CIRCULAR NO.18 OF 2004

Subject: ADJUSTMENT OF TAX LIABILITY OF SALARIED TAXPAYERS BY EMPLOYERS BEING WITHHOLDING AGENTS.

Every employer, while deducting income tax payable on the income chargeable under the head “Salary” of its employees, is allowed under the provisions of Section 149 of the Income Tax Ordinance, 2001 to make such adjustments, as may be necessary, for any excess deduction or deficiency arising out of any previous deduction or failure to make deduction during the Tax Year.

2. A salaried person at times is also liable to withholding tax as owner of a motor vehicle or/and a subscriber of telephone (including mobile phone) under section 234/236 of the Income Tax Ordinance, 2001 respectively, in addition to the tax deduction on salary income u/s 149 of the Income Tax Ordinance, 2001. The tax so collected/deducted in certain situations exceeds the actual tax payable by such a salaried person, entitling him to a refund.

3. For facilitating salaried taxpayers having income exclusively from salary, the employer in order to work out the tax liability of the employee under section 149 of the Ordinance, is also allowed to make adjustment of the income tax payments by such salaried persons under section 234 and 236 of the Income Tax Ordinance, 2001 during a tax year. Such salaried taxpayer, is entitled to credit of such tax payment only if he is the owner of the motor vehicle or subscriber of telephone in his own name, as the case may be. The employer shall obtain the evidence of payment of the aforesaid tax by the employee, before allowing adjustment for such payments claimed by the employee. The evidence shall be retained by the employer for production before the tax authorities when required by them.

4. In order to ensure correct implementation of the aforementioned facility, the tax payments/deductions including those adjusted shall be reflected by the employer in the ‘certificate of deduction from salary’ as prescribed under rule 44 of the Income Tax Rules, 2002 which is issued under section 164 of the Income Tax Ordinance, 2001. These payments/deductions shall also be indicated separately in the quarterly and annual statements as required under section 165 and rule 51A of the income Tax Rules, 2002.

(Nadir Mumtaz Warraich)

Secretary (Revenue Budget)