In Pakistan, as in many other countries, income can be categorized into seven main types: earned income, profit income, interest income, rental income, capital gain income, dividend income, and royalty income. Here you’ll know about these 7 types of incomes.
7 Different Types of Income Streams
Earned income is the most common type of income for individuals and households in Pakistan. It includes the wages, salaries, and bonuses earned by individuals through their employment. This category encompasses income earned through various professions, businesses, or self-employment activities. In Pakistan, earned income is subject to income tax, and the rate varies depending on the individual’s income level.
Profit income refers to the earnings generated by businesses and corporations after deducting expenses and taxes. This income is prevalent among entrepreneurs, business owners, and shareholders of companies. In Pakistan, corporate profit income is subject to corporate income tax, while individuals receiving dividends from corporations are also taxed on this income.
Interest income is derived from investments in interest-bearing instruments, such as savings accounts, fixed deposits, bonds, and loans. In Pakistan, interest income is taxable, and the applicable tax rate depends on the source of interest earnings and the individual’s overall income.
Rental income is generated by renting out real estate properties like houses, apartments, or commercial spaces. Landlords in Pakistan are required to declare and pay taxes on their rental income, which is usually subject to income tax.
Capital Gain Income
Capital gain income arises when an individual or entity sells an asset like real estate, stocks, or other investments at a profit. In Pakistan, capital gains are subject to capital gains tax, and the tax rate may vary based on the type and duration of the investment.
Dividend income is earned by shareholders when a company distributes a portion of its profits to its shareholders. This income is typically taxed at a specific dividend withholding tax rate in Pakistan. However, the tax treatment may vary depending on the type of dividend and the individual’s tax status.
Royalty income is received by individuals or entities when they grant permission to others to use their intellectual property, such as patents, copyrights, or trademarks, in exchange for a fee. In Pakistan, royalty income is subject to taxation, and the tax rate may differ based on various factors, including the nature of the intellectual property and the terms of the agreement.
In summary, these seven types of income are essential components of Pakistan’s taxation system, contributing to the government’s revenue and playing a crucial role in the country’s economic landscape. Individuals and businesses must be aware of the tax regulations and rates applicable to each type of income to fulfill their tax obligations accurately.