You work hard. Earn. But the government takes a cut from it- taxes. Won’t it be great if you can snatch back a portion of it? From the government? Yes. It comes in the form of ‘tax rebate’ and if you aren’t already using this tax hack, then you are in for a treat.

In Pakistan (along with the majority of countries) the government wants people to keep money in circulation rather than hoarding (read: saving). So they incentivize investments. Likewise, the government of Pakistan gives relief in taxes or reduced taxation if you invest in mutual funds.

How does it work?

Let me explain with the help of a scenario. Let’s say your annual gross salary is PKR 1.2 million and since you are working in a firm, your tax gets deducted at source (before you get the salary in your bank account). In this case, PKR 30,000 is the tax that will be deducted annually. To make use of tax rebate, you invest PKR 240,000 in mutual funds. By doing this the government gives you a cashback in terms of reduced tax deduction which is PKR 6,000. So now, instead of PKR 30,000 being deducted from your salary, only PKR 24,000 will be deducted.

I know, it doesn’t sound a lot but hey, it’s free money! And also, the investment that you make is an investment and you will earn from that as well. And it’s really simple to do.

As your salary increases, so does the incentive and it increases exponentially. If your annual gross salary is PKR 2.4 million then you will get a tax rebate of PKR 36,000 for an investment of PKR 480,000.

How to get Tax credit/Tax rebate?

  1. Ask from your HR department how much your annual gross salary is (tip: this includes all the bonuses as well as any house/car rent that you are entitled to).
  2. Go to Tax rebate calculator here & enter your monthly gross salary to know the maximum amount of money you can invest in mutual funds/income funds for tax rebate and the associated tax credit you are eligible for.
  3. Invest in mutual funds/income funds in Pakistan before the fiscal year ends (30th June). You will get tax rebate in the same year in which you invest. There are tons of options to invest in. I personally invest in Al Meezan Investment. Browse all options here.
  4. After investing the desired amount, get a investment certificate/proof of investment from the investment firm.
  5. Submit this to your company’s HR &/or finance department and let them know that you want a tax rebate against this.

And you are all set! Your company will now give you a tax benefit from the monthly deductions on your salary. It’s simple and yet a lot of people aren’t making use of this very simple hack to save money.

If you like this simple advice then I think you would love this: The only way to get rich- Quit the rat race