-source income when calculating taxable earnings under a particular head.
These classifications and regulations are integral to the fair and efficient assessment of taxes in Pakistan. By clarifying the criteria for income categorization, the FBR aims to enhance transparency and facilitate more accurate taxation across different income streams.
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The introduction of these heads of income underscores Pakistan’s commitment to modernizing its taxation structure and ensuring a level playing field for all taxpayers. As the fiscal year progresses, these updates are expected to contribute to a more robust and equitable revenue collection process.
Disclaimer: The information is derived from the Income Tax Ordinance and is intended solely for educational purposes. It does not carry any legal obligations. Individuals are strongly advised to consult the Federal Board of Revenue (FBR) to determine their specific requirements for filing tax returns.
