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Individual Tax Return

What is an Individual Tax Return?


The individual income tax (or personal income tax) is levied on the wages, salaries,
dividends, interest, and other income a person earns throughout the year. The tax is generally
imposed by the state in which the income is earned. However, some states have reciprocity
agreements with one or more other states that allow income earned in another state to be
taxed in the earner’s state of residence.

An individual tax return is a form the individual submits to a federal, state or local taxing
agency to report income, calculate and pay taxes. The disclosure of pertinent information
assists in assessing the tax due.

The Internal Revenue Service is the taxing authority in the Pakistan has a voluntary reporting
system that permits the electronic or hard-copy filing of individual tax returns. Countries
around the world have taxing agencies who oversee tax collection. Some tax agencies
provide individual taxpayers with pre-filled individual tax returns, while others require the
taxpayer fill and file the returns on their own. Also, some countries permit electronic filing of
online returns, while others insist on a documentary, hard-copy submission.

BREAKING DOWN Individual Tax Return


The individual tax return is a type of income tax return filed by an individual. Both single and
married taxpayers, with and without dependents, file a return. Individual filers always file
their returns u/s 114 of ITO 2001. Every individual filer who earns a certain amount of
income must file this type of tax return.

Individual taxpayers complete Form 1040, Form 1040A, or Form 1040-EZ. Once complete,
the taxpayer will submit the form by the day which falls on or near April 15th of each year.
The selection of the individual tax return form to complete depends on the individual's filing
status, their income, the deduction they wish to claim, and any credits that are due to their
specific situation.

In Pakistan even those without a state income tax, has a state taxing authority. This agency
oversees the annual collection of state tax. Taxpayers file individual state tax returns unique
to the state. Most state tax returns assess and calculate tax concerning line items from the
federal tax return.

Company Income Tax return


A corporation is separate from its owners (shareholders) in terms of income taxes. As a
separate entity, the corporation's owners do not pay the taxes for the corporation. A
corporation pays income tax by filing a corporate tax return on Form 1120 and paying the
taxes as indicated by this return. Corporate income taxes are paid at the corporate income tax
rate, not the personal tax rate.
This article will give you a basic overview of a corporate income tax return and the
information needed to complete this return, so you can find the information you need to
include in your corporate income tax return.

For last several years last date for filing of tax returns for individuals had been extended
many times, but as far as companies are concerned filing date for IT-I is hardly extended by
Federal Board of Revenue. For tax year 2015 date was extended for one month.

Major pitfall of tax law is that it treats all companies in the same way, despite of considering
their size and turnover. All companies are required to file tax return till 31st December for
each financial year, in Pakistan financial year ends on June 30 of every year. Hence
companies (which follow normal tax / financial year) have six months for finalization of
accounts, audit, Annual General meeting and filling of tax return.

Income Tax Returns for Companies


As per Income Tax Ordinance 2001 companies are liable to get their accounts audited form
auditor of the company. Under sub section 2-A of Section 114 and Income Tax Rules 2002
companies are liable to attach audited accounts with the tax return

“In case of companies, the return of income shall be accompanied by audited accounts and
reconciliation of profits as per accounts and taxable income as declared in the return (Clause
3 of sub rule 4 of Rule 34)”

Step By Step Process:

 Finalization of Accounts

In first step accounts of the company shall be finalized, companies are liable to make
financial statements or annual accounts as per provisions of Income Tax Ordinance 2001,
Income Tax Rules, 2002, Companies Ordinance, 1984 and International Accounting
Standards/ International Financial Reporting Standards.

 Audit of Accounts

Tax laws require that audited accounts must be attached with the Income Tax Returns of
Companies (IT-I). Moreover as per Companies Act, 2017 / Repealed Companies Ordinance,
1984 companies are liable to get audited their accounts from a Cost and Management
Accountant or Chartered Accountant.
Hence second step is to get audited the annual accounts of the company.

 Adjustment

Before submitting returns companies are required to make adjustments and / or reconciliation
for other revenues , non-deductible expenses, depreciation (if depreciation rates used by
company are different from the rates mentioned in tax law) share from partnerships/ joint
ventures, losses, provision, minimum tax etc.
 Tax Return Filing

Final step is filing of company tax return, pick data from audited accounts and put it in
relevant tabs of income tax return, First complete data feeding in the tabs relating to income
and expenses and then fill out data fields /tab relating to balance sheet items. Attach audited
accounts in Attachment Tab, if tax is payable first deposit tax.

Income Tax Return with Reference to Wealth Statement


Income Tax Return and Wealth Statement for 2018: Changes for Non-Resident
Pakistanis

The Federal Board of Revenue has uploaded the income tax return and wealth statement for
tax year 2018. There is almost no change in the income tax return for tax year 2018 as
compared to the tax return for tax year 2017. However, a new form has been introduced—
Form under section 116A of Income Tax Ordinance 2001—which is related to the income
and assets of non-resident Pakistanis. Earlier, non-resident persons were not required to file a
wealth statement and it was sufficient for them to file income tax return. However, now non-
resident Pakistanis have to file Form under section 116A otherwise their income tax return
under section 114 cannot be submitted.

Important Changes Regarding Filing of Tax Return for Tax Year 2018

Another very important change is that earlier, taxpayers, even if they filed the income tax
return after the due date, become the filers/active taxpayers every Monday. However, now, a
person can't become a "filer" after the due date even if they file a tax return. This means that
the Active Taxpayers List, based on returns for tax year 2018, will be updated on 01.04.2019
and no further update will be made. At present, the last date for filing of tax return is 30th
September 2018. If a person does not file the return by the due date, and files a return after
that date (e.g. on 01.10.2018), that taxpayer will not be an active taxpayer / filer during the
whole year 2019. If the income tax return for tax year 2018 is filed in time, however, the
person will remain an active taxpayer during all of 2019.

Change in Tax Rates and Tax Slabs

The Government of Pakistan through Finance Act 2018 has raised the limit for taxable
income to Rs.1,200,000. People having an income of Rs.1,200,000 have to pay income tax of
just Rs.2,000 per year. This amendment is applicable to the income earned during 1.7.2018 to
30.06.2019. However, when filing an income tax return for tax year 2018, we have to follow
the tax rates for 2017-2018, where the taxable limit is just Rs.400,000 only.

Filing Income Tax Returns Online in Pakistan

This article is an humble attempt to guide the taxpayers who intend to file their income tax
returns on their own without help of any tax lawyer of practitioner. Earlier, salaried
individuals were not required to submit their income tax return if their only source of income
was salary and their income was below Rs.500,000. However, with effect from tax year 2013
every employee earning taxable income is required to submit his income tax return. I think
the salaried individuals who do not submit their returns make a blunder. First, they expose
themselves for penal action on account of non-submission of return and secondly in majority
of cases of salaried persons the tax deducted is more than their actual tax liability. In case
such person submits returns they can claim the excess deduction as refund. It is quite easy to
pay income tax in Pakistan. If your income is more than Rs.33,500 per month, your employer
is required to deduct taxes from your paycheck. Under section 149 of the Income Tax
Ordinance of 201, your employer is also required to file a statement of all taxes they
withhold. This has not always been the case. Every salaried employee with a taxable income
of Rs.400,000 is required to electronically file (e-file) an income tax return using the
FBR'Sonline system known as IRIS. In addition to an income tax return, every person who is
required to file income tax return for tax year 2015 has also to file wealth statement. Wealth
statement is mandatory for filing of income tax return. Without wealth statement you will not
be able to submit your income tax return. Wealth statements contain details of a person's
assets and liabilities. That is to say, you have to mention in detail your properties, plots,
houses, and vehicles in your name as well as the detail of movable and immovable properties
that are in the name of your dependents e.g. your wife and children. Taxpayers are also
required to give details of personal expenses e.g. rent of house paid, Travelling, electricity,
education and other personal household expenses. Personal expenses is the part and parcel of
your wealth statement.

First step to file Income Tax Return for tax years 2014 and 2015

If your income is more than Rs.400,000 and you have decided to submit the return, you first
have to register with FBR. For registration with FBR you may visit the following address and
state your particulars correct. You may also have to attach the following scanned documents.

1. Both sides of your Computerized National Identity Card (CNIC)

2. Copy of electricity bill of your residence

3. Copy of your pay slip or employer's certificate

4. Document of your ownership of the residence or rent deed, as the case may be.

5. Fill in and signed/thumbed NTN application form.

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