The government is likely to give some tax relief on the contributions made to the Approved Pension Funds in the budget (2022-23) to provide incentives and promote saving among the citizens moving towards their retirements.
The proposal is part of the government policy to facilitate senior citizens and pensioners during increased inflation and its impact on old/retired people.
An official told ProPakistani that the proposal was floated by the Securities and Exchange Commission of Pakistan (SECP), and is being considered by the Federal Board of Revenue (FBR).
The details of the budget proposal revealed that prior to the amendment made through the Finance Act, 2016, the amount of tax credit in respect of the contributions to the approved pension funds under the Voluntary Pension System Rules, 2005, was based on the lesser of the total contribution paid in a particular tax year or 20 percent of the eligible person’s taxable income for the tax year.
Regarding this, an eligible person aged 40 or above joining the pension fund during the first decade starting from 1 July 2006 was allowed an additional contribution of two percent per annum for each year of their age exceeding 40, subject to an overall limit of 50 percent of his taxable income of the preceding tax year.
The above-referred provision regarding the two percent concession additional contribution available to persons joining after 40 years of age or above expired on 30 June 2016. The Finance Act, 2016 extended it to 30 June 2019, subject to the condition that the total contribution allowed to such persons will not exceed 30 percent of the total income of the preceding tax year.
This proviso will be deleted to provide incentives and promote savings among citizens moving towards their retirements, the proposal added.
Following is the text of the existing relevant law which will be amended in the budget (2022-23): Part X Tax Credits 63. Contribution to an Approved Pension Fund.
- An eligible person as defined in sub-section (19A) of section 2 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 in approved pension fund under the Voluntary Pension System Rules, 2005.
- 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 percent of the eligible person’s taxable income for the relevant tax year; Provided that an eligible person joining the pension fund at the age of forty-one years or above, during the first ten years starting from 1 July 2006 shall be allowed additional contribution of two percent per annum for each year of age exceeding forty years. Provided further that the total contribution allowed to such a person shall not exceed 50 percent of the total taxable income of the preceding year. Provided also that the additional contribution of two percent per annum for each year of age exceeding 40 will be allowed up to 30 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, it added.
