Withholding tax on Profit is also exempt in case of Mutual Funds under Clause 47B of Part IV of Second Schedule of Ordinance.
Note: As per Tenth schedule of ITO where the tax is required to be deducted under the provision of Ordinance from person not appearing in the Active Taxpayer List (ATL), the rate shall be increased by hundred percent.
(i) Tax on Dividend
As per section 150 of ITO, holders of mutual funds will be subject to Income Tax on Dividend Income received from a mutual fund as under:
|
Tax Payer |
Mutual Fund |
|
Company |
15% |
|
Individual/AOP |
15% |
The rate of tax so specified will be the final tax and the payer (Trustee) will also be required to withhold the amount of tax at source.
Unit Holders who are exempt from income tax may obtain exemption certificate from the Commissioner of Income Tax and on the basis of the exemption certificate, income tax will not be withheld.
(ii) Capital Gains Tax (CGT)
As per section 37A of ITO, holders of mutual funds will be subject to CGT on capital gains earned on sale of mutual fund or collective investment scheme, as under:
|
Tax Payer
|
Stock Fund |
Money Market Fund, Income Fund or any other Fund |
|
|
If dividend receipts of fund are more than capital gains |
If dividend receipts of fund are less than capital gains |
||
|
Company |
10% |
12.5% |
25% |
|
Individual/AOP |
10% |
12.5% |
10% |
- No Capital gain tax shall be deducted if the holding period of the security is more than four years.
- Capital gain or loss arising on the disposal of any security shall be computed on the basis of First In First out (FIFO) inventory accounting method.
The Asset Management Company shall withhold the tax and deposit the same in Government Treasury within 7 days of its deduction. There will be no CGT for holding period more than four years (long-term investments).
(a) amount invested in purchase of new Units; or,
(b) Twenty percent of the taxable income of the Unit Holder; or
(c) Rupees Two Million (Rs 2,000,000)
The tax credit will be calculated by applying the average rate of tax of the Unit Holder for the tax year. If the Units so acquired are disposed within twenty four months, the amount of tax payable for the tax year in which the Units are disposed shall be increased by the amount of credit allowed.
Contributions made in VPS during any one tax year (i.e. between July 1 to June 30) shall be entitled to a tax credit under Section 63 of the Income Tax Ordinance 2001.
The amount of tax credit allowed in any one tax year shall be calculated according to the following formula:
(A/B) x C, where:
- Is the amount of the tax assessed to the person for the tax year, before allowance of any tax credit;
- Is the person’s taxable income for the tax year;
- Is the lesser of:
- The total contribution to VPS in the year, or
- Twenty percent of the eligible person’s taxable income for the relevant tax year.
Procedure for Claiming Tax Credit
An employee may provide documentary evidence of contributions made during each tax year ending on June 30 to his/her employer who may then, under Section 149 (1) of the Income Tax Ordinance 2001 make adjustments of tax credit admissible under Section 63 from the tax to be deducted under the head ‘salary’.
A self-employed individual may claim tax credit at the time of filing of his/her Return of Total Income for each tax year ending on June 30.
Withdrawal of Accumulated Balance from VPS before Retirement
The Pension Fund Manager shall deduct withholding tax at the rate equal to average tax rate of the participant for preceding three years on any withdrawal from VPS before the retirement.
