Rated AM1 by VIS
Under Clause 99 of Part I of the Second Schedule of the Income Tax Ordinance 2001 (Ordinance), Mutual Funds are exempt from Income Tax provided that at least 90% of the year’s income, excluding realized and unrealized capital gains, is distributed to Unit Holders as dividends.
Additionally, according to Clause 47B of Part IV of the Second Schedule of the Ordinance, exempts Mutual Funds from any withholding tax on profits.
The following information is provided for general informational purposes only. Since tax implications vary individually, investors are encouraged to consult their tax advisor to understand the specific tax consequences of investing in mutual funds.
(1) Tax on Dividend U/S 150
As per section 150 of ITO, unit holders of mutual funds will be subject to Income Tax on Dividend Income received from a mutual fund as under:
| Tax Payer | Stock Funds | Other Funds* |
| Company | 15% | 25% |
| Individual/AOP | 15% | 25% |
A 25% tax rate applies if 50% or more of a Mutual Fund’s income is derived from profit on debt. This rate is considered final, and the Trustee is required to withhold the tax at source. The rate of tax will be doubled for investors not appearing on the Active Taxpayers List maintained by FBR.
Unit Holders who are exempt from income tax can obtain an exemption certificate from the Commissioner of Income Tax. Upon presenting this certificate, income tax will not be withheld.
(ii) Capital Gains Tax (CGT) (U/S 37A)
As per section 37A of ITO, AAML will deduct Capital Gains Tax at the rates as specified below, on redemption of securities:
| Tax Payer | Stock Funds | Other Funds* |
| Company | 15% | 25% (there is no change from last year i.e FY2024) |
| Individual/AOP | 15% | 15% |
No capital gains tax shall be deducted, if the holding period of the security acquired on or before 30th June 2024 is more than six years.
Tax Credit on VPS Contributions
Contributions made to a Voluntary Pension Scheme (VPS) during a tax year (July 1 to June 30) are entitled to a tax credit under Section 63 of the Income Tax Ordinance 2001. The tax credit for a given year is calculated using the formula:
(A/B) x C, where:
Procedure for Claiming Tax Credit
Employees can submit proof of contributions made by June 30 to their employer, who may then adjust the tax credit allowable under Section 63 from the tax deducted on salary under Section 149(1) of the Ordinance. Self-employed individuals may claim the tax credit when filing their annual tax return.
Withdrawal from VPS Before Retirement
If a participant withdraws funds from a VPS before retirement, the Pension Fund Manager will deduct withholding tax at a rate equal to the participant’s average tax rate over the preceding three years.
Muslim citizens of Pakistan, and others who fall under the definition of Sahib-e-Nisab, are subject to a Zakat deduction of 2.5% on the value of their units, as per the Zakat and Ushr Ordinance, 1980 (XVII of 1980). This deduction is made at the source from the redemption proceeds, unless the Unit Holder provides a Zakat Affidavit (Form CZ50) declaring they are exempt from paying Zakat according to their Fiqh.
