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Wednesday, 26 November 2014

Explain the various modes of deduction of tax at source under income tax ordinance



Deduction of tax at Source
It is very important mode of collecting the It is necessary for certain persons to deduct the amount of tax at specific stages and deposit this amount with the fix department.

1. Salary :
While making the payment of taxable salary the employer should deduct the tax amount and deposit it every month with the commissioner.

2. Dividend :
While paying the dividend to any person all the-resident companies should deduct the tax.
Note:-
f dividend is exempt from tax then it should not be deducted.

Rates of tax.
The tax is deducted according the following rates.
(i)  When dividend is paid to public company 5% or insurance company.
(ii) When it is paid to any other company 10% or an individual or association of persons.

3. Profit on Debt :
Any person who pays the profit on debt should deduct the tax out of such amount according the following rate.
(i) Tax should be deducted at the rate of 10% on Defence Saving or National Saving certificate.
(ii) At the rate of 10% on deposits by bank and financial institution.
(iii) 20% of profit an securities issued by Federal provincial or local government.
(iv) 10% of profit on bond, certificate, debenture, security of financial institution, finance society and banking company.

Payment to Non-Resident :
According the following rates every person should deduct the tax from the amount paid to non-reside person.
(a) On prize dividend and property income tax should be deducted @ 30%.
(b) On royalty or fee for technical services tax should be deducted 15%.

5. Payment for Supply of Goods and Services :
While making the payment on account of supply of goods and services every person should deduct the tax.
(i) in case of supply of goods if payment exceeds to Rs. 25000 PA. then tax must be deducted.
(ii) In case of services if payment exceeds to Rs.1000 pa then tax must be deducted.
(iii) If payment is made on behalf of the govt. company, joint venture, foreign
contractor and association of persons then tax must be deducted.

Note:- If payment is made is made on behalf of the govt, of the individual then deduction of tax is not necessary.

6. Payment of Brokerage or Commission :
While making the payment of commission or brokerage every person should deduct 5% tax at source out of the payment. If payment is made on behalf of the govt. company, association of persons, foreign contractors or joint venture then deduction of tax is compulsory.
Note :- Tax amount deducted
will be treated advance tax on behalf of the person to whom a payment is made.

7. Deduction from Exports :
At the time of realization of foreign Exchange proceeds on account of export of goods by an exporter every authorized dealer in foreign exchange should deduct the tax.
(a) An authorized dealer should also deduct the tax at the time of realization on account of the commission due to an indenting commission agent.

8. Payment of Rent of House Property :
If any person pays the rent of the house the deduction of tax must be made keeping in view the following conditions.
(i) The rent is paid on behalf of the govt. a company, a non-profit organization, diplomatic mission or local authority.
(ii) Tax should be deducted if annual rent is more than 3 hundred thousand rupees.
(iii) The tax should be deducted at the rate of 5%.

9. Prize and Winning :
In case of prize on prize bonds tax will be deducted at the rate of 10%. Tax will be deducted at the rate of 20% on prize from lottery or puzzle etc. The tax deducted will be a final tax.

10. Petroleum Product :
Every person who is selling above product to a petrol pump operator should deduct tax from the amount of commission or discount allowed to operator.

Note :- The rate of tax will be @ 10% and it will be a final payment.

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