Filing your income tax return in Pakistan is a legal obligation, but the process can seem daunting. This guide simplifies the process, explaining eligibility criteria, required documents, deadlines, and potential penalties for non-compliance.
Who Needs to File an Income Tax Return?
As per the Income Tax Ordinance 2001 (Section 114), several criteria require individuals and entities to file income tax returns:
- Every company: Regardless of income level, all registered companies in Pakistan must file tax returns.
- Individuals exceeding the basic threshold: If your annual income surpasses a specific limit set by the FBR (Federal Board of Revenue), you are obligated to file. This threshold is subject to change, while the current threshold is Rs. 600,000 per year for filing tax returns in Pakistan.
- Non-profit organizations: Even NGOs and charitable organizations must file tax returns.
- Fixed tax regime: If your income is subject to a fixed tax regime (e.g., on rental income), filing a return is mandatory.
- Previous tax assessments: Individuals who were assessed tax in the preceding two years must file, even if their current income falls below the threshold.
- Asset ownership: Ownership of specific assets, like immovable property, a large vehicle (1000cc or above), or a utility connection exceeding PKR 5,000 annually, necessitates filing.
- National Tax Number (NTN) holders: Anyone with an NTN, even if they haven’t generated income, needs to file a return.
- Business loss carry forward: If you are carrying forward a business loss from a previous year, filing is required.
How to File Tax Returns in Pakistan:
The FBR offers a convenient online filing system called IRIS. Here’s a simplified workflow:
- Gather required documents: Ensure you have all the necessary documents for your specific category.
- Register on IRIS: New filers need to register on the IRIS portal before proceeding.
- Login to IRIS: If you’re registered with FBR, visit IRIS and login with your details.
- Prepare your return: Fill the different online forms of filing tax returns or consult a tax professional in Pakistan for assistance.
- Submit your return: Electronically submit your completed tax return through IRIS.
- Pay any taxes due: If applicable, make any tax payments online or at designated FBR branches.
Filing Tax Return for Service Providers
Service providers in Pakistan, including doctors, lawyers, engineers, and various other skilled professionals, can efficiently file their income tax returns through the Federal Board of Revenue’s (FBR) online portal. The initial step involves accessing the official FBR website and logging in to the Income Tax Returns System (IRS) using your CNIC as the Registration Number and your password. Once logged in, select the “Normal Tax Return” option and choose the relevant tax period (e.g., 2024 for the period July 1, 2023, to June 30, 2024).
Declaring Income, Expenses, and Completing Your Return
As a service provider, you will declare your income under the “Business” section, typically within “Other Revenue” using categories like “Fee for Technical and Professional Services” or “Others.” Crucially, remember to account for legitimate business expenses such as rent, salaries, utilities, and office costs under the “Management, Administration, Selling and Financial Expenses” section to reduce your taxable income. The system will automatically calculate your tax liability, allowing you to generate a Payment Slip ID (PSID) for tax payment. Furthermore, you can adjust any advance taxes paid. Remember to declare business assets and complete the “Wealth Statement” by detailing personal expenses and assets. Before final submission, thoroughly review all entered information and consider consulting the official FBR website or seeking professional advice for accurate compliance with Pakistani tax laws.
Determining Taxable Income and Your Tax Bracket
Understanding how to calculate income tax is crucial for every responsible citizen in Pakistan. The process begins by determining your taxable income, which is your total income minus any allowable expenses like business costs, charitable donations, and certain investments. Once you have your taxable income figure, the next step is to identify your applicable tax bracket. Pakistan’s tax brackets range from 0% to 35% depending on your income level.
Computing Your Tax Liability and Making Payment
With your taxable income and tax bracket identified, you can calculate your income tax using the formula: (Taxable income x Tax rate) – Tax credit. The tax credit includes amounts like tax withheld by your employer or any previously paid tax. After calculating your tax liability, the final step is to make the payment to the government. This can be done through various convenient methods such as online banking, ATMs, or by visiting a branch of any bank.
Additional Tips for Filing Tax Returns in Pakistan:
- Keep all relevant financial records organized for easy access during filing.
- Consider seeking professional guidance from a tax consultant, especially for complex situations.
- Stay updated on any changes to tax laws and regulations.
- Follow our Verified WhatsApp Channel for latest tax news and updates.
Filing your income tax return is a crucial civic responsibility. By understanding the eligibility, documents, deadlines, and consequences, you can navigate the process smoothly and fulfill your tax obligations. Remember, timely filing not only ensures compliance but also contributes to the development of Pakistan.
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