3. INTRODUCTION
All kinds of income, which are not specifically covered within any of these head of
income i.e. Salary, Income from property, Income from Business, or Capital Gains,
covered under the head of Income from Other Sources.
4. RELEVANT PROVISIONS
Section 39 and 40 of Income Tax Ordinance’ 2001.
Section 2(1), 2(19), 2 (46), 2(54), 89, 111, 151, 152 of Income Tax Ordinance’ 2001.
Part I of Second Schedule of Income Tax Ordinance’ 2001.
5. INCOME FROM OTHER SOURCES U/S 39
Every revenue receipt ( other than exempt shall be taxable under the head “ Income
from other sources” received by a person in a tax year if it is not included in any
other head including the following:
a) Dividend.
b) Royalty.
c) Profit on debt.
6. INCOME FROM OTHER SOURCES U/S 39
Dividend:
Defined in sec. 2(19) and includes distribution of “accumulated profit [sec.2(1)]” to
shareholders of shares and debentures etc.;
Taxable under Final Tax Regime in respect of all taxpayers;
Various dividends are exempt from levy of tax under part I of second schedule that
include the following:
Distribution received from Mutual Trust Funds [Clause (103)];
Inter-Corporate Dividend [Clause (103-A)];
7. INCOME FROM OTHER SOURCES U/S 39
Royalty;
Defined under section 2(54) of the Ordinance:
Royalty payments of non-resident person are chargeable to tax under Final Tax Regime
on gross receipt basis at the rate unless a lower rate is provided in double taxation
treaty, therefore, royalty income of only resident persons is covered under this head of
income.
Section 89 of the ordinance provides relief specifically to the authors of library or artistic
work. In terms of this section, their royalty income may spread in 3 preceding years and
subjected to lower tax rates, if the work has been completed in more than 24 months
8. INCOME FROM OTHER SOURCES U/S 39
Example:
Mr. X.Y.Z, a renowned author, completed his book “ Law of Taxation” in two and a
half years time. He received a lump sum amount of Rs. 825,000 in May 2017 as
royalty. According to the provisions of section 89, he can spread the amount of
Rs.825,000 over three years in equal proportions i.e. 275,000in each tax year
starting from years 2017 to preceding two tax years 2016 and 2015.
9. INCOME FROM OTHER SOURCES U/S 39
Profit on debt:
Defined in sec. 2(46) of the Ordinance and includes
Any profit yield, interest, discount, premium, or other amount owing under a debt, any
service fee or other charge in respect of a debt etc. Doesn’t include return of capital.
Deductions at source u/s 151:
Yield on National Savings Deposit Certificates,
Profit on debt paid by a banking company or financial institution, being an account or
deposit maintained by the company
10. INCOME FROM OTHER SOURCES U/S 39
Deductions at Source:
Profit on any security paid by Federal or Provincial govt.
Profit paid by the companies specified in Sec.80 or finance societies o bonds, debentures,
certificates etc.
This section does not apply to any profit on debt that is subject to Sec. 152(2) of the
Ordinance.
Exemption:
sub/section 46 profit on debt received by a non-resident from the security
issued by a resident person is exempt from levy of tax.
11. EXEMPTIONS
Under Part I of Second schedule of Income tax Ordinance, the following exemptions in
respect of “profit on debt”:
Profit on debt payable to a non-resident
Profit on debt derived by Hub Power Co. Ltd.
Income of certain non-residents including any agency of a foreign government, a
foreign national approved by federal Govt.
Foreign Currency Accounts
12. EXEMPTIONS (CONT….)
Bank Accounts for foreign exchange remittance,
Incomes derived from a foreign currency account,
Encashment of Foreign Currency Bearer Certificates,
Federal Govt. Securities,
Moneys borrowed by an industrial undertaking
13. INCOME FROM OTHER SOURCES U/S 39
Other incomes chargeable to tax u/s 39
Additional payment on delayed refund under any tax law;
Ground rent;
Rent from the sub-lease of land and a building;
Income from the lease of a building with plant and machinery;
The taxpayer will be entitled to depreciation allowance, any amount paid for current
repairs and any premium paid.
Income from provision of amenities, utilities, or other services, connected with renting of
buildings;
14. INCOME FROM OTHER SOURCES U/S 39
Any annuity or pensions;
Any prize bond or winning from raffle, lottery or cross word puzzles, quiz or prize
offered for promotion of sales;
Any amount received as consideration for exploitation of property including from
grant of a right to explore or exploit natural resources;
The fair market value of any benefit, whether convertible to money or not received
in connection with provision, use, exploitation of property;
15. Any amount received as consideration for vacating the possession of a building or
part thereof;
Any amount received from Approved income Payment Plan, or Approved Annuity
Plan under Voluntary Pension System Rules;
Income arising to the shareholder of a company, from issuance of bonus shares.
Loan, advance, deposit, (for issuance of shares or gift by a person (in a tax year)
from a person (not being any banking and financial institution, otherwise than a
cross cheque from a person, holding an NTN shall be treated as income chargeable
under this head.
16. ADMISSIBLE DEDUCTIONS U/S 40
The chargeable to tax under this head shall be conducted after making following
deductions:
I. Any expenditure paid by the person in the year to the extent to which the
expenditure is paid in deriving income chargeable to tax under that head other
than the expenditure of a capital nature;
II. A person receiving any profit on debt chargeable to tax under this head shall be
allowed a deduction for any Zakat paid under Zakat and Usher Ordinance’1980,
at the time profit is paid to the person;
