Tax Savings

Tax credit is tax saving that you can get on your income tax for the year if you invest in mutual funds, or pension schemes. This facility can be availed by both salaried and self-employed individuals in accordance with the Income Tax Ordinance, 2001.

The amount of tax credit you are entitled to will be adjusted from your payable annual income tax thus giving you an overall tax saving.

Investment in Mutual Funds:

For example, if you are a salaried individual and your annual taxable income for the year is Rs.4,000,000; your average tax rate will be 13.62%. If you invest, let’s say Rs.800,000 in a mutual fund scheme, you will be entitled to a tax credit of Rs.109,000.

Investment in Pension Schemes:

For example, if you are a salaried individual in your late 30’s and your annual taxable income for the year is Rs.4,650,000; your average tax rate will be 12.90%. If you invest, let’s say Rs.930,000 in a pension scheme, you will be entitled to a tax credit of Rs.120,000 approx.

The maximum tax benefit that an individual can get is up to 40% of his or her annual taxable income times his or her tax rate.

The amount of tax credit that you can get on an investment in mutual funds and pension schemes is dependent on:

a) The amount of investment you make.
b) Your annual taxable income.

In the case of mutual funds, the only condition is that you need to hold your investment for a period of at least two years (as per the Income Tax Ordinance). This will be applicable for investments made on or before 30th June 2022.
In case of pension schemes, there is no holding period requirement as such. However, if you withdraw any amount from your investment held in a pension scheme before your selected retirement date then a tax penalty will be charged, which will be equivalent to your average tax rate of last 3 years.

The amount of tax credit you can get is dependent on your income tax rate and the amount you wish to invest. Use our Tax Savings Calculator to find out how much tax credit you can get.

Yes, mutual funds and pension schemes are two different types of investment schemes, you can avail a separate tax credit on each of the two. Tax credit on mutual funds was available on investments made on or before 30th June 2022.

For salaried individuals:
Inform your Human Resources (HR) or Finance Department about your investments and ask them to adjust your tax credit amount from the monthly income tax deductions made from your salary
For self-employed individuals or non-salaried individuals:
When filing your own personal income tax returns, you can adjust your tax payable and enclose a copy of your statement of investment along with your documents when you file your returns.