Financial Risk Manager

Ways of Financial and Risk Management

Tax Treatment of Salary
Thursday, February 26, 2009

Case from mszuberi_associates:

A Non Profit organization not deducted the tax from its' employees salary for several years.

Queries:

Who is responsible? Organization, Employee, Or both?
what is the panalty under Income Tax ordinance, 2001 and who would bear it.

Comment:

Section 149, Salary, of Division III, Deduction of Tax at Source of the Income Tax Ordinance, 2001 states that;

Every employer paying salary to an employee shall, at the time of payment, deduct tax from the amount paid at the employee’s average rate of tax computed at the rates specified in Division I of Part I of the First Schedule on the estimated income of the employee chargeable under the head “Salary” for the tax year in which the payment is made after making adjustment of tax withheld from employee under other heads and tax credit admissible under section 61, 62, 63 and 64 during the tax year after obtaining documentary evidence, as may be necessary, for
(i) tax withheld from the employee under this Ordinance during the tax year;
(ii) any excess deduction or deficiency arising out of any previous deduction; or
(iii) failure to make deduction during the year;

Sub Section (c) of Section 21 Decduction not allowed states that no deduction shall be allowed in computing the income of a person under head of income from business if that person any salary, rent, brokerage or commission, profit on debt, payment to non-resident, payment for services or fee paid by the person from which the person is required to deduct tax under Division III of Part V of Chapter X or section 233 of chapter XII, 1[unless] the person has 2[paid or] deducted and paid the tax as required by Division IV of Part V of Chapter X;

Conclusion:

According to above provisions of Income Tax Ordinance, 2001 it is clear that Organization (whether profitable or non profitable) is requied to deduct tax on salary at the time of payment and if it will not do so then its expense would be not allowed as admissible expense.

Labels: Query, Salary income, Taxation

posted @ 11:04 AM,

2 Comments:

At February 27, 2009 at 12:30 PM, Anonymous said...: Assalam O Alaikum

Jazakallah for your kind information.
At February 28, 2009 at 12:35 PM, Mubeshir said...: Its my pleasure, you can ask further