Tax Calculation

[Muhamamd Umar Farooq]

Dear All,

I have some confusion regarding below mentioned tax calculation

Description Amount

Gross Salary Annual 984264

Arrears Salary 48088

Net Salary 1032352

Annual Tax 9% 92912

Monthly Tax 7743

My question is that in annual salary arrears are included but company is deducting separate tax on Arrears.

Please Guide Me

Muhammad Umar Farooq

[Muhamamd Umar Farooq]

Lap Top Bhai,

your cooperation needed regarding my below post.

Kind Regards,

Muhammad Umar Farooq

[LapTop]

Salary is chargeable to tax on the basis of actually received in a tax year. Accordingly the arrears of salary received in lump sum are also chargeable to tax in the tax year in which received. As a result the income tax payable substantially increases, since the taxable income falls in a higher tax slab.

The taxpayer has an option to notify the concerned Commissioner by the due date of furnishing the return, that he/she has elected for the arrears of salary to be taxed as a separate block of income at the rates of income tax that would have been applicable if such arrears were received in the tax year in which the services were rendered (fixed tax) [Sub-section (7) and (8) of section 12 of the Income Tax Ordinance, 2001].


Following example will illustrate the effects and calculations

Salary for the year
Excluding arrears. Rs.1,000,000/-
Arrears (of last 2 years) Rs. 200,000 for each year. Rs.400,000/-


Calculation of income tax, if not electing-
Chargeable / total /taxable income (Excluding Arrears) 1000,000 * 9% = 90,000/-
Chargeable / total /taxable income (Including Arrears) 1,400,000 * 11% = 154,000/-



Calculation of fixed tax on arrears, at the rates of income tax that would have been applicable if such arrears were received in the tax year in which the services were rendered



Preceding Year 1st
Taxable income Excluding arrears 700,000 tax payable 42,000
Taxable income Including arrears 900,000 tax payable 67,500
Difference in Income Tax payable 25,500


Preceding Year 2nd
Taxable income Excluding arrears 600,000 tax payable 27,000
Taxable income Including arrears 800,000 tax payable 60,000
Difference in Income Tax payable 33,000

Total Difference 1st year + 2nd year 58,500


Calculation of tax liability, if electing
Income tax on chargeable /total / taxable income excluding arrears 90,000/-
Fixed tax on arrears calculated at the rates of income tax that would have been applicable if such arrears were received in the tax year in which the services were rendered 58,500

Total income tax liability 90,000 + 58,500 = 148,500

[Muhamamd Umar Farooq]

Dear Lab Top,

My Question is that he person who is receiving his new salary, say we have got the arrears in the month of May, before may we got old salary that is to be supposed 70000/-, but in very after next month with arrears, as my query shows.

i mean i need some more clarification regarding my above post

hope you understand

Kind Regards,

Muhammad Umar Farooq

[LapTop]

agar arrears usi isi sal k han to wo ap ki taxable income may add ho jaye ga phir tax calculate ho ga.


Agar arrears pichly tax year k han to jo calculation uper batai hay wasy ho gi.

[Muhamamd Umar Farooq]

Thanks Dear Faruukh for you valuable response.

Kind Regards,

Muhammad Umar Farooq