Islamabad – The Federal Board of Revenue (FBR) has provided tax incentives for contributions to approved pension funds as outlined in Section 63 of the Income Tax Ordinance, 2001.
The Income Tax Ordinance has been updated up to June 30, 2021, incorporating amendments brought about by the Finance Act, 2021.
Key Provisions of Section 63:
1. Eligibility Criteria:
• An eligible person, as defined in sub-section (19A) of section 2, deriving income chargeable to tax under the heads of “Salary” or “Income from Business,” is entitled to a tax credit for a tax year for contributions or premiums paid to an approved pension fund under the Voluntary Pension System Rules, 2005.
2. Tax Credit Calculation:
• The amount of tax credit allowed under sub-section (1) is determined by the formula: (A/B)×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.
• C is the lesser of:
• The total contribution or premium paid by the person in the year.
• Twenty percent of the eligible person’s taxable income for the relevant tax year.
3. Additional Contribution for Late Joiners:
• An additional contribution of 2% per annum is allowed for each year of age exceeding forty years for eligible persons joining the pension fund at the age of forty-one or above during the first ten years starting from July 1, 2006. However, the total contribution allowed shall not exceed 50% of the total taxable income of the preceding year.
• A further provision stipulates that the additional 2% per annum contribution for each year of age exceeding forty years is allowed up to June 30, 2019, with the total contribution not exceeding thirty percent of the total taxable income of the preceding year.
4. Exclusion of Transfers:
• Transfers by members of approved employment pension or annuity schemes to their individual pension accounts with pension fund managers do not qualify for tax credit under this section.
Disclaimer: The provided text is for informational purposes only. While efforts are made to provide accurate information, the team at PkRevenue.com is not responsible for any errors or omissions.
The tax incentives under Section 63 aim to promote long-term savings and financial planning, offering individuals the opportunity to secure their retirement while enjoying the benefits of reduced tax liabilities. This move aligns with the government’s efforts to encourage responsible financial behavior and promote a culture of saving for the future.
