the Federal Board of Revenue (FBR) has granted tax exemptions from total income during the tax year 2022 to various classes of individuals and entities under Part 1, Second Schedule of the Income Tax Ordinance, 2001.
The updated ordinance, effective up to June 30, 2021, incorporates crucial amendments through the Finance Act, 2021.
Outlined below are the key exemptions specified under Part 1, Second Schedule of the Income Tax Ordinance, 2001:
(3) Income from Agha Khan Development Network Engagement: Any income chargeable under the head “Salary” received by a person engaged as an expert, technical, professional, scientific advisor, consultant, or senior management staff by institutions of the Agha Khan Development Network (Pakistan) is exempt from tax. This exemption is subject to the conditions outlined in the Accord and Protocol dated November 13, 1994, executed between the Government of the Islamic Republic of Pakistan and Agha Khan Development Network.
(5) Allowance or Perquisite for Services Outside Pakistan: Any allowance or perquisite paid or allowed outside Pakistan by the Government to a citizen of Pakistan for rendering service outside the country is exempt from tax.
(8) Pension Exemption: Pensions received by a citizen of Pakistan from a former employer are exempt from tax, provided the individual is not actively working for the employer or an associate. The exemption applies to the higher of multiple pensions received.
(9) Armed Forces and Government Service Pensions: Pensions received in respect of services rendered by members of the Armed Forces of Pakistan or Federal/Provincial Government employees, including pensions granted to families and dependents of public servants or Armed Forces members who die during service, are exempt from tax.
(12) Commutation of Pension: Payments in the nature of commutation of pension received from the government or an approved pension scheme are exempt from tax under this clause.
(13) Gratuity and Commutation of Pension on Retirement: Income representing payments received by way of gratuity or commutation of pension upon an employee’s retirement or death is exempt, subject to specified limits and conditions.
(16) Special Family Pension for Armed Forces “Shaheeds”: Income derived by families and dependents of “Shaheeds” from the special family pension, dependents pension, or children’s allowance under the provisions of Joint Services Instruction No. 5/66 is exempt from tax.
(19) Encashment of Leave Preparatory to Retirement: Any sum representing encashment of leave preparatory to retirement for members of the Armed Forces or government employees is exempt from tax.
(22) Provident Fund Payments: Payments from a provident fund falling under the Provident Funds Act, 1925, are exempt from tax.
(23, 23A, 23B, 23C) Pension System Exemptions: Various exemptions related to pension systems, including accumulated balances, voluntary pension system withdrawals, and monthly installments from income payment plans, are detailed under these clauses.
(24) Benevolent Fund Payments: Benevolent grants paid from the Benevolent Fund to employees or their families under the Central Employee Benevolent Fund and Group Insurance Act, 1969, are exempt from tax.
(25) Superannuation Fund Payments: Payments from an approved superannuation fund made on the death of a beneficiary or in various circumstances are exempt from tax.
(26) Workers Participation Fund: Income representing sums received by a person as a worker from the Workers Participation Fund established under the Companies Profits (Workers Participation) Act, 1968, is exempt from tax.
This comprehensive set of exemptions aims to provide relief to specific classes of individuals and entities, fostering economic growth and financial stability. Taxpayers are urged to carefully review the conditions and limits specified under each provision to ensure compliance with the Income Tax Ordinance, 2001. The FBR remains committed to promoting transparency and facilitating taxpayers in understanding and adhering to the latest tax regulations.
