Who is Liable for Income Tax Return Filing?

October 4, 2023

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Income Tax Return - Who is liable for it?

Income tax is a tax levied on the income of individuals and businesses. It is a major source of revenue for the government, and it is used to fund public services such as education, healthcare, and infrastructure.

In Pakistan, income tax is governed by the Income Tax Ordinance, 1979. This ordinance sets out the rates of tax, the types of income that are taxable, and the filing requirements for individuals and businesses.

The deadline for filing income tax returns in Pakistan is usually the 30th of June of the following year. However, the government may extend this deadline for certain taxpayers as the deadline for filing the income tax return for the tax year 2023 is September 30, 2023.

If you are an individual or business taxpayer in Pakistan, it is important to understand your income tax filing obligations. Failure to file your return on time can result in penalties and interest charges.

What is Income Tax Return Filing?

Income tax return filing is the process of submitting a declaration of your income and expenses to the tax authorities. This declaration is used to calculate your tax liability for the year.

The income tax return filing process is different for individuals and businesses. Individuals typically file a simpler return than businesses. However, the basic steps involved in income tax return filing are the same for both individuals and businesses.

The first step in income tax return filing is to gather all of the relevant information. This information includes your income, your expenses, and any deductions or credits that you are eligible for.

The second step is to complete the income tax return form. The income tax return form is a document that is provided by the tax authorities. The form will ask you to provide information about your income, your expenses, and any deductions or credits that you are eligible for.

The third step is to file the income tax return with the tax authorities. The income tax return can be filed online or by mail.

The fourth step is to pay any taxes that you owe. The amount of tax that you owe will be calculated on your income tax return.

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Legal Framework for Income Tax in Pakistan

The income tax system in Pakistan is governed by the Income Tax Ordinance, 1979. This ordinance sets out the rates of tax, the types of income that are taxable, and the filing requirements for individuals and businesses.

The Income Tax Ordinance, 1979 has been amended several times since it was first enacted. The most recent amendment was made in 2023

The Income Tax Ordinance, 1979 is a complex piece of legislation. It is important to seek professional advice if you have any questions about your income tax obligations.

Individuals Liable for Income Tax Return Filing

In Pakistan, individuals are liable for income tax if their taxable income exceeds a certain threshold. The taxable income threshold for individuals varies depending on their marital status and the number of dependents they have.

The taxable income threshold for individuals in Pakistan is as follows:

  1. Single individuals: PKR 600,000
  2. Married individuals: PKR 1,200,000
  3. Married individuals with one dependent: PKR 1,500,000
  4. Married individuals with two dependents: PKR 1,800,000

If your taxable income exceeds the threshold, you are liable for income tax. You must file an income tax return with the tax authorities.

Business Entities and Income Tax Return Filing

In Pakistan, there are different types of business entities, each with its own income tax filing requirements.

The following are the most common types of business entities in Pakistan:

  1. Sole proprietorships
  2. Partnerships
  3. Limited liability companies (LLCs)
  4. Public limited companies (PLCs)

Sole proprietorships are businesses that are owned and operated by a single individual.

Business Entities and Income Tax Return Filing

Sole proprietorships

Sole proprietorships are businesses that are owned and operated by a single individual. The individual is personally liable for all of the debts and obligations of the business.

The income tax filing requirements for sole proprietorships vary depending on the amount of income that the business generates. Sole proprietorships with an annual income of less than PKR 1,000,000 are not required to file an income tax return. Sole proprietorships with an annual income of more than PKR 1,000,000 must file an income tax return.

Partnerships

Partnerships are businesses that are owned and operated by two or more individuals. The partners are jointly and severally liable for all of the debts and obligations of the business.

The income tax filing requirements for partnerships vary depending on the amount of income that the business generates. Partnerships with an annual income of less than PKR 2,000,000 are not required to file an income tax return. Partnerships with an annual income of more than PKR 2,000,000 must file an income tax return.

Limited liability companies (LLCs)

LLCs are businesses that are owned by shareholders. The shareholders are not personally liable for the debts and obligations of the business.

The income tax filing requirements for LLCs are the same as the income tax filing requirements for companies.

Public limited companies (PLCs)

PLCs are businesses that are listed on the stock exchange. The shareholders of a PLC are not personally liable for the debts and obligations of the business.

The income tax filing requirements for PLCs are the same as the income tax filing requirements for companies.

Income Thresholds and Taxable Income

The taxable income for individuals and businesses is calculated by subtracting the deductions and credits from the gross income. The deductions and credits that are available to individuals and businesses vary depending on their circumstances.

The taxable income threshold for individuals and businesses is also used to determine the tax rate that is applied to their income. The tax rates in Pakistan are progressive, which means that the higher your income, the higher your tax rate.

Employees and Salary Income Tax Return Filing

Employees in Pakistan are not required to file an income tax return if their salary is less than PKR 600,000. However, employees with a salary of more than PKR 600,000 must file an income tax return.

The income tax return for employees is usually filed by their employer. The employer is required to withhold tax from the employee’s salary and remit it to the tax authorities.

The employee is required to file an income tax return to claim any deductions or credits that they are eligible for.

Self-Employed Individuals and Professionals

Self-employed individuals and professionals are required to file an income tax return regardless of their income. The income tax return for self-employed individuals and professionals is more complex than the income tax return for employees.

The self-employed individual or professional is required to calculate their income and expenses and file an income tax return with the tax authorities.

Partnerships and Joint Ventures

Partnerships and joint ventures are required to file an income tax return regardless of their income. The income tax return for partnerships and joint ventures is more complex than the income tax return for individuals or businesses.

The partnership or joint venture is required to calculate its income and expenses and file an income tax return with the tax authorities.

Companies and Corporate Taxation

Companies in Pakistan are required to file an income tax return regardless of their income. The income tax return for companies is more complex than the income tax return for individuals or businesses.

The company is required to calculate its income and expenses and file an income tax return with the tax authorities.

Penalties and Consequences of Non-Compliance

There are penalties for not filing an income tax return in Pakistan. The penalties for non-compliance vary depending on the taxpayer’s circumstances.

The penalties for non-compliance can include:

  1. Late filing fees
  2. Interest charges
  3. Criminal prosecution
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Benefits of Hiring a Tax Consultant

If you are liable for filing an income tax return in Pakistan, you may want to consider hiring a tax consultant to help you. There are many benefits to hiring a tax consultant, including:

Personalized guidance: A tax consultant can help you understand your tax obligations and ensure that you are filing your return correctly.

Accurate calculations: A tax consultant has the expertise to ensure that your return is accurately calculated, which can help you avoid penalties and interest charges.

Minimization of tax liability: A tax consultant can help you identify deductions and credits that you may be eligible for, which can help you minimize your tax liability.

Peace of mind: Hiring a tax consultant can give you peace of mind knowing that your return is being filed correctly and that you are maximizing your tax savings.

About PFOC

PFOC is a leading tax consulting firm in Pakistan. We have a team of experienced and qualified tax professionals who can help you with all of your income tax needs. We are committed to providing our clients with personalized guidance, accurate calculations, and tax savings.

Contact PFOC

If you are looking for help with your income tax return filing, please contact PFOC today. We would be happy to assist you.

Conclusion

If you are liable for filing an income tax return in Pakistan, it is important to understand your obligations and to seek professional help if you need it. By hiring a tax consultant, you can ensure that your return is filed correctly and that you are maximizing your tax savings.

Contact PFOC today to learn more about how we can help you with your income tax needs.