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Tax on the Salaries of Contractual Employee
08-17-2009, 04:08 PM,
Tax on the Salaries of Contractual Employee
What is the tax calculation on the salaries of contractual employee? can they be benefited with Medical Allowance to reduce tax?

I am not sure where but some where I read that all contractual employee will be taxed @ 6% of there salary. It iscorrect?

And if there is any other condition which should be considered, please explain.


Abbas Shabbir
08-17-2009, 05:00 PM,
Contractual empleyees can be benefited from the medical allowance tor reduce tax liability like permanent employess. you can segregate the salaries of contractual employees in basic salary and medical allowance.

In some companies it is general practice that executives who fall in high slab rates like 10% and above then these employees are considered as consultants and 6% tax is deducted as per section 153(1)(b) of income tax ordinance to provide benefit to these high executives. But at the end these employees are required to file return like a businessman or a professional.


Awais Aftsb
08-17-2009, 11:22 PM,
Isnt there any cons of hiring contracual employees?
I have heard that contract needs to be renew every months as its expires?
08-18-2009, 05:18 PM,
Please don't mind but I am unable to understand your question.

08-19-2009, 02:15 PM,
you should compute the salary tax payable of contractual employees as a regular employee if the contractual employees have all the benefits as a regular employee. I my company before my joining few contractual employee taxed @ 6% as a contractor but i calculate their salary income tax payable as a regualr employee because he have all the benefits as a regualar employee.

so i suggest you to compute tax a regular salary employee.
08-19-2009, 06:36 PM,
In my Opinion, There are some difference bitwen Contract of Services & Contract of Employment,

Any Contract between employer and Employee whether written or Oral, and employee drawing remuneration against the contract of employment, that is salary income according to ITO.

But contract of Services can be made between company and professionals, includes the services of accountants, architects, dentists, doctors, engineers, interior decorators and lawyers, otherwise than as an employee.
08-19-2009, 11:38 PM,
Thanks for your advice ...

But what if he is not availing any regular benefit .. Should I taxed him @6% or at regular rates which is as per his salary should be 9%?
We have hired that employee as Marketing Consultant
08-20-2009, 02:15 PM,

If the said person has been hired under section 153© and payment is being made on the basis of Signed Contract then Tax @ 6% should be deducted, otherwise, should be taxed under section 149.
However, In such cases, one should refer to the terms of agreement which might stipulate conditions attached with regards to the services/employment of such person.

In my view, such person should be taxed @ 6% instead of 9%, since it is beneficial in favour of the said person, and accordingly an agreement should be made, which should reveal that the said person has been hired as a consultant, so that it shall be treated as an evidence, which would shelter as and when such necessity is arisen.

No Medical allowance and other benefits will be provided in case of taxing him under section 153©, however, if provided, then these benefits will also be included in his consideration for the purpose of taxation under section 153© and accordingly tax will be deducted.

Best Regards,


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