Income from Business

Businesstaxation Income fromBusiness
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DEDICATION:
This projectis a result of dedicatedeffort. We would like
to thank our project guideProf. Mr. M.USMAN WARIS
for consultativehelp and constructivesuggestions on the
matter in this project. We would also like to thank our
parents in making this project a successful one.

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ACKNOWLEDGEMENT:
We student of MASTER in COMMERCE (M.Com)
Studies Here-by declare that we have successfully
completed this project on Taxation management in
academic year 2013-2015.
It gives us immense pleasure to prepare this project
report on ‘Income from Business’. The information in-
corporate in this project is true and original to the best
of our knowledge.

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Project Report
INCOME FROM BUSINESS SECTION 18
(Taxation Management)
SUBMITTED TO:
Mr. M. Usman Waris
SUBMITTED BY:
Asma yasmin
Anam Zahra
Sidra Saleem
Anum Sehar

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TABEL OF CONTENTS:
Income Tax …….…............................................................7-29
Business...............................................................................08
Types of Business................................................................09
Taxability of Speculation Business....................................11
Sources of Business Income...............................................11
Taxable Business Income.............................................12
Exempt Business Income.............................................13
Admissible Business Deduction...................................13
Deductions Not Allowed...............................................21
Minimum tax on the income of certain persons..............25
Income Tax Return………………………………………30
Sales Tax.............................................................................33
Rules for Output Tax.........................................................34
Rules for Input Tax............................................................35
Sales Tax Return............................ ....................................40
Bibliography................................................................…...43

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Income Tax
Income from Business Sec 18:
Introductionof Business:
A business, also known as an enterprise or a firm, is an organization involved in
the trade of goods, services, or both to consumers. Businesses are prevalent in
capitalist economies, where most of them are privately owned and provide goods
and services to customers in exchange for other goods, services, or money.
Businesses may also be not-for-profit or state-owned. A business owned by
multiple individuals may be referred to as a company.
The etymology of "business" stems from the idea of being busy, and implies
socially valuable and rewarding work. Business can refer to a particular
organization or, more generally, to an entire market sector, e.g. "the music
business". Compound forms such as agribusiness represent subsets of the word's
broader meaning, which encompasses all activity by suppliers of goods and
services

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BUSINESS: [section 2(9)]
According to Income Tax Ordinance 2001, the term business includes:
Trade:
Trade means selling of goods for the purpose of making profit which a trader has
purchased or manufactured.
Manufacturing:
It means to work upon something by hand or machine as to convert it into a form
which has greater value to consumers.
Example: convention of wooden piece into a chair etc.
Commerce:
It includes all the institutions and activities which are helpful in transferring goods
from the place of productionto the ultimate consumer.
Example: Transportation, banking, insurance and advertising etc.

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Profession or Vocation:
Services rendered on the basis of manual skill or specialized knowledge and
experience in a particular field is known as professionor vocation.
Example: Doctors, engineer, accountant and carpenters etc.
Concern:
Any regulated system of the management of an organization which has an
adequate degree of trade, commerce and manufacturing
Adventure:
Any transaction is termed as an adventure in the nature of trade if some elements
of trade are present therein.
NOTE:The business does not include employment.
Types of Business:
1) Speculation Business
2) Non-Speculation Business
Speculation Business: Sec 2 (61)
Speculation is a method of short-term investing whereby traders essentially bet on
the direction an asset's price will move. It means a business in which a contract for
the purchase of any commodity (including stock and share) is periodically or

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ultimately settled otherwise that by actual delivery or transfer of the commodity.
Income from Speculation businesses is treated as separate block of income.
Investment decisions based on the hope and expectation there will be a profit, but
no firm evidence that this will be the case. As a general rule, the more speculative
the venture, the greater the reward should be, commensurate with the risk taken.
But does not include
A) A contract in respect of raw material or merchandise is entered into by a
person in the course of a manufacturing or mercantile business to guard
against loss through future price fluctuations for the purpose of fulfilling the
person’s other contract for the actual delivery of the goods to be
manufactured or merchandise to be sold;
B) A contract in respect of stocks and share is entered into by a dealer or
investor therein to guard against loss in the person’s holding of stocks and
shares through price fluctuation; or
C) A contact is entered into by a member of forward or stock exchange in the
course of any transaction in the nature of jobbing or arbitrage to guard
against any loss which may arise ordinary course of the person’s business as
such member.
Explanation:
Jobbing:
Jobbing is a function of a jobber who works at a stock exchange for the buying
and selling of securities, bonds and shares
Arbitrage:
Arbitrage is the practice in which a person buys goods, securities, bonds,
shares or foreign money, etc. from a place at low price for the purpose of selling
them at another place where the price is higher.

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How it works/Example:
Technically, anyone who buys or shorts a security with the expectation of a
favorable price change is a speculator. For example, if a speculator believes XYZ
Company stock is overpriced, they may short the stock, wait for the price to fall,
and make a profit. It's possible to speculate on virtually every security, though
speculation is especially concentrated in the commodities, futures, and derivatives
markets.
Taxability of Speculation Business [Section 19]
The provision regarding the taxability of speculation Business is as under:
A) Speculation Business shall be treated as distinct and separate from any other
business carried on by the person;
B) Profits or gains from the speculation business and other business of the
personare computed separately;
C) The principles of apportionment of expenditures ( Section 67) shall be
applied as the profit and gains arising from a speculation business are
considered as separate head of income;
D) Any profit and gains arising from the speculation business for a tax year
shall “income from business” for the year; and
E) Any loss of the person, arising from the speculation business, for a tax year
shall be dealt with under Section 58. It means that the loss from speculation
business can only be set off against the income of any other of speculation
business carried on by person.
Income from Business
 Taxable Business Income
 Exempt Business Income
 Admissible Deduction for Business Income
 Inadmissible Deduction for Business Income

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Taxable Business Income
1) Rent received on furniture and fittings
2) Rent on any movable property
3) Income from fish catching business
4) Income from poultry farm
5) Income from stud farm
6) Income from timber business
7) Royalties on professional books
8) Income from photo state machine
9) Profit and gain of ordinary business
10) Income from Trade association
11) Income from tangible movable assets
12) Benefits received from business relationship
13) Management fee received
14) Profit on debts received by financial institution
15) Income from leasing business
16) Income from distribution by manual funds
17) Income from any other business
18) Income from Yarn Business
19) Income from fruit processing business
20) Income from lending out agriculture machinery

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Exempt Income from Business
1) Income of any university
2) Income of any other educational institution
3) Income from computer training institution
4) Income of export of computer software and related services
5) Agriculture Income
6) Income of any non profit making institution
7) Profit on debts of hub power company
Admissible Deduction for Business Income
A) General Principle for Deductions
B) Special Provisions for deductions
A) GeneralPrinciple for Deductions
For computation of income under the head “Income from Business”
certain expenses and allowances are allowed as deduction. Four
specially mentioned major categories are:
I. Expenses incurred for the purposeof business;
II. Loss on Animal used for business ( other than stocks)
III. Depreciation and amortization of assets, etc; and
IV. Amalgamation expenses incurred by an amalgamated company.
Expenses incurred for the purpose of business;
a) Any expenditure incurred by a person during the tax year is
allowable as deduction if it relate to the business.
b) If the expenditure is not incurred wholly for the business, then
only fairly related proportion shall be allowed for deduction.
Example:
a) Salaries given to employees
b) Loss of animals in the business due to death of animals
c) Financial expense e.g. interest
d) Rent for premises used for business

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e) Any tax, cess, charge or rate ( other than the income tax)
paid in connection with the business or any of its assets
f) Expenditures incurred on training of employees
g) Repair charges of any asset used for business
h) Insurance premium paid for insuring the asset
i) Actual amount of bad debts
j) Any other expenditure incurred wholly and partly for
business
Animals used for business [20(1A)]
If animals which have been used for the purposes of business of profession
otherwise than as stock-in-trade and have died or become permanently useless for
such purposes, the difference between the actual cost to the taxpayer of the animals
and less the amount, if any, realized in respect of the carcasses or animals, will be
allowed as deduction.
Example
Actual costof the animals to the taxpayer 1,00,000
Less: amount realized in respectof carcasses oranimals 4,000
Amount allowed as deduction 96,000
Depreciationand Amortization on assets [20(2)]
As per Income Tax Ordinance Depreciation and Amortization is allowed regarding

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a) Depreciable assets;
b) Intangible with useful life of more than one year; and
c) Pre-commencement expenditure.
Amalgamation Expenses [20(3)]
Any expenditure made by amalgamated company is allowed as a deduction.
These expenses may be;
a) Legal expenses;
b) Financial advisory services; and
c) Other administrative costs relating to planning and implementation.
B) Special Provisions for deductions [ sec 25]
Pre-commencementexpenditure:
 A person shall be allowed a deduction cost for any pre commencement
expenditure in accordancewith the rules.
 Pre-commencement expenditure shall be amortized on a straight-line basis
at the rate of 20% as specified Part –ΙΙΙ of the Third Schedule.

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 The total deduction allowed under this section in the current tax year and
all previous tax years shall not exceed the amount of expenditure in the tax
year in which it is incurred.
 Scientific research expenditure:
1) A person shall be allowed a deduction for commencement expenditure
incurred in Pakistan in tax year wholly and exclusively for the purpose of
deriving income from business chargeable to tax.
2) “ Scientific research expenditure” means any expenditure incurred by a
person on scientific research, including any contribution to a Scientific
research institution to undertake Scientific research for the purpose of
developing the person’s business, other than the expenditure incurred:
a) in the acquisition of any depreciable asset intangible;
b) in the acquisition of moveable property; or
c) For the purpose of ascertaining the existence, location, extent of quality
of a natural deposit
Employees Training and facilities:
A person shall be allowed a deduction for any expenditure (other than any capital
expenditure) incurred in tax year in respectof:
a) Any educational institution or hospital in Pakistan established for the benefits
of employees and their dependents.

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b) Any institute in Pakistan established for the training of industrial worker
recognized, aided, run by the Government.
c) The training oh any person, being a citizen of Pakistan, in connection with a
scheme approved by the Board.
Profit on debts, financial costs and Lease payment:
1) According to income tax ordinance the following deduction are allowed for a
tax year:
a) Any profits on debt paid by a person in the tax year to the extent that
proceed of the debt have the used by the person for the purpose of the
business.
b) Any amount paid by a person in the tax year to a Modaraba or a
Participation Term Certificate holder for any fund borrowed and used by
the person for the purposeof business
c) Any amount paid by a scheduled bank in the tax year to a person
maintaining a profit or loss sharing account or a deposit with the bank as
the distribution of profit by the bank in respectof the account or deposit
d) Any amount paid in the tax year to the State Bank of Pakistan as the
share of the bank in the profits derived by the corporation on investment
made in the small business.
e) Any amount given by a person in the tax year to a banking company
under a scheme of Musharika representing the bank’s share in the profit
of the Musharika.
2) Where any asset is transferred by an originator as a consequence of
securitization to a special purpose vehicle, it shall be treated as financing
transaction irrespective of the method of accounting adopted by the originator
3) Bad Debts
1. A person shell be allowed a deduction for a bad debt in a tax year if the
following conditions are satisfied
a) The amount of debtwas previously included in the persons income from
business chargeable to tax
b) The debt or part of the debt is written off in the accounts of the personin
the tax year
c) There are reasonable grounds for believing that the debt is irrecoverable.

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2. The amount of the deduction allowed to a person under this section for a tax
year shall not exceed the amount of the debtwritten off in the accounts of
the person in the tax year.
Provisionregarding consumerloan:
a) Non-banking finance company or the house building the finance corporation
shall be allowed a deduction, not exceeding 3% of income for the tax year,
arising out of consumer loan for the creation of a reserve to off-set bad debt
arising out of such loans.
Transferto Participatory reserve:
1) A company shall be allowed a deduction in a tax year for any amount
transferred by the company to a participatory reserve created under
section 120 of the Companies Ordinance 1984, in accordance with an
agreement relating to participatory redeemable capital between the
company and a banking company.
2) The deduction allowed for a tax year shall be limited to 5% of the value
of the companies’ participatory redeemable capital.
3) No deduction shall be allowed if the amount of tax exempted
accumulation in the participatory reserve exceeds 10% of the amount of
the participatory redeemable capital.

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Solved problem:
Mr. Zahid has a taxable salary of Rs. 3, 60,000/- during the year.
Business concern:
He was also running a Manufacturing concern of which the annual sales were
Rs.80, 00,000/-. The Gross profit was 25% of the annual sales. Following are
further details regarding expenses of this business:
Sr.# EXPENSES TOTAL TRANSACTION MODE OF
PAYMENT
1. Utility bills 80,000 5,000 Cash
40,000 Cross cheque
5,000 Cross cheque
30,000 Cash
2. Donation to
unapproved
institution
20,000 8,000 Cross cheque
12,000 Cross cheque
3. Building repair 60,000 5,000 Cross cheque
5,000 Cash
20,000 Cross cheque
30,000 Cash
4. Machinery repair 40,000 15,000 Cash
5,000 Cash
5,000 Cross cheque
15,000 Cross cheque
5. Rent paid of house
used for personal
purpose
20,000 12,000 Cash
8,000 Cash

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Find out tax liability of Mr.Zahid
SOLUTION:
Income from salary 3, 60,000
Income from Business:
Sales 80, 00,000
Gross Profit 80,000@ 25% 20, 00,000
LESS: Admissible Deductions
Utility Bills 80,000
Building Repair 30,000
Machinery Repair 40,0001,50,00018,50,000
TOTAL INCOME
22,10,000
Tax Calculation
Initial tax 1, 47,500
Add
(22, 10,000-15, 00,000)@20% 1, 42,000
2, 89,500
Notes:
1. Utility bills can be paid in cash or cheque as are exempt from being paid
through cross cheque.
2. Donations to unapproved institution are not admissible.
3. Rent paid of house used for personal purposeis not admissible.

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Deductions Not Allowed [Section21]
According to Income Tax Ordinance the following deductions shall not be allowed
in computing the income of a person chargeable to tax under the head “Income
from Business”
Tax Levied on Profits or Gains:[Section21(a)]
Any cess, rate or tax paid or payable by the person in Pakistan or a foreign country
that is levied on the profits or gains of the business or assessed as a percentage on
the basis of such profits or gains.
Tax Deductedat Source [Section21(b)]
Any amount of tax deducted from an amount derived by the person as salary or
dividend or profit on debt, is not allowed as deduction.
Payment Subject to Deduction of Tax [section21(c)]
Any salary, rent, brokerage or commission and profit on debt paid to non-resident
for his services rendered from which the person, making the payment, is required
to deduct tax under the provisions of the Ordinance and has made the payment
without the deduction of tax, is not allowed as deduction.
Entertainment Expenditures [Section21(e)]
Any entertainment and expenditure in excess of prescribed limit or in violation of
such condition, is not allowed as deduction.
Contribution to any Unapproved Fund [21(e)]
Any contribution made by the person to a provident fund or a pension fund or
superannuation fund or gratuity fund, which is not recognized or approved, is a not
allowed deduction.
Payment from Fund Chargeable to Tax:[Section21(f)]
Any contribution made by the person to any provident or other fund established for
the benefit of employees of the person, unless the person has made effective
arrangements to deduct tax from any payment made from the fund in respect of
which the recipient is chargeable to tax under the head “Salary”.

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Fine or Penalty [Section21(g)]
Any fine or penalty paid or payable by the person for the violation any law, rule or
regulation, is not considered as business expense.
PersonalExpenditure [21(h)]
Any expenditure incurred by the person for the private purpose is not considered as
deduction allowed.
Transferto Reserve Fund [21(i)]
Any amount while distributing the profit of a company, carried to a reserve fund
capitalized in any way is not allowed as deduction.
Rewardof Members of AOP [21(j)]
Any profit on debt, brokerage, commission, salary or other remuneration paid by
an association of person to the member of the association is not deductible for the
computation of taxable profit.
Any Expenditure Exceeding PrescribedLimit [21(l)]
Any expenditure under a single account had exceeding Rs.50000 in aggregate shall
be inadmissible if the payment ids not made through a crossed cheque or a bank
draft. However, this provision shall not be applicable to:

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 Utility bills.
 Postage.
 Single transactions not exceeding Rs.10000
 Payments on accountfreight charges
 Travel Fair
 Any account credited by direct transfer to an employee’s bank account for
reimbursement of expenses incurred on behalf of the tax payer
Salary exceeding prescribed [sec 21(m)]
Any salary paid or payable exceeding Rs.15000 per month other than by a crossed
cheque or direct transferred of funds to the employee’s bank account.
Capital expenditure:
Any expenditure of capital nature paid or payable except depreciation allowance,
amortization of intangibles and pre-commencement expenditure etc
Any provision against the profits of the business e.g. provision for bad debts
Any donation to an unapproved institution
Any expenditure of a capital nature.

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Tax required to be deduct but not
 Salary
 Rent
 Brokerage or commission
 Profit on debt
 Payment to non-resident
 Payment for services or fee paid by the person
 Solved Example:
The profit and loss account of Mr. Jaffar for the tax year is as under:
Rent of office building 6,00,000 Gross profit 30,00,000
Reserves for doubtful
debts
20,000 Bad debts recovered 8,000
Salary to staff 8,80,000 Income from
property
3,00,000
Personal expenses of MR.
Jaffar
28,000
Legal consultant fee 40,000
Bad debts 7,000
Repair of building 68,500
Contribution to
unrecognized provident
fund
40,000
Depreciation on building 12,000
Net profit 16,12,500
Total 33,08,000 Total 33,08,000
Salary of Rs. 2, 00,000 is of such nature upon which tax was required to be
deducted but not deducted.
Building repair include a payment of Rs. 20,000 which was required to be made by
cross cheque but paid by cash.

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Solution:
Income from Business
16, 12,500
Add: Inadmissible Expenses
Reserves for doubtfuldebts 20,000
Salary upon which due deduction was not done 2, 00,000
Personal expenses 28,000
Building repair transaction required to be done
By cross cheque but made by cash 20,000
Contribution to un recognized provident fund 40,0003, 08,000
TAXABLE INCOME
19, 20,500
Tax on NTR:
Initial 1, 47,500
Add:
(19, 20,500-15, 00,000) @ 20% 84,100
Tax payable 2, 31,500
Minimum tax on the income of certain persons (section 113):
This section shall apply upon:
1. A resident company.
2. An individual having turnover of fifty millions rupees or above.
3. An association of persons having turnover of fifty million rupees.

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• The above mentioned persons shall pay minimum tax @ 1% of the turnover.
• Minimum tax is to be paid if it exceeds the actual tax.
Note: For the said purposethe turnover exclude any amount which is taxed under
the FTR.
PROBLEM
XYZ private limited has a taxable income of Rs. 6, 00,000/- for the tax year 2014.
Its turnover during the year was Rs 5, 00, 00,000/-. Find its tax liability.
SOLUTION:
Income tax = 6, 00,000 @ 34% = 2, 04,000
Minimum tax liability = 5, 00, 00,000 @ 1% = 5, 00,000
Income tax liability is whichever of above two is higher. Hence tax liability is Rs.
5, 00,000/-.
Minimum Taxon Builders (Section113-A):
Minimum tax is levied on income of builders arising from construction and sale of
residential, commercial or other buildings. Builders are required to pay minimum
tax @ of Rs. 25/- per Square foot actually sold or booked for sale during a year.

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Problem
M/S ABC Enterprises is an Association of Persons it is doing the business of
constructing and selling building. During the year the income from the business is
Rs. 8, 00,000/-. During the year actually M/S ABC Enterprises sold and booked
24,000 square feet of area.
Find out the tax liability of M/S ABC Enterprise:
SOLUTION:
Income from business of construction is equal to 8, 00,000
Tax on 8, 00,000
Initial........................................................... 35,000
(8, 00,000-7, 50,000) @ 15% ..................... 7,500
TotalTax 42,500
Minimum Tax Liability on Builders (Rs. 25 per square feet booked orsold)
= Square feet booked or sold x 25
= 24,000 x 25 = 6, 00,000
Minimum Tax liability of Rs. 6, 00,000 calculated being a builder is higher than of
the Normal Tax Rs. 42,500 hence tax payable is Rs. 6, 00,000.

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Collectionof Advance Tax by EducationalInstitutions:
An Advance tax @ 5% on the amount of fee paid shall be collected by the
educational institution. Dee means tuition fees and all charges. The tax is required
to be collected in the same manner as the fee is charged, The advanced tax under
this provision shall not be charged if the annual fee does not exceed Rs. 2, 00,000/-
Minimum Taxon Land Developers:
Minimum Tax has been levied in income of land developers arising from
development and sale of residential, commercial or other plots. The said
developers shall pay tax @ of Rs.50/- per square yard actually sold or booked for
sale during the year.

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Problem
M/S XYZ Enterprise is an individual which is doing the business of developing
and selling of land. During the year the income from business is Rs. 10, 00,000/-.
During the year actually M/S XYZ Enterprise sold and booked 40,000 square yards
of area.
Find out the Tax liability of M/S XYZ Enterprise.
SOLUTION:
Income from business = 10, 00,000
Tax on 10, 00,000
Initial................................................................. 35,000
(10, 00,000-7, 50,000) @ 15% ..........................37,500
Total Tax 72,500
Minimum Tax liability on land developers (Rs. 50 per square yard booked or sold):
= Square yard booked orsold x 50
= 40,000 x50 = 20, 00,000.
Minimum Tax liability of Rs. 20, 00,000 calculated being land developers is higher
than of the normal Tax Rs. 72,500 .Hence payable is Rs. 20, 00,000.

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Sales tax
Sales tax Act:
By virtue of Finance Ordinance, 1990. Sales Tax Act 1951 has been completely
substituted by a new Act known as Sales Tax (amendment act1990). This complete
change has been made in order to update the Act so that it should be able to meet
countries economy. Moreover, Government has tried to simplify the rules
regarding Sales Tax for the benefit of the tax payer or collection authorities. The
new Act became effective on 1st November 1990.
What is Sales Tax?
It means:
 The tax , additional tax, or default surcharge levied under this Act
 A fine, penalty, or fee imposed or charged
 Any other sum payable under the provision of this Act or the rules made
there under
What is output tax?
In relation to a registered person, means---
a) Tax levied under this act on supply of goods, made by the persons;
b) Tax levied under the Federal Excise Act, 2005, in sales tax made as a duty of
exercise on manufacture or production of goods;
c) Provincial sales tax levied on services rendered or provided by the person.
Output includes three types of supplies:
1. Taxable Supplies
2. Zero-Rated Supplies
3. Exempt Supplies.

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1) Taxable Supplies
It means supply of taxable goods made by an importer, manufacturer,
wholesaler and distributer.
2) Zero-Rated
Itmeans a taxable supply which is charged to tax at rate of 0% under Section4.
3) Exempt Supplies
It means the supply, which is exempted from the levy of the Sales Tax by the
Federal Government. However, it is necessary that such changes should be
notified in the official gazette.
What is input tax?
Purchases made by a registered person for business purpose such as supply of
goods, importof goods by the person tax levied under this act.
Rules for Output Tax:
Taxable Supplies:
Local taxable supplies to registered person 17%
Local taxable to non-registered person 18%
Supplies to registered persons (including the amountof sales tax) 17/117%
Supplies to non-registered persons( including the amount of sales tax) 18/118%
Supplies made for personalused 17%
Sales to wholesaler 17%
Supplies to Government hospital less than 50 bed 17%
Supplies to teaching hospital less than 200 bed 17%
Zero-Rated:
Export Sales 0%
Supplies to DTRE registered person 0%
Supplies to associated located in Export Processing Zone 0%
Exempted Supplies:
Supplies to Governmenthospital morethan 50 bed Exempt

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Supplies to teaching hospital more than 200 bed Exempt
Supplies to charitable institutions Exempt
Exempted Supplies Exempt
Free sample Exempt
Sales tax debit Add full
amount
Note: less adjustmentfor Credit Note Issued for taxable supplies fromoutput tax.
(Total Output Tax as per aboverules-Amountof Credit Note Issued ×17%)
Rules for Input Tax
Purchases fromregistered person (purchases againsttaxinvoices) 17%
Purchases from non-registered person (purchases against commercial
invoices)
Nil
Purchases fromwholesaler 17%
Acquisition of fixed assets fromnon-registered person Nil
Goods imported 17%
Sales tax on electricity bill (in caseof manufacturer only) allowed
Sales tax on telephone bill (in caseof manufacturer only) allowed
Sales tax of sui gas bill (in caseof manufacturer only) allowed
Sales tax of sui gas bill (residential colonies) Not allowed
Water charges paid Not allowed
Sales tax credit Totally allowed
Carry forward of inputtax fromprevious month Totally allowed
Purchased of exempted goods Nil
Purchased of milk and vegetables with or without brand name Nil
Purchased of syrups /ice creamflavor imported 17%
Acquisition of fixed assets from registered person(add into input tax
after adjustmentof input tax)
17% of cost
Note:
 Tax paid at import stage
In case of commercial importer importing Taxable Goods, an additional 3% tax
would be added to input tax.

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Less: Adjustment for Debit Note Issued for taxable supplies from input tax. (Total
InputTax as per above rules-Amountof Debit Note issued× 17 %)
 As per section 8b (1) input tax is registered up-to 90% of output tax. This
section applied only to Registered Manufacturer. It does not apply to
importer.
 In case of person engaged in any Exempt Supply (Mentioned in Output Tax)
InputTax shall be adjusted as per following formula.
Total Input Tax × Taxable Supply ÷ Total Supplies
Total Supplies= Sales to Registered/Non-Registered Person + Supplies to
DTRE Registered person + Export Sales + Zero Rated Supplies + Supplies to
Wholesaler/Retailer + (Any Sales or Supplies Made for Personal use
including the Amount of Sales Tax-17/117 of such supplies) + Donation +
Free Samples + Exempt Sales + Supplies to All Hospitals
Taxable Supplies= Total Supplies – Donation – Free Samples – Exempt Sales
– Supplies to those Hospitals which are exempt fromTax – Zero Rated
PROBLEM
Compute the sales tax liability of Mr. Falak Shan, a registered manufacturer,
for the month of August2013 with the help of following information:
1 Sales to registered person Rs.
8,00,000
2
Sales to consumers (exclusiveof sales tax) 10,00,000
3
Sales to wholesalers 2,00,000
4
Advancereceived fromcustomers for taxable supplies 1,00,000
5
Exempted supplies 4,00,000
6
Sales to employees (exclusiveof sales tax) 1,50,000
7
Goods imported 5,00,000
8
Customduty paid on goods imported @20% _

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9
Federal Excise Duty on imported goods 80,000
10
Advancepaid to supplier for the purchaseof taxable goods 1,20,000
11
Fixed assets imported 7,00,000
12
Local purchases againsttax invoices 1,80,000
13
Sales tax paid on electricity bills used in factory (NTN is
printed on bill)
30,000
14
Sales tax paid on electricity bills used in residential colony
for employees
Solution
Mr. Falak Shan
CNIC:
National Tax No:
For the Month of August 2013
Computation of Sales Tax Payable
Output
Taxable Supplies
Rs. Rs.
Sales to registered person
8,00,000
Sales to consumers (exclusiveof sales tax)
10,00,000
Sales to wholesalers
2,00,000
Advanceagainst sales
1,00,000
Sales to employees (exclusiveof sales tax)
1,50,000
Total Taxable Supplies
22,50,000
Exempted supplies
4,00,000
Total turnover
26,50,000

35
InputTax
Goods imported
5,00,000
Add: Customs duty paid Rs.5,00,000@ 20%
1,00,000
Federal Excise Duty
80,000
Total
6,80,000
Rs.6,80,000@17%
1,15,600
Advanceagainst purchases
Rs.1,20,000@17%
20,400
Local purchases againsttax invoices
Rs. 1,80,000 @17%
30,600
Sales tax paid on electricity bills
30,000
Total InputTax
1,96,00
Sales tax on import of fixed assets
Rs. 7,00,000 @17%
1,19,000
Apportionment of Input Tax
Turnover Input Tax Input Tax on
Fixed Assets
Total Taxable supplies
Rs. 8,00,000 +10,00,000 +
1,00,000+1,50,000+2,00,000 22,50,000
1,66,925 1,01,038
Exempt Supply
4,00,000 29,675 17,962
Total
26,50,000 1,96,600 1,19,000

36
Sales Tax Liability
Output Tax (Rs. 22, 50,000 @ 17%)
Less: Inputtax adjustment
Rs.3,82,500
(1,66,925)
2,15,575
(Restricted up to 90% of output tax Rs. 3,82,500 @ 90% =
Rs. 3,44,250
Inputtax is well within limits, so allowed)
Less input tax on fixed assets
1,01,038
Sales Tax Liability payable
1,14,537
Notes:
1. According to Finance Act, 2013 advance against sales and purchases
is subjectto sales tax in the month in which advancewas received.
2. Adjustment of input tax on assets imported is allowed without any
restriction.
3. Section 8B (1) shall apply in this case.
4. Sales tax paid on electricity bills for residential colony is not allowed
5. Further tax is not applicable on supplies to end consumer and,
therefore, no further sales tax is charged on supplies to employees.

37
Bibliography:
Our group made an honorable work for this project. We
have got return of Income from Business from Income
Tax Office Jhang Sadar. Business related to Gabrail Kahi
Khupa Zangir Farosh. We also got the return of Sales Tax
– MonthlySales Tax Declaration. Sales Tax payer’s name
is Ghous Cotton Company.
We have also got some material about our topic Income
from Business from B.com syllabus referred by Muazzam
Mughal , Zulfiqar Bowra Ahmad M.com syllabus book,
Wikipedia site and from Income Tax Ordinance 2001.
Our group has done very good efforts for performance of
this report. All the members are very co-operative

38

Income from Business

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