Tax is a vital component of every nation’s economic framework which affects both the government’s ability to raise funds and the financial security of its people and enterprises. The purpose of this article is to present a thorough comparison of the tax slabs in Pakistan and India, two South Asian neighbors with different tax systems.
We may learn more about how each nation conducts taxes and how it affects their economies by comparing and contrasting their tax systems.
Read ahead to know more about it!
Income Tax Slabs: Individuals
In Pakistan as well as India, income tax is a vital part of direct taxes. Individual tax slabs are subject to frequent modifications and vary depending on income levels.
Individual Income Tax Slabs in Pakistan
In the federal budget, the federal government raised the income tax rate for those making Rs. 100,000 or more per month. The tax rate on those earning between Rs 600,000 and Rs 1,200,000 annually has gone up from 2.5% to 5%.
The tax burden on the inflation-affected salaried class is still rising, hence the administration decided to keep the number of tax slabs at six.
The following are Pakistan’s individual income tax slabs:
| Income Slab | Tax |
| PKR 600,000 | No tax |
| From PKR 600,001 to PKR 1,200,000 | 5% tax on the amount over PKR 600,000 |
| PKR 1,200,001 to PKR 1,800,000 | PKR 30,000 + 10% of the amount exceeding PKR 1,200,000 |
| PKR 1,800,001 to PKR 2,500,000 | PKR 90,000 + 15% of the amount exceeding PKR 1,800,000 |
| PKR 2,500,001 to PKR 3,500,000 | PKR 195,000 + 17.5% of the amount
exceeding PKR 2,500,000 |
| PKR 3,500,001 to PKR 5,000,000 | PKR 370,000 + 20% of the amount exceeding PKR 3,500,000 |
| PKR 5,000,001 to PKR 8,000,000 | PKR 670,000 + 22.5% of the amount exceeding PKR 5,000,000 |
| PKR 8,000,001 to PKR 12,000,000 | PKR 1,345,000 + 25% of the amount exceeding PKR 8,000,000 |
| PKR 12,000,001 to PKR 30,000,000 | PKR 2,345,000 + 27.5% of the amount exceeding PKR 12,000,000 |
| PKR 30,000,001 to PKR 50,000,000 | PKR 7,795,000 + 30% of the amount exceeding PKR 30,000,000 |
| PKR 50,000,001 to PKR 75,000,000 | PKR 13,795,000 + 32.5% of the amount exceeding PKR 50,000,000 |
| Above PKR 75,000,000 | PKR 21,920,000 + 35% of the amount exceeding PKR 75,000,000 |
India: Income Tax Slabs for Individuals
In India, an individual’s taxation is mostly determined by where they lived during the applicable tax year. Every tax year, each individual’s residence status is assessed separately based on their physical presence in India both during the current tax year and in previous years. For further details, go to the section on residence.
An individual’s residence status might be any of the following:
- Indian residents, who are further split into the next two groups:
- Resident and ordinarily resident (ROR).
- Resident but not ordinarily resident (RNOR).
- Non-resident in India (NR).
The extent of taxes under Indian tax rules varies based on an individual’s residence status:
- RORs must pay taxes in India on their worldwide income, no matter where it is obtained.
- Only income that accrues, arises, or is presumed to accrue in India, is received or is presumed to be received in India, or comes from a business managed in India or a profession established there is liable to taxation in India for RNORs.
- Only income that is received or presumed to be received in India, or that accrues, arises, or is believed to accrue, is taxable to nonresidents in India.
Regarding income generated and received outside of India, RNOR and NR persons are not liable to tax.
The slabs under the new rule are as follows:
| Income Slab | Tax |
| Up to INR 2,50,000 | No tax |
| INR 2,50,001 to INR 5,00,000 | 5% of the amount exceeding INR 2,50,000 |
| INR 5,00,001 to INR 7,50,000 | INR 12,500 + 10% of the amount exceeding INR 5,00,000 |
| INR 7,50,001 to INR 10,00,000 | INR 37,500 + 15% of the amount exceeding INR 7,50,000 |
| INR 10,00,001 to INR 12,50,000 | INR 75,000 + 20% of the amount exceeding INR 10,00,000 |
| INR 12,50,001 to INR 15,00,000 | INR 1,25,000 + 25% of the amount exceeding INR 12,50,000 |
| Above INR 15,00,000 | INR 1,87,500 + 30% of the amount exceeding INR 15,00,000 |
The slabs under the previous system varied somewhat and had several exclusions and deductions that were not available under the current scheme.
Tax Slabs for Companies
Another important part of direct taxes that applies to all kinds of organizations is corporate tax.
Corporate Tax Rates in Pakistan
A resident company’s global revenue is subject to taxation. Companies that are not residents but operate in Pakistan through a branch are subject to corporate tax rates on the revenue that originates in Pakistan and is attributed to the branch.
The following are the updated federal company tax rates on taxable income:
| Company type | Tax rate (%) |
| Banking company | 39 |
| Public Company* other than a banking company | 29 |
| Small company | 20 |
* A “public company” is defined as one that is either publicly traded on any Pakistani stock market or one in which the federal government or a public trust owns at least 50% of the shares.
Super tax
Super tax is levied at the following slab rates in addition to the above:
| Income (PKR) | Super tax rate (%) |
| From 150 million to 200 million | 1 |
| From 200 million to 250 million | 2 |
| From 250 million to 300 million | 3 |
| From 300 million to 350 million | 4 |
| From 350 million to 400 million | 6 |
| From 400 million to 500 million | 8 |
| Above 500 million | 10 |
Note: The super tax rate for banking firms in the tax year 2023 is 10% if their income exceeds PKR 300 million.
India: Corporate Tax Rates
A resident company’s global revenue is subject to taxation. Only income that is received in India, that accrues or arises there, or that is presumed to accrue or arise there is subject to taxation for non-resident companies.
|
Income* |
CIT rate (%) | |||||
| Turnover not exceeding INR 4 billion in FY 2020-21 | For other domestic companies | Foreign companies having PE in India | ||||
| Basic | Effective** | Basic | Effective** | Basic | Effective ** | |
| Less than 10 million Indian rupees (INR) | 25 | 26.00 | 30 | 31.20 | 40 | 41.60 |
| More than INR 10 million but not exceeding INR 100 million | 25 | 27.82 | 30 | 33.38 | 40 | 42.43 |
| More than INR 100 million | 25 | 29.12 | 30 | 34.94 | 40 | 43.68 |
* Only in cases where total taxable income exceeds INR 10 million is a 10% surcharge due.
* A 4% health and education cessation and a surcharge are included in the effective tax rates.
Indirect Taxes: Sales Tax vs. GST
An important share of government revenue comes from indirect taxes. India and Pakistan have both put in place extensive indirect tax regimes.
Sales Tax in Pakistan
The General Sales Tax (GST), which is imposed on goods and services at a set rate of 17%, is the main indirect tax in Pakistan. To lessen the burden on customers, several necessities are excluded or have reduced costs. Sales taxes on services are also levied by provincial governments; the rates differ by states.
Goods and Services Tax (GST) in India
In 2017, India implemented the Goods and Services Tax (GST), which supplanted several indirect taxes, including VAT, excise duty, and service tax. In the case of intrastate transactions, GST is split into Central GST (CGST), State GST (SGST), and Integrated GST (IGST). In India, there are five different GST slabs: 0%, 5%, 12%, 18%, and 28%. Certain basic commodities and services are excluded from the tax.
Administration and Compliance of Taxes
Pakistan Tax Administration
Taxable period
The tax year is 1 July through 30 June.
Tax returns and statements
Every fiscal year, from July 1 to June 30, an individual must file an income return with the tax authorities. The Commissioner’s previous permission is necessary before filing an amended return, subject to a few restrictions. The Commissioner now has the authority to approve a return’s amendment for a legitimate omission or incorrect declaration.
Each resident taxpayer who files an income return must also file a wealth statement (in the format specified) with their income return. Any individual may be required by the Commissioner to provide the aforementioned statement.
A wealth statement may be revised by filing a notification with the Commissioner, who has the authority to accept or reject the change if the Commissioner determines that the adjustment was not made to remedy genuine mistakes or omissions. For a maximum of five years, a taxpayer may make revisions to their wealth declaration.
India Tax Administration
Taxable period
The Indian tax year is from 1 April to 31 March.
Tax returns
An individual must submit a separate income tax return. It is not allowed to file jointly. For Indian income tax reasons, a husband and wife are considered independent and separate people.
According to tax legislation, everyone operating a business or practicing a profession must have their books of accounts audited if their turnover, total sales, and gross revenues are above INR 10 million for businesses, or INR 5 million for professionals. Individuals have until July 31 of the year that immediately follows the relevant tax year to file their tax returns.
If a person is mandated by tax rules to have an audit of their books of accounts, the deadline for doing so is October 31 of the year that follows the applicable tax year. But, an amended or belated return may also be submitted by December 31st, following the end of the applicable tax year.
A late fee of INR 5,000 will be assessed for tax returns filed beyond the deadline. This cost, however, will not exceed INR 1,000 if the taxable income is less than INR 500,000.
Payment of tax
The last income tax payment has to be made on or before the income tax return filing deadline. Furthermore, the taxpayer must pay advance tax during the tax year in four installments based on estimated income if the taxpayer’s estimated tax liability (for the current tax year) after deducting withholding tax and foreign tax credit is expected to exceed INR 10,000.
These installments are due by June 15 (15% of the estimated annual tax liability), September 15 (45% of the estimated annual tax liability), December 15 (75% of the estimated annual tax liability), and March 15 (100% of the estimated annual tax liability). Senior persons who are residents are not required to pay taxes in advance unless they are employed by a business or have a profession.
Tax Incentives and Exemptions
To encourage investment and economic activity, both nations provide a range of tax breaks and incentives.
Tax Benefits in Pakistan
Pakistan offers several tax breaks to entice foreign investment:
- Special Economic Zones (SEZs): SEZ-operating enterprises are free from taxes.
- Export Processing Zones (EPZs): Export-oriented units are eligible for tax holidays and exemptions under this.
- IT Sector: To promote technological advancement, tax breaks are offered to the IT sector.
Tax Benefits in India
Additionally, India provides several tax breaks to promote economic expansion.
- Special Economic Zones (SEZs): Tax holidays and exemptions for SEZ units.
- Startups: Tax exemptions and perks for qualifying startups.
- Industrial Development (I&D): Tax deduction for costs related to I&D projects.
Deductions Under Income Tax
Pakistan Deductions
Exemptions for employment income
The following are notable exclusions from salary income that are available:
- Tax exemption applies to reimbursements an employee receives for hospital stays, medical treatments, or both.
- If an employee does not have access to reimbursement for medical expenditures, they are not eligible to receive a medical allowance of up to 10% of their base pay.
Individual credits and deductions
- By the Zakat and Usher Ordinance, a special direct deduction is provided for zakat payments.
- Donations given to any recognized non-profit organization are eligible for a refund at the average tax rate, which is calculated by deducting 30% of the donor’s taxable income from the contribution amount.
- The maximum amount of gifts that qualify for a tax credit if they are provided by an individual to an associate is 15% of the individual’s taxable income.
- The tax credit scheme now includes donations to specifically recognized institutions that were previously eligible for a direct deduction from income. As a result, the contributors’ overall maximum tax deduction for charitable contributions has been lowered.
India Deductions
For Salaried Income Individuals
It is possible to deduct a standard amount of INR 50,000 from the taxable pay income.
Individual deductions
- Interest and taxes paid to tax authorities are not deductible.
- Contributions to authorized charities and, to a very limited degree, employer-provided reimbursement for children’s educational costs and housing expenses are eligible for deductions up to a specific amount.
- Investments made during the tax year in some qualified programs in India are entitled to an income deduction of up to INR 150,000. These schemes include Life insurance premiums on the lives of the investor, their spouse, or any children.
- Employee contribution to an established provident fund.
- A contribution to the National Pension System (NPS) or Public Provident Fund.
- Payment into an Indian mutual fund’s tax plan.
- The cost of tuition for any university, college, school, or other educational establishment in India that the individual, their spouse, or any kid wishes to attend full-time.
- Principal repayment of a home loan, etc.
- If an individual contributes to a government-notified pension system, they will also be eligible for an extra deduction of up to INR 50,000 over the previously mentioned INR 150,000 cap.
- About the employer’s NPS payment, there is an extra salary deduction of up to 10% (or 14% in the event of a Central Government contribution) possible.
- Senior persons (60 years of age and above) will have their medical expenses deducted up to INR 50,000 if they do not have any outstanding payments on their health insurance policies.
- It is permissible to deduct business-related expenses from revenue. Expenses that are directly related to exempt income are not deductible.
Losses
| Losses that can be carried forward to subsequent year(s) for Set off | Income against which loss can be offset in the subsequent year(s) | Number of years for which loss can be carried forward |
| Loss pertaining to ‘income from house property’ head | ‘Income from house property’ only | 8 |
| Speculation business loss | Speculation profits only | 4 |
| Unabsorbed depreciation | Any income, except salary | Perpetually |
| Business loss (other than speculation business losses) | Any business profit | 8 |
| Short-term capital loss | Any income under the head ‘capital gains’ | 8 |
| Long-term capital loss | Long-term capital gain only | 8 |
Wrapping It Up
Improving revenue collection, expanding the tax base, and streamlining tax procedures are shared objectives of Pakistan and India despite their differing tax systems and methodologies. The distinctions in rates, exemptions, and compliance procedures are brought to light by contrasting tax slabs and administration. Through mutual experience and obstacle-sharing, both nations may improve their tax structures even further to promote economic expansion.
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FAQs
1) Who Needs to File Taxes in Pakistan?
Individuals who make more than a particular amount of money must file income tax forms. The specific threshold is determined by the taxpayer’s earning capacity. For example, the taxable income threshold for those in salaried employment is more than Rs. 600,000.
2) Which Records Must Be Filed in Order to File Taxes?
A person has to provide their bank statement, pay receipts, property records, CNIC, and information on any investments they have made. Additional documentation, such as balance sheets, tax deduction certificates, and profit and loss statements, are needed from business owners.
3) When Is the Tax Filing Deadline?
The 30th of September is usually the day that the Pakistani government assigns for the submission of tax returns. Nonetheless, the government’s strategy grants an extend of up to one month for the deadline.
4) What sort of Tax Deductions and Credits Available to Filers?
Tax deductions are available to individuals for contributions to pension accounts, medical costs, and charitable donations. Owners of businesses can benefit from tax credits for exports, staff training, and research and development. To fully consider your alternatives, it is important to obtain the advice of a tax specialist.
5) How can I fill out my Pakistani income tax return?
Anyone with an FBR Iris login can file an income tax return. The internet portal known as “Iris” is used to electronically file income tax returns. Before filing an income tax return, each person must register on the Iris Portal. By entering your IRIS login information, you may online file your income tax return.
6) Which tax rates are in effect in India?
The Finance Act, an annual legislative act approved by Parliament, contains the rates for corporation taxes and income taxes. Additionally, you may use the free online tax calculator at www.incometaxindia.gov.in to determine your tax due.
7) How is income tax collected by the government in India?
The government collects taxes in three ways: a) people voluntarily deposit money into one of several recognised banks. For instance, a) taxes deducted at source (TDS) from the recipient’s income, b) taxes collected at source (TCS), and c) advance tax and self-assessment tax paid by the taxpayers. Every individual who earns income has a fundamental duty to accurately calculate his income and pay taxes.
8) What distinguishes taxable from exempt income?
Income that is explicitly excluded from tax under the Income-tax Law is not subject to taxation. Taxable earnings are those that are subject to taxation.
9) Are capital and income receipts alike subject to taxation?
According to the Income-tax Law, all capital receipts are exempt from taxation unless there is an explicit provision for their taxation, and all revenue receipts are taxable unless they are specifically granted exemption from taxation.
10) Do I have to keep any documents or evidence of my income?
You are required by the Income-tax Act to keep the records and documentation pertaining to each source of income. In the event that no such documents are required, you should keep accurate records that will enable you to prove your income claim.
