Income Exempt from Tax

Income Exempt from Tax

Sections 41 to 51 of the Income Tax Ordinance, 2001, provide a list of the incomes which either has been exempted fully from tax or some concession in the tax has been provided on such incomes. Section 53 of the Income Tax Ordinance, 2001, authorizes the Federal Government to specify the incomes or classes of incomes, persons or classes of persons which shall either be exempted from tax or whose tax liability shall be reduced.

The incomes or classes of incomes, the persons or classes of persons specified in the Second Schedule fall under any of the following categories:

1)         Fully exempt from tax (subject to certain conditions and to the extent          specified)

2)         Reduction in tax rates (From the rates specified in the First Schedule)

3)         Reduction in tax liability.

4)         Exempt from the operation of any specified provision of the Income Tax     Ordinance, 2001.

The Federal Government may, from time to time, by notification in the Official Gazette, make such amendments in the Second Schedule by:

a)         Adding any clause or condition.

b)         Omitting any clause or condition.

c)         Making any change in any clause or condition as the Government may think fit.

Note:   The Federal Government shall place before the National Assembly all       amendments made by it to the Second Schedule in a financial year.

Diplomatic and United Nations Exemptions:

The income of an individual entitled to privileges under:

i)          The Diplomatic and Consular Privileges Act, 1972; or

ii)         The United Nations (Privileges and Immunities) Act, 1948 shall be exempt from tax.

Pension of United Nation Employees:

Pension income of a Pakistani shall be exempt from tax provided that:

i)          Pension has been received being an employee of United Nations or its specialized agencies (including the international court of justice)

ii)         His salary income from such employment was exempt from tax.

Foreign Government Officials [43]

Any salary received by an employee of a foreign government shall be exempt from tax provided that:

1)         Foreign nationality:

            The employee is not a citizen of Pakistan.

2)         Similar services:

            The employee is performing such services as are being performed by the employees of the Federal Government (Govt. of Pakistan) in foreign     country.

3)         Similar exemption:

            The foreign government grants a similar exemption to the employees of the           Government of Pakistan performing similar services in such foreign country.

Explanation:

Salary income of Indian High Commissioner appointed in Pakistan shall be exempt from tax, if salary income of Pakistani High Commissioner appointed in India is exempt from tax by the Government of India.