The Federal Board of Revenue (FBR) has implemented amendments through the Finance Act, 2021, updating the Income Tax Ordinance, 2001, and introducing new provisions related to tax credits for investments. Section 62 and 62A outline the eligibility and computation of tax credits for investments in shares, insurance, and health insurance.
Section 62: Tax Credit for Investment in Shares and Insurance
Under Section 62(1), a resident person, excluding companies, is entitled to a tax credit for a tax year under the following circumstances:
In respect of the cost of acquiring 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 acquires them from the Privatization Commission of Pakistan.
In respect of the cost of acquiring sukuk offered to the public by a public company listed and traded on a stock exchange in Pakistan, provided the resident person is the original allottee of the sukuk.
In respect of the cost of acquiring units of an exchange-traded fund offered to the public and traded on a stock exchange in Pakistan.
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, provided the resident person is deriving income chargeable to tax under the head “salary” or “income from business.”
However, a provision is made that if an insurance policy is surrendered within two years of its acquisition after a tax credit has been allowed, the tax credit will be deemed to have been wrongly allowed, and the Commissioner can re-compute the tax payable for the relevant tax years.
Under Section 62(2), the amount of a person’s tax credit is computed using a formula involving the assessed tax, taxable income, and the lesser of the total cost of acquiring shares, sukuk, or the total contribution or premium paid by the person. The credit is capped at 20% of the person’s taxable income for the year or two million rupees.
In the case of a disposal of shares within twenty-four months of acquisition, the tax payable for the year of disposal is increased by the amount of the credit allowed (Section 62(3)).
Section 62A: Tax Credit for Investment in Health Insurance
Section 62A introduces a tax credit for a resident person (excluding companies) in respect of any health insurance premium or contribution paid to an insurance company registered by the Securities and Exchange Commission of Pakistan under the Insurance Ordinance, 2000. The resident person must be deriving income chargeable to tax under the head “salary” or “income from business.”
The computation of the tax credit under Section 62A(2) involves the assessed tax, taxable income, and the lesser of the total contribution or premium paid, five percent of the person’s taxable income for the year, or one hundred and fifty thousand rupees.
As with Section 62, the provided information is for reference purposes, and individuals are advised to consult with tax professionals for accurate and up-to-date advice. The disclaimer emphasizes that while efforts are made to provide correct information, the team PkRevenue.com is not responsible for any errors or omissions.
