Income Tax Return – Who Must File? A Complete Guide
Collection of Income Tax from individuals and businesses by Federal Board of Revenue is one of the major sources of revenue of the Federal Government. Filing annual return of income commonly known as income tax return is a statutory obligation on certain persons. And non compliance of this obligation is an offence punishable under Income Tax Ordinance 2001. But the question is who is required to file income tax return in Pakistan?
Well, before diving into the topic, we need to explain income tax, heads of income and return of income .
What is Income Tax?
Income tax is a mandatory levy applicable on the income you earn in a tax year exceeding the threshold. Currently, the prescribed threshold for business individual and salaried person is Rs. 400,000 and 600,000 respectively.
In simple words, we can say that it is a charge on annual income or earnings levied by federal government. This charge or levy is governed by the Income Tax Ordinance, 2001 & Income Tax Rules, 2002 as amended every year. In Pakistan, tax year starts from 1 July and terminates on 30 June next year.
Note: Income Tax is not applicable on your wealth or assets as it is commonly misperceived.
Heads of Income
All income is largely divided, according to the Income Tax Ordinance, 2001 into following five heads of income:
- Salary
- Income from property
- Income from business
- Capital gains and
- Income from other sources include income from dividend, royalty, profit on debt, rent from sub-lease of land or building, income from lease of any building with plant & machinery, prize on bonds, winnings from a lottery or crossword puzzle, or profit on loan, advance, deposit or gift.
Special set of rules apply for computation of income chargeable to tax under each head of income.
Return of Income and its Essentials
A return of income is a stocktaking of income derived from different heads of income in a tax year. It reflects the tax payable or refundable. The computation is done by the software considering the data you input and applying the relevant income tax slab and tax rate.
It is prepared and furnished on a special software commonly known as IRIS designed by Pakistan Revenue Authority Limited and prescribed by the Federal Board of Revenue.
The FBR has power to prescribe different forms for different classes of income / persons. Return of income is only accepted if:-
- True particulars of taxpayer are reflected in the prescribed form;
- Proof of payment of due tax as per return of income is attached;
- Wealth statement under section 116(2) is attached; or
- Foreign income and assets statement as required under section 116A is attached;
- The return is duly signed by either the taxpayer himself or his representative.
Who is Required to File Return of Income?
Income Tax Ordinance 2001 makes it mandatory for below mentioned persons to furnish a return of income for a tax year: –
- Every company
- Every person, other than a company, whose taxable income for the year exceeds the maximum amount that is not chargeable to tax for the year
- Any non-profit organization
- Any welfare institution approved under Part I of the Second Schedule
- Every person whose income is subject to final tax
- Any person who: –
- had been charged to tax in any of the TWO preceding tax years;
- carries forward a loss for a tax year;
- is owner of immovable property measuring five hundred square yards or more; or
- is owner of a flat located within the municipal limits or Cantonment or the Islamabad Capital Territory;
- Owns an immoveable property measuring minimum five hundred square yards situated in a rating area;
- Owns a flat with covered area of minimum two thousand square feet in a rating area;
- Owns a motor vehicle with engine capacity above 1000 CC;
- Has been allocated National Tax Number (NTN);
- Holds an electricity connection whose annual bill exceeds rupees five hundred thousand;
- is a member of any chamber of commerce and industry or trade association or any professional body like Pakistan Engineering Council (PEC), Pakistan Medical and Dental Council (PMDC), Pakistan Bar Council or any Provincial Bar Council, Institute of Chartered Accountants of Pakistan (ICAP) or Institute of Cost and Management Accountants of Pakistan (ICMAP) and is Pakistan resident for tax purposes;
- is a resident person and obliged to file foreign income and assets statement under section 116A.
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Income Tax Laws are complicated and only experts in this field can best prepare and file your income tax return. Although a person with a little knowledge and common sense may be able to prepare and furnish income tax return but there is strong likelihood that you may have to face immediate loss of certain tax deduction and face complications in the longer run.
4SYTE Tax & Biz Consultants being expert with requisite knowledge and experience in the field, provide consultancy and services with regard to preparation and submission of your income tax return at competitive professional fee.
We ensure that you get maximum incentives provided by the Government while remaining compliant with the legal requirements and obligations.
Whether you are a salary person or a business individual or a company or an association of Person (AOP), we are here to prepare and file your income tax return on time in a thorough professional manner. You concentrate on your job and business while we take care of this obligation.
This was a comprehensive guide on who is required to file annual income tax returns in Pakistan. We hope you found this piece helpful. If you have any feedback, feel free to comment below. We really appreciate your feedback and time.
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