2. 2
Dos and Don’ts
1. Referring too many books
2. Optimize Memory Utilization
3. Improvise Retrieval Ability
4. First understand “The Big Picture” – Taxation Framework/Mechanism
5. Then “Zoom In” for details
4. 4
Syllabus
Grid Weighting Last 8 years’ Average
Income Tax 50-55 59
Sales Tax 30-35 28
Faderal Excise Law 10-15 12
Professional values, ethics and attitude 5-10 1
Details
6. 6
Income Tax
6 Basic Questions
1. Tax Year
2. Type of Person
3. Residential Status
4. Tax Regime
5. Geographical Source of Income
6. Apportionment of Deductions
7. 7
1. Tax Year [S-74]
Time Bracket
Normal Tax Year
(NTY)
End date is other
than 30th June
End date is 30th
June
Time period of
less than 12
months
Time period of 12 months
Transitional Tax
Year (TTY)
Special Tax Year (STY)
Denoted by Calendar Year
relevant to NTY in which
Year end falls
Denoted by Calendar
Year in which NTY ends
Denoted by Calendar
Year relevant to NTY in
which Year end falls
FBR has authority to
prescribe STY
TTY occurs because of
change in TY from NTY to
STY or vice versa
TTY is the period between TY end date of last tax year and commencement date of next TY
Industry Special Tax Year SRO Ref
Sugar Manufacturing 1st October - 30th September 134(R)/68,
July 31,1968
Rice Exporter 1st January - 31st December 367(I) /74,
January 14,1974
Insurance 1st January - 31st December 878 (I) /95,
August 30,1995
8. 8
Change in Tax Year
NTY STY STY - 1 STY - 2STY NTY
Tax Payer will give an application in writing to Commissioner of Income Tax (CIT)
CIT is convinced that
compelling need
exists
Not Convinced
Give tax payer an opportunity
of being heard in person
Not Convinced
1) issue rejection orders
2) record reasons of rejection
in order
Tax Payer may file review application to FBR & decision of FBR shall be final
Grant Permission through an
order in writing
9. 9
Tax Year Practice
Determine the tax year in respect of each accounting periods mentioned below:
a) 1.09.2015 to 31.08.2016
b) 01.04.2016 to 30.06.2016
c) 1.01.2016 to 31.12.2016
d) 1.04.2016 to 31.03.2017
e) 1.05.2016 to 30.04.2017
f) 1.07.2016 to 30.06.2017
STY
TTY
STY
STY
STY
NTY
TY 2017
TY 2016
TY 2017
TY 2017
TY 2017
TY 2017
10. 10
2. Type of Person
a) Tax Payer [S-2(66)]
b) Person [S-80]
11. 11
a) Tax Payer [S-2(66)]
Any person or representative of person who;
i. Derives an amount chargeable to tax
ii. Is required to collect/deduct tax
iii. is required to furnish return of income
iv. is required to pay tax
under Income Tax Ordinance 2001
12. 12
b) Person [S-80]
Following shall be treated as person;
i. Individual
ii. Company formed in Pakistan or elsewhere
iii. AOP formed in Pakistan or elsewhere
iv. Federal government
v. Foreign government
vi. Political subdivision of foreign government
vii. Public International Organization
13. 13
Company means following
i. Company as defined in Companies Ordinance 1984
ii. Body Corporate formed by or under any law in force in Pakistan
iii. Modaraba
iv. body incorporated by or under any law of country outside Pakistan relating to
incorporation of companies
v. cooperative society, finance society or any other society
vi. non-profit organization
vii. Trust
viii. foreign association declared by FBR to be a company
ix. Provincial Government
x. Local Government
xi. Small company as defined in Section -2
14. 14
Association of Persons includes following
i. Firm (means relation between persons who have agreed to share profits of business
carried on by all or any one of them acting for all)
ii. Hindu Undivided Family
iii. Artificial Juridical Person
iv. Any body of persons formed under foreign law
And does not include “Company”
16. 16
a) Resident Individual [S-82]
i. Not based on Nationality
ii. Based on Physical Presence in Pakistan
iii. Government servant posted abroad will be treated as resident, irrespective of his
physical stay in Pakistan
iv. Counting of days shall be made in accordance with Rule-14 of Income Tax Rules,
2002
0 – 182 days 183 days or more
Non Resident Resident
17. 17
Rule-14 of Income Tax Rules, 2002
Days not to be counted Days to be counted
i. Day or part of day in Pakistan solely
by reason of being in transit between
two different places outside Pakistan
Part of a day shall be counted as a whole
day in following cases;
i. Day of arrival in Pakistan
ii. Day of departure from Pakistan
iii. Public Holiday
iv. Leave, including sick leave
v. Holiday spent in Pakistan before,
during or after activity in Pakistan
vi. Day when activity was interrupted
due to Strike, lockout, delay in
receipt of supplies
18. 18
b) Resident Company [S-83]
i. Company incorporated in Pakistan
ii. Provincial Government
iii. Local Government
iv. Company incorporated outside Pakistan
Resident
No further condition required
Resident
if, Control and Management of
affairs situated wholly in
Pakistan at any time in a Tax
Year
19. 19
b) Resident AOP [S-84]
Resident if, Control and Management of affairs situated wholly or partly in Pakistan at
any time in a Tax Year
20. 20
Residential Status Practice
i. Mr. Raza is working as Director Operations in the Ministry of Tourism. On 15 July 2016 he was posted to Pakistan Embassy in
Italy for two years.
ii. Anderson LLC was incorporated as limited liability Company in UK. The control and management of its affairs was situated
wholly in Pakistan. However, with effect from 01 November 2016, the entire management and control was shifted to UK.
iii. On 01 February 2017, Mr. Sameel was sent to Pakistan by his UK based company to work on a special project. He left Pakistan
on 23 August 2017.
iv. BBL is a non-listed public company incorporated under the Companies Ordinance, 1984. All the shareholders of the company
are individuals. The control and management of affairs of the company during the year was outside Pakistan.
v. Mr. Salman a property dealer in USA came to Pakistan on 01 February 2016. During his stay upto 02 August 2016 in Pakistan,
he remained in Peshawar upto 30 June 2016 and thereafter till his departure from Pakistan, in Quetta. Assume that
Commissioner has granted him permission to use calendar year as special tax year.
vi. Peshawar LLC (PLLC) was incorporated as a limited liability company in UAE. PLLC has 5 directors out of which 2 are involved
in management, the rest of them were situated in UAE. The 2 directors control the affairs of the company from Pakistan.
Resident
Resident
Non
Resident
Resident
Resident
Resident
Federal Govt Employee
Control & Mngt in wholly in
Pak any time in TY
Stay less than 183 days
Company incorporated in
Pak
Total stay 184 days
Control & Mngt in wholly in
Pak any time in TY
21. 21
4. Tax Regimes
Heads of Income
Salary Income
Property Income
Business Income
Capital Gains
Income from Other Sources
Total Income
- Deductible Allowances
Taxable Income
Rate from 1st Schedule
Tax Imposed/Chargeable
- Tax Credits
Tax Payable
- Withholding Tax/Adv Tax
Income Tax Demand/Refund
Normal Tax Reg.
Separate Taxation Tax Collected/deducted is final tax
Minimum Tax Reg
10
10
10
10
10
10%
50
(2)
(10)
1
40
4
(1)
3
Final Tax Regime
Losses
22. 22
5. Geographical Source of Income
a) Pakistan Source Income [S-2(40) & 101]
b) Foreign Source Income [S-2(27) & 101(16)]
Resident Non Resident
Pakistan Source Income Taxable Taxable
Foreign Source Income Taxable Not Taxable
23. 23
6. Apportionment of Deductions [S-67 & Rule 13]
Apportionment of Deductions [S-67]
Any expenditure/deduction/allowance that relates with following shall be
apportioned on reasonable basis:
a) derivation of income under more than one head of income
b) derivation of taxable income and income under Final Tax Regime
c) derivation of income under any head of income and for any other purpose
24. 24
6. Apportionment of Deductions [S-67 & Rule 13]
Apportionment of Expenditures Deductions and Allowances [Rule-13]
Clearly Allocable to an Income Not clearly Allocable to an Income
deductible/chargeable
against that particular income
Apportion on basis of following formula:
Common Exp x Gross Receipts of a class of income/Gross Receipts of all classes of income
Class of Income may include following:
Salary Income
Income from Property
Income from Business (Speculative/Non Speculative)
Capital Gains
Other Sources
Separate Block of Income
Exempt Income
Income under FTR
Pakistan
Source
Income
Foreign
Source
Income
25. 25
6. Apportionment of Deductions [Rule 13]
a) Gross receipts are net of Sales Tax & Federal Excise Duty
b) Nature and source of each class of income shall be considered for allocation
c) Above allocation shall be certified by CA or CMA
d) In case accounts are not required to be audited then certificate shall be obtained for basis of allocation. The said
certificate is required to be accepted by CIR who shall accept it only if variation in allocation from these rules is
not more than 10%
e) In certain transactions where net gains, brokerage, commission or other income is taken, than Gross Profits shall
be taken as Gross Receipts
26. 26
a) Total Income [S-10]
b) Taxable Income [S-9]
c) Heads of Income [S-11]
d) Tax on Taxable Income [S-4]
27. 27
Tax Collected/Deducted is Final Tax
Advance Tax Tax at Source
Section 169
[S-148] Imports
[S-148A] Local Purchase of Cooking Oil & Vegetable Ghee
[S-234A] CNG Stations
[S-151] Profit on debt
[S-152] Payments to Non Residents
[S-153] Payment of Goods, Services or Contracts
[S-154] Exports
[S-156] Prizes & Winnings
[S-156A] Petroleum Products
[S-233] Brokerage & Commission
[S-152A] Payment for Foreign Produced Commercials
[S-233A] Collection of Tax by a Stock Exchange in Pakistan
[S-236A] Advance Tax at the time of sale by Auction
[S-236M] Bonus Shares issued by Companies Quoted on Stock
Exchange
[S-236N] Bonus Shares issued by Companies not Quoted on Stock
Exchange
[S-236Q] Payment to Residents for use of Machinery & Equipment
[S-236S] Dividend in Specie
Others
28. 28
[S-148] Imports
FTR [S-169]
• Collector of Customs shall collect ADVANCE TAX on imports @ 1st Schedule, Part-II at the time and in the manner, custom duty is paid
• Above tax on Imports shall be :
Adjustable Tax in following cases:
i. Import of Raw Material, Plant & Machinery, Equipment &
Parts by Industrial Undertaking for its own use
ii. Import of Motor Vehicle in CBU condition by Manufacturer of
Motor Vehicles
iii. Imports by Large Import House
iv. Import of Foreign Produced Film for viewing and screening
Minimum Tax in following cases:
i. Import of plastic raw material imported by an
industrial undertaking falling under PCT
heading 39.01 to 39.12
ii. Import of Edible Oil [including crude oil
imported as raw material of manufacture of
ghee or cooking oil]
iii. Import of Packing Material
Final Tax in following cases:
i. Import of ship by ship breaker
ii. Any other imports not mentioned
earlier
• have paid-up capital of exceeding Rs.250 million;
• have imports exceeding Rs.500 million;
• own total assets exceeding Rs.350 million at the close of the TY;
• is single object company;
• maintain computerized records of imports and sale of goods;
• maintain a system for issuance of 100% cash receipts on sales;
• present accounts for tax audit every year;
• is registered under the Sales Tax Act, 1990 and
• make sales of industrial raw material of manufacturer registered under the Sales
Tax Act,1990
29. 29
[S-148A] Local Purchase of Cooking Oil or Vegetable Ghee
• Purchase of locally produced edible oil by Manufacturer of Cooking Oil or Vegetable Ghee shall be charged to tax at following rate:
2% of Purchase of locally produced edible oil
• Above tax shall be final tax in respect of income accruing from locally produced edible oil
FTR [S-169]
30. 30
[S-234A] CNG Station
Person preparing Gas consumption bill
Charge tax @ 1st Sched, Part-III, Div-VIB
CNG StationBill
FTR [S-169]
Above tax
+
Tax collected u/s 235 (Tax collected on Electricity Consumption)
Shall be Final Tax on income of CNG Station
31. 31
[S-151] Profit on Debt
Payer of POD
Deduct tax @
1st Sched, Part-III, Div-IA
Gross POD X
- Zakat (X)
X
• Account
• Deposit
• Certificate
• Post Office Savings Account
• Account
• Deposit
• Security issued by FG/PG/LG
• Bond
• Debenture
• Certificate
• Security
• Instrument of any kind
of National Saving Scheme
with any Bank/Financial Institution
Issued by:
Banking Co
Financial Institution
Company as defined in Co. Ord. 1984
Body Corporate formed under any Law
To any Resident Person
To any Resident Person
other than Financial
Institution
Tax deduction shall not be made from Profit on Debt on
Loan Agreement between borrower and Banking
Company OR Financial Institution
Tax deducted under Section 151, shall be ADJUSTABLE
against tax liability calculated under Section 7B, which
will be calculated @ 1st Sched, Part-I, Div-IIIA on Gross
Amount of Profit on Debt
Tax Liability under Section 7B, shall be Final Tax
Section 7B is not applicable on Company, therefore Profit
on Debt received by Company shall be taxed under
Normal Tax Regime and tax deducted under section 151
shall be adjustable
FTR [S-169]
32. 32
Not Applicable
FTR
Company
Tax Imposed Final Tax
NTR
Other CasesSection 7BCompany
Tax deducted at source
Section 151
Other Cases
Not Final Tax
Final Tax
Separate Taxation
33. 33
[S-152] Payments to Non Residents
Every person while making payment to Non Resident for
Contract of
[S-152(1A)]
Advertising Services
by Non Resident Media
Person relaying from
outside Pakistan
[S-152(1AAA)]
Insurance/
Reinsurance
Premium
[S-152(1AA)]
Advertisement
Services
rendered by TV
Satellite Channel
Construction
Assembly
Installation in
Pakistan
Supervisory
activity in
relation to
above
premium should
not be taxable
income of PE of
Non Resident
Deduct tax @ 1st Sched, Part-III, Div-II
Final Tax
FTR [S-169]
Non Resident opts
for FTR
34. 34
[S-153] Payments for Goods, Services, Contracts
Every Prescribed Person while making payment to Resident shall deduct tax @ 1st Sched, Part-III, Div-III for payment on account of following
Final Tax
Goods
[S-153(1)(a)]
Other CasesListed CompanyCompany
(being manufacturer)
OthersSports PersonListed Company
Other than for sale of goods or services
Contracts
[S-153(1)(c)]
Services
[S-153(1)(b)]
Minimum Tax
Adjustable Tax
Section 153(2): Exporter/Export House making payment to Resident
Person OR PE of Non Resident for services of stitching, dying, printing,
embroidery, washing, sizing and weaving shall
deduct tax @ 1st Sched, Part-III, Div-IV ResidentPENR
OthersElectronic & Print
media for
Advertisement
FTR [S-169]
35. 35
[S-154] Exports
Indirect ExporterIndirect ExporterExporter
Indenting Commission
Agent
Direct ExporterDirect ExporterFrom
Direct ExporterBankExport Processing
Zone Authority
Authorized Dealer in
Forex
Collector of Customs
Authorized Dealer in
Forex
By
Payment of GoodsRealization of Proceeds
Time of Export
Realization of Forex
Proceeds
Time of Export
Realization of Forex
ProceedsTime
[S-154(3B)][S-154(3)][S-154(3A)] [S-154(2)][S-154(3C)][S-154(1)]
Tax Collection
Rate 1st Sched, Part-III, Div-IV
Tax deducted/collected above shall be Final Tax, however, a person may opt not to be subject to final taxation. In case of availing such option, the above taxes shall be
treated as minimum tax
In Land Back-to-
back letter of credit
Firm contract Forex Pak Rupees (i.e.,
exports without
Form "E")
Sales made to Direct exporter through Export Proceeds Realizable in
Indirect Exporter Direct Exporter
Yes No
Export of Goods by Industrial Undertaking in Export Processing Zone Commission on
Exports
FTR [S-169]
36. 36
[S-156] Prizes & Winnings
Every person paying following shall deduct/collect tax @ 1st Sched, Part-III, Div-VI
• Prize Bond
• Winning from raffle
• Lottery
• Prize on a quize
• Sale promotion prize by a company
• Cross word puzzle
Tax shall be deducted from gross amount, in case of cash prize OR
on fair market value, in case of prize in kind
Tax collected/deducted shall be Final Tax
FTR [S-169]
37. 37
[S-156A] Petroleum Products
Every person selling petroleum products to petrol pump operator shall deduct tax on
discount or commission allowed to petrol pump operator
at the rate mentioned in 1st Sched, Part-III, Div-VIA
Tax deducted shall be Final Tax
FTR [S-169]
38. 38
[S-233] Brokerage & Commission
Principal Agent
Brokerage /
Commission
Faderal Govt,
Provincial Govt,
Local Govt,
Company,
AOP formed under any Law
Deduct tax @
1st Sched, Part-IV, Div-II
Tax deducted shall be Final Tax
If agent has retained any commission or brokerage from amount remitted to principal, such amount shall be deemed to have been
paid by principal to the agent and tax thereon shall be collected by principal from agent.
FTR [S-169]
A x 15/85
A = Advertising services charges,
excluding commission, on which tax
was deducted u/s 153
Advertising
Agent
39. 39
[S-152A] Payment for Foreign Produced Commercials
Any Person Non Resident Person
Tax deducted shall be Final Tax
Foreign produced commercial for advertisement
On
Television or other media
Direct Payment
Through agent
or intermediary
Deduct tax
@ 20%
From Gross amount
FTR [Others]
40. 40
[S-233A] Collection of Tax by a Stock Exchange in Pakistan
Tax deducted shall be Final Tax
FTR [Others]
1st Sched, P-IV, Div-IIA
Stock Exchange shall deduct tax from its Members
on Sale and Purchase of shares
@
41. 41
[S-236A] Advance tax at time of sale by auction
SellerPurchaserPublic Auction Auction by Tender
Property attached/confiscated
OR
Awarding of any lease to any person
Including:
lease of the right to collect tolls
fees or other levies
Belonging/Not belonging to:
Government
Local Government
Any authority
Company
Foreign association declared to be a company [S-80(2)(b)(vi)]
Foreign contractor/consultant/consortium
Collector of Customs
Commissioner of Inland Revenue
Any any other authority
Collect tax
@
1st Sched, Part-IV, Div-VIII
On sale price
Final Tax
FTR [Others]
42. 42
[S-236M] Bonus Shares issued by Listed Companies
ShareholderListed Company Bonus Shares
Withhold
5%
Bonus Shares
Remaining Shares
Pay tax
@ 5%
Share Price
Day-end price on
1st day of book
closure
Collect tax with in 15
days of book closure
Tax not paid by
shareholder
Deposit shares with
CDC/prescribed entity
Deposit shares with
CDC/prescribed entity
Dispose off shares
(pay to CIT - FBR)
Final Tax
Release Shares
FTR [Others]
43. 43
[S-236N] Bonus Shares issued by Un-quoted Companies
ShareholderUn-listed Company Bonus Shares
Co. shall pay tax @ 5%
Bonus Shares & collect
it from Sh.holder
Remaining Shares
Pay tax
@ 5%
Share Price
Day-end price on
1st day of book
closure
To be paid to FBR with in
15 days of book closure
Tax not paid by shareholder
OR
Shares not collected by shareholder
Company shall
dispose off shares
(pay to CIT - FBR)
Final Tax
Release Shares
FTR [Others]
44. 44
[S-236Q] Payment to Resident for use of Machinery & Equipment
Prescribed Person
Making payment to Resident Person
For use/right to use
Industrial/commercial/scientific equipment
On account of RENT of machinery
Deduct tax on Gross Amount
1st Sched, Part-IV, Div-XXIII
Final Tax
Prescribed Person has same meaning
as defined in Section 153(7)
Machinery leased by:
- Leasing Co.
- Investment bank
- Modaraba
- Scheduled bank
- Development finance Inst.
Agriculture Machinery
This section not applicable on following:
FTR [Others]
45. 45
Separate Taxation
Separate Taxation Separate Block of Income
Section 8 [S-5] Tax on Dividends
[S-5A] Tax on Undistributed Reserves
[S-5AA] Tax on Investment in Sukuks
[S-6] Tax on certain payments to Non Residents
[S-7] Tax on shipping and air transport income
of a non-resident person
[S-7A] Tax on shipping of Resident Person
[S-7B] Tax on Profit on Debt
• To be discussed in
relevant Head of Income
46. 46
Dividend
FTR [S-8]
Company Shareholder
Deduct tax on gross amount @ 1st Sched, Part-III, Div-I
Cash Dividend
[S-150]
Dividend in specie
[S-236S]
Tax deducted will be Adjustable
Pay tax on gross amount @ 1st Sched, Part-I, Div-III
Tax Imposed will be Final Tax
[S-5]
Shareholder shall pay Final Tax after adjustment of tax
deducted at source
47. 47
[S-5A] Undistributed Reserves of Public Company
Public Company
(Other than Scheduled Bank or Modaraba)
50% or more shares held by FG Electric Power Generation
Company exempt under 2nd
Schedule, Part-I, Clause 132
Cash Dividend paid or Bonus
Shares issued upto
Cash Dividend paid or Bonus
Shares issued is lower than the
limit
No Cash dividend paid or No
Bonus Shares issued
40% of Profit after tax
Profit Before Tax
Treated as Deemed Income
Taxable @ 7.5%
Final Tax on Deemed Income
This section not applicable
Cash dividend or Bonus Shares
must be distributed within 6 months
from end of tax year
FTR [S-8]
48. 48
Return on Sukuk
Special Purpose Vehicle
OR
Company
Sukuk Holder
Deduct tax on gross amount @ 1st Sched, Part-III, Div-IB
Return on Sukuk
[S-150A]
Tax deducted will be Adjustable
Pay tax on gross amount @ 1st Sched, Part-I, Div-IIIB
Tax Imposed will be Final Tax
[S-5AA]
Receiver of return shall pay Final Tax after adjustment
of tax deducted at source
3rd Pak Int Sukuk CoFTR [S-8]
50. 50
Payments to Non Residents
Payment to Non Resident
for Pakistan Source
Royalty OR FFTS Non-Resident
Deduct tax on gross amount @ 1st Sched, Part-I, Div-IV
Payment to Non Resident
[S-152(1)]
Tax deducted will be Adjustable
Pay tax on gross amount @ 1st Sched, Part-I, Div-IV
Tax Imposed will be Final Tax
[S-6]
This section shall not apply on following:
1. Royalty: where property or right giving rise to royalty is effectively
connected with PE of Non Resident. Such royalty shall be treated as
business income of PE of Non Resident.
2. FFTS: where services giving rise to fee are rendered through PE of Non
Resident. Such fee shall be treated as business income of PE of Non
Resident.
3. Royalty or FFTS exempt from tax.
FTR [S-8]
51. 51
[S-2(54)] Royalty
Royalty means any amount Paid Payable Periodical or lumpsum as consideration for following
(vi)
(vii)
supply of any assistance ancillary and subsidiary to any property or right mentioned above
disposal of any right or property mentioned above
(v) Use or right to use Industrial/commercial/scientific equipment
(iv) Supply of Technical/industrial/commercial/scientific Knowledge/skill
(iii)
receive or right to receive
visual image or sound
transmitted by
Satellite/Cable
Optic Fiber
Similar technology
in connection with
Television
Radio
Internet broadcasting
(ii) Use or right to use
copyright or a literary, artistic or scientific work including
films or video tapes for use in connection with television or
tapes in connection with radio broadcasting
but shall not include consideration for
sale, distribution or exhibition of
cinematograph films
(i) Use or right to use Patent
Invention
Design
Model
Secret formula
Process
Trade mark
Other like property/right
52. 52
[S-2(23)] FFTS
means any consideration, whether periodical or lump sum, for rendering :
(b) consideration chargeable under head "Salary"
(a) consideration for services in connection with construction, assembly or like project
It does not include following
Including services of technical or other personnel
Managerial
Technical
Consultancy Services
53. 53
[S-7] Tax on Shipping & Air Transport Business of Non-Resident
Non-Resident owns a ship or aircraft
Tax shall be imposed @ 1st Sched, Part-I, Div-V
Tax Imposed will be Final Tax
On Gross Amount
Passengers, live stock, mail, goods
embarked
In Pakistan Outside Pakistan
Amount
Received/Receivable
In Pakistan P P
Outside Pakistan P O
FTR [S-8]
54. 54
[S-7A] Tax on Shipping of Resident Person
Resident doing shipping business
Ships flying Pakistan Flag
@ 1 US $ per Gross Registered Tonnage
Pay Tonnage Tax
Ships not registered in Pakistan
Pay Tonnage Tax
0.15 US $ per Gross Registered Tonnage
For each voyage to Pakistan
Subject to maximum of 1 US $ per
Gross Registered Tonnage
Exchange rate on following dates shall be applicable:
i. In case of Company, 1st December of relevant Tax Year
ii. In other cases, 1st September of relevant Tax Year
Tax paid under this section shall be Final Tax
This section shall not be applicable after 30.06.2020
FTR [S-8]
56. 56
[S-113] Minimum Tax on Income of Certain PersonsMinimum Tax
Company
Resident Turnover 10 million or above
In TY 2017 or after
Tax payable is less than
[%age given in column (3) of Table in 1st Sched, P-I, Div-IX] x [Turnover]
Due to:
(i) Loss of the year
(ii) Set off of loss of earlier year
(iii) Exemption from tax
(iv) Tax Credits OR Rebates
(v) Allowances/Deductions (including Depreciation & Amortization)
IndividualAOP
Specific Conditions
General Conditions
Turnover shall be treated as income
Pay tax on basis of turnover @ 1st Sched, Part-I, Div-IX
The excess tax paid due to minimum tax, shall be carried forward for adjustment against tax
liability upto 5 subsequent tax years
Tax Payable shall not
include:
(i) Final Tax u/s 169
(ii) Tax Payable u/s 4B
Turnover means:
Gross Sales
Gross Fees
Gross Fees
Share of profit
from AOP
Excluding
Sales Tax
FED
Trade Discount
Deemed income on which
Final Tax has been paid
Deemed income on which
Final Tax has been paid
Deemed income on which
Final Tax has been paid
Including
Commission
Turnover means:
Gross Sales
Gross Fees
(Services)
Gross Fees
(Contracts)
Share of
Company in AOP
in above
amounts
57. 57
[S-113C] Alternate Corporate TaxMinimum Tax
Company
Tax Payable under NTR
Minimum Tax
Higher
Corporate Tax
In case of Section 113, C/f upto
5 subsequent Tax Years
Alternate Corporate Tax
Higher
Tax Payable
C/f upto
10 subsequent Tax Years
Alternate Corporate Tax
Accounting Profit before Tax
(excluding share from associate under Equity Method of accounting)
Less:
Exempt Income
Income other than under NTR
Income subject to Tax Credit u/s 65D, 65E, 100C
Proportionate Expenses relating to above income
Accounting Income
@ 17% = Alternate Corporate Tax
Less:
Tax Credit u/s 64B
Tax Credit u/s 65B
Tax Payable
100
(11)
(11)
(11)
3
70
11.90
(1)
(1)
9.90
Other than:
i. Insurance Co.[4th Sched]
ii. Petroleum & Mineral deposit exploration[5th Sched]
iii. Banking Co.[7th Sched]
59. 59
Alternate Corporate Tax Practice-II
Total Revenue
Total Expense
Accounting Profit before tax
Taxable Income under NTR
Total Revenue comprise of
following:
i. Exempt
ii. Taxable
200,000,000
50,000,000
150,000,000
25,000,000
70,000,000
130,000,000
Alternate Corporate Tax
Accounting Profit before Tax
(excluding share from associate under Equity Method of
accounting)
Less:
Exempt Income
Income other than under NTR
Income subject to Tax Credit u/s 65D, 65E, 100C
Proportionate Expenses relating to above income
Accounting Income
@ 17% = Alternate Corporate Tax
Less:
Tax Credit u/s 64B
Tax Credit u/s 65B
Tax Payable
150,000,000
(70,000,000)
0
0
17,500,000
97,500,000
16,575,000
(0)
(0)
16,575,000
Proportionate Expenses
50 x 70 / 200
Company
NTR tax @ 31%
7,750,000
Minimum Tax
2,000,000
Higher
Corporate Tax
7,750,000
Nothing C/f upto
5 subsequent Tax
Years
Alternate
Corporate Tax
16,575,000
Higher
Tax Payable
16,575,000
8,825,000 C/f upto
10 subsequent Tax
Years
60. Income from Salary
Employee Employment Employer
Means any individual engaged in employment Means any person who engages and
remunerates an employee
Includes:
i. Directorship or any other office
involved in management of company
OR
ii. a position entitling the holder to a
fixed or ascertainable remuneration
OR
iii. holding or acting in any public office
3 Important Questions:
1. Geographical Source of Income
2. Basis of Taxation
3. Residential Status recently changed
Heads of Income
60
Deciding a
Salary case
61. Income from Salary
1. Geographical Source of Income [S-101(1), (11) & (16)]
Heads of Income
Employment Exercised
In Pakistan Outside Pakistan
Payment of Salary made
In Pakistan PSI FSI
Outside Pakistan PSI FSI
By or on behalf of FG/PG/LG in Pakistan
PSI wherever employment is exercised
Salary
61
Pension/Annuity
Resident
FSI
PSI
PENRBorn by
Paid by
62. Income from Salary
2. Basis of Taxation
Heads of Income Salary
62
Cash BasisAccrual
[S-110]
Salary received in current tax year in respect of services rendered in
previous Tax Year is taxable on accrual basis.
Conditions:
(i) Salary is received from a private company
(ii) Commissioner of Income Tax is satisfied that the payment of salary
was deferred
[S-12(7)]
Arrears of salary received in tax year caused higher taxation, then tax payer
by notice in writing to commissioner tax salary on accrual basis
All Other Cases
Amount OR Perquisite treated as received [S-12(5)]:
as and when it is paid or provided;
By
(i) Employer
(ii) Associate of employer
(iii) Any 3rd party under agreement with employer or its
associate
By
(i) Past employer
(ii) Perspective employer
To
(i) Employee
(ii) Associate of employee
(iii) Any 3rd party under agreement with employee or its
associate
Receipt of Income [S-69]:
Amount/benefit/perquisite treated as received when:
(i) Actually received
(ii) Applied on behalf/instruction of person OR under any law
(iii) Made available to person
63. Income from Salary
3. Residential Status Recently Changed
Heads of Income Salary
63
Non Resident
Resident
Geographical Source of Income
PSI FSI
Residential
Status
FSI of Resident
Foreign Source Salary of Resident [S-102]:
Exempt if;
- Foreign tax on salary is paid by individual OR
- withheld by employer and paid to revenue
authority of foreign country
Citizen of Pakistan leaves Pakistan [S-51(2)]:
If a citizen of Pakistan leaves Pakistan in a Tax Year
and remains abroad during that tax year
then Salary earned outside Pakistan shall be
exempt
Returning Expatriate [S-
51(1)]:
If resident in a Tax Year but was
Non-Resident in preceding 4
Tax Years
Then all foreign source income
will be exempt in tax year in
which tax payer becomes
resident and the following tax
year
Short term Resident [S-50]:
FSI will be exempt
Conditions:
(i) Resident solely by reason
of employment
(ii) Present in Pakistan for 3
years or less
Exceptions:
(i) Income from business
established in Pakistan
(ii) Foreign Source Income
brought into or received
in Pakistan
64. Income from SalaryHeads of Income Salary
64
Deciding a Salary case:
1. Salary Definition
2. Deductions
3. Perquisites/Facilities/Benefits
4. Exemptions
65. Income from SalaryHeads of Income Salary
65
Salary [S-12(2)] Means: any amount received by employee from employment whether capital or revenue nature
Includes: Perquisites [Section-13]
means
-items provided by employer in kind
OR
-cash reimbursed for expenses other than office purpose
includes
-Services of house keeper, driver, gardener, domestic assistant
-Utilities
-Any obligation of employee to employer, waived off by employer
-Any obligation of employee to another person paid by employer
-FMV of property transferred to employee reduced by any payment
made by employee
Allowances
-Cost of Living
Allowance
-Subsistance Allowance
-Rent
-Utilities
-Education
-Entertainment
-Travel Allowance;
except for official tours
-Pay
-Wages
-Other remuneration
-Leave pay
-Overtime
-Bonus
-Commission
-Fee
-Gratuity
-Work condition
Supplements
Expenditure
incurred by
employee but
paid by employer,
other than official
purposes
Others
-Pension,
Annuity
- Leave encashment -Vehicle wholly or partly for private use
-Accommodation
-Medical Facility
-Interest free loan
- Medical Allowance -Profits in lieu of salary
-Employee Share Scheme
66. Income from SalaryHeads of Income Salary
66
Leave Encashment [2nd Schedule, Part-I, Clause-19]:
Encashment of
Leave Preparatory to Retirement
Of
(i) Government Employee
(ii) Member of Armed Forces
Exempt from Tax
Definition
67. Income from SalaryHeads of Income Salary
67
Valuation of Conveyance [Rule-5]:
Taxable
Vehicle leased by employerVehicle owned by employer
Official Use only
Official & Personal use
Personal Use only
Usage
Not Taxable
5% of FMV at commencement of lease5% of cost of vehicle
10% of FMV at commencement of lease10% of cost of vehicle
Definition
68. Income from SalaryHeads of Income Salary
68
Valuation of Accommodation [Rule-4]:
Amount that would have been paid
if accommodation was not provided
45% of MTS/Basic Salary
Higher
TaxableTaxable
Accommodation provided in mufasal areas
shall be taxable at 30% of MTS/Basic Salary
Definition
69. Income from SalaryHeads of Income Salary
69
Medical Allowance [2nd Sched, P-I, Clause 139]:
BothMedical Facility/Reimbursement
Not in accordance with
terms of employment
In accordance with terms of
employment
Medical Allowance
Medical Allowance >>>>exempt upto 10% of Basic Salary
Medical Facility>>>>>>totally taxable
Taxable
Medical Allowance >>>>Totally Taxable
Medical Facility>>>>>>totally exempt if following
conditions are met
(i) Provide NTN of medical practitioner
(ii) Attestation of expense by employer
Totally exempt if following conditions
are met:
(i) Provide NTN of medical
practitioner
(ii) Attestation of expense by
employer
Exempt upto 10% of Basic Salary
Definition
70. Income from SalaryHeads of Income Salary
70
Interest Free Loan [S-13(7) (8) & (14)]: Loan from employer
@
benchmark
rate or
more
Markup
charged?
Markup @ benchmark rate
Included in Taxable Income
Markup @ benchmark rate
– Markup charged by employer
Included in Taxable Income
Nothing Taxable
NoYes
Yes
Above is not applicable on loan upto Rs 1,000,000/-
OR
Where such benefit is extended by the employer due to
waiver of interest by such employee on his accounts
maintained with the employer.
No
X
(X)
X
If loan is utilized by employee to acquire any asset
Then employee shall be treated as having been paid
markup @ benchmark rate or actual markup paid,
which ever is higher.
Definition
71. Income from SalaryHeads of Income Salary
71
Profits in lieu of salary [S-12(2)(e)]
(i) Payment of Employer's Contribution from provident fund
(ii) Amount on termination of employment, whether voluntary basis or under an agreement
(iii) Compensation for redundancy or loss of employment (e.g., Golden Hand Shake)
(iv) Consideration for employee's agreement to :
• enter into employment agreement
• accept changes to conditions of employment
• a restrictive covenant to any past, present or future employment
Includes:
[S-12(6)]
Tax payer has option to get it taxed @ last 3 years
average rate of tax
Last 3 year’s taxable income
Last 3 year’s tax liability
=Average rate of tax
Definition
72. Income from SalaryHeads of Income Salary
72
Employee Share Scheme [S-14] Option/Right Acquired
Shares disposed off
Shares acquired without any restriction on transfer
OR restriction removed afterwards
Shares acquired with restriction on transfer
Exercised Option/Right & Shares received Taxable under salary
Consideration
- Cost Paid
Option/Right Disposed Off
Nothing Taxable
X
(X)
X
FMV
- Consideration paid to acquire shares
X
(X)
X Taxable under salary
Taxable under Capital Gains
Disposal value
- Consideration paid to acquire option & share
- Amount previously included in Taxable income
X
(X)
(X)
X
Nothing Taxable
Definition
73. Income from SalaryHeads of Income Salary
73
Deductions:
Section 12(4):
No deduction shall be allowed for any expense incurred by employee in deriving salary income.
74. Income from SalaryHeads of Income Salary
74
Perquisites/Facilities/Benefits:
1. Pension
2. Commutation of Pension
3. Gratuity & Commutation of Pension
4. Provident Fund
5. Tax on Salary Born by Employer
6. Services provided by employer to employee
7. Utilities
8. Obligation of employee waived by employer
9. Obligation of employee to 3rd party, paid by employer
10. Property or service provided to employee
11. Any other perquisite
12. Self Hiring of Property
13. Superannuation Fund
14. Benevolent Fund
75. Income from SalaryHeads of Income Salary
75
Perquisites/Facilities/Benefits:
1. Pension [2nd Sched, Pt-I, Cl (8)&(9)]
Member of Armed Force
Employee of FG/PG
Totally Exempt
Others
Age>60 Totally Exempt
Works for
same
employer or
its associate
Taxable
More than
1 pension
Totally Exempt
Higher amount is exemptYes
No
YesNo
YesNo
Perks
76. Income from SalaryHeads of Income Salary
76
Perquisites/Facilities/Benefits:
2. Commutation of Pension [2nd Sched, Pt-I, Cl (12)]
Received from Government
OR
Received from Scheme approved by FBR
Totally Exempt
Perks
77. Income from SalaryHeads of Income Salary
77
Perquisites/Facilities/Benefits:
3. Gratuity and Commutation of Pension [2nd Sched, Pt-I, Cl (13)]
Rs 75,000/-
OR
50% of amount
(Which ever is less is exempt)
Exempt upto Rs 300,000/-Totally Exempt
Un-approved Gratuity
OR
Un-approved Commutation
Gratuity & Commutation Scheme Approved
by FBR
Government Employee
OR
Approved Gratuity Fund by CIT under 6th Schedule
Exemption not available to following:
(i) Payment not received in Pakistan
(ii) Payment received by Director of Company who is not employee of company
(iii) Payment received by Non Resident
(iv) Gratuity received by employee who has already received gratuity from same or another employer
Perks
78. Income from SalaryHeads of Income Salary
78
Perquisites/Facilities/Benefits:
4. Provident Fund [2nd Sched, Pt-I, Cl (23)] & [6th Sched, Pt-I, Cl (3), (4) & (5)]
Already taxed in salary,
therefore no treatment
Employee Contribution
Govt. PF
Already taxed in salary, therefore no
treatment
Already taxed in salary, therefore no treatment
Un-recognized PFRecognized PF
ExemptEmployer Contribution
No treatment when contribution is
made
Rs 150,000
OR
10% of (Basic Salary + Dearness Allowance)
(Lesser is exempt)
Exempt
Returns credited during
year
Return @ 16%
OR
1/3rd of (Basic Salary + Dearness Allowance)
(Higher is exempt)
ExemptAccumulated Balance Paid
No treatment when returns are
credited
Exempt
Only employee’s contribution is exempt
All other sums are taxable
Note: Dearness Allowance is a type of Cost of Living Allowance
Perks
79. Income from SalaryHeads of Income Salary
79
Perquisites/Facilities/Benefits:
5. Tax on Salary Born by Employer [S-12(3)]
Amount of salary income shall be grossed up by amount of tax payable by employer.
Q. Mr. A has received taxable salary and allowances amounting to Rs 1,810,000 during tax year 2018. You are
required to calculate his taxable income and tax payable under each of following situations:
(i) 100% tax is to be borne by employer
(ii) 40% of tax is to be borne by employer and balance to be borne by Mr. A
(iii) Rs 50,000 is to be borne by employer and balance to be borne by Mr. A
(iv) Mr. A shall pay only Rs 50,000 as tax and balance tax to be borne by employer
Perks
80. Income from SalaryHeads of Income Salary
80
Perquisites/Facilities/Benefits:
6. Services provided by employer to employee [S-13(5)]
House keeper
Gardner
Driver
Other domestic assistant
Less: payment by employee to employer for these services
Salary paid to them by employer X
(X)
X Taxable
Perks
81. Income from SalaryHeads of Income Salary
81
Perquisites/Facilities/Benefits:
7. Utilities [S-13(6)]
Electricity
Gas
Water
Telephone
Less: payment by employee to employer for these utilities
Fair Market Value of utilities X
(X)
X Taxable
Perks
82. Income from SalaryHeads of Income Salary
82
Perquisites/Facilities/Benefits:
8. Obligation of employee waived by employer [S-13(9)]
Waived Amount Taxable
9. Obligation of employee payable to 3rd party paid by employer [S-13(10)]
Paid Amount Taxable
10. Property or service provided to employee [S-13(11)]
Less: payment by employee to employer
Fair Market Value X
(X)
X Taxable
Perks
83. Income from SalaryHeads of Income Salary
83
Perquisites/Facilities/Benefits:
11. Any other perquisite [S-13(13)]
Less: payment by employee to employer for perquisite
Fair MV of perquisite X
(X)
X Taxable
Perks
84. Income from SalaryHeads of Income Salary
84
Perquisites/Facilities/Benefits:
12. Self Hiring of Property [S-15(5)]
"Income from Salary" shall include value of accommodation in accordance with Rule-4
"Income from Property" shall include rent income in accordance with Section-15(4)&(5)
Perks
85. Income from SalaryHeads of Income Salary
85
Perquisites/Facilities/Benefits:
13. Superannuation Fund approved by Commissioner in accordance with Part-II of 6th Schedule [Cl-4-6] & 2nd Sched, P-I, Cl-25 :
Employer’s Contribution
During life time other than above
In lieu of annuity
On deathPayment out of fund:
Taxable
Exempt
Interest Credited
Perks
86. Income from SalaryHeads of Income Salary
86
Perquisites/Facilities/Benefits:
14. Benevolent Fund [2nd Sched, P-I, Cl-24]
Any payment in accordance with
"Central Employee Benevolent Fund & Group Insurance Act 1969"
Exempt
Perks
87. Income from SalaryHeads of Income Salary
87
Exemptions:
1. Foreign Government Officials
2. Diplomatic & United Nations Exemptions
3. International Agreements
4. Perquisites without Marginal Cost to Employer
5. Special Allowance
6. Workers’ Participation Fund
7. Salary income of seafarer
8. Allowances to persons working outside Pakistan
9. Full Time teacher/researcher
88. Income from SalaryHeads of Income Salary
88
Exemptions:
1. Foreign Government Officials [S-43]
Salary of foreign government employee shall be exempt from tax if:
(i) employee is citizen of foreign country and not citizen of Pakistan
(ii) services performed are similar to those performed by employees of Federal Government in foreign countries
(iii) foreign government grants similar exemption to employees of the Federal Government performing similar services in such foreign country
89. Income from SalaryHeads of Income Salary
89
Exemptions:
2. Diplomatic & United Nations Exemptions [S-42]
Following shall be exempt from tax:
(i) Individuals entitled to privileges under the Diplomatic and Consular Privileges Act, 1972
(ii) Individuals entitled to privileges under the United Nations (Privileges and Immunities) Act, 1948
(iii) Pension received by citizen of Pakistan due to former employment in the United Nations or its specialized agencies, if the person’s salary from
such employment was exempt under this Ordinance
90. Income from SalaryHeads of Income Salary
90
Exemptions:
3. Exemption under International
Agreements [S-44]
If Pakistan is not permitted to tax
an income under TAX TREATY,
it will be exempt from tax
Salary received under an AID AGREEMENT is exempt from
tax subject to following conditions:
(i) Salary received by individual, who is not citizen of
Pakistan
(ii) Exemption will be to the extent provided in AID
AGREEMENT
(iii) AID AGREEMENT is between FG≈Fr.G FG ≈PIO
(iv) Individual is not resident OR Is resident solely for
performance of service under AID AGREEMENT
(v) In case AID AGREEMENT is with Foreign Govt. then
individual should be citizen of that country
(vi) Salary is paid out of funds released to Pakistan under
AID AGREEMENT
Any income under a bilateral or multilateral technical assistance
AGREEMENT is exempt from tax subject to following conditions::
(i) Income is received by person, who is not citizen of Pakistan
(ii) Person is engaged as a contractor, consultant, or expert on a
project in Pakistan
(iii) Exemption will be to the extent provided in AGREEMENT
(iv) AGREEMENT is between FG≈Fr.G FG ≈PIO
(v) Project is financed out of funds released in accordance with
AGREEMENT
(vi) Person is not resident OR Is resident solely for performance of
service under AGREEMENT
(vii) Income is paid out of funds under AGREEMENT
91. Income from SalaryHeads of Income Salary
91
Exemptions:
4. Perquisites without Marginal Cost to Employer [2nd Sched, P-I, Cl-53A]
Hospital/ClinicEducational InstitutionHotel/Restaurant
Any other notified by FBR
Free/subsidized Medical
Treatment
Free/subsidized education
Free/subsidized food
during duty hours
Totally Exempt
92. Income from SalaryHeads of Income Salary
92
Exemptions:
5. Special Allowance [2nd Sched, P-I, Cl-39]
Any allowance, other than Conveyance and Entertainment
Allowance, specially granted to meet expenses wholly and
necessarily incurred in performance of office duties
Exempt
93. Income from SalaryHeads of Income Salary
93
Exemptions:
6. Workers’ Participation Fund [2nd Sched, P-I, Cl-26]
Amount received as worker, out of Workers' Participation Fund Exempt
94. Income from SalaryHeads of Income Salary
94
Exemptions:
7. Salary Income of Seafarer [2nd Sched, P-I, Cl-4]
Salary income shall be exempt if
Pakistani seafarer is on
Pakistan flag vessel
for
183 days or more on vessel
Foreign vessel
No limit of number of days
Following conditions required for exemption:
(i) Income remitted to Pakistan
(ii) through normal banking channel
(iii) within 2 months of relevant tax year
95. Income from SalaryHeads of Income Salary
95
Exemptions:
8. Allowance to person working outside Pakistan [2nd Sched, P-I, Cl-5]
Allowance from Govt of Pakistan
to a citizen of Pakistan
for rendering services outside Pakistan
Exempt
96. Income from SalaryHeads of Income Salary
96
Exemptions:
9. Full Time teacher/researcher [2nd Sched, P-III, Cl-1(2)]
Tax payable in salary shall be reduced by 40% if following conditions are fulfilled:
(i) The individual is Full time teacher/researcher
(ii) in non-profit education/research institution, duly recognized by
a. Higher Education Commission (HEC)
b. Board of Education
c. University recognized by HEC
(iii) including in any Government training/research institute
97. Income from Property
Owner/Landlord
Property
Land/Building
Tenant
Rent means:
Amount received/receivable
By owner of land/building
As consideration to use/occupy OR right to use/occupy the land/building
Rent includes:
Forfeited deposit on contract for sale of land/building [S-15(1)&(2)]
2 Important Questions:
1. Geographical Source of Income
2. Basis of Taxation
Heads of Income
97
Deciding a
Property
Income case
Accrual Basis
98. Income from Property
1. Geographical Source of Income [S-101(9) & (10)]
Heads of Income Property
98
Immovable Property
situated in Pakistan
Right to explore natural resources
in Pakistan
Rental Income shall be Pakistan Source Income
Gain on disposal of above property or right shall also be Pakistan Source Income
99. Income from Property
Deciding Income from Property Case:
Heads of Income Property
99
Individual Company
Tax shall be imposed on these persons on Gross Rent Income @ 1st Sched, P-I, Div-VIA
Except following:
(i) Individual/AOP
(ii) having no taxable income under any other head &
(iii) Taxable Property Income is upto Rs 200,000/- [S-15(6) & (7)]
Income from Property derived by Company shall be taxable under
"Normal Tax Regime”
Rental income shall be reduced by allowable expenses, detailed in Section-15A, and
remaining amount shall by included in taxable income under Normal Tax Regime
AOP
Rent
100. Income from Property
Deciding Income from Property Case:
Heads of Income Property
100
Rent
i. 1/10th of advance will be treated as Rent in
• TY of receipt &
• 9 subsequent TYs
ii. Nothing will be included in taxable income, in the tax year in which such advance is refunded
iii. If tenancy is terminated before 10 years and previous advance is returned and new advance is received then:
1/10th of advance will be treated as Rent in
• TY of receipt &
• 9 subsequent Tys
NON-ADJUSTABLE Advance (Building)
[S-16]
automatically included in
taxable income because of
accrual basis of taxation
Advance ADJUSTABLE
against Rent
Taxable on
accrual
basis
Rent
Amount of new advance
- Amount charged to tax earlier
X
X
(X)
101. Income from Property
Deciding Income from Property Case:
Heads of Income Property
101
Rent [S-15], [S-39] & [S-66]
Important !!
(i) Rent received/receivable OR Fair Market Rent, which ever is higher, is taxable [S-15(4)]
(ii) Above is not applicable if Fair Market Rent has already been included in salary income due to self hiring of property [S-15(5)]
(iii) Following amounts shall be included in taxable income under the heads of income mentioned thereagainst;
• Ground Rent
• Rental income from sub-lease of land or building
• Rental income from lease of building, together with Plant & Machinery
• Amount of amenities, utilities, other services connected with renting
• Amount received as consideration for vacating possession of building
(iv) When a property is owned by two or more persons &
their share is definite and ascertainable
then
Persons shall not be treated as AOP
Share of each person's income from property shall be taxed separately
Income from Other
sources
[S-39(1)(d)]
[S-39(1)(e)]
[S-39(1)(f)] & [S-15(3)]
[S-39(1)(fa)] & [S-15(3A)]
[S-39(1)(k)]
102. Income from Property
Deciding Income from Property Case:
Heads of Income Property
102
Allowable Deductions [S-15A]
i. Building Repair Allowance
ii. Insurance Premium
iii. Rates, tax, charge, cess not being Income Tax
iv. Ground Rent
v. Markup on loan to acquire, construct, renovate, extend, reconstruct property
vi. HBFC Loan / Scheduled Bank Loan on scheme based on sharing rent
(share in rent+share in appreciation in value)
vii. Markup on mortgages/charges
1/5th of rent chargeable to tax
Paid/Payable
Paid/Payable
Paid/Payable
Paid/Payable
Paid/Payable
Paid/Payable
103. Income from Property
Deciding Income from Property Case:
Heads of Income Property
103
Allowable Deductions [S-15A]
viii. Expenses wholly &
exclusively for deriving rent
including administrative and
collection charges
ix. Legal Charges
x. Irrecoverable Rent
xi. Inadmissible deductions [S-21]
• Paid/Payable
• maximum upto 6% of rent chargeable to tax
• must be paid within 3 subsequent tax years
• otherwise will be included in taxable income in 4th subsequent tax year
• if unpaid amount which is included in taxable income, as above, is subsequently paid, then it will be allowed as deduction in tax
year in which it is paid
Paid/Payable (to defend title of property or defend any suit connected with property in a court)
Conditions:
i. Tenancy was bonafide
ii. defaulting tenant has vacated property OR steps have been taken to compel tenant to vacate property
iii. defaulting tenant is not occupying any other property of same person
iv. person has taken all legal steps for recovery OR reasonable grounds exist that legal proceedings will be useless
v. rent was previously included in taxable income and tax was duly paid
(if irrecoverable rent is subsequently recovered, then it will be included in taxable income in tax year of recovery)
will be studied in "Income from Business"
104. Income From BusinessHeads of Income
104
Business [S-2(10)]:
Includes;
• Trade
• Commerce
• Manufacture
• Profession
• Vocation
OR
adventure/concern
in nature of above
But does not
include
EMPLOYMENT
Income from Business [S-18]:
Following incomes shall be chargeable to tax under head "Income from Business"
• Profits & gains
• Income derived by trade/profession/similar association
• Income from hire/lease
• FMV of any benefit* OR perquisite
• Management Fee
Profit on debt :
Lease rentals from lease of any asset shall be "Income from business" if
"Profit on debt" earned by
& distributed to
this distributed share shall be "Income from Business" and not "Income from Other
Sources" for
Of any business carried on by person
from sale of goods OR provision of services to members
of tangible movable property
from any past, present or perspective business relationship
• benefit includes debt or profit on debt waived off under SBP(Banking Policy Deptt.)
circular 29 of 2002
derived by a management company including Modaraba Management Company
If person's business is to derive such income
then it's "Income from business"
otherwise it's "Income from Other Sources”
Lessor is scheduled bank, investment bank, DFI, Modaraba, Leasing Co.,
Mutual fund OR Pvt Equity & venture capital fund
Banking Co. or NBFC
105. Income From BusinessHeads of Income
105
5 Important Questions:
1. Permanent Establishment
2. Geographical Source of Income
3. Taxation of PENR
4. Thin Capitalization
5. Basis of Taxation
Deciding a
Business Income
case
106. Permanent Establishment [S-2(41)]Heads of Income
106
Includesmeans a fixed place of business through which the business of the
person is wholly or partly carried on
Not a PE
Purchase
Contract
Activities
continued for
more than 90
days in past
12 months
Dependent
Agent
Independent
Agent
Place of management, branch, office,
factory, workshop, premises for
soliciting orders, warehouse, permanent
sales exhibition or sales outlet, other
than Liaison Office
mine, oil or
gas well,
quarry or
any other
place of
extraction of
natural
resources
an
agricultural,
pastoral or
forestry
property
Construction
/ Installation
Project
Furnishing
Services
through
employees
Agent in
Pakistan
Substantial
equipment
installed to
generate
income
PE
Sales
Contract
Liaison Office
[S-2(30C)]
Negotiates
Contracts?
No
Yes Dependent Agent:
has and habitually exercises an authority to conclude contracts on behalf of the other person
has no such authority, but habitually maintains a stock-in-trade or other merchandise from which the
agent regularly delivers goods or merchandise on behalf of the other person;
Business
107. Geographical Source of Income
[S-101(2),(3),(4),(5),(13A),(14)]
Heads of Income
107
Business
Business Income
Insurance/Reinsurance
Premium
PENR
Business Income is attributable to
PSI
Business
carried on
in Pakistan
Non ResidentResident
Resident Insurance
Company
Remuneration is paid by
Resident OR PENR
Professional Services
Services of Entertainers
Sports Person
Independent services
including:
Business
connection in
Pakistan
Other activities
similar to those
provided through
PE of Non
Resident
Sale of Goods
similar to those
sold by PE of Non
Resident
Gain on disposal
of any asset used
to derive above
Pakistan Source
Income
Overseas Insurance Co.
108. Taxation of PENR [S-105]Heads of Income
108
Business
1. Profits of PENR shall be determined separately from Non-Resident as independent and distinct entity
2. Expenses incurred by PENR for the purpose of business shall be allowed as deduction, whether incurred in Pakistan or elsewhere
3. Head Office expenses upto a maximum of [HO Expenses x Turnover of PENR / Worldwide Turnover]
Not Allowed
(O)
Allowed
(P)
Oi) Royalty OR Fees for use of tangible OR intangible asset by PENR
ii) Compensation for services performed for PENR (including management services)
Amounts paid/payable by PENR to its Head Office or to another PE:
iii) Profit on Debt on money lent to PENR (except in case of Banking Business)
P
O
O
Above expenses actually paid by Head Office or by another PE and reimbursed by PENR
Amounts charged by PENR to its Head Office or to another PE:
Oi) Royalty OR Fees for use of tangible OR intangible asset by PENR
Insurance Premium on above Profit on debt paid by NR
iii) Profit on Debt on money lent to PENR (except in case of Banking Business)
P
O
O
Above expenses actually paid by PENR and reimbursed by Head Office or by another PE
Head Office Expenses:
Means; executive or general
administrative expense incurred by NR
for business operations in Pakistan of
PENR
Includes:
• Rent, rates taxes except foreign
income tax
• Repair
• Insurance premium for risk of
damage outside Pakistan
• Salary to Head Office employee
• Travelling expense of employee
• Any other prescribed expenseProfit on Debt paid by NR to finance operations of PENR O
ii) Compensation for services performed for PENR (including management services) O
109. Thin Capitalization [S-106]Heads of Income
109
Business
Foreign Company/Foreign Controller (FC) Foreign Controlled Resident Company (FCRC)
(50% or more ownership held by FC, individually OR through associates)
Other than;
- Financial Institution
- Banking Company
- Branch of FC
Foreign Equity
Foreign Debt
Associate
Profit on Debt
Dividend Not an expense
Is an expense
Foreign Equity Foreign Debt
Foreign Debt
Foreign Debt
Profit on
Debt
Allowed as
expense
Foreign
Debt
Profit on
Debt
Not Allowed
as expense
Profit on Foreign Debt, which exceeds 3 times of Foreign Equity at
any time during TY will not be allowed as expense
Foreign Debt:
Greatest amount at any time in TY of following;
(i) Debt payable to FC OR Associate of FC:
(Profit on debt is deductible expense for
FCRC & POD is not taxable in hands of FC
OR is taxable @ lower than corporate rate
of tax applicable on FC)
(ii) Debt payable to any other person who
owes similar debt to FC OR Associate of FC
Foreign Equity:
Sum of following at beginning of TY;
(i) Paid up Capital owned by FC OR Associate of
FC
(ii) Proportionate share premium account
balance
(iii) Proportionate accumulated profit balance
(iv) Proportionate Asset Revaluation Reserve
(i) Debt owed by FCRC to FC OR Associate of FC
(ii) Proportionate accumulated losses balance
110. Basis of TaxationHeads of Income
110
Business
When payable by person
When due to person
Stock in trade [S-35]
Method of Accounting [S-32]
1. The method of accounting should be regularly employed
2. Company must employ accrual basis of accounting.
3. Other persons may apply cash basis of accounting OR accrual basis of accounting
4. FBR can prescribe a class of persons to follow cash or accrual basis of
accounting
5. Change in method of accounting:
a. Application to Commissioner in writing
b. Satisfy commissioner that the change in method of accounting is
necessary to clearly reflect taxable income
c. Commissioner, if satisfied may approve, by an order in writing, that the
method of accounting be changed
6. While applying change in method of accounting, it must be ensured that no
item of income or expense is omitted or accounted for more than once.
Accrual Basis of Accounting [S-34]Cash Basis of Accounting [S-33]
When paidIncur expense
When receivedDerive income
Un-paid Liability:
• if deduction allowed in a tax year for an expense which is neither paid in same tax year
nor paid in 3 subsequent tax years
then it will be included in taxable income in 4th subsequent tax year
• if amount included in taxable income as stated above is paid in any later year
then it will be allowed as deduction in tax year in which it is paid
(amount is payable by person when
- all events determining liability have occurred
- amount of liability can be ascertained with reasonable accuracy)
(amount is due to person when he is entitled to receive it)
Opening Stock
Closing Stock
Starting/1st period FMV when stock ventured in business
Subsequent Period
NRV
Cost
Lesser of
Any of Marginal OR
Absorption Costing
Absorption Costing
Cash
Accounting
Accrual
Accounting
111. Deciding Business Income CaseHeads of Income
111
Business
1. Speculation Business
2. Deductions Allowed
3. Deductions not allowed
4. Assets
5. Acquisition & Cost
6. Depreciation
7. Initial Allowance
8. First Year Allowance
9. Accelerated Tax Depreciation to Alternate Energy Projects
10. Disposal & Consideration
11. Depreciation on asset partly used in business
12. Leasing Business
13. Intangibles
14. Pre-commencement Expenditure
15. Scientific Research Expenditure
16. Bad Debts
17. Employee Training & Facilities
18. Profit on Debt, Financial Cost and Lease Payments
112. Deciding Business Income CaseHeads of Income
112
Business
1. Speculation Business [S-19]:
Means:
business in which, contract for purchase or sale of commodity is settled, otherwise than by actual delivery of commodity
does not include following contracts to guard against future price fluctuations
i. contract in respect of materials to fulfill another contract of actual delivery of goods
ii. contract in respect of shares & stocks entered into by dealer or investor
iii. contract entered into by member of stock exchange or forward market to guard against jobbing or arbitrage transaction in ordinary course of business
Taxation of Speculation business:
i. It shall be treated as a separate business from any other business under head "Income from Business“
ii. Principles of apportionment of deductions under section 67 shall apply as if it is a separate head of income
iii. Loss from Speculation Business shall be treated under section 58
113. Deciding Business Income CaseHeads of Income
113
Business
2. Deductions Allowed [S-20]:
i. Any expenditure incurred wholly and exclusively for purpose of business
ii. Depreciation of tangible assets, amortization of intangible assets & pre-commencement expenditures
iii. Legal & financial advisory services & administrative cost incurred by amalgamated company for it's amalgamation
iv. Animal used for business & profession becomes permanently disable or is dead then following deduction shall be allowed:
(Above is not applicable in case of animals which are stock-in-trade)
Actula Cost X
Less:Amount realized from animal carcass (X)
X
114. Deciding Business Income CaseHeads of Income
114
Business
3. Deductions not Allowed [S-21]:
i. Cess, rate, tax on profits of business whether payable in Pakistan or outside Pakistan
ii. Tax deducted at source from amounts received
iii. All such payments shall not be allowed as deduction, if applicable tax at source, is not deducted while making payment
Except: in case of purchase of Raw Material & Finished Goods, the disallowed expense shall be limited to 20% of total purchases
iv. Entertainment expenses exceeding prescribed limits. Rule-10 specifies the prescribed limits as follows:
Expense has been incurred
a. wholly & exclusively for business
b. outside Pakistan for business transaction OR allocated as Head Office Expenses
c. inside Pakistan, for foreign customers & suppliers
d. at business premises for customers & clients
e. on meetings of shareholders, directors, agents or employees
f. on opening of a new branch
g. on entertainment of persons related directly to business
Entertainment means
meals, refreshment, reasonable leisure facility in accordance with traditions of business & subject to overall norms of business
115. Deciding Business Income CaseHeads of Income
115
Business
3. Deductions not Allowed [S-21]:
v. Contributions to following funds:
Un-recognized Provident Fund / Un-approved Pension Fund / Un-approved Superannuation Fund / Un-approved Gratuity Fund
vi. Contribution to Provident Fund OR any other fund for benefit of employees, in respect of which, arrangements have not been made for deduction of tax at
source at the time of making payments from the fund to employees
vii. Penalty / fine for violation of any law
viii. Personal expenditure
ix. Amount transferred to Reserve OR capitalization of profits in any way
x. Profit on debt / Brokerage / commission / Salary / remuneration paid by an AOP to its members
116. Deciding Business Income CaseHeads of Income
116
Business
3. Deductions not Allowed [S-21]:
xi. Expenditure under single head of account exceeding Rs 50,000/- paid other than by :
a. crossed cheque
b. crossed bank draft
c. crossed pay order
d. other crossed banking instrument
e. online transfer
f. payment through credit card
Above is not applicable to following:
a. expenditure not exceeding Rs 10,000/-
b. expenditure on account of:
• Utility bills
• Freight charges
• Travel fare
• Postage
• Taxes/duties/fees/fines
117. Deciding Business Income CaseHeads of Income
117
Business
3. Deductions not Allowed [S-21]:
xii. Salary exceeding Rs 15,000/- per month, paid other than by:
a. crossed cheque OR
b. direct transfer to employee bank account
xiii. Capital expenditure
xiv. In case of pharmaceutical manufacturer any advertisement/publicity/sales promotion expense > 10% of turnover
118. Deciding Business Income CaseHeads of Income
118
Business
4. Assets:
i. Depreciable Asset [S-22(15)]:
Means any tangible movable property, immovable property or structural improvement to immovable property owned by a person that :
a. has normal useful life exceeding one year
b. is likely to lose value as a result of normal wear and tear or obsolescence AND
c. is used wholly or partly by person in deriving income from business
it shall not include any asset whose entire cost is allowed as deduction under Income Tax Ordinance 2001
ii. Structural Improvement [S-22(15)]:
Includes building, road, driveway, car park, railway line, pipeline, bridge, tunnel, airport runway, canal, dock, wharf, retaining wall, fence, power lines, water
or sewage pipes, drainage, landscaping or dam.
iii. Eligible Depreciable Asset [S-23(5)]:
a depreciable asset which is not:
a. furniture & fittings
b. road transport vehicle not plying for hire
c. plant & machinery previously used in Pakistan
d. plant & machinery whose entire cost is allowed as deduction under Income Tax Ordinance 2001
Where any asset is jointly owned by Tax Payer and Islamic Financial Institution under Musharika
Financing or Diminishing Musharika Financing, such asset shall be treated to be owned by “Tax Payer”
[Proviso to S-22(15)]
119. Deciding Business Income CaseHeads of Income
119
Business
4. Assets:
iv. Business Asset [S-75(7)]:
Means asset held wholly or partly for use in business, including stock-in-trade and depreciable asset
v. Personal Asset [S-75(7)]:
Means asset held wholly for personal use
120. Deciding Business Income CaseHeads of Income
120
Business
5. Acquisition & Cost:
i. Acquisition [S-75]:
when the person begins to own the asset including when the right is granted OR
when the personal asset is applied to business use
ii. Cost [S-76]:
Consideration paid / payable in cash X
FMV of consideration given in kind X
Incidental expenditure for acquisition / disposal of asset X
Expenditure to alter or improve asset X
X
121. Deciding Business Income CaseHeads of Income
121
Business
5. Acquisition & Cost:
ii. Cost [S-76]:
a. Cost of Passenger transport vehicle not plying for hire shall not exceed Rs 2.5 million. [Section-22(13a)]
b. Cost of immovable property shall not include cost of land [Section-22(13b)]
c. Forex Gain/loss to be adjusted in cost of asset [Section-76(5 & 6)]
• if asset has been acquired with a foreign currency loan, then increase or decrease in liability due to foreign currency rate shall be adjusted in cost
of asset
• while determining above forex gain / loss the person's position under hedging agreement relating to foreign currency loan shall also be
considered
d. Grant, subsidy, rebate, commission or any other assistance in relation to acquisition of asset [Section-76(10)]
if chargeable to tax then it will be included in cost of asset and vice versa
e. If asset acquired in a non-arm's length transaction, then FMV of asset shall be treated as its cost [Section-78]
f. If personal asset is applied to business use, then its FMV shall be treated as its cost [Section-76(3)]
122. Deciding Business Income CaseHeads of Income
122
Business
5. Acquisition & Cost:
ii. Cost [S-76]:
g. If asset is produced or constructed by person, then its cost will include following:[Section-76(4)]
h. If an asset is partly disposed off, then its cost shall be apportioned between the part disposed off and part retained on basis of respective FMV at time of
acquisition of asset [Section-76(7)]
i. If acquisition of an asset is derivation of an amount chargeable to tax, then its cost will include following:[Section-76(8)]
j. If acquisition of an asset is derivation of an amount exempt from tax, then its cost will include following:[Section-76(9)]
Total production/construction cost X
+Incidental expenditure for acquisition / disposal of asset X
+Expenditure to alter or improve asset X
X
Amount chargeable to tax X
Amount paid to acquire asset X
X
Amount exempt from tax X
Amount paid to acquire asset X
X
123. Deciding Business Income CaseHeads of Income
123
Business
6. Depreciation [S-22]:
Method of tax depreciation : Diminishing/Reducing Balance Method
Rate of Depreciation : as per 3rd Schedule Part-I
Full Year depreciation in year of acquisition
No Depreciation in year of disposal
7. Initial Allowance [S-23]:
Allowed for "eligible depreciable asset" used 1st time in Pakistan OR
Year in which commercial production is started
Rate of Initial Allowance : as per 3rd Schedule Part-II
8. First Year Allowance [S-23A]: (in lieu of initial allowance)
Conditions to be fulfilled:
• Plant & machinery & equipment installed by Industrial Undertaking in rural or under developed area OR
by cell phone manufacturer who qualifies for exemption under clause 126N of part-I of second schedule
AND
• Owned and managed by a Company
Rate of First Year Allowance : as per 3rd Schedule Part-II
which ever is later
124. Deciding Business Income CaseHeads of Income
124
Business
9. Accelerated Tax Depreciation to Alternate Energy Projects [S-23B]:
Conditions to be fulfilled:
• Plant & machinery & equipment installed by Industrial Undertaking installed any where in Pakistan AND
• for generation of alternate energy AND
• Owned and managed by a Company
Rate of First Year Allowance : as per 3rd Schedule Part-II
125. Deciding Business Income CaseHeads of Income
125
Business
10. Disposal and Consideration:
i. Disposal [S-75]:
Asset is treated as disposed off when:
• person parts with its ownership
• sold, exchanged, transferred, distributed, destroyed or lost
• cancelled, redeemed, relinquished
• Transmitted
• put wholly to private use from business use
• discarded or ceased to be used
Gain or loss on disposal shall be calculated as follows:
Consideration for disposal X
Less:
Cost X
Initial Allowance OR (X)
First Year Allowance OR (X)
Accelerated Tax Depreciation (X)
Normal Depreciation (X)
X
Gain / Loss on disposal X
126. Deciding Business Income CaseHeads of Income
126
Business
10. Disposal and Consideration:
ii. Consideration for Disposal [S-77]:
a. If Asset is lost or destroyed, then consideration shall include compensation, indemnity or damages received from:
• insurance claim
• Settlement
• judicial decision
b. If asset applied to personal use from business use or is discarded, then consideration shall be FMV of asset
c. If two or more assets disposed off in single transaction and consideration of each asset is not specified, then total consideration received shall be
apportioned on basis of FMV of each asset, at time of disposal
d. If actual cost of passenger transport vehicle not plying for hire was more than Rs 2.5 million, then consideration shall be calculated as follows:
Amount Received X
FMV of consideration in kind X
X
FMV of asset at time of disposal X
Which ever is higher
Actual consideration received on
disposal
x
2.5 million
Actual cost paid to acquire vehicle
[Section-77(2)]
[Section-77(3)]
[Section-22(10)]
[Section-77(5)]
127. Deciding Business Income CaseHeads of Income
127
Business
10. Disposal and Consideration:
ii. Consideration for Disposal [S-77]:
e. If consideration for immovable property exceeds its cost, then it's consideration received shall be treated as cost.
f. If asset disposed off in a non-arm's length transaction, then FMV of asset shall be treated as consideration.
g. If depreciable asset is exported/transferred outside Pakistan, then its cost shall be treated as consideration received.
[Section-22(13d)]
[Section-78]
[Section-22(14)]
128. Deciding Business Income CaseHeads of Income
128
Business
11. Depreciation on asset partly used in business:
i. Where asset is used partly for business purposes and partly for any other use, the depreciation expense shall be restricted to fair proportional part which
is used for business.
ii. Initial Allowance/First Year Allowance/Accelerated Tax Depreciation shall be allowed on total cost of asset. The fact that asset was partly used for
business is irrelevant here.
iii. Written Down Value of such assets shall be calculated, as if the asset was wholly used for business purposes.
iv. Asset shall be treated to be wholly owned by the taxpayer if asset is jointly owned by a taxpayer and an Islamic financial institution licensed by SBP or
SECP under Musharika or diminishing Musharika arrangement
v. On disposal of such asset, following shall be deducted from consideration
[Section-22(3)]
[Section-22(6)]
Total cost of asset X
Less:
Initial Allowance-if any (X)
First Year Allowance-if any (X)
Accelerated Tax Depreciation-if any (X)
Normal Depreciation allowed as deduction (proportionate basis) (X)
X
[Proviso to Section-22(15)]
129. Deciding Business Income CaseHeads of Income
129
Business
12. Leasing business:
Leasing Co., Investment Bank, Modaraba, Scheduled Bank, Development Finance Institution
i. Initial Allowance/First Year Allowance/Accelerated Tax Depreciation or Normal Depreciation is allowed as deduction only against lease rental income
ii. Asset shall be treated as used in the business of lessor
iii. On completion of lease term, asset shall be transferred to lesee and treated as disposed off by leasing company and the consideration received shall be
residual value received by leasing company
iv. The cost of asset realized through lease rentals + residual value should not be less than cost of the asset
[Sections-22(12), 23(4), 23A(2), 23B(2)]
[Section-22(13c)]
[Section-77(4)]
[Section-77(4)]
130. Deciding Business Income CaseHeads of Income
130
Business
13. Intangibles [S-24]:
Means : patent, invention, design or model, secret formula or process, copyright, trade mark, scientific or technical knowledge, computer software, motion
picture film, export quotas, franchise, license, intellectual property, or other like property or right, contractual rights and any expenditure that provides an
advantage or benefit for a period of more than one year
other than expenditure incurred to acquire a depreciable asset or unimproved land
i. Cost of Intangibles:
Means expenditure incurred in acquiring or creating intangible
Includes expenditure for improving or renewing intangible
ii. Conditions for amortization:
a. intangible is wholly or partly used for business
b. normal useful life is more than 1 year
iii. Rules for amortization:
a. Year of acquisition; Number of days basis (An intangible available for use on a day shall be treated as used on that day)
b. Year of disposal; No amortization
131. Deciding Business Income CaseHeads of Income
131
Business
13. Intangibles [S-24]:
iv. Rate of amortization:
v. Intangible partly used for business and partly for any other use:
Amortization expenses shall be restricted to fair proportion of intangible used for business.
vi. Disposal:
Upon disposal, following shall be included in income from business
Cost
Useful life in whole years Note:
if useful life is more than 10 years then it will be treated as 10 years
if useful life is not ascertainable, then it will be treated as 10 years
Consideration X
Written Down Value X
X
132. Deciding Business Income CaseHeads of Income
132
Business
14. Pre-commencement Expenditure [S-25]:
Means, expenditure incurred before commencement of business wholly and exclusively to derive taxable income
Includes,
• cost of feasibility studies
• construction of prototypes
• trail production
Does not include,
• expenditure to acquire land
• depreciable assets
• Intangibles
i. Method: Straight line basis
ii. Rate: as per 3rd Schedule, Part-III
No deduction shall be allowed for expense which allowed as deduction under any other provision of Income Tax Ordinance 2001
133. Deciding Business Income CaseHeads of Income
133
Business
15. Scientific Research Expenditure [S-26]:
Expenditure for scientific research
Contribution to Scientific Research Institution to do research
wholly and exclusively to derive income from business
shall be allowed as deduction.
• Scientific Research:
Means activity in Pakistan in the field of natural or applied science for development of human knowledge
• Scientific Research Expenditure:
Means expenditure on scientific research, for development of business
Includes contribution to scientific research institution to do research for business
not include expense incurred for
o acquisition of depreciable asset or intangible
o acquisition of immovable property
o ascertaining existance/location/extent/quality of natural deposits
• Scientific Research Institution:
Means any institution certified by FBR to do scientific research in Pakistan
134. Deciding Business Income CaseHeads of Income
134
Business
16. Bad Debts [S-29]:
i. Conditions to claim bad debts as expense
a. Amount was previoulsy included in taxable income
b. In case of a financial institution, the amount was lent to derive taxable income
c. amount is written off as bad debts in accounts
d. resonable grounds exist that debt is irrecoverable
ii. Subsequent recovery of bad debts written off:
Following shall be included in taxable income
(10,000)
40,000
Deduction from income from business
Included in income from business
(20,000)
10,000
(20,000)
60,000
Less: amount previously not allowed
Subsequent recovery
Case (b)Case (a)
20,000
(80,000)
100,000
amount previously allowed as deduction
Whole amount of debt
135. Deciding Business Income CaseHeads of Income
135
Business
17. Employee Training & Facilities [S-27]:
Expenditure in respect of following is allowed:
a. Educational institution/hospital for benefit of employees/dependents
b. Institute for training of industrial workers
recognized/aided/funded by
Federal Govt / Proviscial Govt / Local Govt
c. Training of Pakistani citizen under scheme approved by FBR
established in Pakistan
136. Deciding Business Income CaseHeads of Income
136
Business
17. Profit on debt, Financial costs and Lease Payments [S-28]:
Following shall be allowed as expense:
i. Profit on debt:
• on loan utilized for business purposes
• paid by bank on deposit accounts
ii. Financial costs:
• by originator on securitization of receivables in respect of special purpose vehicle (SPV)
iii. Lease rentals
• paid to scheduled bank, financial institution or approved modaraba, leasing company, SPV
iv. Share of profit
• under musharika scheme paid to a bank
• under musharika scheme paid to certificate holders. Such scheme should be approved by SECP and Religious Board under Modaraba Ordinance 1980
• paid on funds borrowed from modaraba or participation term certificates
v. State Bank of Pakistan (SBPs) share of profit paid by
• House Building Finance Corporation (HBFC)
• National Development Leasing Corporation
• Small & Medium Enterprises Bank
on investment/credit line provided by SBP
137. Capital GainsHeads of Income
137
2 Important Questions:
1. Geographical Source of Income
2. Basis of Taxation
Deciding a
Capital Gains
case
138. Geographical Source of Income [S-101(13)]Heads of Income
138
Gain on disposal of shares of Resident Company shall be
Pakistan Source Income
Capital
Gains
139. Basis of TaxationHeads of Income
139
Accrual basis, as Gain / Loss is to be taxed in year of disposal
[S-37(1)]
Capital
Gains
140. Deciding a Capital Gains CaseHeads of Income
140
1. Capital Gains [S-37]
2. Capital Gain on disposal of Securities [S-37A]
3. Special provisions relating to Capital Gains tax [S-100B]
4. Deduction of Losses from Capital Gains [S-38]
5. Non Recognition Rule [S-79]
6. 8th Schedule
7. Rule 13A to 13P
8. Liability in respect of security transactions [S-112]
9. Advance Tax [S-147(5B), 236C, 236K & 236W]
Capital
Gains
141. Deciding a Capital Gains CaseHeads of Income
141
1. Capital Gains [S-37]
Capital
Gains
Capital Asset:
Means “property of any kind held by person whether or not connected with business”
Does not include
i. Stock in trade
ii. Depreciable asset
iii. Intangibles
iv. movable property held for personal use by person or dependents excluding following:
a. painting, sculpture, drawing or other work of art
b. Jewelry
c. rare manuscript, folio or book
d. postage stamp or first day cover
e. coin or medallion
f. Antique
[S-37(5)]
Capital Loss from disposal
of these assets shall not be
recognized, only capital
gains will be recognized.
[S-38(5)]
Capital Gain from disposal of immovable property shall be
taxed as a separate block of income
@ 1st Schedule, Part I, Division VIII
[S-37(1A)]
142. Deciding a Capital Gains CaseHeads of Income
142
1. Capital Gains [S-37]
Capital
Gains
Gain on Capital Asset [S-37(2)]:
Consideration
- Cost
Gain/Loss X
(X)
X
Cost shall not include:
• expenses deductible under any other provision of Income Tax
Ordinance
• inadmissible deductions under section 21
[S-37(4)]
FMV on date of acquisition shall be treated as cost in following cases:
• gift, bequest, will
• succession, inheritance, devolution
• dissolution of AOP
• liquidation of company
[S-37(4A)]Gain or Loss on disposal shall be recognized in year of disposal even if cash
basis of accounting is being adopted. [S-37(1)]
If capital asset is held for more than 1 year
Then 3/4th of capital gain will be taxable [S-37(3)]
No loss on disposal shall be recognized if gain from such asset is not taxable
[S-38(2)]
this provision is not applicable on disposal of following capital
assets:
• shares of public company
• vouchers of PTC
• Modaraba Certificates
• Redeemable Capital
143. Deciding a Capital Gains CaseHeads of Income
143
2. Capital Gains on Securities [S-37A]
Capital
Gains
Security [S-37A(3)] :
Means:
• share of a public company
• voucher of Pakistan Telecommunication Corporation
• Modaraba Certificate
• an instrument of redeemable capital
• debt Securities
• derivative products
Capital Gain from disposal of security shall be taxed as a
separate block of income
@ 1st Schedule, Part I, Division VII
[S-37A(1)&(4)]
Loss from securities shall be
setoff only against gains from securities &
shall not be carried forward to subsequent TY
[S-37A(5)]
Corporate debt security
Term Finance Certificates (TFCs), Sukuk Certificates (Sharia Compliant Bonds),
Registered Bonds, Commercial Papers, Participation Term Certificates (PTCs) and
all kinds of debt instruments issued by any Pakistani or foreign company or
corporation registered in Pakistan
[S-37A(3A)(a)]
Government debt security
Treasury Bills (T-bills), Federal Investment Bonds (FIBs), Pakistan Investment
Bonds (PIBs), Foreign Currency Bonds, Government Papers, Municipal Bonds,
Infrastructure Bonds and all kinds of debt instruments issued by Federal
Government, Provincial Governments, Local Authorities and other statutory bodies
[S-37A(3A)(b)]
This section is not applicable on
Banking Co & Insurance Co
[S-37A(1)]
144. Deciding a Capital Gains CaseHeads of Income
144
3. Special provisions relating to Capital Gains tax [S-100B]
Capital
Gains
Capital gains on disposal of listed securities and tax thereon, subject to section 37A, shall be determined in accordance with
Eighth Schedule
This section is not applicable on following:
• mutual fund
• banking company
• NBFC
• insurance company
• modaraba
• company, in respect of debt securities only and
• any other person notified by FBR
145. Deciding a Capital Gains CaseHeads of Income
145
4. Deduction of Losses from Capital Gains [S-38]
Capital
Gains
If Gains from capital asset are not taxable
Then Losses from same asset shall not be allowed for setoff
[S-38(2)]
Loss on following assets shall not be recognized:
(a) A painting, sculpture, drawing or other work of art;
(b) jewellery;
(c) a rare manuscript, folio or book;
(d) a postage stamp or first day cover;
(e) a coin or medallion; or
(f) an antique.
[S-38(5)]
146. Deciding a Capital Gains CaseHeads of Income
146
5. Non Recognition Rule [S-79]
Capital
Gains
No GAIN or LOSS shall arise on disposal to Resident Person in case of following transfers:
a) between spouses under an agreement to live apart
b) transmission of the asset to an executor or beneficiary on the death of a person
c) gift
d) compulsory acquisition of the asset under any law where the consideration
received for the disposal is reinvested by the recipient in an asset of a like kind
within one year of the disposal
e) by a company to its shareholders on its liquidation
f) by an AOP to its members on its dissolution (where the assets are distributed to
members in accordance with their interests in the capital of the AOP)
person acquiring the asset shall be treated as:
• acquiring an asset of the same character as the
person disposing of the asset; and
• acquiring the asset for a cost equal to the cost
of the asset for the person disposing of the asset
at the time of the disposal
cost of a replacement asset = cost of the asset
disposed of + amount by which any consideration
given by the person for the replacement asset
exceeds the consideration received by the person for
the asset disposed of
147. Capital GainsHeads of Income
147
Under section 38(5)
No loss to be
recognized, only
gains will be
recognized
Security [S-37A] Others
Others
Personal Use
Immoveable
Property
Moveable PropertyStock in trade
Depreciable asset
Intangibles
Non Recognition Rule [S-79]:
In following cases, if asset is transferred to Resident Person, then No
gain/loss shall arise:
i. between spouses under agreement to live apart
ii. transmission on death
iii. Gift
iv. to shareholder on liquidation of company
v. to members of AOP on its dissolution
vi. compulsory acquisition of asset under any law, when consideration
is reinvested in asset of like kind within one year
Asset
Banking Co
Insurance Co
Listed Security
Separate Block
Tax @
1st Sched, P-I, D-VIII
Separate Block
Tax @
1st Sched, P-I, D-VII
Disposal
LossGain
Refer lossesHolding period > 1 year
NoYes
Fully taxable3/4th will be taxable
Capital
Gains
Fully taxable in case of Banking Co/Insurance Co in
respect of following:
• shares of public company
• vouchers of PTC
• Modaraba Certificates
• Redeemable Capital
Other than following:
mutual fund, banking company,
NBFC, insurance company,
modaraba, company, in respect of
debt securities only and any other
person notified by FBRGain/loss calculation
As per 8th Sched
Un-listed Security
148. Deciding a Capital Gains CaseHeads of Income
148
6. Eighth Schedule
Capital
Gains
Computation of Capital Gains on Listed Securities:
• Capital gain from listed securities, shall be computed in accordance with 8th Sched
• Tax shall be collected from Tax Payer by NCCPL
• CDC, PMEX, PSX and any other person shall furnish information required by NCCPL to discharge its tax
collection responsibility.
• In case of non provision of information FBR shall enforce provision of such information
• For this purpose NCCPL shall:
o develop an automated system
o issue certificate to Tax Payer specifying capital gains computed and tax collected therefrom. This
certificate shall be
for a financial year or a shorter period requested by Tax Payer or Commissioner
conclusive evidence of capital gains under 8th Sched and tax collected
filed by Tax Payer alongwith return of income
• NCCPL shall furnish quarterly statement to FBR in respect of capital gains and taxes computed thereon
• Tax collected by NCCPL shall be deposited in separate bank account with NBP
• Tax collected + interest accrued on above account shall be paid to FBR annually on or before
following 31st July after end of each year
149. Deciding a Capital Gains CaseHeads of Income
149
6. Eighth Schedule
Capital
Gains
Source of Investment not to be enquired:
• Where investment in listed securities is made prior to introduction of 8th Sched, no enquiry as to nature and source of investment shall be made if
following conditions are fulfilled:
o Return of income, wealth statement & statement of investment for year 2012 is filed with Commissioner within due date
o Amount remained invested for atleast 45 days upto 30.06.2012
• Where Investment in Shares of Public Co. is made after introduction of 8th Sched and before 30.06.2014, no enquiry as to nature and source of
investment shall be made if following conditions are fulfilled:
o Return of income, wealth statement & statement of investment for relevant tax year is filed with Commissioner within due date
o Amount remained invested for atleast 120 days upto 30.06.2014
o Tax on Capital Gains has been paid in accordance with 8th Schedule
• Amount of investment shall not include market value of open sale position in futures and derivatives
Option to Tax Payer:
• After obtaining permission from Commissioner, Tax Payer can give irrevocable option to NCCPL for not to be taxed under 8th Sched
• In case of availing such option, above relief from enquiry as to source of investment shall not remain available
150. Deciding a Capital Gains CaseHeads of Income
150
6. Eighth Schedule
Capital
Gains
Obligations of NCCPL:
• Quarterly system and procedural audit of NCCPL shall be conducted, to verify implementation of 8th Schedule.
• Audit shall be conducted by any of following:
o Pakistan Revenue Automation (Pvt) Ltd [PRAL]
o Any other company/firm appointed by FBR
o Any authority appointed under S-209, not below rank of Additional Commissioner of Inland Revenue
• NCCPL shall implement recommendations made in audit report & also make adjustment for short or excess deduction of tax
• No penalty shall be imposed on NCCPL on account of any mistake/error/omission
• In case NCCPL is unable to recover any tax, it can refer the case to FBR for recovery
151. Deciding a Capital Gains CaseHeads of Income
151
7. Rule 13A to 13P
Capital
Gains
Basic Determinants for Capital Gains
Date of Disposal / ExitDate of Acquisition / Entry
Holding Period
[R-13C & 13L]
Disposal & Consideration
[R-13B & 13L]
Acquisition & Cost
[R-13A & 13L]
Gain/Loss
[R-13D, 13E & 13N]Others:
• Loss not to be recognized [R-13F]
• Exemption on Capital Gains [R-13G]
• Payment of Tax [R-13H]
• Records [R-13I]
• Exchange of Information [R-13J]
• Violation & Penalties [R-13K]
• Quarterly Statements [R-13M]
• Statements & Forms [R-13O]
• Clarifications & Explanations [R-13P]
152. Deciding a Capital Gains CaseHeads of Income
152
Acquisition & Cost
Capital
Gains
Acquisition [R-13A]
Form
Platform
Mode
Evidence
Electronic Book Entry
Physical Certificates
Stock Market
Off Market Transaction
Purchase, Exchange, Gift, Bequest, Inheritance,
Bonus Issue, Right Issue, Leverage Scheme
Open Ended Mutual Fund >>Certificate of
Account
Others >>Broker’s Bill of Purchase, CDC Statement
of Account, Payment of Cost fo Acquisition through
cheque, Broker Generated Computerized Ledger of
invetor’s brokerage account
Cost [R-13L(1)(d)]
IPO Bonus Right Bequest/
Inheritance
Others
Actual price
paid to
issuer
Tax paid u/s 236M & 236N
Discounted price at which shares issued
FMV at time of transaction
Price paid OR
Would have paid
Tax not paid Ex-Bonus price as determined
u/s 236M & 236N
ZERO
Rule 13A
to 13P
153. Deciding a Capital Gains CaseHeads of Income
153
Disposal & Consideration
Capital
Gains
Disposal [R-13B]
Form
Platform
Mode
Evidence
Electronic Book Entry
Physical Certificates
Stock Market
Off Market Transaction
Sale, Exchange, Gift, Transfer
Open Ended Mutual Fund >>Certificate of
Account
Others >>Broker’s Bill of Purchase, CDC Statement
of Account, Payment of Cost fo Acquisition through
cheque, Broker Generated Computerized Ledger of
invetor’s brokerage account
Consideration [R-13L(1)(e)]
Market Price received or
would have received on disposal
Rule 13A
to 13P
154. Deciding a Capital Gains CaseHeads of Income
154
Capital
Gains
Capital Gain / Loss
Rule 13A
to 13P
Derivatives
[R-13E]
General
Future
Option
Rights
Deliverable Future Cash Settled Future
Long Position Short Position
[R-13D] [R-13N]
• FIFO not applicable in case of same day
purchases, instead Average Method to be used [R-
13N(5)]
• NCCPL shall add following to transaction cost and
consideration
• 0.5% of trade as incidental expenses [R-13N(8)]
• NCCPL shall deduct financing cost from
consideration if financing obtained from NCCPL
Leverage Market Scheme [R-13N(9)]
• NCCPL shall collect amount on monthly basis in a
manner that every month end it has amount
equal to estimated tax liability on Capital Gains
[R-13N(10)]
• Gain/loss computation
shall be made on basis of
FIFO inventory accounting
method
• Capital loss shall be
adjusted only against
capital gain of security
• Capital loss cannot be
carried forward
Consideration X
- Cost X
Gain/Loss X
Consideration from disposal of security X
- Exercise Price X
Gain/Loss X
Cash receipt/payment to close X
Consideration on disposal X
- Cost of Acquisition X
Gain/Loss X
155. Deciding a Capital Gains CaseHeads of Income
155
Capital
Gains
Rule 13A
to 13P
Holding Period
From To
Futures
Others
Short Position
Date of Entry [R-13L(1)(i)] Date of Exit [R-13L(1)(j)]
When sold short [R-13C(2)] Purchase to cover short position [R-13C(2)]
Date of Disposal [R-13L(1)(h)]Date of Acquisition [R-13L(1)(g)]
156. Deciding a Capital Gains CaseHeads of Income
156
Capital
Gains
Liability in respect of certain security transactions [S-112]
If
• owner of security disposes of and re-acquires a security AND
• the result of the transaction is that income in respect of the security is receivable by any other person
Then
• the income shall be treated as the income of the owner and not of the other person
For purpose of this section security includes bonds, certificates, debentures, stocks and shares.
157. Deciding a Capital Gains CaseHeads of Income
157
Capital
Gains
Advance Tax [S-147(5B), 236C, 236K & 236W]
Securities [S-147(5B)]
Purchase/Transfer of Immovable
Property [S-236K]
Purchase/Transfer of Immovable
Property [S-236W]
From Purchaser
Sale/Transfer of Immovable Property
[S-236C]
From Seller
If holding period > 3 years
then not to be collected
Immovable Property
Holding period 0-6 months, tax @ 2% of
Capital Gain during Quarter
Holding period 6-12 months tax @ 1.5% of
Capital Gain during Quarter
Advance Tax not applicable on individual
investor
1st Sched, P-IV, Div-X 1st Sched, P-IV, Div-XVIII @ 3%
Adjustable Not Adjustable
Minimum Tax
(if property sold in year of purchase)
158. Income from Other SourcesHeads of Income
158
1. What is it ? [Section-39]
2. Basis of Taxation
3. Deductions Allowed
159. Income from Other SourcesHeads of Income
159
Other
Sources
What is it ? [S-39]
Income Loan/Advance/Deposit for issuance of shares/Gift Arrears of Profit on Debt
160. Income from Other SourcesHeads of Income
160
Other
Sources
Income
Income of every kind RECEIVED in a tax year,
which is not included in any other Head of Income and
is not exempt from tax and
is not subject to tax under section 5, 6 & 7
Includes:
i. Dividend
ii. Royalty
iii. Profit on Debt
iv. Additional payments on tax refunds under tax laws
v. Ground Rent
vi. Rent from sub-lease of land or building
vii. Income from lease of building, together with Plant & Machinery
viii. Income from amenities/utilitites connected with renting of building
ix. Annuity/Pension
x. Prize bond, lottery, raffle winnings, cross word puzzles, sale promotion prizes
offered by a company
xi. Consideration for provision, use or exploitation of property or natural resources
xii. FMV of benefit for provision, use or exploitation of
property or natural resources
xiii. Consideration for vacating possession of building, reduced
by amount paid to acquire possession of building {to be
included in taxable income of current tax year and 9
succeeding tax years in equal proportion.}
xiv. Amount received from Approved Income Payment Plan OR
Approved Annuity Plan
xv. Bonus Shares
161. Income from Other SourcesHeads of Income
161
Other
Sources
Loan/Advance/Deposit for issuance of shares/Gift
Loan/Advance/Deposit for issuance of shares/Gift
shall be treated as "Income from Other Sources" if:
received from a tax payer other than a Banking Company OR Financial Institution
AND
is received otherwise than by a Crossed Cheque or Banking Channel
Above is not applicable to advance payments for sale of goods or supply of services