Tax on Prizes and Winnings:
Mr. Aslam is a marketing head of the S. N. Enterprise. Following are the particulars for filing his annual income tax return.
|His monthly salary from July 01, 2019 to June 30, 2020||Rs. 180,000|
|He received a cash prize for his sales target achievement||Rs. 100,000|
|He won performance award||Rs. 45,000|
|Prize money on Prize bonds||Rs. 15,000|
|Tax collected by the company||Rs. 20,000|
|Tax deducted on prize bonds||Rs. 3,000|
Compute tax liability of Mr. Aslam for the tax year 2020?
|Salary (180,000 x 12)||Rs. 2160,000|
|Performance award||Rs. 45,000|
|Total taxable income||Rs. 2205,000|
Tax liability for the year
|Varies = (2205,000-1200,000) x 15%||Rs. 150,750|
|Total tax liability||Rs. 220,750|
- Performance reward by nature is treated as a bonus from the employer to the employee. Therefore, it is included in computing the tax liability as per normal tax regime
- Cash prize is taxable under final tax regime (FTR), therefore is not included in computing the taxable income. Separate tax is being withheld and collected by the employer at the rate of tax which is 20% on the amount received by Mr. Aslam.
(Rs. 100,000 x 20% = 20,000)
- He also won prize on prize bond which also falls under FTR. Total tax collected at the rate of 20%
(Rs. 15,000 x 20% = 3,000)
The tax falls under FTR will be furnish separately in the annual return
Explanation on section 156 of the Income tax Ordinance
- Every person winning a prize from the below-mentioned cases, not in cash, shall liable to pay tax at the below-mentioned rates
|Rate of Tax|
|Promotion of sales||20%|
- Withholding tax is to be collected or deducted at source at the time of payment of the total amount.
- It is collected by the person or institution that is making the payment.
- Tax to be collected at the fair market value of the prize.
- The tax-deductible or collected shall be treated as final tax liability on the income arising from the prizes or winning.