Daily Times

The Federal Board of Revenue (FBR) has recently issued guidelines outlining the method for computing tax on salary income for the upcoming tax year 2024.

These guidelines are detailed in the updated Income Tax Rules, 2002, reflecting amendments made up to November 24, 2023.

The FBR’s release provides clarity on the valuation of perquisites, allowances, benefits, accommodation, and conveyance, shedding light on the intricacies that will govern the taxation of salary income in the coming fiscal year.

The FBR’s guidelines specify that, for the computation of income chargeable under the “salary” head, the value of all perquisites, allowances, and benefits provided by the employer to the employee will be included. This calculation is to be done in accordance with rules 4 to 7, ensuring a comprehensive assessment of all financial components related to the employment.

In the realm of accommodation provided by an employer to an employee, the FBR mandates that the value shall be equal to the amount that would have been paid by the employer if such accommodation were not provided. Notably, the value taken for this purpose must not be less than forty-five percent of the minimum of the time scale of basic salary or the basic salary in the absence of a time scale. This rule is further nuanced in cases where House Rent Allowance is admissible at thirty percent, stipulating that the value considered should not be less than thirty percent of the minimum of the time scale of the basic salary.

For conveyance provided by an employer to an employee, the FBR outlines specific parameters. When the conveyance is utilized partly for personal and partly for official use, the valuation shall be 5% of either the cost to the employer for acquiring the motor vehicle or the fair market value of the motor vehicle at the commencement of the lease, if applicable. In cases where the vehicle is exclusively for personal use, the tax rate will be 10% of either the cost to the employer for acquiring the motor vehicle or the fair market value at the start of the lease. It’s crucial to note that these provisions also encompass directors of companies, as they fall under the definition of “employee” for these purposes.

These guidelines provide a structured framework for employers and employees alike to navigate the complexities of salary income taxation in the upcoming tax year. Staying abreast of these rules is essential for compliance and strategic financial planning. As the tax landscape evolves, individuals and businesses are advised to seek professional advice to ensure accurate adherence to the latest regulations issued by the FBR.

Moreover, the FBR emphasized that the deductions will be granted only for entertainment of individuals directly related to the person’s business activities. The new rule defines “entertainment” as the provision of meals, refreshments, and reasonable leisure facilities. These provisions should align with the tradition of business and adhere to the overall norms and customs of business in Pakistan.

This move is expected to have a notable impact on businesses, particularly those accustomed to more lenient deduction policies in the past. It reflects the government’s commitment to enhancing fiscal discipline and ensuring that tax regulations align with international best practices. Businesses are urged to review their entertainment expenditure practices to ensure compliance with the revised regulations. Failure to adhere to the specified criteria may result in a reduced deduction or even the disqualification of certain expenditures during the calculation of corporate taxes.