Pakistan

Employment income exemptions

Significant exemptions available under salary income are as follows:

• Medical allowance/expenses: Reimbursement of expenses on medical treatment or hospitalisation or both received by an employee is exempt from tax.
• Medical allowance of up to 10% of basic salary is exempt if the facility of reimbursement of medical expenses is not available to the employee.

Personal deductions/credits

• Special straight deduction is available for Zakat paid under the Zakat and Usher Ordinance.
• A rebate at the average rate of tax is allowed on donations made to any approved non-profit organisation on the lower of donation value and 30% of the individual’s taxable income. In case of donations made by an individual to an associate, the amount of donations qualifying for tax credit would be restricted to 15% of the individual’s taxable income.
• Donations to certain approved institutes that were earlier eligible for direct deduction from income have now been transposed into the tax credit regime. As a result, the overall upper limit for tax break for the donors, in respect of charitable donations, has been reduced.
• A tax credit is available in respect of profits on debt, share in rent, or share in appreciation of house value paid by the individual on loans obtained for constructing or acquiring a personal house (having area up to 2,500 square feet) or flat (having area up to 2,000 square feet). The loans must be from scheduled banks, regulated financial institutions, the government, statutory bodies, or listed companies. Once an individual claims this tax credit, the individual would be ineligible to claim it for another house or flat for the next 15 tax years.
• A full-time teacher or a researcher employed in a non-profit education or research institution duly recognised by the Higher Education Commission, a Board of Education, or a University recognised by the Higher Education Commission, including government research institution, is allowed a rebate of 25% on tax payable on their income from salary. This rebate shall not apply to teachers of medical professions that derive income from private medical practice or receive shares of consideration received from patients. This rebate is deemed to be effective from 1 July 2022 and shall cease to have effect after 30 June 2025.