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Treatment of foreign source income - K. K. ADVISORS

Mr. A worked for an organization in Pakistan for the first 08 months of the tax year and remaining 04 months outside Pakistan i.e. in Saudi Arabia (KSA). His monthly salary in Pakistan and KSA is PKR 100,000/ per month and SR 6,000 respectively. Mr. A’s family stayed in KSA throughout that year.

Mr. A worked for an organization in Pakistan for the first 08 months of the tax year and remaining 04 months outside Pakistan i.e. in Saudi Arabia (KSA).  His monthly salary in Pakistan and KSA is PKR 100,000/ per month and SR 6,000 per month respectively. Mr. A’s family stayed in KSA throughout that year. What will be the tax treatment of his tax liability of that year?

 

Conversion rate of SR = PKR is Rs. 40.

 

Solution:

Foreign source salary is totally exempt under section 51(2) of the income tax ordinance 2001 which clearly states that if a person leaves Pakistan during the year and stayed abroad; his salary earned outside will be exempted. His Pakistan source salary will be calculated as per normal process

 

Salary earned outside Pakistan SR. 6,000 x 40 x 4 months = 960,000
Salary earned from Pakistan Rs. 100,000 x 8 months = 800,000

 

For calculation of tax liability:

 

Salary earned outside Pakistan (A) = NIL (0)
Salary earned from Pakistan (B) = 800,000
Total taxable income (A) + (B) = 800,000
Tax liability for the year 800,000 – 600,000 = 200,000 x 5% (tax slab)
= 10,000 per year
= 833 per month

 

51[(2)” Where a citizen of Pakistan leaves Pakistan during a tax year and remains abroad during that tax year, any income chargeable under the head ―Salary‖ earned by him outside Pakistan during that year shall be exempt from tax under this Ordinance”

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