Advanced taxation (TY2019) pakistan

Trainer:
Fawad Hassan – ACA phavvad@gmail.com
0333-6036837
CFAP – 05
Advanced Taxation
[Tax Year 2019]
Income Tax

2
Syllabus
Grid Weighting Last 8 years’ Average
Income Tax 50-55 59
Sales Tax 30-35 28
Federal Excise Law 10-15 12
Professional values, ethics and attitude 5-10 1
Details 1. Income Tax Ordinance 2001
2. Income Tax Rules 2002
3. SROs/Notifications + Circulars
1. Sales Tax Act 1990
2. Sales Tax Rules 2006
3. Sales Tax Special Procedures Rules 2007
4. Sales Tax Special Procedure (Withholding Rules) 2007
5. SROs/Notifications + Circulars
6. Provincial Sales Tax Laws (Acts/Ordinances + Rules)
1. Federal Excise Act 2005

3
Target
1. To enable you to score at least a 50
2. Practical understanding of Laws of Taxation

4
Practice Material
1. ICAP practice kit for CFAP-5
2. ICAP past papers [latest 6 attempts – from Dec 2015 to June 2018]
Questions Answers
Dec 2017
June 2017
Dec 2016
June 2016
Dec 2015
June 2018
Dec 2017
June 2017
Dec 2016
June 2016
Dec 2015
June 2018

5
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

6
Expectations
1. Understanding of Taxation Laws
2. Application of Understanding

7
Revenue Collection
Exchequer
(FederalConsolidatedFund)
Inflows
Outflows
Income Tax
CVT
WWF
Sales Tax
FED
Custom Duty
DeficitLoans & Grants
Capital Receipts
Revenue
Receipts
Non Tax Receipts
Tax
Receipts
Other Taxes
FBR
Taxes
Indirect
Tax
Direct Tax
External Receipts
Internal
Receipts

8
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

9
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

10
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

11
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

12
2. Type of Person
a) Tax Payer [S-2(66)]
b) Person [S-80]

13
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

14
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
Taxation of Persons
• Individual
• AOP
• Company

15
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

16
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”

17
3. Residential Status
a) Resident Individual
b) Resident Company
c) Resident AOP

18
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

19
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

20
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

21
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

22
Residential Status Practice
i. Mr. Raza is working as Director Operations in the Ministry of Tourism. On 15 July 2017 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 2017, the entire management and control was shifted to UK.
iii. On 01 February 2018, Mr. Sameel was sent to Pakistan by his UK based company to work on a special project. He left Pakistan
on 23 August 2018.
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 2017. During his stay upto 02 August 2017 in Pakistan,
he remained in Peshawar upto 30 June 2017 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

23
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
Exemptions
Final Tax
Final Tax
Presumptive Tax Regime

24
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
Section 11(5) & (6)

25
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

26
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

27
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, in case accounts are required to be audited. The certificate shall be
accepted by CIR only if variation in allocation from these rules is not more than 10%
d) In case accounts are not required to be audited then apportionment shall be accepted by CIR 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

28
a) Total Income [S-10]
b) Taxable Income [S-9]
c) Heads of Income [S-11]
d) Tax on Taxable Income [S-4]

29
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-236A] Advance Tax at the time of sale by Auction
[S-236HA] Tax on Sale of Certain Petroleum Products
[S-236Q] Payment to Residents for use of Machinery & Equipment
Others

30
[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. Plastic raw material imported by an industrial undertaking
falling under PCT heading 39.01 to 39.12
ii. Import of Edible Oil
iii. Import of Packing Material
iv. Goods imported and sold in same condition
[Min tax = 5% of import value as increased by customs duty,
sales tax and federal excise
duty
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

31
[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]

32
[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

33
[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]

34
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

35
[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

36
[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]

37
[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]

38
[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]

39
[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]

40
[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
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

41
[S-152A] Payment for Foreign Produced Commercials
Any Person Non Resident Person
Foreign produced commercial for advertisement
On
Television or other media
Direct Payment
Through agent
or intermediary
Deduct tax
@ 20%
From Gross amount
FTR [Others]

42
[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]

43
[S-236HA] Tax on Sale of Certain Petroleum ProductsFTR [Others]
Every person selling petroleum products to petrol pump operator or distributor (where commission or discount is not allowed)
shall collect advance tax on
Ex-depot sale price of such products
at the rate mentioned in 1st Sched, Part-IV, Div-XVA

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
Separate Taxation
Separate Taxation Separate Block of Income
Section 8 [S-5] Tax on Dividends
[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
Dividend [S-2(19)]
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
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]
Pay tax on gross amount @ 1st Sched, Part-I, Div-IIIB
[S-5AA]
Receiver of return shall pay Final Tax after adjustment
of tax deducted at source
3rd Pak Int Sukuk CoFTR [S-8]

48
Special Purpose Vehicle
Wapda
Wapda
First
Sukuk
Company
Ltd
Sukuk
Holder
Sukuk Certificate
Funds for Purchase of Turbines Funds
Title to Turbines
Lease Turbines
Lease Rental Return to Sukuk Holder
Pay Exercise Price
Get Title of Turbines
Redeem Sukuk
Return Sukuk
Purchase
Turbines

49
Payments to Non Residents
Payment to Non Resident
for Pakistan Source
Royalty , Fee For Offshore Digital Services OR FFTS Non-Resident
Deduct tax on gross amount @ 1st Sched, Part-I, Div-IV
Payment to Non Resident
[S-152(1)]
Pay tax on gross amount @ 1st Sched, Part-I, Div-IV
[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 & FFODS: 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]

50
[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
Business Income

51
[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
Provision of
Service vs Know-how
Business Income
FFTS

52
[S-2(22B)] Fee for Offshore Digital Services
means any consideration for providing following services by Non-Resident
• online advertising including
• digital advertising space,
• designing, creating, hosting or maintenance of websites,
• digital or cyber space for websites,
• advertising, e-mails, online computing, blogs, online content and online data,
• providing any facility or service for uploading, storing or distribution of digital content including
• digital text, digital audio or digital video, online collection or processing of data related to users in
Pakistan,
• any facility for online sale of goods or services or any other online facility

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
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
[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]
Tug Boat Dredger Survey Vessel
Bareboat Charter

55
Minimum Tax
Section 113
Section 113C
Other Important Minimum Tax Provisions
Section 148
Section 152
Section 153
Section 154
Section 236C

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
(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
Including
Commission
Turnover means:
Gross Sales
Gross Fees
(Services)
Gross Fees
(Contracts)
Share of
Company in AOP
in above
amounts

57
[S-113C] Alternative 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
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]

58
Alternate Corporate Tax Practice-I
Tax under NTR
Minimum Tax u/s 113
10,000,000
14,000,000
20,000,000
Company
Tax Payable under NTR
10,000,000
Minimum Tax
14,000,000
Higher
Corporate Tax
14,000,000
4,000,000 C/f upto
20,000,000
Higher
Tax Payable
20,000,000
6,000,000C/f upto

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
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 @ 30%
7,500,000
Minimum Tax
2,500,000
Higher
Corporate Tax
7,500,000
Nothing C/f upto
5 subsequent Tax
Years
Alternate
Corporate Tax
16,575,000
Higher
Tax Payable
16,575,000
9,075,000 C/f upto
10 subsequent Tax
Years

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:
2. Basis of Taxation
3. Residential Status recently changed
Heads of Income
60
Deciding a
Salary case

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

Income from Salary
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

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

Income from SalaryHeads of Income Salary
64
Deciding a Salary case:
1. Salary Definition
2. Deductions
3. Perquisites/Facilities/Benefits
4. Exemptions

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
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
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
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
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
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
Benchmark Rate = 10%

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
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
Deductions:
Section 12(4):
No deduction shall be allowed for any expense incurred by employee in deriving salary income.

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
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
2. Commutation of Pension [2nd Sched, Pt-I, Cl (12)]
Received from Government
OR
Received from Scheme approved by FBR
Totally Exempt
Perks

77
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
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
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 2,410,000 during tax year 2019. 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
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
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
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
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
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
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
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
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
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
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
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
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
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
Exemptions:
6. Workers’ Participation Fund [2nd Sched, P-I, Cl-26]
Amount received as worker, out of Workers' Participation Fund Exempt

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
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
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

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)]
Heads of Income
97
Deciding a
Property
Income case
Accrual Basis

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

Deciding Income from Property Case:
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
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
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
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
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"

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
Skip Definition >>>
Income subject to
taxation under sections
5A, 5AA, 6, 7 and 7A
shall not be chargeable
to tax under section 18

Income From BusinessHeads of Income
105
1. Permanent Establishment
3. Taxation of PENR
4. Thin Capitalization
Deciding a
Business Income
case
After reading serial 1 to 3,
attempt this
Quiz

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
Business
Fixed Place
of business,
used or
maintained
by person

Professional Services
Services of Entertainers
Sports Person
Paid by
Resident
(except fee in respect of business
outside Pak through a PE) OR
PENR
Geographical Source of Income
[S-101(2),(3),(4),(5),(12A),(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
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.
Import of Goods, if
such import is part
of certain activities
performed in Pak
either by PENR or
Associate of NR
Income subject to tax
u/s 5A, 5AA, 6, 7 and
7A shall not be taxable
under “income from
business”
Fee for Offshore Digital
Services

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

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 to FCRC by FC OR Associate of FC
(ii) Proportionate accumulated losses balance

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

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. Non Recognition Rule
12. Depreciation on asset partly used in business
13. Leasing Business
14. Intangibles
15. Pre-commencement Expenditure
16. Scientific Research Expenditure
17. Bad Debts
18. Employee Training & Facilities
19. Profit on Debt, Financial Cost and Lease Payments
20. Requirement of withholding tax against “Expenses”

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
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
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
Business
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
Business
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
Business
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
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
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
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
Business
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
Business
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
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
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
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
Business
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
Business
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
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
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
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
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
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
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
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
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
Business
18. 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
Business
Provisions relating to withholding taxes are mentioned in following chapters of Income Tax Ordinance 2001
Ch-X, Part-V, Div-III Ch-XII

138
Business
149. Salary
150. Dividends
150A. Return on Investment in sukuks
151. Profit on debt
152. Payments to non-residents
152A. Payment for foreign produced commercials
153. Payments for goods, services and contracts
154. Exports
155. Income from property
156. Prizes and winnings
156A. Petroleum products
156B. Withdrawal of balance under pension fund
158. Time of deduction of tax
Ch-X, Part-V, Div-III
Sections Relate to Expense (Y/N)
Withholding Requirements
Yes
No
No
Yes
Yes
Yes
Yes
No
Yes
Yes
No
Yes
Irrelevant here

139
Business
149. Salary
151. Profit on debt
Requirement of withholding tax against “Expenses”
Relevant Sections Only Withholding Requirements
Every person responsible for making payment of salary OR directorship fee should deduct tax
Persons mentioned in S-151(1)(a) to (d) shall deduct tax at the time of making payment
>>>Refer details<<<
Every person making payment to Non Resident (for foreign produced commercial for advertisement on TV) should deduct tax
>>>Refer details<<<
Only “Prescribed Persons” are required to withhold tax while making payment of rent
Every person is required to withhold tax
Pension fund manager is required to withhold tax

140
Business
Royalty or FFTS to Non-Resident [S-152(1)]
Ch-X, Part-V, Div-III (152. Payments to non-residents)
Transaction Withholding Requirements
Every person while making payment is required
to withhold tax
Exception
Payment to Non-Resident on execution of following:
i. Contract/sub-contract under construction, assembly
or installation project in Pakistan and supervisory
activity in relation to above
ii. Any other contract for construction or services
iii. Contract for advertisement services rendered by TV
satellite channel [S-152(1A)]
Insurance/re-insurance premium to Non-Resident [S-
152(1AA)]
Payment to Non-Resident media person relaying from
outside Pakistan [S-152(1AAA)]
CIT approved “payment without withholding tax OR deduction of tax at
reduced rate”, where application made by recipient, having PE in
Pakistan [S-152(4A)]
N/A where amount is taxable to PENR and CIT granted approval [S-
152(2AA)]
Continued…..
Fee for offshore digital services [S-152(1C)] Every banking company or a Fin. Inst. making
payment on behalf of any resident or PENR

141
Business
Transaction
Withholding
Requirements Exception
CIT approved payment without withholding tax OR deduction of tax at
reduced rate, where application made by PENR [S-152(4A)]
Any other payment to Non-Resident not mentioned above [S-152(2)]
Payment to PENR for following:
i. Sale of goods (except: sale is made by importer + tax u/s 148
has been paid + goods have been sold without value addition)
ii. Rendering of services (treated as Minimum Tax [S-152(2B])
iii. On execution of contracts (other than contract for sale of goods
and execution of service) [S-152(2A)]
Prescribed Person is required to
withhold tax
N/A on following:
i. WHT applicable u/s 149, 150, 156, 233 OR
ii. Amount taxable to PENR and CIT approved it OR
iii. Amount payable by representative u/s 172(3) OR
iv. Non-resident is exempt from tax
Continued…..
Every person while making
payment is required to withhold
tax

142
Business
If a person intends to make payment to Non-Resident without deducting tax under this section, then prior approval of CIT will be required [S-152(5)(5A)(6)]
Above permission is not required in following cases:
i. Import of goods, where title of goods passes outside Pakistan and is supported by import documents except where:
a) the supply is made in connection with the overall arrangement for the supply of goods, installation, construction, assembly, commission, guarantees or supervisory
activities and all or principal activities are undertaken or performed either by the associates of the person supplying the goods or its permanent establishment, whether
or not the title passes outside Pakistan and whether or not the goods are imported in the name of the associate or any other person
b) Supply is made by Resident or by PENR in Pak, in connection with above arrangement.
ii. Education & Medical Expenses remitted in accordance with SBP Regulations [S-152(7)]

143
Business
Payment to Resident Person for:
i. Sale of goods (if payment
is year is more than Rs
75,000)
ii. Rendering of services (if
payment is year is more
than Rs 30,000)
iii. Execution of contracts
iv. Contract signed with
sports person [S-153(1)]
Ch-X, Part-V, Div-III(153. Payments for goods, services and contracts)
Transaction
Withholding
Requirements Exception
Prescribed Person is
required to withhold
tax
In case payment for rendering of services is received through intermediary and such intermediary retains amount of any
service charges, then service provider is required to collect tax from intermediary on service charges retained.
S-153(1) not applicable on following:
i. Payment to importer in respect of imported goods, where importer has paid tax u/s 148 and has sold goods without
value addition.
ii. Refund of security deposit
iii. Payment by FG, PG, LG to contractor in respect of construction material supplied to contractor by FG, PG, LG
iv. Purchase of asset under lease-and-buy-back agreement by modaraba, leasing Co., banking Co., financial institution
v. Payment for securitization of receivables or issuance of sukuks by SPV to Originator
vi. Payment to traders of yarn by taxpayers specified in zero-rated regime of Sales Tax (2nd Sched, P-IV, Cl-45A)
Payment for stiching, dying,
printing, embroidery, washing,
sizing, weaving [S-153(2)]
Every exporter or
export house

144
Business
Ch-XII Requirement of withholding tax against “Expenses” mentioned in GREEN
236G. Advance tax on sales to distributors, dealers and wholesalers
236H. Advance tax on sales to retailers
236HA. Tax on sale of certain petroleum products
236I. Collection of advance tax by educational institutions
236J. Advance tax on dealers, commission agents and arhatis etc.
236K. Advance tax on purchase or transfer of immovable property
236L. Advance tax on purchase of international air ticket
236O. Advance tax under this chapter
236P. Advance tax on banking transactions otherwise than through cash
236Q. Payment to residents for use of machinery and equipment
236R. Collection of advance tax on education related expenses remitted abroad
236S. Dividend in specie
236U. Advance tax on insurance premium
236V. Advance tax on extraction of minerals
236W. Tax on purchase or transfer of immoveable property
236X. Advance Tax on Tobacco
236Y. Advance tax on persons remitting amounts abroad through credit or debit or prepaid cards
231A. Cash withdrawal from a bank
231AA. Advance tax on transactions in bank
231B. Advance tax on private motor vehicles
233. Brokerage and Commission
233A. Collection of tax by a stock exchange registered in Pakistan
233AA. Collection of tax by NCCPL
234. Tax on motor vehicles
234A. CNG Stations.
235. Electricity Consumption
235A. Domestic electricity consumption
235B. Tax on steel melters, re-rollers etc.
236. Telephone and internet users
236A. Advance tax at the time of sale by auction
236B. Advance tax on purchase of air ticket
236C. Advance Tax on sale or transfer of immovable Property
236D. Advance tax on functions and gatherings
236F. Advance tax on cable operators and other electronic media

145
Business
Ch-XII
Relevant Sections Only Withholding Requirements
FG, PG, LG, Company, AOP formed under any law are required to withhold tax

Capital GainsHeads of Income
146
Deciding a
Capital Gains
case

Geographical Source of Income [S-101(13)] & [S-101A]Heads of Income
147
1. Gain on disposal of shares of Resident Company shall be Pakistan Source Income
2. Gain on disposal of Assets outside Pakistan [S-101A]
Capital
Gains

Gain on disposal of Assets outside Pakistan [S-101A]Heads of Income
148
Capital
Gains
“Share” shall be treated to be located in
Pakistan if:
(i) It derives its value from assets in Pakistan
&
(ii) 10% or more of share capital of NR Co. has
been disposed off.
Company
(outside Pakistan)
Asset
(located in Pakistan)
ownership
Gain
shall be PSI
Tax on Gain (Higher of):
20% x (FMV – Cost)
OR
10% x FMV
Disposed off
Conditions:
1. if value of assets (without deduction of liabilities) > PKR 100 million
on last day of the tax year preceding the date of transfer of share &
2. represents at least 50% of the value of all the assets owned by NR. Co.
Share
Certificate
NR Company
Asset of NR Company
(located in Pakistan)
Asset of NR Company
(located outside Pakistan)
Share
Certificate
The person acquiring the asset from the non-resident person shall
deduct tax from the gross amount @ 10% of FMV
Tax Credit of above tax will be allowed against
IF tax has been withheld by the buyer or by resident company, no tax
shall be payable by the non-resident company in respect of the gain
under the head “Income from Business” or “Capital Gains”.
IF entire assets by the non-resident company are not located in Pakistan
THEN income of the NR Co. from disposal shall be treated to be located in
Pakistan, to the extent it is reasonably attributable to assets located in Pakistan
and determined as may be prescribed.

Vodafon StoryHeads of Income
149
Capital
Gains
CGP Limited
in Netherland
Hutchison Essar Ltd (HEL)
in India
Hutchison Telecommunications
International Ltd’s (HTIL) in Hong Kong Vodafone International Holdings
100% shares
through intermediate companies and
contractual arrangements controlled 67%
A JV between
Hutchinson Group
ESSAR Group
Shares disposal to Vodafon
Above transaction was made taxable in India by
amending Law with retrospective effect

Basis of TaxationHeads of Income
150
Accrual basis, as Gain / Loss is to be taxed in year of disposal
[S-37(1)]
Capital
Gains

Deciding a Capital Gains CaseHeads of Income
151
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

152
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)]

153
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 from a relative as defined in S-85(5), 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

154
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)]

155
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

156
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)]

Heads of Income
157
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 to a relative, as defined in section 85(5)
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
Business

Capital GainsHeads of Income
158
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

159
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

160
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

161
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

162
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]
Just a Quote
To get something you never had,
you have to do something you never did !!!!

163
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 of Acquisition through
cheque, Broker Generated Computerized Ledger of
investor's brokerage account
Cost [R-13L(1)(d)]
IPO Bonus Right Bequest/
Inheritance
Others
Actual price
paid to
issuer
Ex-Bonus price
Discounted price at which shares issued
FMV at time of transaction
Price paid OR
Would have paid
Rule 13A
to 13P

164
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 of Acquisition through
cheque, Broker Generated Computerized Ledger of
investor's brokerage account
Consideration [R-13L(1)(e)]
Market Price received or
would have received on disposal
Rule 13A
to 13P

165
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

166
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)]

167
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.

168
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% of amount computed
under S-111(4)(c) read with S-68
Adjustable Not Adjustable
Minimum Tax
(if property sold in year of purchase)

Income from Other SourcesHeads of Income
169
1. What is it ? [Section-39]
3. Deductions Allowed

170
Other
Sources
What is it ? [S-39]
Income Loan/Advance/Deposit for issuance of shares/Gift Arrears of Profit on Debt

171
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

172
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

173
Other
Sources
Arrears of Profit on Debt
from investment in:
- National Saving Deposit Certificate
- Defense Saving Certificate
Which has resulted in income chargeable to tax at a higher rate of tax
then taxpayer may elect for profit to be taxed in the tax year to which it relates.
Taxpayer can elect this option by notice in writing to Commissioner before due date of filing return of income
OR
such later date as may be allowed by Commissioner in writing

174
Other
Sources
Basis of Taxation [S-39(1)]
Income of every kind in a tax yearRECEIVED

175
Other
Sources
Deductions Allowed [S-40]
1. Expenditure paid to derive income from other sources, other than expenditure of Capital nature. An expenditure is of
Capital Nature if it has a useful life of more than 1 year
2. Zakat under Zakat & Ushr Ordinance 1980, paid by the person, at the time when profit on debt is paid to the person
3. Depreciation on Plant & Machinery and building is allowed as deduction in case where Building is leased together with
Plant & Machinery.
4. Initial Allowance on Plant & Machinery is allowed as deduction in case where Building is leased together with Plant &
Machinery
Deductions not allowed:
1. Expenditure allowed as deduction under any other head of income
2. Inadmissible Expenses under section 21

LossesHeads of Income
176
1. Set Off of Losses [Section-56, 58 & 59]
2. Carry Forward of Losses [Section-57, 58 & 59]
3. Limitation on Setoff & Carry Forward of Losses [S-59A]
4. Foreign Losses [S-104]
5. Set off of business loss consequent to amalgamation [S-57A]
6. Group Taxation [S-59AA]
7. Group relief [S-59B]
8. Set off of losses of companies operating hotels [S-56A]

1. Set Off of Losses [Section-56, 58 & 59]Heads of Income
177
Losses
Loss arising from
Set off against
Salary
Property (Company only)
Spec.
Business
Non Spec.
Capital
Gains
Other Sources
Salary
OthersImmovableSecuritySpec. Non Spec.
Business Capital Gains Other
Sources
Security
Immovables
Others
Property
Not Allowed
[S-56(1)]
Loss not Possible
OOOOP O
PPOPP O
OOOOO P
OOO POO
OO POO O
PPOPP O
PPOPP O
• In case of losses from multiple heads of income, the loss from Business shall be set off last [S-56(3)]
• Losses from income which is exempt from tax shall not be treated
• Losses not set off shall be carried forward only against same head of income

2. Carry Forward of Losses [Section-57, 58 & 59]Heads of Income
178
Losses
Salary
Property (Company only)
Spec.
Business
Non Spec.
Capital
Gains
Other Sources
Security
Immovables
Others
Loss not possible
C/f Not Allowed
Carry forward allowed upto 6 subsequent tax years
Loss from earliest tax year shall be set off first
Un-absorbed depreciation could be carried forward to unlimited time;
• Adjustment of un-absorbed depreciation in subsequent tax years shall be limited to 50% of business
income of subsequent year
• Above limit shall not apply if taxable income is less than Rs 10 million
Un-absorbed depreciation shall be considered last
C/f Not Allowed
C/f Not Allowed
C/f Not Allowed

3. Limitation on Setoff & Carry Forward of Losses [S-59A]Heads of Income
179
Losses
i. In case of AOP, the loss shall be set off and carry forward only against income of AOP and in no case be utilized by its Member against their
taxable income
ii. In case of business loss, it shall be available to successor only by way of inheritance and shall not be available to any other successor
iii. Loss due to depreciation, initial allowance and amortization etc shall be carried forward to unlimited periods
• Adjustment of un-absorbed depreciation in subsequent tax years shall be limited to 50% of business income of subsequent year
• Above limit shall not apply if taxable income is less than Rs 10 million
iv. Business loss, speculation loss and capital loss cannot be carried forward unless determined by an order made under sections 120, 121 or
122

4. Foreign Losses [S-104]Heads of Income
180
Losses
1. Expenses incurred to derive foreign income are deductible only against that income
2. Foreign loss from a head of income, if not adjusted in relevant tax year, could be carried forward upto 6 subsequent tax years
3. In case there is brought forward loss of more than one tax year, the loss of earliest tax year shall be set off first
Above provisions narrate that :
i. loss from Foreign Source Income cannot be setoff against Pakistan Source Income
ii. loss from Foreign Source Income cannot be setoff against any other head of income under Foreign Source Income
iii. loss from Foreign Source Income can only be carried forward to 6 subsequent tax years against same head of income from foreign
source

5. Set off of business loss consequent to amalgamation [S-57A]Heads of Income
181
Losses
Company 1
Company 2
Company 3
Amalgamated
Company
Amalgamating
Company 1
Amalgamating
Company 2
Tax Year 4Tax Year 3Tax Year 2Tax Year 1 Tax Year 7Tax Year 6Tax Year 5
Tax Loss
(Other than
Capital Loss &
b/f Losses)
• Tax Loss of amalgamating Co., for the year of amalgamation only >>>>> C/f allowed upto 6 Subsequent Tax Years,
against income of amalgamated Co.
• Un-absorbed Depreciation/Amortization can be c/f to unlimited period of time
• Condition: Amalgamated Company continues same business upto 5 years from date of amalgamation
In case of Banking Co., NBFC, Modaraba, Insurance Co.:
Business Loss (other than “Speculation Business Loss”) of amalgamating company, relating to tax years earlier to amalgamation is also allowed for adjustment
against profits of amalgamated company, subject to restriction of “6 subsequent tax years”

6. Group Taxation [S-59AA]Heads of Income
182
Losses
Company 1
Company 3
Company 2
100% ownership 100% ownership
Independent Tax Calculation OR
Tax Calculation as
“One Fiscal Unit”
Conditions/Requirements [S-59AA]
• The companies in the group shall give irrevocable option for taxation as
one fiscal unit.
• The group taxation shall be restricted to companies locally incorporated
under the Companies Ordinance, 1984 (XLVII of 1984).
• The relief under group taxation would not be available to losses prior to
the formation of the group.
• The option of group taxation shall be available to those group companies
which
 comply with corporate governance requirements &
 group designation rules or regulations specified by SECP &
 are designated as companies entitled to avail group taxation.
• Group taxation shall be regulated through rules made by FBR.
Conditions/Requirements [7th Sched, Cl-8(3)]
Banking Companies can opt for Group Taxation subject to approval of State
Bank of Pakistan.
Benefit/Purpose
• Inter-corporate dividend will be exempt from tax. [2nd Sched, P-
I, Cl-103A]
• Requirement of withholding tax on dividend u/s 150, not
applicable on inter-corporate dividend. [2nd Sched, P-IV, Cl-11B]
• Requirement of withholding tax on Profit on debt u/s 151, not
applicable on inter-corporate profit on debt [2nd Sched, P-IV, Cl-
11C]
• Above facilities are available subject to condition that return of
group has been filed for the tax year.

7. Group relief [S-59B]Heads of Income
183
Losses
Holding Company
Subsidiary 1
Subsidiary 1.1
Subsidiary 2
Subsidiary 2.1
Loss in a TY
Can be
surrendered in
favor of another
company
Cannot surrender its
loss, being a Holding
Company
Erase
Arrows
Loss can be surrendered to
Loss of
company
Holding
Company
Subsidiary 1
Subsidiary 1.1
Subsidiary 2
Subsidiary 2.1
Holding
Company
Subsidiary 1 Subsidiary 1.1Subsidiary 2 Subsidiary 2.1
P
O O O O
PPP
PPP O
O
P
OO
OOO
O
• Surrendered losses shall not include “Capital Loss” &/or “B/f Losses”
• The loss to be surrendered shall be allowed as per following formula:
(A/100) x B
Where:
A is the percentage share capital held by the holding company of its subsidiary
company; and
B is the assessed loss of the subsidiary company.
• If any company in the group is a public listed company, the holding
company shall directly hold 55% or more of the share capital of the
subsidiary company
• If none of the companies in the group is a listed company, the holding
company shall hold directly 75% or more of the share capital of the
subsidiary company.
Conditions/limit on Loss to be surrendered Minimum shareholding requirement to get benefit of Group Relief

Heads of Income
184
Losses
The loss surrendered can be set off against “Income from Business” in the tax year and the following two tax years.
Following conditions must be fulfilled:
• there is continued ownership for 5 years, of share capital of the subsidiary company
 Atleast 55% in the case of a listed company OR
 Atleast 75%, in the case of other companies;
• a company within the group engaged in the business of trading shall not be entitled to avail group relief;
• holding company, being a private limited company with seventy-five per cent of ownership of share capital gets itself listed within 3 years
from the year in which loss is claimed;
• the group companies are locally incorporated companies under the Companies Ordinance, 1984 (XLVII of 1984);
• the loss surrendered and loss claimed under this section shall have approval of the Board of Directors of the respective companies;
• the subsidiary company continues the same business during the said period of three years;
• all the companies in the group shall comply with applicable corporate governance requirements and group designation rules or regulations
specified by SECP, and are designated as companies entitled to avail group relief; and
• any other condition as may be prescribed.
Continued …..

Heads of Income
185
Losses
• The subsidiary company shall not be allowed to surrender its assessed losses for set off against income of the holding company for more than three tax
years.
• Where the losses surrendered by a subsidiary company are not adjusted against income of the holding company in the said three tax years, the
subsidiary company shall carry forward the unadjusted losses in accordance with section 57.
• If there has been any disposal of shares by the holding company during the aforesaid period of five years to bring the ownership of the holding company
to less than fifty-five per cent or seventy-five per cent, as the case may be, the holding company shall, in the year of disposal, offer the amount of profit
on which taxes have not been paid due to set off of losses surrendered by the subsidiary company.
• Loss claiming company shall, with the approval of the Board of Directors, transfer cash to the loss surrendering company equal to the amount of tax
payable on the profits to be set off against the acquired loss at the applicable tax rate. The transfer of cash would not be taken as a taxable event in the
case of either of the two companies.
• The transfer of shares between companies and the share holders, in one direction, would not be taken as a taxable event provided the transfer is to
acquire share capital for formation of the group and approval of the Security and Exchange Commission of Pakistan or State Bank of Pakistan, as the case
may be, has been obtained in this effect. Sale and purchase from third party would be taken as taxable event.

8. Set off of losses of companies operating hotels [S-56A]Heads of Income
186
Losses
If
• A company is registered in Pakistan or Azad Jammu and Kashmir (AJ&K) &
• operates hotels in Pakistan or AJ&K &
• sustains a loss under “Business Income” in Pakistan or AJ&K for any tax year
Then
• it shall be entitled to set off this loss against income in Pakistan or AJ&K, as the case may be, from the tax year
2007 and onwards.
Above provision is subject to restrictions mentioned u/s 56 & 57.

Deductible AllowancesHeads of Income
187
1. Zakat [S-60]
2. Workers’ Welfare Fund [S-60A]
3. Workers’ Participation Fund [S-60B]
4. Profit on Debt [S-60C]
5. Education Expenses [S-60D]
6. Other Deductible Allowances under 2nd Schedule

188
1. Zakat [S-60]
Deductible
Allowances
Zakat under Zakat and Ushr Ordinance 1980
Profit on Debt Any other paid
Allowed as deduction from
“Income from Other Sources”
Allowed as deductible allowance
Not allowed
If total income is less than amount of Zakat then:
• Refund
• Carry forward
• Carry back

189
2. Workers’ Welfare Fund [S-60A]
Deductible
Allowances
• Amount paid under "Workers' Welfare Fund Ordinance 1971" will be allowed as deductible allowance
• If accrual basis of accounting is followed for "Income from Business" then deduction will be allowed for this payable
expense

190
3. Workers’ Participation Fund [S-60B]
Deductible
Allowances
• Amount paid under "Companies' Profit (Workers' Participation) Act 1968" will be allowed as deductible allowance

191
4. Profit on Debt [S-60C]
Deductible
Allowances
Allowed to Individual
1. Straight deduction as deductible allowance shall be allowed for
• profit on debt
• share in rent and share in appreciation for value of house
paid by individual on a loan by
• scheduled bank or NBFI regulated by SECP OR
• Government, Local Government, Provicial Government, statutory body or listed company
2. Deductible allowance shall not exceed lower of following:
• 50% of taxable income
• Rs 2,000,000/-
3. Deductible allowance, if not utilized fully against taxable income shall not be carried forward to
subsequent tax year
Other Details
Deductible Allowance for Profit on Debt on loan utilized for construction of new house or acquisition of housePurpose

192
5. Education Expenses [S-60D]
Deductible
Allowances
Allowed to Individual having taxable income less than Rs 1,500,000/-
Allowed only to one of the parents in respect of fees of their children
Parent have to provide NTN or Name of educational institution
1. Deductible allowance shall not exceed lower of following:
• 5% of tuition fee paid
• 25% of taxable income
• 60,000 x Number of children
2. Deductible allowance, if not utilized fully against taxable income shall not be carried forward to
subsequent tax year
3. Employer is not allowed to deduct these expenses while withholding tax from salary under section 149
Other Details
Deductible Allowance for Tuition Fees paid in a Tax YearPurpose

193
6. Other Deductible Allowances [2nd Sched, Part-I]
Deductible
Allowances
Amount paid as donation to institutions
 [Cl-61]
 [Cl-64A]
 [Cl-64B]
 [Cl-64C]
Limit of Allowance:
• Individual & AOP : 30% of Taxable Income
• Company : 20% of Taxable Income
No Limit

Tax CreditsHeads of Income
194
1. Tax payable by a tax payer shall be reduced by the amount of Tax Credits allowed to the tax payer. [Section-4(2)]
2. Tax credits allowed to the tax payer will be categorized under following:
a) Foreign Tax Credits [Section-103]
b) Tax Credits under Part X of Chapter III
c) Tax Credit for Advance Tax and Tax deducted at source [Section 147 & Section 168]
3. Where more than one tax credits are allowed to a tax payer in a tax year then tax credits shall be applied in above
mentioned order [Section-4(3)]

Foreign Tax Credits [S-103]Heads of Income
195
Tax Credits
1. Needless to mention that Foreign Tax Credit is available to “Resident Person” in respect of “Foreign Source Income” taxable
in Pakistan
2. Foreign Tax Credit shall be:
a) Foreign Tax paid
b) Pakistan Tax Payable in respect of income
3. Where tax payer has FSI under more than one Head of Income, this section shall be applied separately to each Head
of Income
4. Unadjusted foreign tax credit shall not be refunded, carried back or carried forward
5. To avail this tax credit, foreign taxes must be paid with in two years after end of tax year in which foreign income was
derived
Which ever is
Less
Including “Withholding Tax”
(Average rate of Pakistan Income Tax)
Tax Imposed ÷ Taxable Income
FSI after deducting directly relatable expenses &
Expenses apportioned in accordance with S-67
x (Net Foreign Source Income)

2. Where individual is member of AOP, component "B" shall included share of profit from AOP, even if tax on income of AOP has been paid by the
AOP [Section-65(1)(b)]
3. Component "A" shall be computed after including the share of profit from AOP [Section-65(1)(a)]
Tax Credits under Part X of Chapter IIIHeads of Income
196
1. Tax Credits of each item under Part X of Chapter III [from Section 61 to Section 63] shall be calculated using following formula:
Tax Credit
B
A
x C=
Where:
A = Tax Assessed before any Tax Credit under Part X of Chapter III
B = Taxable Income
C = This amount will be calculated for each type of tax credit under section 61 to 63
Tax Credits

Tax Credits under Part X of Chapter IIIHeads of Income
197
61. Charitable donations
62. Tax credit for investment in shares and insurance
62A. Tax credit for investment in health insurance
63. Contribution to an Approved Pension Fund
64B. Tax credit for employment generation by manufacturers
65B. Tax credit for investment
65C. Tax credit for enlistment
65D. Tax credit for newly established industrial undertakings
65E. Tax credit for industrial undertakings established before the first day of July, 2011
Tax Credits

Heads of Income
198
Tax Credits
Tax Credits under Part X of Chapter III
1. Charitable Donations [S-61]
Eligible Person Value “C” of formula Remarks
Any Person Lesser of:
i. Amount of Donation
ii. 30% of Taxable Income in case of Individual
and AOP
iii. 20% of Taxable income in case of Company
Amount paid or Property given to:
i. Board of education or University in Pakistan established under Federal or Provincial Law
ii. Educational Institution, hospital or relief fund established in Pakistan by Federal, Provincial or
Local Govt.
iii. Any non profit organization
If any property is given as donation, its FMV at the time it is given as donation shall be treated as
donation. Valuation of property shall be carried out in accordance with Rule-228(4) & valuation of
vehicles shall be carried out in accordance with Rule-228(2)
If donation is given in Cash, then it must be paid by a Crossed Cheque
Instead of tax credit, a Deductible Allowance shall be allowed if donation has been paid to
institutions mentioned in clause 61, Part-I, 2nd Schedule, subject to following limits.
i. 30% of Taxable Income, in case of Individual & AOP
ii. 20% of Taxable Income, in case of Company
Only these donations can be paid in cash and condition of payment through Crossed Cheque shall not
apply

Heads of Income
199
Tax Credits
2. Investment in Shares & Insurance [S-62]
Resident person other than
Company
Lesser of:
i. Cost of Acquisition of shares OR Sukuks OR
Insurance Premium
ii. 20% of Taxable Income
iii. Rs =2,000,000/-
Conditions in case of acquisition of shares:
i. Only new shares of listed company
ii. Person is original allottee of shares OR Shares are acquired from Privatization Commission of
Pakistan
Conditions in case of sukuks:
i. Only new sukuks offered to public by listed company
ii. Person is original allottee of sukuks
iii. Sukkuks are traded on stock exchange in Pakistan
Conditions in case of Insurance Premium:
i. Only life insurance premium
ii. Insurance company must be registered by SECP under Insurance Ordinance 2000
iii. Person must be deriving income under "Salary" or "Income from Business“
If shares/sukkuks are disposed off within 24 months of its acquisition, OR insurance policy is
surrendered within two years of its acquisition then tax payable shall be increased by the amount of
tax credit previously claimed due to acquisition of these shares OR insurance policy.

Heads of Income
200
Tax Credits
3. Investment in health insurance [S-62A]
Resident Person being filer
other than Company
deriving "Salary Income"
OR "Income from
Business"
Lesser of:
i. Premium OR contribution paid
iii. Rs =150,000/-
The health insurance premium/contribution is paid to:
- Insurance company
- Registered by SECP under Insurance Ordinance 2000

Heads of Income
201
Tax Credits
4. Contribution to approved pension fund [S-63]
Eligible Person under
section 2(19A) having
"Salary" or "Income from
Business"
Lesser of:
i. Contribution to Approved Pension Fund under Voluntary Pension System Rules 2005
Additional 2% of taxable income for each year above 40 years of age shall be allowed to person
who fulfills following conditions;
a) Joined pension fund after 01.07.2006
b) Joined pension fund at 41 years or above
c) Additional 2% will be allowed in first 10 years
d) Total contribution after addition of 2% should not exceed 50% of Taxable Income of preceding
tax year
e) Additional 2% is allowed only upto 30.06.2019
Limit:
Above 20% and additional 2% combined, should not exceed 30% of taxable income of preceding tax
year
Tax Credit under this section is not available to
transfer of balance:
From:
i. approved employment pension scheme
ii. annuity scheme
iii. approved occupational saving scheme
To:
individual pension account with any pension fund
manager

Heads of Income
202
Tax Credits
5. Employment generation by manufacturer [S-64B]
Eligible Person Amount of Tax Credit Remarks
Company formed to
establish & operate
new manufacturing
unit
2% of Tax Payable for every 50 employees, upto maximum of 10% of
Tax Payable
Employees must be registered with
- EOBI (Employees' Old age Benefit Institution)
- ESSI (Employees' Social Security Institution)
Tax Credit shall be given upto 10 years
Other Conditions:
i. Company was formed to establish and operate a new manufacturing unit
ii. Company is incorporated and Unit is setup between 01.07.2015 to 30.06.2019
(both days inclusive)
iii. Manufacturing unit is managed by the Company itself
iv. Company is registered under Companies Ordinance 1984 and has its registered
office in Pakistan
v. Unit is not established by
 splitting up or reconstitution or reconstruction of an undertaking already
in existence before 01.07.2015 OR
 by transfer of Plant & Machinery from manufacturing unit already in
existence before 01.07.2015
vi. If a company has availed this tax credit and subsequently any fact is discovered
by Commissioner that the company was not entitled to claim it, then tax payable
of relevant tax year shall be recomputed by Commissioner.
vii. Manufacturing unit shall be treated as "setup" when it is ready for trial or
commercial production

Heads of Income
203
Tax Credits
6. Tax Credit for Investment [S-65B]
Eligible
Person
Amount of Tax
Credit
Remarks
Company
(Industrial
Undertaking)
10% of Investment i. Investment has been made in P&M for Extension / expansion / balancing / modernization / replacement of P&M already installed
ii. P&M is installed in an industrial undertaking setup in Pakistan
iii. This Tax Credit can be adjusted against tax liability under Normal Tax Regime, Final Tax Regime and Minimum Tax
iv. Tax credit is available in the year in which P&M is installed
v. Investment has been made from 01.07.2010 to 30.06.2021
vi. Excess tax credit can be carried forward to 2 following tax years
20% of Investment i. Company is setup before 01.07.2011
ii. Investment in P&M is made from 100% from new equity [new equity has been explained in section 65E]
iii. Investment has been made by Company in Plant & Machinery for balancing / modernization / replacement of P&M already installed
iv. P&M is installed in an industrial undertaking setup in Pakistan
v. This Tax Credit can be adjusted against tax liability under Normal Tax Regime, Final Tax Regime and Minimum Tax
vi. Tax credit is available in the year in which P&M is installed
vii. Investment is made and P&M installed between 01.07 2011 to 30.06.2019
viii. Excess tax credit can be carried forward to 5 following tax years
If a company has availed this tax credit and subsequently any fact is discovered by Commissioner that the company was not entitled to claim it, then tax payable of relevant tax year shall be recomputed by
Commissioner.

Heads of Income
204
Tax Credits
7. Tax Credit for enlistment [S-65C]
Company opts for enlistment on stock
exchange in Pakistan
20% of tax payable Tax credit shall be allowed in the year of enlistment on stock exchange and following
three tax years.
Tax credit for last two years shall be ten percent of tax payable

Heads of Income
205
Tax Credits
8. Tax Credit for newly established industrial undertaking [S-65D]
Company
(Industrial
Undertaking)
A x (B/C)
A = Tax Assessed before any tax credit
B = New shares issued for cash
C = Amount invested to setup new
industrial undertaking
i. Company is incorporated an setup between 01.07.2011 to 30.06.2021
ii. Company was formed to establish and operate a new industrial undertaking, including corporate dairy farming
iii. Tax credit will be available from date of setup or date of commercial production which ever is later
iv. Industrial undertaking is managed by company itself
v. Company is registered under Companies Ordinance 1984 and has its registered office in Pakistan
vi. Industrial Undertaking is not established by
 splitting up or reconstitution or reconstruction of an undertaking already in existence before 01.07.2011 OR
 by transfer of Plant & Machinery from industrial undertaking already in existence before 01.07.2011
vii. Industrial Undertaking is setup with atleast 70% equity raised through issuance of new shares for cash [obtaining
short term loans for meeting working capital requirement shall not disqualify tax payer from claiming this tax
credit]
viii. Industrial Undertaking shall be treated as "setup" when it is ready for trial or commercial production
ix. This Tax Credit can be adjusted against tax liability under Normal Tax Regime, Final Tax Regime and
Minimum Tax
If a company has availed this tax credit and discontinued its business in subsequent five years OR subsequently any fact is discovered by Commissioner that the company was not entitlted to claim it, then tax
payable of relevant tax year shall be recomputed by Commissioner.

Heads of Income
206
Tax Credits
9. Tax Credit for industrial undertakings established before the first day of July, 2011 [S-65E]
Company
(Industrial
Undertaking
including
corporate dairy
farming)
where separate accounts maintained for
project
A x (B/C)
A = Tax Assessed before any tax credit
B = New shares issued for cash
C = Amount invested to purchase & install P&M
for Industrial Undertaking
all other cases
Tax Payable in proportion of new equity to total
equity (including new equity)
i. Company is setup in Pakistan before 01.07.2011 and P&M is installed between 01.07.2011 to 30.06.2021
ii. Company invests atleast 70% new equity in purchase and installation of Plant & Machinery for industrial
undertaking for
 expansion of P&M already installed OR
 undertaking a new project
iii. This Tax Credit can be adjusted against tax liability under Normal Tax Regime, Final Tax Regime
and Minimum Tax
iv. Tax credit shall be allowed for 5 years from date of setup or commencement of commercial production
whichever is later
New Equity
 means equity raised through fresh issue of shares against cash AND
 shall not include loans from shareholders and directors
[obtaining short term loans for meeting working capital requirement shall not disqualify tax payer from claiming
this tax credit]
If a company has availed this tax credit and discontinued its business in subsequent five years OR subsequently any fact is discovered by Commissioner that the company was not entitlted to claim it, then tax
payable of relevant tax year shall be recomputed by Commissioner.

Tax Credit for Advance Tax and Tax deducted at source [S-147, S-147A & S-168]Heads of Income
207
Tax Credits

Tax Credit for Advance Tax [S-147]Heads of Income
208
Tax Credits
Who will pay ?
Every tax payer
whose income was chargeable to tax
in preceding tax year
This shall not include:
 Salary income &
 Income under FTR
In case of Individual this should be
Rs =1,000,000/- or above
In case of AOP & Company, advance tax has to
be paid, irrespective of amount of income

209
Tax Credits
How much to be paid ? [Quarterly Payments]
Individual AOP & Company
(A x B/C) – D
Where:
A = Turnover for quarter (if turnover not known then:
Last year Turnover x 110% / 4)
B = Tax assessed for last tax year
(including minimum tax and alternate corporate tax)
C = Turnover for last tax year
D = Tax credit for the quarter u/s 168
x
Before 2nd instalment is due, every tax
payer, including banking company, shall
calculate Estimated Tax Payable for relevant
Tax Year
y<
Then:
If:
(yx 50%) – (already paid tax) will be paid at the time due for payment of 2nd
instalment
(y– above) ÷ 2 will be paid at the time due for payment of 3rd & 4th quarter each
(A/4) – B
Where:
A = Tax assessed for last tax year
(including minimum tax)
B = Tax credit for the quarter u/s 168
(excluding tax deducted u/s 149)
In case of any tax payer:
If : x> y before last instalment is due,
Then: y– (already paid tax) will be paid in equal instalments
[Condition to be fulfilled]
In case of AOP & Company:
If : No tax was assessed in preceding year
Then : Advance tax shall be paid on basis of estimated turnover

210
Tax Credits
When to be paid ?
Individual AOP & Company
June Quarter
March Quarter
December Quarter
September Quarter Upto 15th September
Upto 15th December
Upto 15th March
Upto 15th June
Upto 25th September
Upto 25th December
Upto 25th March

211
Tax Credits
Section 168
Ch-X, Part-V, Div-II
Ch-XII
Ch-XII
Tax
Collected
Tax
Deducted
Amount from which tax is
deducted is treated as
“Income”
Tax collected / deducted is treated as
“Tax Paid”
If a company is member of an AOP and tax is withheld from such AOP, then Company shall be allowed tax credit in respect of tax withheld from AOP as per
following formula:
(A/B) x C
Where —
A is share of profits before tax received by the company as a member of AOP
B is the taxable income of AOP; and
C is the amount of tax withheld in the name of AOP
Tax Credit shall not be
available to AOP, if it
has been claimed by
company.

212
Tax Credits
149. Salary
150. Dividends
150A. Return on Investment in sukuks
151. Profit on debt
154. Exports
156A. Petroleum products
158. Time of deduction of tax
Withholding Tax Card

213
Tax Credits
Chapter - XII
236G. Advance tax on sales to distributors, dealers and wholesalers
236H. Advance tax on sales to retailers
236HA. Tax on sale of certain petroleum products
236I. Collection of advance tax by educational institutions
236J. Advance tax on dealers, commission agents and arhatis etc.
236K. Advance tax on purchase or transfer of immovable property
236L. Advance tax on purchase of international air ticket
236O. Advance tax under this chapter
236P. Advance tax on banking transactions otherwise than through cash
236Q. Payment to residents for use of machinery and equipment
236R. Collection of advance tax on education related expenses remitted abroad
236S. Dividend in specie
236U. Advance tax on insurance premium
236V. Advance tax on extraction of minerals
236W. Tax on purchase or transfer of immoveable property
236X. Advance Tax on Tobacco
236Y. Advance tax on persons remitting amounts abroad through credit or debit or prepaid cards
231A. Cash withdrawal from a bank
231AA. Advance tax on transactions in bank
231B. Advance tax on private motor vehicles
233A. Collection of tax by a stock exchange registered in Pakistan
233AA. Collection of tax by NCCPL
234. Tax on motor vehicles
234A. CNG Stations.
235. Electricity Consumption
235A. Domestic electricity consumption
235B. Tax on steel melters, re-rollers etc.
236. Telephone and internet users
236A. Advance tax at the time of sale by auction
236B. Advance tax on purchase of air ticket
236C. Advance Tax on sale or transfer of immovable Property
236D. Advance tax on functions and gatherings
236F. Advance tax on cable operators and other electronic media

214
Tax Credits
148. Imports
148A. Tax on local purchase of cooking oil or vegetable ghee by certain persons
Ch-X, Part-V, Div-II

Taxation of IndividualHeads of Income
215
Person
1. Principle of Taxation of Individual [S-86]
2. Deceased Individual [S-87]
3. Income of Minor Child [S-91]
4. Author [S-89]

1. Principle of Taxation of Individual [S-86]Heads of Income
216
Person
Taxable income of each individual shall be determined separately

2. Deceased Individual [S-87]Heads of Income
217
Person
Legal representative of deceased individual shall be
responsible for following:
tax payable, if individual had not died
tax payable on income from estates of deceased
individual
Above liability shall be limited to the capability of
estates of deceased.
Proceedings against deceased, before death shall be
treated as taken against Legal Representative AND
continued against Legal Representative
Proceedings against deceased, after death could be
taken as if deceased would have servived
Legal Representative
means: a person who in law represents the estate of a deceased person
includes: any person who intermeddles with the estate of the deceased and
where a party sues or is sued in representative character
the person on whom the estate devolves on the death of the party so suing or sued

3. Income of Minor Child [S-91]Heads of Income
218
Person
Income of Minor Child under head "Income from Business" shall be treated as income of parent
with highest taxable income
Above not applicable on "Income from Business" acquired through inheritance
Minor Child [S-2(33)]
means an individual who is under the age of eighteen years at the end of a tax year

4. Author [S-89]Heads of Income
219
Person
Author has an option that the amount received by him on account of royalties be
taxed in that tax year and the preceding two tax years in equal proportions
if time taken by author of his literary or artistic work exceeds twenty-four months

Taxation of Association of PersonsHeads of Income
220
Person
1. Principles of taxation of AOP [S-92]
2. Individual as member of AOP [S-88]

1. Principles of Taxation of AOP [S-92]Heads of Income
221
Person
• AOP shall be taxed separately from its members.
• If AOP has paid tax on its profits, then share of profit of member shall be exempt from tax.
• If member(s) of AOP is a Company, then AOP shall pay tax on its profits excluding the share of company.
That share will be included in taxable income of company and shall be taxable @ applicable on
company

2. Individual as Member of AOP [S-88]Heads of Income
222
Person
Share of profit from AOP* , of individual member, shall be included in taxable income of individual
member for rate purposes
Tax Payable = (A/B) x C
* excluding share in profit from income under
FTR [S-4(4) & S-169(2)]
A = is the amount of tax that would be assessed to the individual if share of profit from AOP
were chargeable to tax
B = taxable income if share of AOP was chargeable to tax
C = actual taxable income

Taxation of CompanyHeads of Income
223
Person
1. Principles of Taxation of Company [S-94]
2. Disposal of business by individual to wholly-owned company [S-95]
3. Disposal of business by association of persons to wholly-owned company [S-96]
4. Disposal of asset between wholly-owned companies [S-97]
5. Disposal of asset under a scheme of arrangement and reconstruction [S-97A]
6. Controlled Foreign Company [S-109A]
COMMON PROVISIONS
APPLICABLE TO AOP AND
COMPANY
1. Change in control of an entity [S-98]
2. Change in the constitution of an
association of persons [S-98A]
3. Discontinuance of business or
dissolution of an association of
persons [S-98B]
4. Succession to business, otherwise
than on death [S-98C]

1. Principles of Taxation of Company [S-94]Heads of Income
224
Person
• Company shall be liable to tax separately from its shareholders.
• Dividend paid by a company shall be taxable in accordance with Section 5.
Dividend
Investment

2. Disposal of business by individual to wholly-owned company [S-95]Heads of Income
225
Person
No gain or loss shall arise to individual if
i. consideration received is shares in
company (other than redeemable shares)
ii. transferor must beneficially own all shares
iii. company must undertake to discharge any
liability in respect of assets
iv. above liability must not exceed the
transferor’s cost of the assets at the time of
the disposal
v. FMV of shares must be substantially equal
to:
• FMV of assets disposed of
• Less: any liability undertaken by
company to discharge
vi. company must not be exempt from tax for
the tax year in which the disposal takes
place
Resident Individual
(Transferor)
Resident CompanyAll Assets disposed
Following shall apply in case of said disposal:
i. assets acquired by company shall be treated as having the same character as it had in the hands of the transferor
ii. company’s cost of assets shall be:
• depreciable asset or intangible >> written down value of the asset or intangible immediately before disposal
• stock-in-trade >> cost OR NRV, whichever is less
• any other case >> transferor’s cost at the time of the disposal
iii. if, immediately before the disposal, the transferor has un-absorbed depreciation or amortization, it will be allowed as
deduction to the company
iv. transferor’s cost in respect of the shares received as consideration for the disposal shall be as follows:
• if consideration is one share
o transferor‘s cost of the assets
o Less: the amount of any liability that the company has undertaken to discharge in respect of assets
• if consideration is more than one share
o the amount determined above divided by the number of shares
v. Un absorbed depreciation or amortization of transferor shall be considered last while determining that whether or not
these have been adjusted against income of transferor

3. Disposal of business by association of persons to wholly-owned company [S-96]Heads of Income
226
Person
Resident AOP Resident CompanyAll Assets disposed
No gain or loss shall arise to AOP if following
conditions are fulfilled:
i. consideration received is shares in company
(other than redeemable shares)
ii. AOP must beneficially own all shares
iii. each member of AOP must have interest in the
shares in same proportion as his interest in the
business assets immediately before the disposal
iv. company must undertake to discharge any
v. above liability must not exceed the AOP’s cost of
the assets at the time of the disposal
vi. FMV of shares must be substantially equal to
• FMV of assets disposed of
• Less: any liability undertaken by
company to discharge
vii. company must not be exempt from tax for the
tax year in which the disposal takes place
i. assets acquired by company shall be treated as having the same character as it had in the hands of AOP
ii. company’s cost of assets shall be:
• any other case >> AOP’s cost at the time of the disposal
iii. if, immediately before the disposal, the AOP has un-absorbed depreciation or amortization, it will be allowed as
deduction to the company
iv. AOP’s cost in respect of the shares received as consideration for the disposal shall be as follows:
• if consideration is one share
o AOP’s cost of the assets
o Less: the amount of any liability that the company has undertaken to discharge in respect of assets
• if consideration is more than one share
o the amount determined above divided by the number of shares

4. Disposal of asset between wholly-owned companies [S-97]Heads of Income
227
Person
No gain or loss shall arise to transferor if
i. Both companies belong to a wholly-owned group
of resident companies at the time of the disposal
ii. Transferee must undertake to discharge any
iii. above liability must not exceed the transferor’s
cost of the assets at the time of the disposal
iv. transferee must not be exempt from tax for the
i. Assets acquired by transferee shall be treated as having the same character as it had in the hands of the transferor
ii. transferee’s cost of assets shall be:
deduction to the transferee
iv. if, consideration of assets disposed is “in-kind” then transferor’s cost of such consideration received shall be
• Transferor’s cost of the asset transferred
• Less: amount of any liability that the transferee has undertaken to discharge
vi. The transferor and transferee companies belong to a wholly-owned group if:
• one company beneficially holds all the issued shares of the other company; OR
• a 3rd company beneficially holds all the issued shares in both companies.
Resident Company
(Transferor)
Resident Company
(Transferee)
An Asset disposed

5. Disposal of asset under a scheme of arrangement and reconstruction [S-97A]Heads of Income
228
Person
Resident Company
(Transferor)
Resident Company
(Transferee)
Any Asset transferred under
Scheme of Arranagement &
Reconstruction
No gain or loss shall arise if following
conditions are fulfilled:
i. Transferee must undertake to discharge any
ii. above liability must not exceed the transferor’s
cost of the assets at the time of the disposal
iii. transferee must not be exempt from tax for the
iv. the scheme is approved by the High Court, State
Bank of Pakistan or Securities and Exchange
Commission of Pakistan, as the case may be, on
or after first day of July, 2007
No gain or loss shall arise on issue,
cancellation, exchange or receipt of shares as
a result of above Scheme of Arrangement and
Reconstruction
i. assets acquired by transferee shall be treated as having the same character as it had in the hands of the transferor
ii. transferee’s cost of assets shall be:
deduction to the transferee
iv. Un absorbed depreciation or amortization of transferor shall be considered last while determining that whether or not
v. If shares are issued by virtue of said scheme and shares are disposed of, then cost of these shares shall be cost prior to
operation of said scheme.

6. Controlled Foreign Company (CFC) [S-109A]Heads of Income
229
Person
Resident Person Taxable Income
Controlled Foreign Company
Attributable Income (AI)
A non-resident company, if :
(a) More than 50% of its
Capital or Voting Right
held by 1 or more
Resident(s) OR
more than 40% of its
Capital or Voting Rights
are held by 1 Resident;
(a) Foreign tax paid < 60%
of tax payable on foreign
income under ITO 2001;
(b) It does not derive
ACTIVE BUSINESS
INCOME; and
(c) shares of Co. are not
traded on any stock
exchange if its country
more than 80% of income does not include income from
dividend, interest, property, capital gains, royalty, annuity payment, supply of goods or services to an
associate, sale or licensing of intangibles and management, holding or investment in securities and
financial assets;
&
principally derives income under the head “income from business” in its country
Taxable Income (TI) determined in
accordance with ITO 2001 as if Co. is
resident and taxable @ 1st Sched, Part-
I, Div-III
TI shall be determined in home
currency of CFC & then converted to
PKR @ on last day of foreign tax year.
if < PKR 10 million, then TI = 0
AI = A x (B/100)
Where
A = income of CFC
B = %age of Capital or Voting Rights, whichever is higher
if capital or voting rights < 10%, then AI = 0
AI if taxed in Pakistan, shall not be taxed when actually
received.

1. Change in control of an entity [S-98]Heads of Income
230
Person
If there is a change of 50% or more in the underlying ownership of an entity, any loss incurred before the change shall not be
allowed as a deduction after the change, unless the entity fulfills following conditions:
• it continues same business after the change, until the loss has been fully set off OR
• until the loss has been fully set off, it does not engage in any new business or investment
(where the principal purpose of the entity or the beneficial owners of the entity is to utilize the loss so as to reduce
tax payable on the income from the new business or investment)
"Entity" means Company or AOP
"Underlaying ownership" means an ownership interest in the entity held, directly or indirectly through an interposed
entity or entities, by an individual or by a person not ultimately owned by individuals

2. Change in the constitution of an association of persons [S-98A]Heads of Income
231
Person
If a change occurs in constitution of AOP then;
1. liability of filing the return of AOP shall be on those persons who were members of AOP at the time
of filing of return
2. income of AOP shall be apportioned among the members on time basis
3. if tax assessed on a member cannot be recovered from him it shall be recovered from the
association of persons as constituted at the time of filing the return

3. Discontinuance of business or dissolution of an association of persons [S-98B]Heads of Income
232
Person
1. If AOP is dissolved or discontinues its business then any tax payable by AOP is recoverable from any
person who was a member at the time of dissolution or discontinuance
2. In case of death of member of AOP, the tax payable can be recovered from legal heirs of the deceased

4. Succession to business, otherwise than on death [S-98C]Heads of Income
233
Person
1. If successor carries on the same business then following shall apply:
• predecessor shall be liable to pay tax on income before date of succession and
• successor shall be liable to pay tax on the income after the date of succession
2. If predecessor cannot be found, then successor shall be liable to pay tax on income before date of succession
3. Where any tax payable under this section in respect of such business or profession cannot be recovered from the
predecessor, it shall be recoverable from the successor, who shall be entitled to recover it from the predecessor.

ExemptionsHeads of Income
234
1. Income Tax Ordinance [Section 41 – 55]
2. The Second Schedule [MS Excel Summary]
i. Part I : Exemption from Total Income
ii. Part II : Reduction in Tax Rates
iii. Part III : Reduction in Tax Liability
iv. Part IV : Exemption from Specific Provisions

Advanced taxation (TY2019) pakistan

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Advanced taxation (TY2019) pakistan