Individuals earning above Rs 3m: PAYE calculations amended on solidarity levy
The MRA has issued a PAYE Guide in March 2021 and the calculation of Solidarity Levy (“SL”) which is collected through the Pay As You Earn (“PAYE”) system has been amended.
Useful links
PAYE on Solidarity Levy as per MRA Communique dated 10 August 2020 |
PAYE on Solidarity Levy as per MRA PAYE Guide |
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PAYE on Solidarity Levy is calculated at the lower of:
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PAYE on Solidarity Levy is calculated at the lower of:
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The following illustration shows the impact of the additional limit on the SL on an employee’s salary for a given period:
Calculation as per ITA
| Month | SEPT | OCT | NOV | DEC & BONUS |
|---|---|---|---|---|
| Emoluments net of exempt | 6,000,000.00 | 100,000.00 | 300,000 | 600,000.00 |
| Cumulative Leviable Income | 9,125,000.00 | 9,200,000.00 | 9,475,000.00 | 10,025,000.00 |
| Less: Solidarity Levy Exemption Threshold per month - Rs 3,000,000/13 (Cumulative)** | 692,307.69 | 923,076.92 | 1,153,846.15 | 1,615,384.62 |
| Cumulative Taxable Leviable Income | 8,432,692.31 | 8,276,923.08 | 8,321,153.85 | 8,409,615.38 |
| 25% of Cumulative Taxable Leviable Income | 2,108,173.08 | 2,069,230.77 | 2,080,288.46 | 2,102,403.85 |
| Less: cumulative SL already charged | 600,000.00 | 610,000.00 | 640,00.00 | |
| PAYE for SL (before applying limit) (A) | 2,108,173.08 | 1,469,230.77 | 1,470,288.46 | 1,462,403.85 |
| 10% of monthly emoluments (B) | 600,000.00 | 10,000.00 | 30,000.00 | 60,000.00 |
| Second Limit SL for the month (15% of monthly Emoluments) | Not applicable | |||
| SL for the month (Limited to 15% of monthly emoluments) **** | Not applicable | |||
| SL for the month (Lower of A & B) | 600,000.00 | 10,000.00 | 30,000.00 | 60,000.00 |
| Total SL for the period Sep to Dec 2020 | 700,000.00 | |||
Based on the above illustrative example, even though the monthly withholding tax for the employees increases, the final tax paid by the employee is equalised and no additional tax is to be paid by the employee upon submission of his final return.
The new formula for PAYE calculations as included in the PAYE guidelines is welcome as it will enable those subject to solidarity levy to better manage their cash flows on a monthly basis.
Possible tax impact upon submission of tax return: |
As per MRA Communique (Aug 2020) |
As per MRA PAYE Guidelines (Mar 2021) |
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|---|---|---|---|---|
Rs |
Rs |
Rs |
Rs |
|
Taxable Leviable Income (assumed no other personal income) |
8,409,615.38 |
8,409,615.38 |
||
Solidarity Levy: Lower of: |
||||
SL at 25% |
2,102,403.85 |
2,102,403.85 |
||
10% of net income |
1,020,000.00 |
1,020,000.00 |
1,020,000.00 |
1,020,000 |
less: SL already paid/withheld |
(720,000) |
(1,020,000.) |
||
SL payable upon submission of return |
320,000 |
Nil |
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