Tax rates on education fee for year 2021-2022

Tax rates on education fee for year 2021-2022

In a move to enhance tax compliance and broaden the tax base, the Federal Board of Revenue (FBR) has introduced an advance tax of 5 percent on individuals paying education fees exceeding Rs200,000 per annum during the tax year 2021/2022.

This development, outlined under Section 236I of the Income Tax Ordinance, 2001, signifies a strategic effort to encourage active participation in the formal economy and is applicable exclusively to individuals not on the Active Taxpayers List (ATL).

The specific provisions of Section 236I are as follows:

236I. Collection of advance tax by educational institutions.— (1) There shall be collected advance tax from a person not appearing on the active taxpayers’ list at the rate specified in Division XVI of Part-IV of the First Schedule on the amount of fee paid to an educational institution.

(2) The person preparing fee voucher or challan shall charge advance tax under sub-section (1) in the manner the fee is charged.

(3) Advance tax under this section shall not be collected from a person on an amount which is paid by way of scholarship or where annual fee does not exceed two hundred thousand rupees.

(4) The term “fee” includes, tuition fee and all charges received by the educational institution, by whatever name called, excluding the amount which is refundable.

(5) Tax collected under this section shall be adjustable against the tax liability of either of the parents or guardian making payment of the fee.

(6) Advance tax under this section shall not be collected from a person who is a non-resident and,—

(i) furnishes a copy of the passport as evidence to the educational institution that during the previous tax year, his stay in Pakistan was less than one hundred eighty-three days;

(ii) furnishes a certificate that he has no Pakistan-source income; and

(iii) the fee is remitted directly from abroad through normal banking channels to the bank account of the educational institution.

This advance tax, applicable on education fees, is collected directly by educational institutions. Individuals not on the ATL are subject to this tax, with rates specified in Division XVI of Part-IV of the First Schedule. The tax, deducted under Section 236I, aims to streamline and simplify the taxation process, promoting financial transparency and inclusivity.

It’s important to note that advance tax under Section 236I is not applicable to amounts paid by way of scholarship or where the annual fee does not exceed Rs200,000. This exemption recognizes the importance of promoting education and ensures that the tax burden does not disproportionately affect those with limited financial means.

Furthermore, the tax collected under this section is adjustable against the tax liability of either parent or guardian making the payment, allowing for flexibility in the utilization of the tax credit. This mechanism ensures that the tax paid on education fees contributes towards reducing the overall tax liability of the family.

In a move towards global inclusivity, the ordinance includes provisions exempting non-residents from this advance tax if they meet specific criteria. Non-residents providing evidence of limited stay in Pakistan, certifying their absence of Pakistan-source income, and remitting fees directly from abroad through normal banking channels are not subjected to this tax.

The introduction of advance tax on education fees represents a balanced approach to tax policy, encouraging active participation in the formal economy while considering the socioeconomic realities of individuals. This strategic move by the FBR aligns with broader efforts to create a fair and transparent taxation framework, promoting financial responsibility and contributing to the overall economic well-being of the nation.