Tax rebate is a benefit that you get for an investment in a Voluntary Pension Scheme (VPS) at the average rate of tax. It is applicable for all VPS plans.

As per Section 63 of Income Tax Ordinance, 2001, an individual investor of VPS can claim tax credit  on contributions of 20% of individual's taxable income. However, withdrawals from the pension funds before attaining the age of retirement shall be taxable in accordance with the Income Tax Ordinance, 2001. At attaining the age of retirement i.e. 60 years, withdrawal to the extent of 50% of the accumulated balance belonging to the investor shall be exempted from tax under section 156B of the income tax ordinance, 2001. 

Follow these steps to calculate Tax Credit:

Step 1: Determine the maximum amount on which tax credit can be claimed. This amount is lesser of:

1. the total cost of acquiring the units; or
2. twenty percent of the person’s taxable income for the year;

Step 2: Calculate the average tax rate. Its formula is:

Amount of tax payable without Tax Credit / Taxable Income

Step 3: Tax Credit is calculated as:
                Average Tax Rate  x  Maximum Amount for Tax Credit