Income Tax Notes for September 2023.pdfd

CAF –02
Tax Practices
Notes for September 2022 attempt
IncomeTax

2
Syllabus
5-10%
10%
60-75%
20-30%
5%
75%
60%
20%
30%
70
80
30
35
10
15
Teaching Hours
Chapter 1 –3 Chapter 4 –16 Chapter 17 –19

3
Table of Contents
1.System of taxation in Pakistan
2.Constitutional provisions on taxes
3.Ethics
4.Basic concepts of taxation
5.Salary
6.Income from property
7.Income from business
8.Capital gains
9.Income from other sources
10.Losses,deductible allowances,tax credits and exemptions
11.Taxation of individual and association of persons
12.Tax Regimes

4
System of Taxation in Pakistan
1.History of tax laws
2.Objectives of tax laws
3.Tools of taxation and Tax strategies
4.Basics of taxation
5.Principles of levy
6.Characteristics of tax laws

5
History of Tax Laws
1.Income Tax Act 1860 repealed in 1865
2.Income Tax Act 1886
3.Income Tax Act 1918
4.Super Tax Act 1917
5.Super Tax Act 1920
6.Income Tax Ordinance 1979
7.Income Tax Ordinance 2001
consolidated into Income Tax Act 1922

6
Objectives of Tax Law
Tax Law Objective
Tax on salary income Revenue Collection
Any amount transferred otherwise than banking channel will be
deemed as income
Documentation of economy
Tax on moveable assets of the taxpayersFair distribution of wealth
Higher taxes on import of luxury goodsReduction in imports of unnecessary goods and create good balance of
trade
Allow ability of expenditure of research & developmentsPromotion of research & developments
Zero rating on Exports Promotion of Exports
Tax credit on Donations to approved institutionsTo promote culture of payment of donation to only organisedand
regulated institutions
Tax credit on investments Promote investments in listed companies
Tax exemptions to software exports Promote software Industry
Revenue
Non revenue
Development

7
Tools of Taxation
1.Tax Structure
2.Exemptions
3.Tax Concessions
4.Deductible Allowances
5.Tax Credits
6.Rebates
a)Proportional
b)Regressive
c)Progressive

8
Basics of Taxation
1.Equality
2.Certainty
3.Convenience of Payment
4.Economy of Collection

9
Principles of Levy
1.Benefit Principle
2.Ability to Pay Principle
3.Equal Distribution Principle

10
Characteristics of Tax Laws
1.Enforced contribution
2.Payable in cash
3.Proportionate in character
4.Levied on income / transaction / property
5.Levied by state having jurisdiction
6.Levied by law making body of state
7.Levied for public purposes
8.Fiscal adequacy
9.Equality >>>ability of citizen to pay
10.Administrative feasibility
11.Consistency with economic goals

11
Constitutional Provisions on Taxes
2.Annual Budget Statement (ABS)
3.Budget Approval Process
4.Supplementary Budget
5.Distribution of Revenues among Provinces
6.Legislative list
1.Federal & Provincial Government
The Constitution of The Islamic Republic of Pakistan 1973

12
Federal & Provincial Government
Parliament
Majlis-e-Shora
President
Senate
(Upper House)
National Assembly
(Lower House)
Province
General Women
Non
-Muslim
Total
Balochistan143 17
KPK 358 43
Punjab14835 183
Sindh 6114 75
ICT 2 2
FATA 12 12
1010
Total 2726010342
Province
General
Technocrats /
Ulema
Women
Non
-Muslim
Total
Balochistan14 4 41 23
KPK 14 4 4 1 23
Punjab 14 4 4 1 23
Sindh 14 4 4 1 23
ICT 2 1 1 4
FATA 4 4
Total 62 17 174 100
Prime Minister
Minister AMinister BMinister C
Cabinet
FederationProvince
Rules
Act
Constitution of Pakistan
Regulations
Relevant
Department
(FBR)
Law
Federal
Consolidated Fund
Provincial
Consolidated Fund
Prime
Minister
Chief
Minister

13
Revenue Collection
Exchequer
(Federal Consolidated Fund)
Inflows Outflows
Income Tax
CVT
WWF
Sales Tax
FED
Custom Duty
Deficit
Loans & Grants
Capital Receipts
Revenue Receipts
Non Tax Receipts
Tax Receipts
Other Taxes
FBR
Taxes
Indirect
Tax
Direct Tax
External Receipts
Internal Receipts

14
Spending
Exchequer
(Federal Consolidated Fund)
Inflows Outflows
Expenditure Charged upon Federal Consolidated Fund [Article
-81]
Remuneration
Any other sum declared by Constitution OR
Majlise
-
shora
Sums required to satisfy any judgement
against Pakistan, by any Court or Tribunal
Debts Payable by Federal Govt.
Office Expenses/AdmnExpenses,
remuneration of officers and
servants
President
Judges of Supreme Court and Islamabad High
Court
Chief EelectionCommissioner
Speaker, Deputy Speaker of National Assembly
Chairman, Deputy Charimanof Senate
Auditor General of Pakistan
O
A

15
Budget Approval Process
National Assembly (NA)
-Annual Budget Statement (ABS) placed
before NA
-ABS is open for discussion
-No voting required
-After discussion, a Schedule of
Expenditure (SOE) will be prepared
-SOE will be signed by Prime Minister
-Signed SOE will again be presented to NA
-This time SOE is not open for discussion
-Budget is approved
Senate President
•A head of expenditure is called “Grant”
•Every grant should be recommended by
Federal Government
Finance Bill
Finance Act

16
Supplementary Budget
National Assembly (NA)
-Supplementary Budget Statement (SBS)
placed before NA
-SBS is open for discussion
-No voting required
-After discussion, a Schedule of
Expenditure (SOE) will be prepared
-SOE will be signed by Prime Minister
-Signed SOE will again be presented to NA
-This time SOE is not open for discussion
-Supplementary Budget is approved
Senate President
Finance Supplementary Bill
Finance Supplementary Act

17
Distribution of Revenues among Provinces
•Balochistan•KPK
•Sindh•Punjab
-Provincial
Finance Minister
+
-Any other person
with consultation
of Governor
-Provincial
Finance Minister
+
-Any other person
with consultation
of Governor
-Provincial
Finance Minister
+
-Any other person
with consultation
of Governor
-Provincial
Finance Minister
+
-Any other person
with consultation
of Governor
Federal
Finance
Minister
President shall constitute
National Finance Commission
(NFC)
which will finalize
NFC Award

18
Legislative List
Federal legislative list:
1.Duties of customs, including export duties.
2.Duties of excise, including salt, but not including alcoholic liquors, opium or other narcotics;
3.Taxes on income other than agricultural income;
4.Taxes on corporations.
5.Taxes on the sales and purchases of goods imported, exported, produced, manufactured or consumed, except sales tax on services.
6.Taxes on the capital value of the assets, not including taxes on immovable property.
7.Taxes on mineral oil, natural gas and minerals for use in generation of nuclear energy.
8.Taxes and duties on the production capacity of any plant, machinery, undertaking, establishment or installation in lieu of any one or more of them.
9.Terminal taxes on goods or passengers carried by railway, sea or air; taxes on their fares and freights.
Province can legislate all taxes, other than above, such as:
1.Sales tax on services
2.Taxes on transfer of immoveable property
3.Professional tax
4.Tax on luxury houses
5.Tax on registration of luxury vehicles etc.
6.Property tax

19
Ethics
Legislator Administrator Practitioner
•Fairness
•Transparency
•Equity
•Accountability
Responsibilitesof Tax Administrators
•Obey taxation laws, no undue favors to tax payer
•Honesty and integrity to maintain respect of Govtand Taxpayer
•Impartial, fair, neutral and consistent in administingtax laws, without any prejudicto to
race, social status, economic circumstances
•Provide prompt, efficient and quality services to taxpayer
•Refrain from actively participating in political activities
•Accuracy of records and its confidentiality
•Refrain from soliciting gifts
•Make reasonable efforts to collect proper amount of tax at lowest possible cost
•Diligently respond to valid tax refund claims
•Educate Taxpayer on their rights and responsibilities
Tax Payer
Canons of Taxation-(by
Adam Smith)
•Canon of Equity
•Canon of Certainity
•Canon of Convenience
of Payment
•Canon of Economy of
Collection
Additional Canons
•Canon of Productivity
•Canon of Elasticity
•Canon of Flexibility
•Canon of Simplicity
•Canon of Diversity
Whistle Blower
•Integrity
•Objectivity
•Confidentiality
•Professional
Behavior
•Professional
Competence &
Due Care
•Utilitarianism
•Deontology
•Virtue ethics
ICAP Code of Ethics
Tax Avoidance vs
Tax Evasion

20
Ethics
Tax AvoidancevsTax Evasion
-Tax avoidance is generally the legal exploitation of the tax regime to one's own
advantage, to attempt to reduce the amount of tax that is payable by means that are
within the law whilst making a full disclosure of the material information to the tax
authorities.
Examples of tax avoidance;
(i)using tax deductions
(ii)changing one's business structure through incorporation or
(iii)establishing an offshore company in a tax haven.
-Tax evasion is the general term for efforts by individuals, firms, trusts and other
entities to evade the payment of taxes by illegal means.
-Tax evasion usually entails taxpayers deliberately misrepresenting or concealing
the true state of their affairs to the tax authorities to reduce their tax liability,
and includes, in particular, dishonest tax reporting.
Examples of tax evasion;
(i)under declaring income, profits or gains; or
(ii)overstating deductions.

21
Ethics
ICAP Code of Ethics
Threats which may arise;
-Advocacy Threat
-Self Review Threat
Factors to evaluate level of threat;
-The particular characteristics of the engagement
-The level of tax expertise of the client’s
employees.
-The system by which the tax authorities assess
and administer the tax in question and the role of
the firm or network firm in that process
-The complexity of the relevant tax regime and the
degree of judgment necessary in applying it
Usually, no threat is created from following work;
-Assisting clients with their tax reporting obligations
by drafting and compiling information, including the
amount of tax due required to be submitted to the
applicable tax authorities
-Advising on the tax return treatment of past
transactions and responding on behalf of the audit
client to the tax authorities’ requests for additional
information and analysis (for example, providing
explanations of and technical support for the
approach being taken
All Audit Clients
Materiality of amounts should be considered. Threats
which may arise;
-Advocacy Threat
-Self Review Threat
Audit Clients that are Not Public Interest Entities
Safeguards:
-Using professionals who are not audit team members
-Having an appropriate reviewer who was not involved
in providing the service
Audit Clients that are Public Interest Entities
A firm or a network firm shall not prepare tax
calculations of current and deferred tax liabilities (or
assets), if it is material.

22
Ethics
Whistle Blower
Whistle blower means a person who reports
-concealment or
-evasion of income tax
leading to detection / collection of
-Taxes
-Fraud
-corruption or
-Misconduct To the competent authority having power to take action against
-the person or
-an income tax authority
committing

Basic Concepts of Taxation
1.Tax Year
2.Types of Person
3.Residential Status
4.Tax Regimes
5.Common Rules
6.Geographical Source of Income
7.Important Definitions
a)Public Company
b)Private Company
c)Non Profit Organization
d)Small & Medium Enterprise
e)Small Company
f)PermanantEstablishment
g)Women Enterprise
23

24
1. Tax Year [S-74]
Time Bracket
Normal Tax Year
(NTY)
End date is other
than 30
th
June
End date is 30
th
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 YearSRO Ref
Sugar Manufacturing1st October -30th September134(R)/68,
July 31,1968
Rice Exporter1st January -31st December367(I) /74,
January 14,1974
Insurance1st January -31st December878 (I) /95,
August 30,1995

25
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

26
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

27
2. Type of Person
a)Tax Payer [S-2(66)]
b)Person [S-80]

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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

29
b) Person [S-80]
Following shall be treated as person;
i.Individual
ii.Companyformed in Pakistan or elsewhere
iii.AOPformed in Pakistan or elsewhere
iv.Federal government
v.Foreign government
vi.Political subdivision of foreign government
vii.Public International Organization

30
Company means following
i.Company as defined in Companies Act 2017
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

31
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”

32
3. Residential Status
a)Resident Individual
b)Resident Company
c)Resident AOP

33
a) Resident Individual [S-82]
i.Not based on Nationality, based on Physical Presence in Pakistan
ii.Government servant posted abroad will be treated as resident, irrespective of his physical stay in Pakistan
iii.Citizen of Pakistan, present in one foreign country
iv.Citizen of Pakistan, who is not resident taxpayer of any other country, will be treated as resident
v.Counting of days shall be made in accordance with Rule-14 of Income Tax Rules, 2002
0 –182 days183 daysor more
Non ResidentResident
0 –182 days
Resident

34
Rule-14 of Income Tax Rules, 2002
Days notto 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

35
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 whollyin
Pakistan at any time in a Tax
Year

36
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

37
Residential Status Practice
i.Mr.RazaisworkingasDirectorOperationsintheMinistryofTourism.On15July2017hewaspostedtoPakistanEmbassyin
Italyfortwoyears.
ii.AndersonLLCwasincorporatedaslimitedliabilityCompanyinUK.Thecontrolandmanagementofitsaffairswassituated
whollyinPakistan.However,witheffectfrom01November2017,theentiremanagementandcontrolwasshiftedtoUK.
iii.On01February2018,Mr.SameelwassenttoPakistanbyhisUKbasedcompanytoworkonaspecialproject.HeleftPakistan
on23August2018.
iv.BBLisanon-listedpubliccompanyincorporatedundertheCompaniesAct2017.Alltheshareholdersofthecompanyare
individuals.ThecontrolandmanagementofaffairsofthecompanyduringtheyearwasoutsidePakistan.
v.Mr. Salman a property dealer in USA came to Pakistan on 01 February 2017. During his stay upto02 August 2017 in Pakistan,
he remained in Peshawar upto30 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 GovtEmployee
Control & Mngtin wholly in
Pak any time in TY
Stay less than 183 days
Company incorporated in
Pak
Total stay 183 days
Control & Mngtin wholly in
Pak any time in TY

38
4. Tax Regimes
1)Normal Tax Regime
2)Separate Block of Income
3)Final Tax Regime
a)Separate Taxation
b)Presumptive Tax Regime
4)Minimum Tax Regime

39
1. Normal Tax Regime
Revenue –Allowable Deductions = Taxable Income
Taxable Income x Tax Rate = Tax Imposed
Tax Imposed –Tax Credits = Tax Payable

40
2. Separate Block of Income
i.Tax rates defined for some specific incomes, which are not final tax
ii.These are income specific rates and “type of person” does not affect it.
iii.eg.Tax on Capital Gain on Immovable Property, Tax on Capital Gain on Securities etc

41
3(a). Final Tax Regime –Separate Taxation
i.Tax Imposed is final tax
ii.Income is not chargeable to tax under any Head of Income
iii.No deduction is allowed for expenditure incurred in deriving such income
iv.Not Allowed : Set off of Losses, Deductible Allowances, Tax Credits
v.e.g., Dividend, Profit on Debt, Royalty, FFTS, FFOSDS etc

42
3(b). Final Tax Regime –Presumptive Taxation
i.Tax deducted/collected is final tax
ii.Tax deducted/collected is not refundable
iii.Income is not chargeable to tax under any Head of Income
iv.No deduction is allowed for expenditure incurred in deriving such income
v.Not Allowed : Set off of Losses, Deductible Allowances, Tax Credits
vi.e.g., Exports & Prizes and Winnings etc

43
4. Minimum Tax Regime
i.Tax already collected/deducted is minimum tax. eg.Advance tax on commercial
imports, Tax at source under section 153 etc
ii.Tax on turnover is minimum tax. eg.Minimum tax under section 113

44
5. Common Rules
a)Apportionment of Deduction
b)Recouped Expenditure [S-70]
c)Currency Conversion [S-71]
d)Cessation of a Source of Income [S-72]
e)Fair Market Value [S-68]
f)Receipt of Income [S-69]
g)Rule to prevent Double Derivation and Double Deduction [S-73]

45
a) Apportionment of Deductions [S-67 & Rule 13]
Apportionment of Deductions [S-67]
Any expenditure/deduction/allowancethat 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
continued ……..

46
a. Apportionment of Deductions [S-67 & Rule 13]
Apportionment of Expenditures Deductions and Allowances [Rule-13]
Clearly Allocable to an IncomeNot clearly Allocable to an Income
deductible/chargeable
against that particular income
Apportion on basis of following formula:
Common Expx 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
continued ……..

47
a. 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

48
b)Recouped Expenditure [S-70]
•will be treated as Income in the year of receipt.
c)Currency Conversion [S-71]
•all amounts shall be taken in Pak Rupee.
•In case of foreign currency, it will be converted to
Pak Rupee at SBP conversion rate on date when
amount is taken into account for the purpose of
Income Tax
d)Cessation of Source of Income [S-72]
•income derived before cessation of a source of
income shall be chargeable to tax as if the source
of income has not ceased
f)Receipt of Income [S-69]–Income shall be treated
as received, if:
•amount actually received by person,
•applied on behalf of person on his instructions ar
under any law
•made available to the person
g)Rule to prevent double derivation and double
deduction [S-73]
•Any income taxed on accrual basis shall not be
taxed again on receipt basis and vice versa
•Any expenditure deducted on accrual basis shall
not be taxed on payment basis and vice versa

49
e)Fair Market Value
Immovable Property
•FBR shall, from time to time,
determine FMV of immovable
property of an area, through
notification in official gazette
•If value not determined by FBR
then following shall determine
FMV
oDistrict Officer (Revenue)
oProvincial or Other Authority
authorized in this behalf for
stamp duty
•price it would ordinarily fetch on sale or
supply in the open market
•FMV shall be determined without considering
•following:
orestriction on transfer
oconvertablilityto cash
•If price not Ascertainable as above, then CIT
will determine FMV
In case of
•Property
•Rent
•Asset
•Service
•Benefit
•Perquisite
Others

50
6. Geographical Source of Income
a)Pakistan Source Income [S-2(40) & 101]
b)Foreign Source Income [S-2(27) & 101(16)]
Resident Non Resident
PakistanSource Income Taxable Taxable
Foreign Source IncomeTaxable Not Taxable
Section 11(5) & (6)

51
7. Important Definitions
Public Company [S-2(47)]
means
•a company in which 50% or more shares are held by
oFaderalGovernment OR
oProvincial Government OR
oForeign Government OR
oForeign Company owned by Foreign Government OR
•a company whoesshares are traded on a stock exchange registered in Pakistan and remained listed at end
of the year
•a unit trust a unit trust whose units are widely available to the public AND
•any other trust as defined in the Trusts Act, 1882

52
7. Important Definitions
Private Company [S-2(45)]
•means a company that is not a Public Company
Non Profit Organization [S-2(36)]
means any person other than Individual which is any of the following;
•established for religious, educational, charitable, welfare or development purposes OR
•promotion of amaturesport
•formed and registered under any law as non-profit organization
•approved by the Commissioner for specified period
AND
•none of the assets of such person are available for private benefit to any other person

53
7. Important Definitions
Small & Medium Enterprise (SME) [S-2(59A)]
means a person;
•engaged in manufacturing u/s 153(7)(iv) AND
•turnover in a TY does not exceed Rs 250 million
If turnover in TY exceeds Rs 250 million
Then it will not be an SME in that TY and in any subsequent TYs

54
7. Important Definitions
Small Company [S-2(59AB)]
means a company which fulfills all of following conditions:
•registered under Companies Act 2017, on or after 01.07.2015
•(Paid up Capital + Undistributed Reserves) =< Rs 50 million AND
•Number of employees =< 250 (at any time during tax year) AND
•Annual Turnover =< Rs 250 million AND
•not formed by splitting up OR reconstitution of a company already in existence AND
•is not a small and medium enterprise

Permanent Establishment [S-2(41)]
55
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
Fixed Place
of business,
used or
maintained
by person

56

7. Important Definitions
Woman enterprise means
•a start-up established on or after 01 July 2021as
osole proprietorship concernowned bya woman or
oan AOP all of whose members are women or
oa company whose 100% shareholding is held by women
Taxation
•Tax payable shall be reduced by 25%
•This benefit will not be available to business that is formed by
otransfer or
oreconstitution or
osplitting up of an existing business.
57

Income from Salary
Employee Employment Employer
Means any individual engaged in employment Means any person who engages and
remunerates an employee
Includes:
i.Directorship or any other office
involved in management of company
OR
ii.a position entitling the holder to a
fixed or ascertainable remuneration
OR
iii.holding or acting in any public office
3 Important Questions:
1.Geographical Source of Income
2.Basis of Taxation
3.Residential Status recently changed
58
Deciding a
Salary case

Income from Salary
1.Geographical Source of Income [S-101(1), (11) & (16)]
Employment Exercised
In Pakistan Outside Pakistan
Payment of Salary made
In Pakistan PSI FSI
Outside PakistanPSI FSI
By or on behalf of FG/PG/LG in Pakistan
PSIwherever employment is exercised
59
Pension/Annuity
Resident
FSI
PSI
PENRBorn by
Paid by

Income from Salary
2. Basis of Taxation
60
Cash BasisAccrual
[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 3
rd
party under agreement with employer or its
associate
By
(i)Past employer
(ii)Perspective employer
To
(i)Employee
(ii)Associate of employee
(iii)Any 3
rd
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
61
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 Salary
62
Deciding a Salary case:
1.Salary Definition
2.Deductions
3.Perquisites/Facilities/Benefits
4.Exemptions

Income from Salary
63
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

Income from Salary
64
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

Income from Salary
65
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

Income from Salary
66
Valuation of Accommodation [Rule-4]:
Amount that would have been paid
if accommodation was not provided
45% of MTS/Basic Salary
Higher
Taxable
Accommodation provided in mufasalareas
shall be taxable at 30% of MTS/Basic Salary

Income from Salary
67
Medical Allowance [2
nd
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 upto10% 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 upto10% of Basic Salary

68
Interest Free Loan [S-13(7) (8) & (14)]:
Income from Salary
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 uptoRs1,000,000/-
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 an asset
(generating income under any head of income)
Then employee shall be treated as having been paid
markup @ benchmark rate or actual markup paid,
which ever is higher.
Benchmark Rate = 10%

Income from Salary
69
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

Income from Salary
70
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 option & 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

Income from Salary
71
Deductions:
Section 12(4):
No deduction shall be allowed for any expense incurred by employee in deriving salary income.

Income from Salary
72
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 3
rd
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

Income from Salary
73
Perquisites/Facilities/Benefits:
1.Pension [2
nd
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

Income from Salary
74
Perquisites/Facilities/Benefits:
2. Commutation of Pension [2
nd
Sched, Pt-I, Cl (12)]
Received from Government
OR
Received from Scheme approved by FBR
Totally Exempt

Income from Salary
75
Perquisites/Facilities/Benefits:
3. Gratuity and Commutation of Pension [2
nd
Sched, Pt-I, Cl (13)]
Rs75,000/-
OR
50% of amount
(Which ever is less is exempt)
Exempt uptoRs300,000/-Totally Exempt
Un-approved Gratuity
OR
Un-approved Commutation
Gratuity & Commutation Scheme Approved
by FBR
Government Employee
OR
Approved Gratuity Fund by CIT under 6
th
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

Income from Salary
76
Perquisites/Facilities/Benefits:
4. Provident Fund [2
nd
Sched, Pt-I, Cl (23)] & [6
th
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
Rs150,000
OR
10% of (Basic Salary + Dearness Allowance)
(Lesser is exempt)
Exempt
Returns credited during
year
Return @ 16%
OR
1/3
rd
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

Income from Salary
77
Perquisites/Facilities/Benefits:
5. Tax on Salary Born by Employer [S-12(3)]
Amount of salary income shall be grossed up by amount of tax payable by employer.
Q. Mr. A has received taxable salary and allowances amounting to Rs 1,810,000 during tax year 2023. 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)Rs50,000 is to be borne by employer and balance to be borne by Mr. A
(iv)Mr. A shall pay only Rs50,000 as tax and balance tax to be borne by employer

Income from Salary
78
Perquisites/Facilities/Benefits:
5. Tax on Salary Born by Employer [S-12(3)]

Income from Salary
79
Perquisites/Facilities/Benefits:
5. Tax on Salary Born by Employer [S-12(3)]

Income from Salary
80
Perquisites/Facilities/Benefits:
5. Tax on Salary Born by Employer [S-12(3)]

Income from Salary
81
Perquisites/Facilities/Benefits:
5. Tax on Salary Born by Employer [S-12(3)]

Income from Salary
82
Perquisites/Facilities/Benefits:
6. Services provided by employer to employee [S-13(5)]
House keeper
Gardner
Driver
Other domestic assistant
Less: payment by employee to employer for these services
Salary paid to them by employerX
(X)
XTaxable

Income from Salary
83
Perquisites/Facilities/Benefits:
7. Utilities [S-13(6)]
Electricity
Gas
Water
Telephone
Less: payment by employee to employer for these utilities
Fair Market Value of utilitiesX
(X)
XTaxable

Income from Salary
84
Perquisites/Facilities/Benefits:
8. Obligation of employee waived by employer [S-13(9)]
Waived Amount Taxable
9. Obligation of employee payable to 3
rd
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 ValueX
(X)
XTaxable

Income from Salary
85
Perquisites/Facilities/Benefits:
11. Any other perquisite [S-13(13)]
Less: payment by employee to employer for perquisite
Fair MV of perquisiteX
(X)
XTaxable

Income from Salary
86
Perquisites/Facilities/Benefits:
12. Self Hiring of Property [S-15(5)]
"Income from Salary" shall include value of accommodation in accordance with Rule-4
"Income from Property" shall include rent income in accordance with Section-15(4)&(5)

Income from Salary
87
Perquisites/Facilities/Benefits:
13. Superannuation Fund approved by Commissioner in accordance with Part-II of 6th Schedule [Cl-4-6] & 2
nd
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

Income from Salary
88
Perquisites/Facilities/Benefits:
14. Benevolent Fund [2
nd
Sched, P-I, Cl-24]
Any payment in accordance with
"Central Employee Benevolent Fund & Group Insurance Act 1969"
Exempt

Income from Salary
89
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

Income from Salary
90
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

Income from Salary
91
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

Income from Salary
92
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 AGREEMENTis between FG≈Fr.GFG ≈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 any person
(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)AGREEMENTis between FG≈Fr.GFG ≈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
FG can exempt income of any
person, for any official
development assistance financed
loans and grants-in-aid

Income from Salary
93
Exemptions:
4. Perquisites without Marginal Cost to Employer [2
nd
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

Income from Salary
94
Exemptions:
5. Special Allowance [2
nd
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
Clarification:
The allowance solely expended in the performance of employee’s duty does not include;
(i) allowance which is paid in monthly salary on fixed basis or percentage of salary; or
(ii) allowance which is not wholly, exclusively, necessarily or actually spent on behalf of the employer

Income from Salary
95
Exemptions:
6. Workers’ Participation Fund [2
nd
Sched, P-I, Cl-26]
Amount received as worker, out of Workers' Participation FundExempt

Income from Salary
96
Exemptions:
7. Salary Income of Seafarer [2
nd
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

Income from Salary
97
Exemptions:
8. Allowance to person working outside Pakistan [2
nd
Sched, P-I, Cl-5]
Allowance from Govtof Pakistan
to a citizen of Pakistan
for rendering services outside Pakistan
Exempt

Income from Salary
98
Exemptions:
9. Full Time teacher/researcher [2
nd
Sched, P-III, Cl-1(2)]
Tax payable in salary shall be reduced by 25% 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 research institute
Above shall not apply to teacher of medical profession who
(i) derive income from private medical practice or
(ii) receive share of consideration received from patients

Income from Property
Owner/Landlord
Property
Land/Building
Tenant
Rent means:
Amount received/receivable
By owner of land/building
As consideration to use/occupy OR right to use/occupy the land/building
Rent includes:
Forfeited deposit on contract for sale of land/building [S-15(1)&(2)]
2 Important Questions:
1.Geographical Source of Income
2.Basis of Taxation
99
Deciding a
Property
Income case
Accrual Basis

Income from Property
1.Geographical Source of Income [S-101(9) & (10)]
100
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

Income from Property
Deciding Income from Property Case:
101
Income from Property derived by a person 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
Rent

Income from Property
Deciding Income from Property Case:
102
Rent
i.1/10
th
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:
1/10
th
of advance will be treated as Rent in
•TY of receipt &
•9 subsequent Tys
NON-ADJUSTABLEAdvance (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)

Income from Property
Deciding Income from Property Case:
103
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)]

Income from Property
Deciding Income from Property Case:
104
Allowable Deductions [S-15A]
i.Building Repair Allowance
ii.Insurance Premium-Building
iii.Rates, tax, charge, cessnot 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+sharein appreciation in value)
vii.Markup on mortgages/charges
1/5
th
of rent chargeable to tax
Paid/Payable
Paid/Payable
Paid/Payable
Paid/Payable
Paid/Payable
Paid

Income from Property
Deciding Income from Property Case:
105
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 upto4% 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 intax
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 Business
106
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 PvtEquity & venture capital fund
Banking Co. or NBFC
Skip Definition >>>
Income subject to
taxation under sections
5A, 5AA, 6, 7and 7A
shall not be chargeable
to tax under section 18
Clarification:
Income of co-operative societies
from the sale of goods, immoveable
property or provision of services to
its members is and has always
been chargeable to tax

Income From Business
107
Important Question:
1.Basis of Taxation
Deciding a
Business Income
case

Basis of Taxation
108
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/1
st
periodFMV when stock ventured in business
Subsequent Period
NRV
Cost
Lesser of
Any of Marginal OR
Absorption Costing
Absorption Costing
Cash
Accounting
Accrual
Accounting
Value of benefit,
from trading
liability for which
deduction was
allowed, will be
business income

Deciding Business Income Case
109
1.Speculation Business
2.Deductions Allowed
3.Deductions not allowed
4.Assets
5.Acquisition & Cost
6.Depreciation
7.Initial Allowance
8.Disposal & Consideration
9.Depreciation on asset partly used in business
10.Leasing Business
11.Intangibles
12.Pre-commencement Expenditure
13.Scientific Research Expenditure
14.Bad Debts
15.Employee Training & Facilities
16.Profit on Debt, Financial Cost and Lease Payments

Deciding Business Income Case
110
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

Deciding Business Income Case
111
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)
Actual Cost X
Less:Amount realized from animal carcass(X)
X

Deciding Business Income Case
112
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.Amount of commission paid or payable in excess of 0.2% of Sales of items listed in 3
rd
Sched of Sales Tax Act, 1990
to a person who is not appearing on ATL under ITO
v.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
Entertainmentmeans
meals, refreshment,
reasonable leisure facility
in accordance with
traditions of business &
subject to overall norms of
business
Note: All these people
(who are entertained)
should be related directly
to the person’s business.

Deciding Business Income Case
113
3.Deductions not Allowed [S-21]:
vi.Contributions to following funds:
Un-recognized Provident Fund / Un-approved Pension Fund / Un-approved Superannuation Fund / Un-approved Gratuity Fund
vii.50% of contribution to following funds:
Approved Gratuity Fund / Approved Pension Fund / Approved superannuation fund
viii.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
ix.Penalty / fine for violation of any law
x.Personal expenditure
xi.Amount transferred to Reserve OR capitalization of profits in any way
xii.Profit on debt / Brokerage / commission / Salary / remuneration paid by an AOP to its members

Deciding Business Income Case
114
3.Deductions not Allowed [S-21]:
xiii.Expenditure under single head of account exceeding Rs 250,000/-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.Company [from date notified by FBR]
b.expenditure not exceeding Rs 25,000/-
c.expenditure on account of:
•Utility bills
•Freight charges
•Travel fare
•Postage
•Taxes/duties/fees/fines

Deciding Business Income Case
115
3.Deductions not Allowed [S-21]:
xiv.Expenditure (paid/payable) by a Company, under single head of account exceeding Rs 250,000/-other than by Digital Meansfrom business bank
account of the taxpayer notified to the Commissioner under section 114A
Above is not applicable to following:
a.expenditure not exceeding Rs 25,000/-
b.expenditure on account of:
•Utility bills
•Freight charges
•Travel fare
•Postage
•Taxes/duties/fees/fines
This clause will be applicable from date notified by FBR
Means
digital payments and financial services
including but not limited to
•online portals or platforms for digital payments/receipts;
•online interbank fund transfer services;
•online bill or invoice presentment and payment services;
•over the Counter digital payment services or facilities;
•card payments using
oPoint of Sale terminals,
oQR codes,
omobile devices,
oATMs,
oKiosk or
•any other digital payments enabled devices or
•any other digital or online payment modes.

Deciding Business Income Case
116
3.Deductions not Allowed [S-21]:
xv.Salary exceeding Rs25,000/-per month, paid other than by:
a.crossed chequeOR
b.direct transfer to employee bank account OR
c.Digital Means
xvi.Capital expenditure
xvii.In case of pharmaceutical manufacturer any advertisement/publicity/sales promotion expense > 10% of turnover
xviii.Utility bills in violation of prescribed conditions and limits
xix.With effect from 1
st
October 2020, any expenditure attributable to sales made by industrial undertaking,
to person required to be registered but not registered under Sales Tax Act 1990.
The attributable expense shall be calculated as follows:
(A/B) x C
Where;
A = Total deductions claimed
B = Turnover for the Tax Year
C = Sales to one un-registered person uptoRs100 million or above
Disallowed expense shall not
exceed 10% of claimed
deductions
FBRmay exempt
a person from
this clause

Deciding Business Income Case
117
3.Deductions not Allowed [S-21]:
xx.any expenditure attributable to sales claimed by any person
who is required to integrate but fails to integrate his business with FBR
through approved fiscal electronic device and software
Provided that disallowance of expenditure under this clause shall not exceed 8%of the allowable deduction.

Deciding Business Income Case
118
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
e.immovable property OR structural improvement to immovable property
Where any asset is jointly owned by Tax Payer and Islamic Financial Institution under Musharika
Financing or Diminishing MusharikaFinancing, such asset shall be treated to be owned by “Tax Payer”
[Proviso to S-22(15)]

Deciding Business Income Case
119
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

Deciding Business Income Case
120
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.Purchase of Asset through Banking Channel [S-75A]:
Immovable property having FMV> PKR 5 million OR
Any other asset having FMV> PKR 1 million
iii.Cost[S-76]:
Consideration paid / payable in cashX
FMV of consideration given in kindX
Incidental expenditure for acquisition / disposal of assetX
Expenditure to alter or improve assetX
X
If not purchased through banking channel;
Then
amount shall not be considered as cost
i.for calculating depreciation/ amortization and
ii.for calculating gain on disposal.
Penalty @ 5% of higher of FBR value or DC rate will
be payable

Deciding Business Income Case
121
5.Acquisition & Cost:
ii.Cost[S-76]:
a.Cost of Passenger transport vehicle not plying for hire shall not exceed Rs 7.5 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)]

Deciding Business Income Case
122
5.Acquisition & Cost:
ii.Cost[S-76]:
g.If asset is produced or constructed by person, then its cost will include following:[Section-76(4)]
h.If an asset is partly disposed off, then its cost shall be apportioned between the part disposed off and part retained on basis of respective FMV at time of
acquisition of asset [Section-76(7)]
i.If acquisition of an asset is derivation of an amount chargeable to tax, then its cost will include following:[Section-76(8)]
j.If acquisition of an asset is derivation of an amount exempt from tax, then its cost will include following:[Section-76(9)]
Total production/construction costX
+Incidental expenditure for acquisition / disposal of assetX
+Expenditure to alter or improve assetX
X
Amount chargeable to taxX
Amount paid to acquire assetX
X
Amount exempt from tax X
Amount paid to acquire assetX
X

Deciding Business Income Case
123
6.Depreciation[S-22]:
Method of tax depreciation : Diminishing/Reducing Balance Method
Rate of Depreciation : as per 3
rd
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 3
rd
Schedule Part-II
which ever is later

Deciding Business Income Case
124
8.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 AllowanceOR (X)
First Year AllowanceOR (X)
Accelerated Tax Depreciation(X)
Normal Depreciation (X)
X
Gain / Loss on disposal X

Deciding Business Income Case
125
8.Disposal and Consideration:
ii.Consideration for Disposal [S-77]:
a.If Asset is lost or destroyed, then consideration shall include compensation, indemnity or damages received from:
•insurance claim
•Settlement
•judicial decision
b.If asset applied to personal use from business use or is discarded, then consideration shall be FMV of asset
c.If two or more assets disposed off in single transaction and consideration of each asset is not specified, then total consideration received shall be
apportioned on basis of FMV of each asset, at time of disposal
d.If actual cost of passenger transport vehicle not plying for hire was more than Rs2.5 million, then consideration shall be calculated as follows:
Amount Received X
FMV of consideration in kindX
X
FMV of asset at time of disposalX
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)]

Deciding Business Income Case
126
8.Disposal and Consideration:
ii.Consideration for Disposal [S-77]:
e.If consideration for immovable property exceeds its cost, then it's consideration received shall be treated as cost.
f.If asset disposed off in a non-arm's length transaction, then FMV of asset shall be treated as consideration.
g.If depreciable asset is exported/transferred outside Pakistan, then its cost shall be treated as consideration received.
[Section-22(13d)]
[Section-78]
[Section-22(14)]

Deciding Business Income Case
127
9.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 assetwas 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 Musharikaor diminishing Musharikaarrangement
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)]
Tax WDV X
Add:
Depreciation Expense disallowedX
X
OR

Deciding Business Income Case
128
10.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 leseeand 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)]

Deciding Business Income Case
129
11.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

Deciding Business Income Case
130
11.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 yearsNote:
if useful life is not ascertainable, then it will be treated as 25 years
Consideration X
Written Down Value X
X

Deciding Business Income Case
131
12.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 per3
rd
Schedule, Part-III
No deduction shall be allowed for expense which allowed as deduction under any other provision of Income Tax Ordinance 2001

Deciding Business Income Case
132
13.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
oacquisition of depreciable asset or intangible
oacquisition of immovable property
oascertaining existance/location/extent/quality of natural deposits
•Scientific Research Institution:
Means any institution certified by FBR to do scientific research in Pakistan

Deciding Business Income Case
133
14.Bad Debts[S-29]:
i.Conditions to claim bad debts as expense
a.Amount was previoulsyincluded 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.resonablegrounds 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

Deciding Business Income Case
134
15.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/ ProviscialGovt/ Local Govt
c.Training of Pakistani citizen under scheme approved by FBR
established in Pakistan

Deciding Business Income Case
135
16.Profit on debt, Financial costs and Lease Payments[S-28]:
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
•The principal amount in above rental for the cost of passenger transport vehicle not plying for hire shall not exceed Rs 2.5 million
iv.Share of profit
•under musharikascheme paid to a bank
•under musharikascheme 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

Capital Gains
136
2 Important Questions:
1.Geographical Source of Income
2.Basis of Taxation
Deciding a
Capital Gains
case

Geographical Source of Income [S-101(13)]& [S-101A]
137
1.Gain on disposal of shares of Resident Company shall be Pakistan Source Income
2.Gain on disposal of Assets outside Pakistan [S-101A]

Basis of Taxation
138
Accrual basis, as Gain / Loss is to be taxed in year of disposal
[S-37(1)]

Deciding a Capital Gains Case
139
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.Rule 13A –13P
6.Bonus Shares
7.Exemptions
8.Chapter Summary

Deciding a Capital Gains Case
140
1.Capital Gains [S-37]
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 taxable as separate
block of income @ 1
st
Sched, P-I, Div-VIII

Deciding a Capital Gains Case
141
1.Capital Gains [S-37]
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)]
Gain or Loss on disposal shall be recognized in year of disposal even if cash basis of accounting is being adopted.[S-37(1)]
No loss on disposal shall be recognized if gain from such asset is not taxable [S-38(2)]

Deciding a Capital Gains Case
142
1.Capital Gains [S-37]
Advance Tax on Shares [S-37(6-10)]:
Seller Buyer
Shares
Payment
Deduct Advance Tax @ 10% of
FMVS-68
Pay to FBR
With 15 days
Application of CIT requesting
payment without deduction of Adv. Tax OR
deduction at reduced rate
CIT agreed
(after inquiry)
Pay without deducting
Advance Tax
Furnish prescribed
information to CIT
within 30 days of sale
CIT may also demand
information through
notice
S-101A(4)
Without reduction of liabilities

Deciding a Capital Gains Case
143
2.Capital Gains on Securities[S-37A]
Security [S-37A(3)] :
Means:
•share of a public company
•voucher of PTC
•Modaraba Certificate
•an instrument of redeemable capital
•debt Securities
•derivative products
•Unit of exchange traded fund
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 &
can be c/f upto 3 subsequent TYs.
This c/f is allowed only for loss arising during TY 2019 &
onwards.
[S-37A(5)]
Corporate debt security
Term Finance Certificates (TFCs), SukukCertificates (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
•disposal of shares of a listed company,
made otherwise than through stock
exchange & are not settled through
NCCPL. The provisions of section 37
shall apply on such disposal of shares
•Banking Co & Insurance Co
[S-37A(1)]
shares will be treated as security, if at time of disposal,
the company was a public company

Deciding a Capital Gains Case
144
3.Special provisions relating to Capital Gains tax [S-100B]
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

Deciding a Capital Gains Case
145
4.Deduction of Losses from Capital Gains[S-38]
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) jewelry;
(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)]

Deciding a Capital Gains Case
146
•Gain/loss computation shall be made on basis of FIFO inventory
accounting method
•FIFO not applicable in case of same day purchases, instead
Average Method to be used [R-13N(5)]
•NCCPL shall add 0.5% of trade (as incidental expenses) to
transaction cost and consideration [R-13N(8)]
•Capital loss shall be adjusted only against capital gain of security
Capital loss shall not be recoginzedin case of following
transactions [Rule-13F]
Wash Sales :Sold security repurchased, within 1 month, to
maintain portfolio
Tax Swap Sale :Repurchase of security in same industry
sector to maintain risk of portfolio
Cross Sale :Transaction made between two accounts of one
investor. No sale made to any outsider.

Deciding a Capital Gains Case
147
Bonus Shares
•Cost of Bonus shares would be computed by spreading the cost of old shares over the old shares plus the bonus shares taken together.
•Thereafter, this new cost of a share would be the same for old and new shares.
•When bonus shares are disposed of, new cost will be taken for computation of capital gain.
•Similarly, when the old shares are disposed of, new cost will be taken for computation of capital gain.
Old Shares
Bonus Shares
No. of sharesPrice per shareTotal Investment
100 11 1,100
10 0 0
New Cost
110 1,100
= 10

Deciding a Capital Gains Case
148
Following Capital Gains are exempt from tax:
1.Transfer of a stock exchange membership rights
2.Capital gain on sale of shares of industrial undertaking set up in Export Processing Zones
3.Capital gain on sale of immovable property, earned by dependent of Shaheed belonging
to Pakistan Armed Forces or a person who dies during service of armed forces or Federal
or Provincial Governments
4.Capital Gain Tax rates shall be reduced by
a.50%, on first sale of immovable property allotted to employee of Armed forces OR
FG OR PG (serving or retired)
b.75% on sale of above immovable property, after 3 years of acquisition

Capital Gains
149
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
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 lossesFully taxable
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 8
th
Sched
Un-listed Security

Income from Other Sources
150
1.What is it ? [Section-39]
2.Basis of Taxation
3.Deductions Allowed

Income from Other Sources
151
What is it ? [S-39]
Income Loan/Advance/Deposit for issuance of shares/GiftArrears of Profit on Debt

Income from Other Sources
152
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/utilititesconnected with renting of building
ix.Annuity/Pension
x.Prize bond, lottery, raffle winnings, cross word puzzles, sale promotion prizes
offered by a company
xi.Consideration for provision, use or exploitation of property or natural resources
xii.FMV of benefit for provision, use or exploitation of
property or natural resources
xiii.Consideration for vacating possession of building, reduced
by amount paid to acquire possession of building {to be
included in taxable income of current tax year and 9
succeeding tax years in equal proportion.}
xiv.Amount received from Approved Income Payment Plan OR
Approved Annuity Plan
xv.Amount/FMV of property received without consideration
[except gift from relative as defined in S-85(5)]
S-85(5)
“relative” means:
(a) an ancestor, a descendant of any of the grandparents, or an adopted child, of
the individual, or of a spouse of the individual; or
(b) a spouse of the individual or of any person specified in clause (a).

Income from Other Sources
153
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 Chequeor Banking Channel
Above is not applicable to advance payments for sale of goods or supply of services

Income from Other Sources
154
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

Income from Other Sources
155
Basis of Taxation [S-39(1)]
Income of every kindin a tax yearRECEIVED

Income from Other Sources
156
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 & UshrOrdinance 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

Losses
157
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]

1.Set Off of Losses [Section-56, 58& 59]
158
Loss arising from
Set off against
Salary
Property
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
P
O
P
O
O
O
P

2. Carry Forward of Losses [Section-57, 58& 59]
159
Salary
Property
Spec.
Business
Non Spec.
Capital
Gains
Other Sources
Security
Immovables
Others
Loss not possible
C/f Not Allowed
Carry forward allowed upto6 subsequent tax years
Loss from earliest tax year shall be set off first
Carry forward allowed upto6 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 incomeis less than Rs10 million
Un-absorbed depreciation shall be considered last
C/f Not Allowed
Carry forward allowed upto 3 subsequent tax years only if loss pertains to TY 2019 and onwards
C/f Not Allowed
Carry forward allowed upto6 subsequent tax years
Loss from earliest tax year shall be set off first
Loss sustained from 1
st
July 2020 & onwards by
a Resident Company
managing hotel can be
c/f upto8 years

3. Limitation on Setoff & Carry Forward of Losses [S-59A]
160
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 etcshall 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 incomeis less than Rs10 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]
161
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 upto6 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

Deductible Allowances
162
1.Zakat [S-60]
2.Workers’ Welfare Fund [S-60A]
3.Workers’ Participation Fund [S-60B]
4.Education Expenses [S-60D]

Deductible Allowances
163
1.Zakat [S-60]
Zakat under Zakat and UshrOrdinance 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

Deductible Allowances
164
2.Workers’ Welfare Fund [S-60A]
•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 deductible allowance will be allowed for
this payable expense

Deductible Allowances
165
3.Workers’ Participation Fund [S-60B]
•Amount paid under "Companies' Profit (Workers' Participation) Act 1968" will be allowed as deductible allowance

Deductible Allowances
166
4.Education Expenses [S-60D]
Allowed toIndividual having taxable income less than Rs1,500,000/-
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

Tax Credits
167
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]
168
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 include 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 III
169
1.Tax Credits of each item under Part X of Chapter III [Section 61 & 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 under Part X of Chapter III
170
61. Charitable donations
63.Contribution to an Approved Pension Fund
64D.Tax credit for point of sale machine
65F. Tax credit for certain persons
65G. Tax credit for specified industrial undertakings

171
Tax Credits under Part X of Chapter III
1.Charitable Donations [S-61]
Eligible PersonValue “C” of formula Remarks
Any PersonLesser of:
i.Amount ofDonation
ii.30% of Taxable Income in case
of Individual and AOP
In case of donation to associate,
15% of Taxable Income
iii.20% of Taxable income in case
of Company
In case of donation to associate,
10% of Taxable Income
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 or any person eligible for tax credit under section 100C
iv.Entities mentioned in 13
th
Schedule.
If any property is given as donation, its FMV at the time it is given as donation shall be treated as donation. Valuationof
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

172
Tax Credits under Part X of Chapter III
4. Contribution to approved pension fund [S-63]
Eligible Person Value “C” of formula Remarks
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
ii.20% of Taxable Income
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 upto30.06.2019
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

173
Tax Credits under Part X of Chapter III
5. Tax credit for point of sale machines [S-64D]
Eligible Person Amount of tax credit Remarks
Any person who is required tointegrate with Board’s
computerized system for real time reporting of sale or
receipt
Lesser of:
i.Amount invested for purchase of machine
ii.Rs 150,000/-per machine
Point of sale machine means;
a machine meant for
-processing and recording the sale transactions for goods or services,
either
-in cash or through
-credit cards
-debit cards
-online payments in an internet enabled environment.

174
Tax Credits under Part X of Chapter III
6. Tax Credit for Certain Persons [S-65F]
Eligible Person Amount of Tax Credit Remarks
Following persons / Income:
1.persons engaged in coal mining projects in Sindh, supplying coal
exclusively to power generation projects
2.a startup as defined in Section 2(62A) for the tax year in which the
startup is certified by the Pakistan Software Export Board and the next
following two TYs
100% of tax payable including
-minimum
-alternate corporate tax and
final tax
Conditions for tax credit:
1.Return has been filed
2.In case of withholding agent, withholding tax statement filed
3.Sales tax returns (Federal/provincial) for the TY filled

175
Tax Credits under Part X of Chapter III
7. Tax Credit for specified industrial undertaking [S-65G]
Eligible Person Amount of Tax CreditRemarks
1. Green field industrial undertaking as defined in Section 2(27A) engaged in ;
(i) the manufacture of goods or materials or the subjection of goods or materials to any process which substantially changes their
original condition; or
(ii) ship building:
Provided that:
a)the person incorporated between the 30.06.2019 and 30.06.2024
b)the person is not
-formed by the splitting up or reconstitution of an undertaking already in existence OR
-formed by transfer of machinery, plant or building from an undertaking established in Pakistan prior to commencement of the new
business and
-is not part of an expansion project
2. Industrial undertaking set up by 30.06.2023 and
engaged in the manufacture of plant, machinery, equipment and items with dedicated use (no multiple uses) for generation of
renewable energy from sources like solar and wind,
for 5 years, from the date such industrial undertaking is set up
25% of eligible
investment, against
-Tax payable
-Minimum tax and
-Final taxes.
Excess tax credit can be
c/f upto 2 subsequent
Tys
Eligible Capital
Investments:
Investment made
in purchase and
installation of new
machinery,
buildings,
equipment,
hardware and
software, except
self-created
software and used
capital goods

176
Tax Credits under Part X of Chapter III
Important Definitions

177
Tax Credits under Part X of Chapter III
Important Definitions

178
Tax Credits under Part X of Chapter III
Important Definitions

Tax Credit for Advance Tax and Tax deducted at source [S-147& S-168]
179

Refer
Salary
Exemptions
Exemptions
180
1.Income Tax Ordinance [Section 41 –55 & 102]
2.The Second Schedule
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
41.Agricultural Income [S-41]
42.Diplomatic & United Nations Exemptions [S-42]
43.Foreign Government Officials [S-43]
44.Exemption under International Agreements [S-44]
45.President's Honours[S-45]
46.Profit on Debt [S-46]
47.Scholarships [S-47]
48.Support payments under an agreement to live apart [S-48]
49.Income of Federal, Provicialor Local Government [S-49]
50.Foreign-source income of short-term resident individuals [S-50]
51.Foreign-source income of returning expatriates [S-51]
52.Deleted
53.Exemptions and tax concessions in Second Schedule [S-53]
54.Exemptions and tax provisions in other laws [S-54]
55.Limitation of Exemption [S-55]

Exemptions –Agricultural Income [S-41]
181
Agricultural income shall be exempt from tax
Agricultural income means :
Rent/Revenue from
Land situated in Pakistan &
used for agricultural purposes
Any income from land situated in Pakistan and used for
Performance of process ordinarily employed to render
produce fit to be taken to market OR
Sale of produce on which only above process has been
performed
Agriculture OR
Any income from Building
owned and occupied by receiver of rent of land OR
occupied by
used for
AND
building is in immediate vicinity of Land
AND
building is required as a dewellinghouse, store house
or out building
Cultivator
Receiver of rent in kind

Exemptions –Agricultural Income [S-41]
182
Agriculture Produce used as Raw Material [Rule-11]
If a cultivator or receiver of agricultural produce as rent in kind uses agriculture produce as raw materials in his business, then:
•Only MV is allowed as deduction
•No deduction shall be allowed for any expenditure incurred as cultivator or as a receiver of rent in kind
•if it is ordinarily sold in the market then MV = market price for the produce at the time it is used as raw material
•Otherwise; cultivation expense + land rent
Total Income X
-MV of Agricultural ProduceX
Income Chargeable to taxX

Exemptions
183
President's Honors [S-45]:
Following awarded by President of Pakistan shall be exempt from tax:
•Allowance attached to any honor,award, medal
•Any monetary award
Profit on Debt [S-46]:
Profit on debt will be exempt from tax subject to following conditions:
i.Received by Non Resident
ii.on security issued by resident person
iii.persons are not associates
iv.security was widely issued by the resident person outside Pakistan
v.security was issued for the purposes of raising a loan outside Pakistan
vi.loan is to be used for business carried on by the person in Pakistan
vii.profit on debt is paid outside Pakistan
viii.security is approved by FBR for purpose of this section
Scholarships [S-47]:
Scholarship granted to meet cost of person’s education shall be exempt
Except: where scholarship is paid directly or indirectly by an associate
Support payments under an agreement to live apart [S-48]:
Income received by spouse as support payment under an agreement to
live apart shall be exempt

Exemptions
184
Income of Federal, Provicialor Local Government [S-49]:
Income of following is exempt from tax:
•FaderalGovt.
•ProvicialGovt.
•Local Govt.
Deduction/collection of Advance tax not applicable on amount received by above.
All exemptions under this section is not available to
owned/controlled directly/indirectly by above
Income from sale of spectrum licenses & renewal thereof by PTA on behalf of the Federal Govt. after 01.03.2014
shall be treated as income of the Federal Government and not of the PTA
except its income from business outside its jurisdiction area
corporation
company
regulatory authority
development authority
other body
institution

Exemptions
185
Exemptions and tax provisions in other laws [S-54]
Any exemption provided in any other law shall not have effect unless it is also provided for in the Income Tax Ordinance 2001
Limitation of Exemption [S-55]
If any income is exempt from tax it shall be limited to the original recipient of that income and shall not extend to any personreceiving
any payment wholly or in part out of that income.

Taxation of Individual
186
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]
187
Taxable income of each individual shall be determinedseparately

2. Deceased Individual [S-87]
188
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]
189
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]
190
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 Persons
191
1.Principles of taxation of AOP [S-92]
2.Individual as member of AOP [S-88]
3.Change in control of an entity [S-98]
4.Change in the constitution of an association of persons [S-98A]
5.Discontinuance of business or dissolution of an association of persons [S-98B]
6.Succession to business, otherwise than on death [S-98C]

1. Principles of Taxation of AOP [S-92]
192
•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
Explanation :
if income of AOP is exempt and no tax is payable,
then share received by member shall remain
exempt

2. Individual as Member of AOP [S-88]
193
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

1.Change in control of an entity [S-98]
194
If there is a change of 50% or morein 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
"Underlying 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]
195
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]
196
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]
197
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.

198
12. 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 1
st
Schedule
Tax Imposed/Chargeable
-Tax Credits
Tax Payable
-Withholding Tax/Adv Tax
Income Tax Demand/Refund
Normal Tax Reg.
Separate TaxationTax 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
Final Tax
Presumptive Tax Regime
Final Tax
Exemptions

199
Tax Collected/Deducted is Final Tax
Tax at Source
Section 169
[S-154] Exports
[S-156] Prizes & Winnings

200
Separate Taxation
Separate Taxation Separate Block of Income
Section 8
[S-5] Tax on Dividends
[S-5A Tax on undistributed profits
[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
[S-7E] Tax on deemed income
•To be discussed in
relevant Head of Income

201
Dividend [Definition]
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

Following distributions by a Company
to its Shareholders
to the extent of its Accumulated Profits whether capitalized or not
202
Dividend –Definition
is included in definition of Dividend
i.Any distribution which entails release of assets including money of the company
ii.Any distribution of Debentures, Debenture Stock or Deposit Certificate
iii.Any distribution on liquidation of company
iv.Any distribution on reduction of capital
v.Loan or advance to shareholder or payment for the benefit of shareholder, made
by a private company (as defined in Companies Act 2017) or trust
(when loan will be repaid, then taxpayer can claim refund of tax paid by
him because of loan amount being treated as dividend)
Remittance of after tax profits by branch of a foreign company to the foreign
company is also included in definition of Dividend
Except, such distributions which were made in cash AND
where shareholder was not entitled to participate in surplus
assets in the event of liquidation
Except, where lending money is substantial part of business of
company in its ordinary course of business
Except, where dividend is paid and set off by company against
the loan or advance treated as dividend
Except, remittance by branch of Petroleum Exploration and
Production Foreign Company

203
Return on Sukuk
Special Purpose Vehicle
OR
Company
SukukHolder
Deduct tax on gross amount @ 1st Sched, Part-III, Div-IB
Return on Sukuk
[S-150A]
Tax deducted will be Adjustable
Pay tax on gross amount @ 1st Sched, Part-I, Div-IIIB
Tax Imposed will be Final Tax
[S-5AA]
Receiver of return shall pay Final Tax after adjustment
of tax deducted at source

204
Special Purpose Vehicle
Wapda
Wapda
First
Sukuk
Company
Ltd
Sukuk
Holder
SukukCertificate
Funds for Purchase of Turbines Funds
Title to Turbines
Lease Turbines
Lease Rental Return to SukukHolder
Pay Exercise Price
Get Title of Turbines
Redeem Sukuk
Return Sukuk
Purchase
Turbines

205
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)]
Tax deducted will be Adjustable
Pay tax on gross amount @ 1st Sched, Part-I, Div-IV
Tax Imposed will be Final Tax
[S-6]
This section shall not apply on following:
1.Royalty:where property or right giving rise to royalty is effectively
connected with PE of Non Resident. Such royalty shall be treated as
business income of PE of Non Resident.
2.FFTS & 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 FFTSexempt from tax.

206
[S-2(54)] Royalty
Royalty means any amountPaid 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/scientificequipment
(iv) Supply of Technical/industrial/commercial/scientificKnowledge/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

207
[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
Servicevs Know-how
Business Income
FFTS

208
[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

209
[S-7E] Tax on deemed income
Resident Person
1. One Capital Asset
3. Self-owned agriculture land excluding;
•Farmhouse & land annexed to it
4. Capital Asset allotted to
Shaheed or his dependents of Armed Forces
Person or his dependents who dies during
service of armed forces, FG/PG
War wounded person in service of armed forces, FG/PG
Ex-serviceman or serving personal of armed forces, FG/PG
Capital Asset
Deemed Income
5% of FMV on last day of TY
Tax on Deemed Income20%
5. Any property from which income is chargeable to tax and tax is paid
6. Capital asset in 1
st
TY of acquisition where tax under S-236K has been paid
7. All other Capital Assets having aggregate FMV =< PKR 25 million
8. Capital assets owned by;
•provincial government, local government,
local authority, development authority
•builders and developers for land
development and construction, registered
with Directorate General of Designated
Non-Financial Businesses and Professions
2. Self-owned business premises
Excluding
TY 2022 onwards

210
[S-7E] Tax on deemed income
Ex-serviceman or serving personal of armed forces, FG/PG
2. Self-owned business premises
Capital Asset means
•property of any kind,
•held by a person,
•whether or not connected with a
business,
does not include
(i)any stock-in-trade
(ii)any shares, stocks or securities
(iii)depreciable asset
(iv)Intangible
(v)any other movable asset
Farmhouse means
•a house constructed
•on atleast2000 sq.yrds
•covered area of atleast5000 sq.fts
•used as single dwelling unit
•with or without an annex
In case of more than one dwelling units in a compound and average area of the compound is more than 2000
square yards for a dwelling unit, each one of such dwelling units shall be treated as a separate farmhouse
•from where the business is carried out
•was on ATL at any time during TY
•being original allottees
•duly certified by the allotment authority
Federal Government may include or exclude any person or property
for the purpose of this section

211
[S-113] Minimum Tax
Company
Resident Turnover 100 million or above
In TY 2017 or after
Tax payable is less than
[%age given in column (3) of Table in 1
st
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 @ 1
st
Sched, Part-I, Div-IX
✓The excess tax paid due to minimum tax, shall be carried forward for adjustment against tax
liability upto 3 subsequent tax years
Tax Payable shall not
include:
(i)Final Tax
(ii)Tax Payable u/s 4B& 4C
Turnover means:
Gross Sales
Gross Fees
Gross Fees
Share of profit
from AOP
Excluding
Sales Tax
FED
Trade Discount (mentioned on
invoice)
Deemed income on which
Final Tax has been paid
Deemed income on which
Final Tax has been paid
Deemed income on which
Final Tax has been paid
Including
Commission
Turnover means:
Gross Sales
Gross Fees
(Services)
Gross Fees
(Contracts)
Share of
Company in AOP
in above
amounts
Explanation: Turnover will
include receipts from sale of
immoveable property, taxable as
business income.

212

213

214

215

216

217
Rates –Capital Gain on Immovable Property

218
Rates –Capital Gain on Securities

219

220

221

222

223

Income Tax Notes for September 2023.pdfd

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Income Tax Notes for September 2023.pdfd

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