Income Tax Ordinance, 2001 — Section 63: Contribution to an Approved Pension Fund

3[63. Contribution to an Approved Pension Fund.— (1) An eligible person as defined in sub-section (19A) of section 2 deriving income chargeable to tax under the compute the tax payable by the taxpayer for the relevant tax years and the provisions of this Ordinance, shall, so far as may, apply accordingly. ]

(2)The amount of a person’s tax credit allowed under sub-section (1) for a tax year shall be computed according to the following formula, namely: (A/B) x C where A is the amount of tax assessed to the person for the tax year before allowance of any tax credit under this Part; B is the person’s taxable income for the tax year; and C is the lesser of

(a)the total cost of acquiring the shares,4[or sukuks], or the total contribution or premium paid by the person referred to in sub-section (1) in the year;

(b)4 [twenty] per cent of the person’s taxable income for the year; or 4

(c)[ ] 4[ ] 4[two] million rupees].

(3)Where

(a)a person has been allowed a tax credit under sub-section (1) in a tax year in respect of the purchase of a share; and

(b)the person has made a disposal of the share within 4[twenty-four] months of the date of acquisition, the amount of tax payable by the person for the tax year in which the shares were disposed of shall be increased by the amount of the credit allowed.” 1 Inserted by the Finance Act, 2016. 2 Section 62A omitted by the Finance Act, 2022. The omitted section read as follows: “62A. Tax credit for investment in health insurance.— (1) A resident person 2[ ] other than a company shall be entitled to a tax credit for a tax year in respect of any health insurance premium or contribution paid to any insurance company registered by the Securities and Exchange Commission of Pakistan under the Insurance Ordinance, 2000 (XXXIX of 2000), provided the resident person 2[ ] is deriving income chargeable to tax under the head “salary” or “income from business”.

(2)The amount of a person’s tax credit allowed under sub-section (1) for a tax year shall be computed according to the following formula, namely: (A/B) x C where A is the amount of tax assessed to the person for the tax year before allowance of tax credit under this section; B is the person’s taxable income for the tax year; and C is the lesser of

(a)the total contribution or premium paid by the person referred to in sub-section

(1)in the year;

(a)five per cent of the person’s taxable income for the year; and

(b)one hundred2[and fifty] thousand rupees.” 3 Section 63 substituted by the Finance Act, 2005. The original section 63 read as follows: “63. Retirement annuity scheme. – (1) Subject to sub-section (3), a resident individual deriving income chargeable to tax under the head “Salary” or the head “Income from Business” shall be entitled to a tax credit for a tax year in respect of any contribution or premium paid in the year by the person under a contract of annuity scheme approved by, Securities and Exchange Commission of 122 Chapter III – Tax on Taxable Income head “Salary” or the head “Income from Business” shall be entitled to a tax credit for a tax year in respect of any contribution or premium paid in the year by the person in approved pension fund under the Voluntary Pension System Rules, 2005.

(2)The amount of a person’s tax credit allowed under sub-section (1) for a tax year shall be computed according to the following formula, namely: (A/B) x C Where. A is the amount of tax assessed to the person for the tax year, before allowance of any tax credit under this Part; B is the person’s taxable income for the tax year; and C is the lesser of

(i)the total contribution or premium referred to in sub-section (1) paid by the person in the year; or

(ii)twenty per cent of the 1[eligible] person’s taxable income for the relevant tax year; Provided that 2[an eligible person] joining the pension fund at the age of forty-one years or above, during the first ten years 3[starting from July 1, 2006] shall be allowed Pakistan] of an insurance company duly registered under the Insurance Ordinance, 2000 (XXXIX of 2000), having its main object the provision to the person of an annuity in old age.

(2)The amount of a resident individual’s tax credit allowed under sub-section (1) for a tax year shall be computed according to the following formula, namely: – (A/B) x C where – A is the amount of tax assessed to the person for the tax year before allowance of any tax credit under this Part; B is the person’s taxable income for the tax year; and C is the lesser of –

(a)the total contribution or premium referred to in sub-section (1) paid by the individual in the year;

(b)ten per cent of the person’s taxable income for the tax year; or

(c)two hundred thousand rupees.

(3)A person shall not be entitled to a tax credit under sub-section (1) in respect of a contract of annuity which provides –

(a)for the payment during the life of the person of any amount besides an annuity;

(b)for the annuity payable to the person to commence before the person attains the age of sixty years;

(c)that the annuity is capable, in whole or part, of surrender, commutation, or assignment; or for payment of the annuity outside Pakistan.” 1 Inserted by the Finance Act, 2006. 2 The words “a person” substituted by the Finance Act, 2006. 3 The words, figure and commas “of the notification of the Voluntary Pension System Rules, 2005,” substituted by the Finance Act, 2006. 123 Chapter III – Tax on Taxable Income additional contribution of 2% per annum for each year of age exceeding forty years. Provided further that the total contribution allowed to such person shall not exceed 50% of the total taxable income of the preceding year 1[2[:] ] ] 3[Provided also that the additional contribution of two percent per annum for each year of age exceeding forty years shall be allowed up to the 30th June, 2019 subject to the condition that the total contribution allowed to such person shall not exceed thirty percent of the total taxable income of the preceding year.”] 4[ ] 5[(3) The transfer by the members of approved employment pension or annuity scheme or approved occupational saving scheme of their existing balance to their individual pension accounts maintained with one or more pension fund managers shall not qualify for tax credit under this section.] Chapter III – Tax on Taxable Income C is the lesser of

(a)the total profit on debt referred to in sub-section (1) paid by the person in the year; or

(b)thirty per cent of the person‘s taxable income for the year.

(3)The person shall not be entitled to tax credit under this section for any profit deductible under section 15A.

(4)Where an individual has claimed tax credit under this section, he shall not be entitled to claim tax credit for another house or flat under this section during the subsequent fifteen tax years.] 1[ ] 2[ ] 3[ ] 4[ ] 5 [64B. Tax credit for employment generation by manufacturers.—(1) Where a taxpayer being a company formed for establishing and operating a new manufacturing unit sets up a new manufacturing unit between the 1st day of July, Chapter III – Tax on Taxable Income 2015 and the 30th day of June, 1[2019], (both days inclusive) it shall be given a tax credit for a period of ten years.

(2)The tax credit under sub-section (1) for a tax year shall be equal to 2[two] percent of the tax payable for every fifty employees registered with The Employees Old Age Benefits Institution or the Employees Social Security Institutions of Provincial Governments during the tax year, subject to a maximum of ten percent of the tax payable.

(3)Tax credit under this section shall be admissible where

(a)the company is incorporated and manufacturing unit is setup between the first day of July, 2015 and the 30th day of June, 2018, both days inclusive;

(b)employs more than fifty employees in a tax year registered with The Employees Old Age Benefits Institution and the Employees Social Security Institutions of Provincial Governments;

(c)manufacturing unit is managed by a company formed for operating the said manufacturing unit and registered under the 3[Companies Act, 2017 (XIX of 2017)] and having its registered office in Pakistan; and

(d)the manufacturing unit is not established by the splitting up or reconstruction or reconstitution of an undertaking already in existence or by transfer of machinery or plant from an undertaking established in Pakistan at any time before the1st July 2015.

(4)Where any credit is allowed under this section and subsequently it is discovered, on the basis of documents or otherwise, by the Commissioner that any of the conditions specified in this section were not fulfilled, the credit originally allowed shall be deemed to have been wrongly allowed and the Commissioner may, notwithstanding anything contained in this Ordinance, re-compute the tax payable by the taxpayer for the relevant year and the provisions of this Ordinance shall, so far as may be, apply accordingly.

(5)For the purposes of this section, a manufacturing unit shall be treated to have been setup on the date on which the manufacturing unit is ready to go into production, whether trial production or commercial production.”] 1 The figure “2018” substituted by the Finance Act, 2016. 2 The word “one” substituted by the Finance Act, 2016. 3 The expression “Companies Ordinance, 1984 (XLVII of 1984)” substituted by the Finance Act, 2021. 126 Chapter III – Tax on Taxable Income 1 [ ] 2 [ ] 3 [64D. Tax credit for point of sale machine.—(1) Any person who is required to integrate with Board’s computerized system for real time reporting of sale or receipt, shall be entitled to tax credit in respect of the amount invested in purchase of point of sale machine.

(2)The amount of tax credit allowed under sub-section (1) for a tax year in which point of sale machine is installed, integrated and configured with the Board’s computerized system shall be lesser of

(a)amount actually invested in purchase of point of sale machine; or

(b)rupees one hundred and fifty thousand per machine.

(3)For the purpose of this section, the term point of sale machine means a machine meant for processing and recording the sale transactions for goods or services, either in cash or through credit and debit cards or online payments in an internet enabled environment.] 1 New sub-section 64C inserted by the Finance Act, 2019. 2 Section 64C omitted by the Finance Act, 2021. Earlier this omission was made through Tax Laws (Second Amendment) Ordinance, 2021. The omitted section read as follows: “64C. Tax credit for persons employing fresh graduates.– (1) A person employing freshly qualified graduates from a university or institution recognized by Higher Education Commission shall be entitled to a tax credit in respect of the amount of annual salary paid to the freshly qualified graduates for a tax year in which such graduates are employed.

(2)The amount of tax credit allowed under sub-section (1) for a tax year shall be computed according to the following formula, namely: (A/B) x C where A is the amount of tax assessed to the person for the tax year before allowance of tax credit under this section; B is the person’s taxable income for the tax year; and C is the lessor of –

(a)the annual salary paid to the freshly qualified graduates referred to in sub section (1) in the year; and

(b)five percent of the person’s taxable income for the year;

(3)The tax credit shall be allowed for salary paid to the number of freshly qualified graduates not exceeding fifteen percent of the total employees of the company in the tax year.

(4)In this section, “freshly qualified graduate” means a person who has graduated after the first day of July, 2017 from any institute or university recognized by the Higher Education Commission.” 3 Inserted by the Finance Act, 2021. 127 Chapter III – Tax on Taxable Income