income tax calculation with head of incomes

3. HaXor’Z names

5. Introduction
• Tax: [section2(63)]
Tax mean any tax impose under the
income tax law. It also include any
penalty, investment tax, fee or other
charges tax.
or
Any sum or amount payable under
income tax ordinance 2001 is called tax.

6. Introduction (continue)
• Tax Accounting: [section 32(1)]
Income chargeable to tax shall be
computed in accordance with the method of
accounting regularly employed by such
person.
• In simple words
Accounting system which tell us about the
tax payable of a tax payee on taxable income.

7. Some concepts of tax
• Income [section2(69)]
The income of a person for a tax year shall be
the sum of the persons income under each head
of income for the year.
• Taxable income [section2(64)]
The income of a person for a year as reduced
by any deductible allowances. However such
income can’t below zero.

8. Concepts…….
Tax payer [section2(66)]
tax payer means:
1. A person who derives an amount chargeable
to tax.
2. Representative of such person.
3. Any person who required to furnish a return.
(form which tax payer submitted at the end
of a tax year to FBR.)

9. sarfaraz

10. Concepts…….
• Tax year [section2(68)]
Tax year is a period of time for which tax is
to be calculated regarding a person.
• Tax payable
Tax imposed on Taxable income on tax
payee for a tax year.

11. Different types of accounting
methods
According to section32(2) there
are two types of accounting
methods.
1.Cash Basis Accounting
2.Accrual Basis Accounting

12. Different Methods of determining
cost:
According to section 35(5)
Following are the different methods of
determining cost:
1. Prime cost method
2. Absorption cost method
3. FIFO cost method
4. Average cost method

13. Heads of income (section11)
• Income 4rm salary [section12]
• Income from property [section15]
• Income from Business [section18]
• Capital gain [section37]
• Income from other sources
[section39]

14. Format of income tax return
Mr. Zubair Amir
Tax year 2011
Tax year ended 30june,2011
residential status : resident
Computation tax liability

15. cebi

16. Income from salary [section12]
• Salary:
B basic salary
B bonus
C commission
D dearness allowance
O overseas allowance
C cost of living allowance

17. Allowances and Facilities
• Special Allowance:
completely exempt
• Entertainment Allowance:
Fully taxable
• Medical Allowance:
Exempt up to 10% of Basic salary
• Bills reimbursement :
utility bill taxable, all other not included.

18. Allowances and Facilities
• Accommodation:
Allowance:
fully taxable
facility:
ALV(given amount)
Or
45% of MTS(Basic salary)
Which ever is higher will be taxable.

19. Allowances and Facilities
• Conveyance :
Allowance:
Fully Taxable
Facility:
For business use:
Fully exempt

20. Allowances and Facilities
Partly for business and partly for personal
use:
5% of cost of vehicle
For personal use:
10% of cost of vehicle
Conveyance on lease:
5 or 10 % of market value of vehicle

21. Provident Fund
Funds maintain by organization for benefits of
their employees.
There are 3 kinds of P.V
1. Recognized P.V
2. Unrecognized P.V
3. Government P.F

22. Example
• Income 4rm salary[section(12)]
Basic salary(30,000-3000-40000) 360,000
Bonus 30,000
Cost of living allowance 10,000
Salary 400,000
Allownce, perqusits:
Entertainment allowance 15,000
Utility bill reimbursed 10,000
Medical allowance 40,000
10%of360,000 36,000 4,000
Accommodation allowance 25,000
Total 454,000

23. salma

24. Income from property [section15]
• Amount of rent taken by owner of land and
building
Fully taxable
• Forfeited deposit
Fully taxable
• Unadjusted advance
1/10*amount is taxable

25. Income from property [section15]
rules
S r
no.
Amount of rent Rate of tax
1 Up to 150,000 nil
2 150,000-------400,000 5% of amount exceeding
150,000
3 400,001-------10,00,000 12500+7.5%of amount
exceeding 400,000
4 More then 10,00,000 57500+10%of amount
exceeding 10,00,000

26. Example
• Income from property[section15]
Rent received from building 25,000
Token money( forfeited ) 5,000
Unadjusted advance 5,000
Total income from salary 30,000
Now there is no tax imposed on sir zubair
because sir income from property is less then
Rs 150,000

27. Income from business [section18]
• Business section2(9)
any trade , commerce, manufacture,
profession, vocation or concern in
nature of trade commerce, manufacture
but not include employment.
1. Remuneration by professional as examiner.
2. Income from non professional activity.
3. Casual income. e.g prize bond
Not Taxable income

28. Taxable income:
• Profit and gain of any business carried on
by a person at any time during tax year.
• Income from hire and lease of tangible
movable property.
• management fee taken by management
company.
• Income derived by trade , profession.

29. Example
Income from Business (section18)
Agriculture income Exempt
Examiner fee 10,000
income from trade 40,000
Total 50,000

30. madiha

31. Capital gain[section37]
Any gain arising from disposable of capital asset.
Rules:
• Gain on sale of private co. share fully taxable
(disposed off with in 12 month)
• Gain on sale of private co. share 25%exempt
(disposed off after 12 month)
• Gain on sale of inherited house fully exempt

32. note
• Capital loss must be deducted from capital gain of
same tax year.
Example
Capital gain (section37)
Sale on share of pvt. co. share 10,000
(holding period = >12 months)
Less: capital loss 5,000 5,000
Gain on sale of inherited house exempt
Total 5,000

33. Income from other sources
[section39]
• Income that cant came under any four head
discuss later, came under this head.
Examples
• Dividend
• Royalty
• Profit on debt
• Annuity, pension
• Income of non professional
• Income from part time job

34. Example
• Income from other sources (section39)
Gift from mama exempt
Income by writing drama exempt
Rent of tractor 10,000
Ins. Amount received on maturity exempt
Total 10,000

35. Direct Deductions
Amount which directly deduct from total
income of a payee is called direct
deduction.
There are two direct deductions.
• Zakat to approved charitable institute
• Worker welfare fund

36. Taxable income of mr. zubair
Income from salary[sec12] 454,000
Income from property [sec15] not taxable
there
Income from business [sec18] 50,000
Capital gain [sec37] 5,000
Income from other sources [sec39] 10,000
Total income 519,000
Less : zakat + wwf 9,000
Total taxable income 510,000

37. sulman

38. Computation Tax liability
• Methods:
There are two methods.
1. Direct method
2. Marginal relief method
Let us start computation.

39. Computation tax liability
Taxable income 510,000
direct method
510,000*3.50% 17,850
Marginal relief method
400,000*1.50% 6,000
110,000*20% 22,000 28,000
Which ever is lesser take as tax liability 17,850

40. Time to add income from property
Tax liability 17,550
Add : income from property(sec15)
(30,000 is less then 150,000 so) 0
Tax liability 17,550

41. Concession to university teacher
75% concession is given in tax to uni. Teacher
Tax liability 17,500
Total Salary amount of tax
Actual taxable income
454,000 17550 14,755
540,000
So 14,755 75% (11,066)
Tax liability 6,484

42. Average Relief
Government of Pakistan allow concession on
some expenditures and investment.
1. I . Investment in shares and ins.
2. C . Contribution to approved pension fund
3. D . Donation to charitable institution
4. H . Housing finance scheme

43. % of average relief
I
• 15%
• 500,000
( Which
ever is
less)
C
• 20%
D
• 30%
H
• 50%
• 750,000
(which
ever is
less)

44. Now tax liability
Tax liability 6,484
Gross tax amount admissible
T taxable income
6,484 25,000 300
540,000
Or
30%of taxable income 162,000
Which ever is less admissible for average relief 300
Tax liability 6,184

45. Tax deduct at source
Directly deducted by tax payee from tax liability.
Tax liability 6,184
Less : tax deduct at source 1,184
Tax return 5,000

46. Time to
• To submit income tax return to FBR.
FBR (Stand for federal board of revenue)
FBR check it, accept I, as result process of tax
accounting complete. But if FBR not satisfied
then may b ask for re-assessment, amended
assessment.