TAXATION PRACTICE PROBLEMS

Q.
Mr. Ahmed Karim is serving as Assistant Manager (Finance) in a private limited company
on pay scale of (Rs. 45,000-5,000-70,000). His date of joining is 03-03-2003. In addition to his
salary, Mr. Ahmed Karim is entitled to draw following Per Month allowances from the company.
House Rent Allowance: 15% of BS or Rs. 10,000/- whichever is more
Conveyance Allowance: 10% of MTS
Recreational Allowance: Rs 2000/Admin Allowance: 30% of MTS
Medical Allowance: 20% of MTS
Following Deductions are also made from his salary on Monthly basis:

GP Fund: Rs. 3000/Insurance: Rs. 1888/-

Income Tax: Rs 4000/Benevolent Fund: 2% of MTS

In addition to his salary Income, Mr. Ahmed Karim has also received Rs. 320,000/- as his 20%
share from an AOP, during Tax Year 2009.
REQUIRED:
Q.

COMPUTE TOTAL TAXABLE INCOME AND NET TAX PAYABLE BY MR. HASSAN FOR
THE TAX YEAR 2009.

Mr. A, Mr. B and Mr. C are three partners of ABC Associates, an AOP. They share profit
in the ratio of 50%, 30% and 20% respectively. For the Tax Year 2009, the AOP has
declared Net Profit of Rs. 4000,000/-. Details of profit and loss expenses are given as under:
a) Accounting depreciation is calculated at Rs. 230,000/- while tax depreciation comes out
to be Rs. 520,000/-.
b) The AOP has paid Rs. 475,000/- to different authorities as penalty in respect of noncompliance with the statuary regulation but has not been Debited to P&L Account.
c) The AOP donated Rs. 200,000/- to Agha Khan Board, during the year.
d) Un-vouched profit and loss expenses of the AOP are Rs. 680,000/-.

Details of other than AOP Annual income of the partners is as under:

Mr. A:
Mr. B:
Mr. C:
REQUIRED:

Salary Income: Rs. 330,000/- ; Restrictive Covenant: Rs. 470,000/- ;

Property Income: Rs. 500,000/-; Dividend Income: Rs. 280,000/-;
Gain on Disposal of Shares of Listed Company: Rs. 500,000/Property Income: Rs. 520,000/-; Loss in Business (shop): Rs. 220,000/-;
Age of Mr. C is 66 years.
COMPUTE TOTAL TAXABLE INCOME AND NET TAX PAYABLE
ALL OF ITS PARTNERS FOR TAX YEAR 2009.

BY THE

AOP

AND

Q(a). Miss Madiha is serving as Director Finance at National Highway Authority (NHA). While
making Payment of Rs. 10 Millions to M/S Ali Builders, against the contract of making a
new road, Miss Madiha deducted tax at the rate of 3.5% on 10-09-2008. Miss Madiha kept
the amount so deducted in the bank account of NHA till 30-06-2009. After having consulted
with the taxation authorities, Miss Madiha deposited the amount into Government Treasury
on 30-06-2009.
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REQUIRED:

(b).

ARE THERE ANY DEFAULTS ON THE PARTS OF NHA, MISS MADIHA AND M/S ALI
BUILDERS? IF YES, LIST ALL THE DEFAULTS ON PARTS OF ALL. CALCULATE THE
AMOUNT OF TAX IN DEFAULT & ADDITIONAL TAX ON PART OF MISS MADIHA,
NHA, AND M/S ALI BUILDERS, IN VIEW OF THE ABOVE DEFAULTS.

Is it possible to sustain loss under the head salary? If yes, give a comprehensive example to
illustrate your answer.

Q(a). During TY 2008, Mr. Shahidullah Khan earned Income as given below:1.
2.
3.
4.
5.

Earned Salary Income @ Rs. 23,400/- per month while serving in ISI.
Received Dividend Rs. 320,000/- from ABC & Co, a private limited company.
Won a Prize Bond amounting to Rs. 500,000/- in a draw of Rs. 1000/- prize bonds.
Earned Rs. 450,000/- from his Agriculture farms in respect of sales of crops.
Got Rs. 800,000/- as sales proceed of 10,000 shares (on 05-05-2009) of an unlisted
company, that he had purchased @ Rs. 41 per share on 08-03-2009.
6. Earned Rs. 210,000 on disposal of shares of a listed company on 20-06-2009.
7. Received Rs. 480,000/- as rent, from his two shops that he has rented out @ Rs. 20,000
Per Month per shop, after receiving security of Rs. 100,000/- against each shop.
8. Sustained Loss of Rs. 120,000/- in the business (Shahid Arms, Quetta).
9. Received a contract of erecting a block (building) at civil hospital Quetta. About 60%
work has been completed and Mr. Ahmed has received 60% payment. Total value of
contract is Rs. 5 Million/-.
10. Received Rs. 250,000/- from Kamal Builders against for non-participating in a bid of
making a road, from Quetta to Mastung.
REQUIRED: COMPUTE TAX PAYABLE BY MR. SHAHIDULLAH UNDER NTR & PTR FOR TY 2009.
(b).

Are you in favour of taxing Agriculture Income and Capital Gain or not? Give reasons in
support of your answer.

Q.

Discuss with suitable examples any THREE of the following:

i.
ii.
iii.
iv.

Taxation of Concessional Loans

Thin Capitalization
Sales Tax Vs VAT Mode of Taxation
Penalty of Concealment Vs Penalty of Making False and Misleading Statements

Q(a). Mr. A, Mr. B and Mr. C are three partners of ABC Associates, an AOP. They share profit
in the ratio of 50%, 35% and 15% respectively. For the Tax Year 2008, the AOP has
declared Net Profit of Rs. 3000,000/-. Details of profit and loss expenses are given as under:
e) Accounting depreciation is calculated at Rs. 230,000/- while tax depreciation comes out
to be Rs. 320,000/-.
f) The AOP has paid Rs. 175,000/- to different authorities as penalty in respect of noncompliance with the statuary regulations.
g) The AOP has paid Rs. 2300,000/- in cash as salaries to its employees. The only payment
in excess of Rs. 12,500/- PM was the salary paid to the director finance at Rs. 60,000/PM.
h) The AOP donated Rs. 500,000/- to Edhi Trust, Karachi, during the year.
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i) Vouched profit and loss expenses of the AOP are Rs. 680,000/-.

Details of other than AOP Annual income of the partners is as under:

Mr. A:

Salary Income: Rs. 300,000/- (Mr. A is a full time teacher at BUITEMS).

Mr. B:

Property Income: Rs. 400,000/-; Salary Income: Rs. 280,000/-;

Dividend Income: Rs. 200,000/-; Capital Gain Income: Rs. 50,000/-

Mr. C:

Property Income: Rs. 520,000/-; Loss in Business (shop): Rs. 220,000/-;

Age of Mr. C is 66 years.

Required:

Calculate Total Taxable Income and Net Tax Payable by the AOP and
all of its partners for Tax Year 2008.

(b).

List any FOUR amendments made in Income Tax, Sales Tax or Federal
Excise laws through Finance Act 2008-09 (recent Budget).

Q(a).

Mr. Safi is serving as Director Finance at BUITEMS. While making payment of

Rs. 9500,000/- to M/S Classic Builders, against the contract of making a new block
at BUITEMS, Mr. Safi deducted tax @ 3.5% on 10-09-2005. Mr. Safi kept the
amount so deducted in the account of BUITEMS. After having consulted with the
taxation authorities, Mr. Safi deposited the same amount into Government Treasury
on 31-12-2008.

Required:

Are there any defaults on the part of Mr. Safi (being withholding agent) and
Classic Builders? If yes, what are the defaults? Calculate the amount (tax /
additional tax / penalty) payable by the Contractor (M/S Classic Builders)
and Mr. Safiin view of the above defaults.

(b).

Is there any possibility of sustaining Loss under the head Salary? Give a
suitable example to illustrate your answer.

Q(a).

During TY 2008, Mr. Ahmed earned Income from various sources as given
below: Received Dividend of Rs. 400,000/- from ABC & Co, a private limited company.
Won a Prize Bond amounting to Rs. 500,000/- in a draw of Rs. 1000/- prize bonds.
Got Rs. 800,000/- as sales proceed of 10,000 shares (on 05-05-2008) of an unlisted
company, that he had purchased @ Rs. 47 per share on 08-05-2007.
Earned Rs. 210,000 on disposal of shares of a listed company on 20-06-2008.
Received Rs. 480,000/- as rent, from his two shops that he has rented out @ Rs.
20,000 Per Month Per Shop, for the last 3 years after receiving security of Rs.
300,000/- against both.
Sustained Loss of Rs. 120,000/- in the business (Ahmed Store, Quetta).
Received a contract of erecting a block (building) at civil hospital Quetta. About
40% work has been completed and Mr. Ahmed has received 40% payment. Total
value of contract is Rs. 1 Million.
Mr. Ahmed has received Rs. 500,000/- from Kamal Builders against for nonparticipating in a bid of making a road, from Quetta to Mastung.
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Required: Work out tax Payable by Mr. Ahmed under all the heads / PTR.
(b).

Are you in favour of taxing Capital Market or not? Give reasons.

Q(a). Mr. Hassan is serving as Manager (dying) in a Textile Mill on a fixed lump sum salary with
an annual increase of 20% in every January. During Calendar Year 2008, his salary was Rs.
184,000/- per month.
REQUIRED:

COMPUTE TOTAL TAXABLE INCOME AND NET TAX PAYABLE BY MR. HASSAN FOR
THE

TAX YEAR 2008. ALSO COMPUTE THE TAX PAYABLE BY HIS COMPANY, IF

THEY SO DESIRE.

(b).

Explain VAT Mode of Taxation with the help of a suitable Example.

Q.

Write short notes on any TWO of the following:i.

ii.
iii.

Thin Capitalization
Penalty for Non-Filing of Return
Treatment of Concessional Loans

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Q1.

What are the due dates of filing a Return for Individual, AOP and Companies? How a
person is penalized for late filing of Return. How much penalty would be payable if a
company having NP of 5M files its Return for TY 2007 on 30-06-2009?

Q2.

What do you mean by a tax year? Differentiate among Normal, Special and Transitional Tax
Year with the help of Examples.

Q3.

Draw VAT chart with columns Stage No, Purchase Price, Input Tax, Value Addition,
Selling Price, Output Tax and Tax of Current Stage using the following data:
STAGE
1
2
3
4
5

VALUE ADDITION (Rs)

500
800
(300)
0
1100

Q4.

What do you mean by Withholding Agent? What kind of defaults can be committed by a
Withholding Agent? Discuss legal provisions to penalize a Withholding agent for these
defaults.

Q5.

What do you mean by Restrictive Covenant? How restrictive covenant is taxed? What tax
would be payable by a person whose basic salary is Rs. 24000/- PM, gets Restrictive
Covenant of Rs. 300,000/- and having property income of Rs. 50,000/- PM.

Q6.

Discuss legal provision of Taxing Golden Hand Shake? What tax would be payable by a
person whose Per month income in Calendar Year 2009 was Rs 70,000/- PM fixed (Annual
Increase being 10%). The person took GHS on 09-09-2009.

Q7.

How an AOP is taxed? What would be tax payable by the Partners of AB Brothers if NP of
AOP is 2M while property Income of Mr. A was Rs. 60,000/- PM while salary income of
Mr. B is Rs. 34,500/- PM. Mr. B also sustained loss of Rs. 65,000/- in the Business.

Q8.

Differentiate between PTR and NTR? Compute tax payable by Mr. A under both PTR and
NTR if his income is: Salary: Rs. 340,000/- PA; Dividend: Rs. 500,000/-; Property: Rs.
345000/- PA; Capital Gain: Rs 66,000/-; Loss in Business: Rs. 120,000/-; Prize Bond: Rs
200,000/-; Contract: Rs. 2 Millions; Share from AOP: Rs. 120,000/-

Q9.

What do you mean by Normal Depreciation and Initial Allowance? What method of
computing depreciation is recognized by Income Tax Ordinance, 2001? Elaborate your
answer by using a suitable example.

Q10.

What do you mean by the Term Capital Gain? How capital Gain is taxed? Are you in favour
of taxing Capital Gain on disposal of shares of a listed Co? Give reasons in support of your
answer.

Q11.

What do you mean by the terms set off and carry forward? Give a suitable example to
explain your answer.

Q12.

What do you mean by the terms Revenue and Capital Expenses? How these expenses are
treated under Income Tax Ordinance, 2001? Give at least three examples of each.

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FOR TAX YEAR 2011

RATES OF TAX FOR INDIVIDUALS AND AOP

(SALARY)
S#
1

Taxable income
Where the taxable income does not exceed Rs.350,000

Tax Rate
0%

Where the taxable income exceeds Rs.350,000

Rs.400,000
Where the taxable income exceeds Rs.400,000
Rs.450,000
Where the taxable income exceeds Rs.450,000
Rs.550,000
Where the taxable income exceeds Rs.550,000
Rs.650,000
Where the taxable income exceeds Rs.650,000
Rs.750,000
Where the taxable income exceeds Rs.750,000
Rs.900,000
Where the taxable income exceeds Rs.900,000
Rs.1050,000
Where the taxable income exceeds Rs.1050,000
Rs.1,200,000
Where the taxable income exceeds Rs.1,200,000
Rs.1,450,000
Where the taxable income exceeds Rs.1,450,000
Rs.1,700,000
Where the taxable income exceeds Rs.1,700,000
Rs.1,950,000
Where the taxable income exceeds Rs.1,950,000
Rs.2,250,000
Where the taxable income exceeds Rs.2,250,000
Rs.2,850,000
Where the taxable income exceeds Rs.2,850,000
Rs.3,550,000,
Where the taxable income exceeds Rs.3,550,000
Rs.4,550,000,
Where the taxable income exceeds Rs.4,550,000.

but does not exceed

1.50%

but does not exceed

2.50%

but does not exceed

3.50%

but does not exceed

4.50%

but does not exceed

6.00%

but does not exceed

7.50%

but does not exceed

9.00%

but does not exceed

10.00%

but does not exceed

11.00%

but does not exceed

12.50%

but does not exceed

14.00%

but does not exceed

15.00%

but does not exceed

16.00%

but does not exceed

17.50%

but does not exceed

18.50%

3
4
5
6
7
8
9
10
11
12
13
14
15
16
17

20.00%

Provided further that where the total income of a taxpayer marginally exceeds the maximum limit of a slab in
the Table, the income tax payable shall be the tax payable on the maximum of that slab plus an amount equal
to
(i) 20% of the amount by which the total income exceeds the said limit where the total income does not
exceed Rs. 550,000.
(ii) 30% of the amount by which the total income exceeds in each slab but total income does not exceed
Rs. 1,050,000.
(iii) 40% of the amount by which the total income exceeds in each slab but total income does not exceed
Rs. 2,250,000.
(iv) 50% of the amount by which the total income exceeds in each slab but total income does not exceed
Rs. 4,550,000.
(v) 60% of the amount by which the total income exceeds in each slab but the total income exceeds Rs.
4,550,000.

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S#
1
2
3
4
5
6

(NON SALARY)
Taxable Income
Where taxable income does not exceed Rs.350,000
Where the taxable income exceeds Rs.350,000 but does not exceed Rs.500,000
Where the taxable income exceeds Rs.500,000 but does not exceed Rs.750,000
Where the taxable income exceeds Rs.750,000 but does not exceed Rs.1,000,000
Where the taxable income exceeds Rs.1,000,000 but does not exceed Rs.1,500,000
Where the taxable income exceeds Rs.1,500,000.

Rate
0%
7.50%
10.00%
15.00%
20.00%
25.00%

SOME USEFUL TIPS

1. NTR means FOUR heads: Salary, Business, Capital Gain and Other Source only.
2. ALWAYS club (add or adjust) NTR incomes and then tax the resulting amount on the basis that:
a. If Income U/H salary is >= 50% of total income apply Salary table
b. If Income U/H Salary < 50% of total income apply Business Table
3. If net result of all NTR is negative then No tax is payable and Carry forward the net amount to next
year.
4. If you have income from AOP then it is an NTR income (U/H Business). Income from AOP is
TAXABLE ONLY WHEN ONE HAS ANY OTHER INCOME (NOT LOSS) FROM NTR.
5. If a person has AOP income and some PTR incomes then no tax will be payable on AOP income.
Only PTR income will be taxed separately. Use separate space / column and separate rate
accordingly for every PTR.
6. PTR means all incomes other than PTR, like Property, Dividend, Contract, Prize Bond, Lottery etc
etc (all incomes that appear on page 2 of return).
7. NEVER club (add or adjust) PTR income with NTR Income.
8. NEVER club PTR incomes with each other. i.e. Property income can NEVER be added to Prize
bond or Dividend or any other PTR income.
9. Every expense that is disallowed by Income Tax Ordinance 2001, is added back like Un-Vouched
expenses (expenses against whom receipts / vouchers are not available).
10. Initial allowance is allowable only against plant and machinery (not vehicles).

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