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Deductable allowances & tax credits

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2nd Lecture by Mohammad Iqbal Ghori

2nd Lecture by Mohammad Iqbal Ghori


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  • 1. DEDUCTABLE ALLOW ANCES
  • 2. DEDUCTABLE ALLOWANCES Zakat. (1) A person shall be entitled to a deductible allowance for the amount of any Zakat paid by the person in a tax year under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980). (2) Sub-section (1) does not apply to any Zakat taken into account under sub-section (2) of section 40. (3) Any allowance or part of an allowance under this section for a tax year that is not able to be deducted under section 9 for the year shall not be refunded, carried forward to a subsequent tax year, or carried back to a preceding tax year.
  • 3. DEDUCTABLE ALLOWANCES W orkers’ W elfare Fund. A person shall be entitled to a deductible allowance for the amount of any Workers‘ Welfare Fund paid by the person in tax year under Workers‘ Welfare Fund Ordinance, 1971 (XXXVI of 1971)] W orkers’ Participation Fund.— A person shall be entitled to a deductible allowance for the amount of any Workers‘ Participation Fund paid by the person in a tax year in accordance with the provisions of the Companies Profit (Workers‘ Participation) Act, 1968 (XII of 1968).]
  • 4. TAX CREDITS
  • 5. TAX CREDITS Charitable donations 1. A person shall be entitled to a tax credit in respect of any sum paid, or any property given by the person in the tax year as a donation to (a) any board of education or any university in Pakistan established by, or under, a Federal or a Provincial law; (b) any educational institution, hospital or relief fund established or run in Pakistan by Federal Government or a Provincial Government or a [Local Government]; or (c) any non-profit organization.]
  • 6. TAX CREDITS Charitable donations 2. The amount of a person‘s tax credit allowed under sub-section (1) for a tax year shall be computed according to the following formula, namely:– (A/ x C B) where – A is the amount of tax assessed to the person for the tax year before allowance of any tax credit under this Part; B is the person‘s taxable income for the tax year; and C is the lesser of – (a) the total amount of the person‘s donations referred to in sub-section (1) in the year, including the fair market value of any property given; or (b) where the person is – (i) an individual or association of persons, thirty per cent of the taxable income of the person for the year; or (ii) a company, 1[twenty] per cent of the taxable income of the person for the year.
  • 7. TAX CREDITS Charitable donations 3. For the purposes of clause (a) of component C of the formula in sub-section (2), the fair market value of any property given shall be determined at the time it is given. 4. A cash amount paid by a person as a donation shall be taken into account under clause (a) of component C [of] sub-section (2) only if it was paid by a crossed cheque drawn on a bank. 5. The [Board] may make rules regulating the procedure of the grant of approval under subclause (c) of clause (36) of section 2 and any other matter connected with, or incidental to, the operation of this section.]
  • 8. TAX CREDITS Tax credit for investment in shares and insurance 1. A resident person other than a company shall be entitled to a tax credit for a tax year. 2. The amount of a person‘s tax credit allowed under sub-section (1) for a tax year shall be computed according to the following formula, namely: — (A/ x C B) where A is the amount of tax assessed to the person for the tax year before allowance of any tax credit under this Part; B is the person‘s taxable income for the tax year; and C is the lesser of — (a) the total cost of acquiring the shares, or the total contribution or premium paid by the person referred to in sub-section (1) in the year; (b) fifteen per cent of the person‘s taxable income for the year; or (c) five hundred thousand rupees.
  • 9. TAX CREDITS Tax credit for investment in shares and insurance (3) Where — (a) a person has been allowed a tax credit under sub-section (1) in a tax year in respect of the purchase of a share; and (b) the person has made a disposal of the share within thirty six months of the date of acquisition, the amount of tax payable by the person for the tax year in which the shares were disposed of shall be increased by the amount of the credit allowed.]
  • 10. TAX CREDITS Contribution to an Approved Pension Fund (1) An eligible person as defined in sub-section (19A) of section 2 deriving income chargeable to tax under the head ― Salary‖ or the head ― Income from Business‖ shall be entitled to a tax credit for a tax year in respect of any contribution or premium paid in the year by the person in approved pension fund under the Voluntary Pension System Rules, 2005. (2) The amount of a person‘s tax credit allowed under sub-section (1) for a tax year shall be computed according to the following formula, namely: (A/ x C B) Where.A is the amount of tax assessed to the person for the tax year, before allowance of any tax credit under this Part; B is the person‘s taxable income for the tax year; and C is the lesser of —
  • 11. TAX CREDITS Contribution to an Approved Pension Fund (i) the total contribution or premium referred to in sub-section (1) paid by the person in the year; or (ii) twenty per cent of the [eligible] person‘s taxable income for the relevant tax year; Provided that [an eligible person] joining the pension fund at the age of forty-one years or above, during the first ten years [starting from July 1, 2006] shall be allowed additional contribution of 2% per annum for each year of age exceeding forty years. Provided further that the total contribution allowed to such person shall not exceed 50% of the total taxable income of the preceding year. (3) The transfer by the members of approved employment pension or annuity scheme or approved occupational saving scheme of their existing balance to their individual pension accounts maintained with one or more pension fund managers shall not qualify for tax credit under this section
  • 12. TAX CREDITS Profit on debt 1. A person shall be entitled to a tax credit for a tax year in respect of any profit or share in rent and share in appreciation for value of house paid by the person in the year on a loan by a scheduled bank or non-banking finance institution regulated by the Securities and Exchange Commission of Pakistan or advanced by Government or the 8[Local Government] 9[or a statutory body or a public company listed on a registered stock exchange in in Pakistan] where the person utilizes the loan for the construction of a new house or the acquisition of a house.
  • 13. TAX CREDITS Profit on debt (2) The amount of a person‘s tax credit allowed under sub-section (1) for a tax year shall be computed according to the following formula, namely:— (A/ x C B) where — A is the amount of tax assessed to the person for the tax year before allowance of any tax credit under this Part; B is the person‘s taxable income for the tax year; and C is the lesser of — (a) the total profit referred to in sub-section (1) paid by the person in the year; (b) 1[fifty] percent of the person‘s [taxable] income for the year; or or (c) [seven hundred and fifty] thousand rupees. (3) A person is not entitled to [tax credit] under this section for any profit deductible under section 17.
  • 14. TAX CREDITS Miscellaneous provisions relating to tax credits. 1. 2. 3. 4. Any tax credit allowed under this Part shall be applied in accordance with sub-section (3) of section 4. Subject to sub-section (4), any tax credit or part of a tax credit allowed to a person under this Part for a tax year that is not able to be credited under sub-section (3) of section 4 for the year shall not be refunded, carried forward to a subsequent tax year, or carried back to a preceding tax year. Where the person to whom sub-section (3) applies is a member of an association of persons to which sub-section (1) of section 92 applies, the amount of any excess credit under sub-section (3) for a tax year may be claimed as a tax credit by the association for that year. Sub-section (4) applies only where the member and the association agree in writing for the sub-section to apply and such agreement in writing must be furnished with the association‘s return of income for that year
  • 15. TAX CREDITS Miscellaneous provisions relating to tax credits. 1. 2. 3. 4. Any tax credit allowed under this Part shall be applied in accordance with sub-section (3) of section 4. Subject to sub-section (4), any tax credit or part of a tax credit allowed to a person under this Part for a tax year that is not able to be credited under sub-section (3) of section 4 for the year shall not be refunded, carried forward to a subsequent tax year, or carried back to a preceding tax year. Where the person to whom sub-section (3) applies is a member of an association of persons to which sub-section (1) of section 92 applies, the amount of any excess credit under sub-section (3) for a tax year may be claimed as a tax credit by the association for that year. Sub-section (4) applies only where the member and the association agree in writing for the sub-section to apply and such agreement in writing must be furnished with the association‘s return of income for that year