Calculation of Taxes on your Salary

Suppose you are a salaried individual and are confused by the imposition of taxes upon your income from FBR. Then you are in the right place, we will instruct you in the right direction, but we need attention on reading from your end. 

We will discuss every aspect of your gross salary income, its categorization, and the taxes imposed upon it from FBR relating to Pakistan’s new tax slab rates. We will thoroughly guide your stance during the entire process.

There is a rising question regarding income taxes’ slabs and calculation of taxes on income, which are very much concerning nowadays among salaried individuals. When calculating the tax on salary, you also need to look for the following attributes.

The salary which you take to your home can be categorized into the following characteristics followed by usual tax practices and the income tax ordinance 2001:

• Basic Salary Pay

• House Rent Allowance

• Conveyance Allowance or Transport Facilitation

• Medical and Miscellaneous Allowance 

We will illustrate it with a solid example by assuming a specific criterion followed by the attributes mentioned above of a salaried individual.

Basic Salary Pay:

The salary you take home after every month and around 1 – 15 days of that month is your basic pay. This salary is excluded from any extra credit and debit. As such, it is the fixed amount of money which you receive as a salary. No incentives, bonuses, commissions and overtime pay are included in it.

Suppose your salary is Rs. 50,000/- per month, which amounts to a total of Rs. 600,000/- per year. So, you have to pay 0.3% of the tax every month, which adds up to 1.9% of the total tax on your total annual income.

If you have a salary range of above Rs. 50,000/- per month, you have to check your tax margins through the tax calculator by clicking here on this link.

House Rent Allowance:

If you live in a rental house and the company gives you a rental allowance, it makes up a specific portion of your total salary, which you take to your home. Generally, the house rent allowance amounts to 40% – 50% of your basic monthly salary.

Suppose you have a basic salary package of Rs. 50,000/- per month, so you would receive a monthly house rent allowance in the range of Rs. 20,000 – 25,000. The compliance of house rent allowance with the company can differ from company to company.

On a lighter note, the house rent allowance is already included in your basic monthly pay. It is not given separately to any employee other than in the basic salary. There is no tax imposed separately on the rent allowance provided by the company.

Conveyance Allowance or Transport Facilitation:

We live in a world that has become more online-driven after the covid crisis and keeping a view on its consequences. But for regular basis employees who are getting used to travelling on public and personal transport. Companies tend to compensate them.

For instance, you are earning Rs 50,000/- per month. So, the company will manage around 10% – 15% in your monthly salary that amounts to total money ranging from Rs. 5000 – 7500. These amounts are adjusted in your basic monthly salary and are not allotted separately. 

On some occasions, if your company is of moderate to a higher standard. So, the company may reward you with the official office car to facilitate you with the transport convenience. You may use it for personal usage; otherwise, official usage experience is a must. All the fuel and maintenance have to be borne by the employee. 

Medical Allowance and Miscellaneous Allowance:

It all depends upon your job designation in your company. The medical allowance can be a part of your basic monthly salary or is provided to you separately along with other allowances and pay.

Like other countries around the globe, the greater the job designation, the more the benefits are associated with them. And also, the nature and type of organization in particular.

Note: Only when you possess a higher job designation in the company, so all the allowances other than the monthly salary will be allotted to you separately. And the tax is only imposed upon your salary, not on its particulars, benefits, and when it exceeds Rs. 50,000/- monthly and Rs. 600.000/- annually.