The Federal Board of Revenue (FBR) has unveiled Section 110 of the Income Tax Ordinance, 2001, providing a mechanism for the payment of tax on salary income of earlier years by private companies.
This initiative, outlined in the updated Income Tax Ordinance, 2001, dated up to June 30, 2021, reflects the FBR’s ongoing efforts to streamline tax regulations and ensure equitable contributions from all taxpayers.
The amended ordinance, incorporating changes introduced through the Finance Act, 2021, now includes Section 110, which addresses the treatment of salary paid by private companies to their employees for services rendered in a prior tax year. The section aims to tackle instances where salary payments have been deferred and not included in the employee’s taxable income for the relevant earlier year.
The text of Section 110 of the Income Tax Ordinance, 2001, reads as follows:
“110. Salary paid by private companies. — Where, in any tax year, salary is paid by a private company to an employee of the company for services rendered by the employee in an earlier tax year and the salary has not been included in the employee’s salary chargeable to tax in that earlier year, the Commissioner may, if there are reasonable grounds to believe that payment of the salary was deferred, include the amount in the employee’s income under the head ‘Salary’ in that earlier year.”
This provision empowers the Commissioner to assess situations where salary payments by private companies have been deferred, leading to an exclusion from the employee’s taxable income in the relevant earlier year. If there are reasonable grounds to believe that such deferral has occurred, the Commissioner may exercise the authority granted by Section 110 to include the deferred amount in the employee’s income under the head ‘Salary’ for the earlier year.
The introduction of this section signifies a proactive approach by the FBR to address potential gaps in tax compliance, ensuring that income tax liabilities associated with deferred salary payments are appropriately accounted for. By incorporating this amendment, the FBR aims to promote transparency and fairness in the taxation system, discouraging practices that may lead to the deferral of tax liabilities on salary income.
As the FBR continues to modernize and update tax regulations, the inclusion of Section 110 underscores the commitment to adapt to evolving financial landscapes and establish a robust framework for taxation. Taxpayers and private companies are encouraged to familiarize themselves with these changes, promoting a culture of compliance and contributing to the overall economic stability of the nation.