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    Taxation Management
    BUSA5121
    Progress0 / 46 topics
    Topics
    1. History of Income Tax Law2. Income Tax Ordinance, 19793. Income Tax Ordinance, 20014. Scope of Income Tax Laws5. Extent of Income Tax Ordinance, 20016. Components of Income Tax Law7. Income Tax Ordinance, 20018. Income Tax Rules, Notifications, Circulars and Orders9. Income Tax Case Law10. Finance Act or Ordinance11. Definitions of Terms (Section 2)12. Importance of Understanding Income Tax Terms13. Income Exempt from Tax (Section 41 to 51)14. Importance of understanding of Income Exempt from Tax15. Income Tax Exemptions (Section 41 to 51)16. Heads of Income - Income from Salary17. Overview of All Heads of Income18. Understanding Salary Income19. Valuation of Perquisites, Allowances, and Benefits20. Computation of Salary Income21. Deductions from Total Income22. Calculation of Gross Tax23. Block of Income under FTR24. Block of Income under Separate Block25. Tax Credits26. Average Relief and Other Related Income27. Computation of Income from Property28. Concept of Rent Chargeable to Tax (RCT)29. Admissible Deductions for Property Income30. Computation of Income from Business and Capital Gains31. Capital and Revenue Items32. Concept of Income from Capital Gains33. Computation of Capital Gains34. Deductions of Capital Losses35. Capital Gains on Disposal of Securities36. Exempt Capital Gain37. Numerical Demonstration of Capital Gains38. Computation of Income from Other Sources39. Understanding Income from Other Sources40. Examples of Income from Other Sources41. Admissible Deductions for Other Sources42. Income Tax Allied Topics43. Income Tax Authorities44. Assessment Procedure45. Set Off and Carry Forward of Losses46. Appeals
    BUSA5121›Calculation of Gross Tax
    Taxation ManagementTopic 22 of 46

    Calculation of Gross Tax

    3 minread
    561words
    Beginnerlevel

    Calculating gross tax involves determining the total tax liability based on taxable income, applying the appropriate tax rates, and considering any additional taxes or contributions. Here’s a step-by-step guide on how to calculate gross tax under the Income Tax Ordinance, 2001 in Pakistan:

    Step 1: Determine Taxable Income

    Start by calculating the taxable income, which is derived from total income after deductions. The formula is:

    Taxable Income=Total Income−Deductions\text{Taxable Income} = \text{Total Income} - \text{Deductions}Taxable Income=Total Income−Deductions

    Step 2: Identify Applicable Tax Rates

    Tax rates are usually structured in slabs, meaning different portions of income are taxed at different rates. The Federal Board of Revenue (FBR) publishes tax slabs annually, which outline the rates applicable to various income brackets.

    Step 3: Calculate Tax on Each Income Slab

    For each slab, calculate the tax owed based on the portion of taxable income that falls within that slab. Here’s an example of how to calculate this:

    Example Tax Slabs (hypothetical for illustration):

    • Up to PKR 600,000: 0%
    • PKR 600,001 to PKR 1,200,000: 15%
    • PKR 1,200,001 to PKR 2,400,000: 20%
    • Above PKR 2,400,000: 25%

    Example Taxable Income Calculation:

    Assume an individual has a taxable income of PKR 1,800,000.

    Step 4: Calculate Gross Tax

    Using the tax slabs, calculate the tax owed for each slab as follows:

    1. Up to PKR 600,000:

      • Tax = PKR 0 (0%)
    2. PKR 600,001 to PKR 1,200,000:

      • Taxable Income in this slab = PKR 600,000 (1,200,000 - 600,000)
      • Tax = PKR 600,000 × 15% = PKR 90,000
    3. PKR 1,200,001 to PKR 1,800,000:

      • Taxable Income in this slab = PKR 600,000 (1,800,000 - 1,200,000)
      • Tax = PKR 600,000 × 20% = PKR 120,000

    Step 5: Sum Total Tax Liability

    Now, add the tax amounts calculated for each slab to find the gross tax:

    Gross Tax=Tax from Slab 1+Tax from Slab 2+Tax from Slab 3\text{Gross Tax} = \text{Tax from Slab 1} + \text{Tax from Slab 2} + \text{Tax from Slab 3}Gross Tax=Tax from Slab 1+Tax from Slab 2+Tax from Slab 3 Gross Tax=PKR0+PKR90,000+PKR120,000=PKR210,000\text{Gross Tax} = PKR 0 + PKR 90,000 + PKR 120,000 = PKR 210,000Gross Tax=PKR0+PKR90,000+PKR120,000=PKR210,000

    Step 6: Consider Additional Taxes

    If applicable, add any additional taxes or contributions to the gross tax, such as:

    • Super Tax: A tax on high-income earners, if applicable.
    • Additional Levies: Any other specific contributions required by law.

    Final Gross Tax Calculation

    The final gross tax will include the sum of the calculated tax plus any additional levies:

    Final Gross Tax=Gross Tax+Additional Taxes\text{Final Gross Tax} = \text{Gross Tax} + \text{Additional Taxes}Final Gross Tax=Gross Tax+Additional Taxes

    Conclusion

    Calculating gross tax requires careful consideration of taxable income and applicable tax rates. By following these steps, taxpayers can accurately compute their gross tax liability and ensure compliance with tax regulations. It’s crucial to stay updated on any changes to tax slabs and rates published by the FBR annually.

    Previous topic 21
    Deductions from Total Income
    Next topic 23
    Block of Income under FTR

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