Understanding how to calculate salary tax is crucial, especially when factoring in additional allowances such as house rent and a company-maintained car. Many individuals find it confusing when multiple components are involved. This article will provide a step-by-step breakdown of the tax calculation process using a simple example.
Example Data
We consider an individual with the following financial details:
- Basic Annual Salary: Pak Rs. 954,000
- House Rent Allowance: Pak Rs. 381,600
- Company-Maintained Car Value: Pak Rs. 2,700,000
- Medical Allowance: Pak Rs. 95,400
Step-by-Step Tax Calculation
- Basic Salary Inclusion
- The basic salary of Rs. 954,000 is fully taxable.
- House Rent Allowance
- If the company provides house rent allowance, it is also considered taxable income.
- The fair market value is estimated to be Rs. 381,600.
- Company-Maintained Car
- If the car is used for both official and personal purposes, 5% of its value is considered taxable.
- Calculation: 5% of Pak Rs. 2,700,000 = Rs. 135,000.
- Medical Allowance
- If the company provides medical allowance in cash, it is fully exempt.
- Rs. 95,400 is not included in taxable income.
Total Taxable Income
Total taxable amount =
- Basic Salary: Rs. 954,000
- House Rent: Rs. 381,600 (At fair market value)
- Company Car: Rs. 135,000
- Medical Allowance: Rs. 95,400 (will be exempt)
Total Taxable Income = Rs. 1,470,600
Tax Calculation
1.Where taxable income does not exceed Rs. 600,000/- 0%
2.Where taxable income exceeds Rs. 600,000 but does not exceed Rs. 1,200,000 is 5% of the amount exceeding Rs. 600,000
3. Where taxable income exceeds Rs. 1,200,000 but does not exceed Rs. 1,600,000 is Rs. 30,000 + 15% of the amount exceeding Rs. 1,200,000
Total tax liability = Rs. 70,590
Monthly Tax Deduction
Since this tax is annual, dividing by 12 gives the monthly deduction: Rs. 70,590 / 12 = Rs. 5,883 per month
Adjustments During the Year
- If any changes occur in salary, house rent, or car usage, tax calculations must be updated accordingly.
- If the car is used exclusively for personal purposes, a 10% tax applies instead of 5%.
- It is essential to check with the concerned department regularly to update tax calculations.
