Mr Kamran Please solve this problem

[mazharje]

Sir if one old person has never filed income tax return in his life.Now he has no salary income but gets income from bank in the shape of interest on his deposited money,whether he will be required to pay income tax. Although a deduction is consistantly being made from the gross interest by his bankers.

[khani]

This is an interesting situation,I think Mr KAMRAN will answer it in great detail.

[kamranACA]

Dear,

Section 114 of the Income Tax Ordinance, 2001 interalia includes the following among those who are obliged to file the Income Tax Return

"(ab) every persoon (other than a company) whose taxable income for the year exceeds the maximum amount that is not chargeable to tax under this ordinance;

(b) (i) any person who has been charged to tax in respect of any of the two preceding tax years;

(b) (iii) any person who owns immoveable property with a land area of two hundred and fifty square yards or more or owns any flat located in area falling within municipal limits existing immediately before commencement of local government laws in the provinces; or areas in a cantonment; or the Islamabad capital territory."

Maximum income that is not taxable under Income Tax Law (first schedule of ITO 2001) is prescribed as Rs 100,000 for individuals and AOPs (not the salaried persons) and Rs. 150,000 for the salaried individuals.

I can understand that person highlighted by you would not be falling under the above criteria. Therefore, it can be concluded that his income is not chargeable to tax as it falls below the maximum exempt level of income and he was not filing return before the current scenario as well.

Irrespective of all the above story which would help you to understand the situation in any other scenario, I would like to inform you that through an amendment in Section 151 of the Income Tax Ordinance 2001 (made vide Finance Act, 2006) the tax deducted and collected by banks on customers' accounts and deposits (other than the customers who are Companies) have been treated as Final Tax for the tax payer.

Therefore, any tax deducted from the 'profit on bank depsoit' will stand as final tax liability and final tax payment. Accordingly, such bank profit cannot be claimed as exempt by the person described by you and his profit income will be subject to charge of final tax at the rate of 10% (as per first schedule of ITO 2001).

Such income tax deducted by bank will be final tax of the account/deposit holder.

Furthermore, it would be bank's responsibility to file monthly/quarterly/yearly statements of income tax deduction from profit payments. The account holder in above situation will not be obliged to file income tax return.

Hope your query has been answered.

Let me know if further clarification is required.


Regards,


Kamran.

[kamranACA]

Where to send my fee invoice Mr. Mazhar?

Regards,


Kamran.

[khani]

As was expected you have given the answer in detail.
What if the same person is receiving 0.6 million Rupees per annum and is of 62 years age,what will be the situation?

[kamranACA]

Dear Khani,

You must have to tell me that what is source of income of this Rs. 600,000 per annum?

If it is profit on bank deposit, the age factor will not make any difference for the tax payer as bank profit is subject to final tax in which there is no concept of any reduction or credit for whatever reason including being a senior citizen (over 60 years).

If it is some other source of income, it would have to be seen in that perspective. You plz clarify your question to that extent.

Regards,

Kamran.

[khani]

Yes sir I do mean that if such a person receives Rs. 600,000/annum from Interest from banks.

[kamranACA]

Dear,

He will be subject to deduction of income tax at normal rate by the respective bank without any adjustment/reduction/credit etc. becoz such deduction is a final tax under section 151.

Regards,


Kamran.