Tax exemption plays a vital role in reducing one’s tax liability. Most taxpayers are not aware of such exemptions, which reduce their tax burdens and increase their disposable income.

Being informed of different tax exemptions can greatly benefit taxpayers. This article highlights the different tax exemptions one can use when filing taxes.

Personal Income Tax Exemptions

Pakistan exempts personal income tax for certain income sources, certain groups, and during certain periods. Here’s a breakdown of key exemptions and reliefs available to individual taxpayers:

Salary Income Exemption

Eligibility: Exemptions of salary income are granted to persons whose annual income falls below or at an amount considered a threshold and varies from time as prescribed by the FBR. 

Exemptions: Income tax is exempt for individuals in the non-taxable income bracket, with a threshold value of approximately PKR 600,000 per annum. Salary individuals are also given a 10% rebate on their medical allowances.

Agricultural Income Exemption

Eligibility: Income from crop production and the processes and systems associated with crop production are also tax-exempt.

Benefits: Federal income tax is not imposed on agricultural income. However, some provincial taxes may apply.

Pension and Provident Fund Exemptions.

Eligibility: Government or private sector pensioners and employees of provident funds all fall under the category of retired people.

Benefits: Pension income is totally free of income tax. Taxation benefits are provided for contributions to recognized provident funds, which help salaried employees save.

Zakat Payments

Eligibility: Those who pay Zakat under Islamic law

Benefits: If you make zakat payments, they will be deducted from your total income when your taxable income is calculated, resulting in a lower tax bill overall.

Investments in Savings Schemes

Eligibility: Financing government-backed savings schemes, including Behbood Savings Certificates, Pensioners’ Benefit Accounts, and Shuhada Family Welfare Accounts.

Benefits: These accounts promote savings within individuals as income earned from these schemes is not taxable up to a certain limit.

Property Tax Exemptions

Property taxes in Pakistan depend upon provincial legislation and include federal and provincial-level exemptions.

Self-Occupied Property

Eligibility: Property occupied by the owner for personal use and used as his residence.

Benefits: Property tax is exempt for self-occupied residential property, so homeowners can get relief from reduced costs without an increase in their tax burden.

Agricultural Land

Eligibility: Properties used for agricultural purposes.

Benefits: Provincial laws usually exempt agricultural properties from property taxes so farmers can concentrate on productive things.

Exemptions for low-income and special needs

Eligibility: Members from low-income groups, senior citizens, and persons with disabilities are accorded specific tax exemptions. 

Benefits: Some provinces are reducing or exempting property taxes for senior citizens, disabled persons, and low-income families.

Business Tax Deductions and Exemptions

The available tax exemptions considerably benefit businesses by increasing investment and job opportunities in Pakistan. Below are some key exemptions and deductions made available to tax paying businesses across different sectors: 

Small and Medium Enterprises (SMEs)

Eligibility: Schemes or criteria of FBR based on which the small and medium enterprises are registered. 

Benefits: The SME businesses enjoy reduced tax rates and exemptions to carry on their business operations.

Exemptions for Startups

Eligibility: Recognized start-ups by Pakistan’s regulatory authorities in the technology and IT fields.

Benefits: Registered start-ups, mainly in IT, are also given a three-year tax holiday from the date of incorporation, which allows them to reinvest earnings into business growth.

Export-Oriented Units

Eligibility: Businesses that generate a substantial percentage of revenue by doing exports.

Benefits: For export-oriented businesses, reduced tax rates on export income, and, in some cases, complete exemption. It stimulates growth in exports to Pakistan’s foreign exchange reserves.

Depreciation and Amortization Deductions

Eligibility: Eligibility is only for those buying and purchasing fixed assets, like machinery, buildings, or intellectual property. 

Benefits Fixed and intangible assets are depreciable or amortizable against taxable income, which reduces tax liabilities on capital investments.

Tax Credit on Investment in BMR (Balancing, Modernization, and Replacement)

Eligibility: The investment by the businesses in machinery or technology upgrading.

Benefits: The industries are given 10% to 20% as a tax credit for the cost of new machinery, which promotes technological advancements and fosters growth.

Charitable Donations

Eligibility: Corporations donating to approved charitable institutions or relief funds.

Benefits: Contributions to registered charities and relief funds are deductible from the business’s taxable income so that they can support their social causes and reduce tax liability.

Tax Exemptions for Zones under Free Zones and Special Economic Zones (SEZs)

Eligibility: Businesses operating in government-designated free zones or SEZs

Benefits: To promote foreign and local investment in strategic zones, exemptions on import duties, lower corporate tax rates, and incentives are available.

Sidekick Tip: Get Expert Tax Assistance

If you are looking for tax deductions and exemptions, consider seeking help from Sidekick. Our team of tax experts ensures they can help individuals find deductions and exemptions they are not using and ensure compliance with the tax laws.

With this, Sidekick offers services such as guidance on using tax deduction calculators and knowing the withholding tax rates to make filing taxes easier. Using our expertise, you can optimize your tax savings and ensure you take the most out of the available tax exemptions.

Conclusion: Stay Informed to Avoid Missing Out on Tax Exemptions

All taxpayers must stay informed about tax exemptions and deductions. Knowing the choices and using professional help and tax deduction calculators greatly helps pay less tax. It’s never too late to save; go through and try updating your savings and taking advantage of tax exemptions that apply to you.