Tax rebate is a benefit that you get for an investment in an open end fund at the average rate of tax. It is applicable for all open end mutual funds. Since they continuously offer their units for sale, and this falls under the ambit of new subscription under section 62 of the Income Tax Ordinance, 2001. The prominent feature is that the employer is empowered to give you tax credit by just showing evidence of your investment in Meezan Funds and you do not need to claim refund from tax authorities.
As per Section 62 of Income Tax Ordinance, 2001, an individual investor of open end mutual fund (unit trust schemes)can claim tax credit on investment upto Rs. 1,500,000/- or 20% of individual's taxable income (whichever is lower), subject to that an investment is held for a period of two years.
As per Section 63 of Income Tax Ordinance, 2001, an individual investor of pension fund scheme can claim tax credit on contributions of 20% of individual's taxable income. However, withdrawals from the pension funds before attaining the age of retirement shall be taxable in accordance with the Income Tax Ordinance, 2001. At attaining the age of retirement i.e., 60 years withdrawal to the extent of 50% of the accumulated balance belonging to the investor shall be exempted from tax under section 156B of the income tax ordinance, 2001.
Follow these steps to calculate Tax Credit.
Step 1:Determine the maximum amount on which tax credit can be claimed. This amount is lesser of:
- the total cost of acquiring the units;
- twenty percent of the person’s taxable income for the year; or
- rupees ten hundred thousand (PKR 1,000,000/-).
Step 2: Calculate the average tax rate. Its formula is:
Amount of tax payable without Tax Credit / Taxable Income
Step 3:Tax Credit is calculated as:
Tax credit = Average Tax Rate x Maximum Amount for Tax Credit
Salaried Individual
