In Pakistan, the tax system for salaried individuals is designed to be progressive, meaning that individuals are taxed at increasing rates as their pakistan salary tax calculator income rises. The Federal Board of Revenue (FBR) is responsible for defining the tax slabs and ensuring compliance with the country's tax laws. To calculate salary tax, individuals need to understand the steps involved, from determining taxable income to applying the appropriate tax rates.
The process of calculating salary tax begins with determining your taxable income. Taxable income includes your total salary, which encompasses the basic salary, allowances, bonuses, and any other compensation provided by the employer. However, certain deductions can be made from the total salary to reduce the taxable income. These deductions may include contributions to pension funds, specific allowances like medical or travel expenses, or charitable donations, as permitted by tax laws.
Once taxable income is determined, it is subjected to the tax slabs. Pakistan follows a progressive tax system, and the FBR issues the tax slabs annually. For the Tax Year 2024, the first 600,000 PKR of annual income is exempt from tax. For income that exceeds this amount, a range of tax rates is applied. The next income bracket, which spans from 600,001 PKR to 1,200,000 PKR, is taxed at a rate of 2.5%. This means that any income in this range is taxed at 2.5% of the amount falling within it. Income above 1,200,000 PKR but below 2,400,000 PKR is taxed at 12.5%, and the tax rate increases progressively as the income rises further. For example, income between 2,400,001 PKR and 3,600,000 PKR is taxed at 20%, while the tax rate reaches up to 35% for individuals earning more than 6,000,000 PKR annually.
To illustrate the calculation, if an individual earns an annual salary of 1,500,000 PKR, the first 600,000 PKR would not be taxed. The next 600,000 PKR (from 600,001 to 1,200,000 PKR) would be taxed at 2.5%, resulting in a tax of 15,000 PKR. The remaining income of 300,000 PKR (from 1,200,001 to 1,500,000 PKR) would be taxed at 12.5%, amounting to 37,500 PKR. Therefore, the total tax liability for the individual would be 52,500 PKR.
In addition to the tax slabs, there are tax credits available to individuals. These credits can help reduce the overall tax liability. Tax credits can be claimed for a variety of reasons, such as making contributions to retirement funds or donating to charity. These credits are subject to specific rules and conditions, and individuals need to be aware of them to benefit from reduced tax rates. It is important for individuals to maintain proper documentation and ensure that they meet the eligibility criteria for these tax credits.