Tax Regime is a mood of charging Income Tax under the Income Tax Ordinance, 2001
Following are the commonly known Regimes
- Normal Tax Regime (NTR)
- Separate Tax Regime (STR)
- Final Tax Regime (FTR) or Presumptive Tax Regime (PTR)
- Minimum Tax Regime (MTR)
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Normal Tax Regime: NTR is a method of taxation under which the income under each head of income is computed after considering all admissible deductions related to that particular head and then the net income of each head is Included in the total income.
Total Income is further reduced by ‘deductible allowances’ such as Zakat in order to arrive at the taxable income. Tax is then applied to the taxable income as per 1st Schedule to the Income Tax Ordinance, 2001 which shall be reduced by the amount of tax credits, if any, available to the taxpayer including advance tax paid. The resultant figure shall be the amount of tax payable or refundable.
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Separate Tax Regime: – STR is a method of taxation under which certain transactions are kept separate and charged to tax at specified tax rates instead of normal tax rates.
It is a considered opinion that STR income is not reduced by any deductible allowances such as zakat and no tax credits shall be allowed against STR.
However, deductions related to that particular transaction may be allowed as specified in the relevant provisions of the Income Tax Ordinance, 2001 such as cost of shares and incidental expenses are allowed to be deducted under section 37A which is then taxable at specified separate tax rates.
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Final Tax Regime: – FTR is a method of taxation under which certain transactions are treated or presumed as income and the advance tax paid on such transactions is considered as full and final discharge of the tax liability in respect of such transactions.
Income under FTR is not reduced by any deductions and allowances. It shall not be included in total income and no tax credits shall be allowed against tax under FTR.
Minimum Tax Regime: – MTR is a method of taxation under which tax deduction or collection at source (WHT) is treated as minimum tax in respect of such transaction. WHT under MTR shall become final tax where tax under NTR on such transaction is less than WHT.
However, WHT shall be adjustable where tax under NTR on such transaction is higher than WHT.
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