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Tax Year 2012

Short Notes
On
INCOME TAX
Topics Covered:

1. Salary
2. Employee share scheme
3. Income from property
4. Capital Gains
5. Final Tax Regime
6. Tax Credit
7. Income From Business
8. Tax on Tax
9. Losses
10. Minimum Tax
11. AOP

BY : Kashif Nawaz Jakhar
Contact No# 0331-4791167

INCOME TAX (Tax Year 2012)

PREFACE
Al-Hamd-O-Lillah, the 2nd addition of “Short Notes on Income Tax”
has been completed. These notes have been prepared under the
senior guidance of my dearest teacher Mr. Imran Shehzad (ACA) sb,
who guided me through the way in the preparation of such quality
notes for the students of Module-C.
In these note, I covered almost all the material areas covering upto
50 to 60 marks in the paper including numerical calculations and
fair presentations of the conceptual queries frequently asked by the
ICAP-Examiner.
These notes include:
a) Salary
b) Income from property
c) Income from business
d) Capital Gain (37 & 37A)
e) Income from other sources
f) Final Tax Regime
I try to retain the focus of the ICAP-examiner in paper construction
relative to the marks allocation as:
Topics
Individual or AOP
Conceptual queries

Marks
20-25
30-35

I recommend to study these notes with reference to
“ INCOME TAX & SALES TAX ” Khalid Petiwala’s Notes.
I hope my efforts will help you to retain maximum marks in your
examination.
Utmost efforts have been made to make these notes free from
errors, yet there is always a room for improvement. Any suggestion
from you will highly be appreciated.
Kashif Nawaz

By : Kashif Nawaz Jakhar

Page 2

INCOME TAX (Tax Year 2012)

TABLE OF CONTENTS
Sr. no. Topics

Page no. Sr. no. Topics

Page no.

1

Basic concepts

5

12

Bad Debts

36

2

Salary

9

13

SPV

37

3

Provident Fund

11

14

Methods of
Accounting

39

4

Employee Share
Scheme

12

15

Minimum Tax

40

5

Capital Gain

13

16

Losses
( concepts )

43

6

Final Tax
Regime

15

17

Losses

45

7

Tax Credit

19

18

Group Taxation 49
& Group Relief

8

Income From
Business

22

19

AOP

53

9

In-admissible
Expenses

25

20

Tax on Tax

57

10

Depreciation

27

21

Share from
AOP

59

11

Amortization

35

22

By : Kashif Nawaz Jakhar

Page 3

INCOME TAX (Tax Year 2012)

COMPUTATION OF TAX LIABILITY (Under NTR)

Part A
Profile of Assessee

Part B
Computation of Income

Rs.

Name:

Salary ( U/S 12 )

xxx

NTN :

Income From Business
a) Speculative

Xxx

(1) Personal Status
I.
II.

Salaried
Non-Salaried

III.

AOP

IV.

Company

II.

Resident
Non-Resident

III.

Pakistan source

IV.

Foreign Source

(3) Tax Year
I. Normal tax Year

Tax on Tax Able Income

xxx

Tax on person
Add :
Income Prom Property
Capital Gain ( U/S ) 37A

Capital Gain ( U/S 37 )

xxx

Tax Credits:

Income From Other Sources

xxx

Less: Allowances

Less:

Senior Citizen Allowances
(xxx) Full time Teacher Allowances
(xxx) Foreign Tax credit
(xxx)
(xxx) Less : Average Relief

(xxx)
(xxx)
(xxx)

xxx
xxx

(xxx)
(xxx)
(xxx)
(xxx)

b) Non-Speculative

WWF
WWPF
Zakat
Donations U/S 61

(2) Residential Status
I.

Part C
Computation of Tax Liability Rs.

Add:
Income from property
Capital gain ( U/S ) 37 A
Total Income
( excluding share from AOP )

xxx

Investment in shares
Contribution to PF
Donation
Profit On debt

xxx
xxx
xxx

Less; Advance Tax

Add:
Share from AOP

xxx

Total Taxable Income

XXX

II. Special Tax Year

Collection of Tax
Deduction of Tax
Advance Tax ( u/s 147 )
Tax Payable /Refundable

III. Transitional Tax Year

By : Kashif Nawaz Jakhar

Page 4

(xxx)
(xxx)
(xxx)
XXX

INCOME TAX (Tax Year 2012)
INCOME TAX ( Tax year 2012)
TAX LAWS

Income Tax Ordinance

Ordinance

Income Tax rules

Explanation

Schedule

STATUS

Personal Status

Individual

Salaried

Residential Status

AOP ( 25%)

Company ( 35%)

Resident

Non Resident

Non Salaried

 Salaried Person :
Total Salary Income . X 100=If answer is >50%,then salaried person.
Total Taxable Income

 AOP ( Association of person ) 25%
 Resident when control and management of affairs is
situated wholly or partially in Pakistan.
 AOP may be a * firm * joint venture * Hindu undivided
family * but does not include a company.

By : Kashif Nawaz Jakhar

Page 5

 Resident :  183 or more days  Half day consider full day NOTE: Only transit days are excluded. provincial govt. Non resident Only Pakistan source income is taxable By : Kashif Nawaz Jakhar Page 6 . .INCOME TAX (Tax Year 2012)  Company : 35% (1) private (2) Public (3) Banking  Company incorporated in Pakistan . Resident Both incomes are taxable 2. Computation of Taxable income Income is classified as by law  Geographical Source of Income 1) Pakistan source Income 2) Foreign source income  Heads of income  Regimes 1) Normal 2) Final SCOPE OF TAXABLE INCOME 1. and local govt. are resident  Other companies are resident if control and management affairs are situated wholly in Pakistan.

Foreign source income of a short term resident  Pakistan source income is taxable  Foreign source income exempt which is not brought / received in Pakistan  He is in Pakistan only for employment not for business  Present in Pakistan for not exceeding 3 years 4. Foreign source income of a Returning Expatriate  non resident for last 4 years  National of Pakistan  An individual  Income ( current & next year exempt ) TAX YEAR Normal Tax Year Special Tax Year 1july 02------30june 03 A period of 12 months ending on 30th June 1-10-2008-to 30-09-2009 A period of 12 months ending on any date other than 30th June By : Kashif Nawaz Jakhar Transitional Tax Year Whenever there is a change in tax year the period in between the normal tax year and special tax year is treat as transitional tax year Page 7 .INCOME TAX (Tax Year 2012) 3.

Any benefit given by tenant to his landlord is rent  Income from business  Trade .. 4. jewelry  Income from other sources  If any income does not fall under any other heads . 3. 5. Mod of payment is irrelevant II. Salary Income from property income from Business capital gain income from other sources  SALARY : ( taxed on receipt basis )  relationship of employee and employer  Cash basis  Income From property : ( taxed on accrual basis )  Rent from immoveable property ( Land & building )  Forfeited deposit against sale of immovable Property Only for that year in which Forfeited  Advance unadjusted Rent {Unadjusted amount X 1/10} in that year  Signing amount Note : I. postage stamp.INCOME TAX (Tax Year 2012) HEADS OF INCOME 1. coins . any profession  Capital Gain ( gain from disposal of capital assets )  Shares . then it will be under the head of income from other sources. manufacturing . e. 2.g. Dividend By : Kashif Nawaz Jakhar Page 8 .

Personal II. Components of salary Basic Salary T.T )  Medical allowance (exempt upto 10% of B.E ) (T. bills Comp.T     Perquisites Allowances Accommodation Conveyance Medical facility Others benefits   H.Allowance ( T.INCOME TAX (Tax Year 2012) SALARY Any kind of benefit transfer or given by employer to employee will be taxed and it will be add in the salary income of the employee. shares TA / DA Terminal benefits     Gratuity Provident fund Pension Golden hand Shake Perquisites 1) ACCOMMODATION : 45% of BS or Actual Expense of employer(rent) ( whichever is higher = add in salary ) 2) Conveyance:  Only for office use  Owned ( cost ) I.T ) b) Re-imbursement c) Insurance Amount contributed by employer will be added in salary By : Kashif Nawaz Jakhar Page 9 . Personal II. Personal + Business use  Leased ( FMV ) I.R. Under the contract Not Under the Contract ( T.S)     Loans U. ii. Personal + Business use ( T.E ) ( 10% ) ( 5% ) ( 10% ) ( 5% ) 3) Medical Facility : a) Facility Given i.T ) Conveyance allowance ( T.

By : Kashif Nawaz Jakhar Non employee Non resident Not received in Pakistan Re-employment Page 10 . iii. In case of re-employment with same employer or group No amount will be exempt 2. Government II. ii. 75000 or 50% of gratuity amount ( lower will be exempt) Note : unapproved conditions or exemptions will be not applied on the following Cases.000 ) Rs.  Terminal Benefits 1. Facility ( T.200. Allowance ( T. Scheme b. In case of 2 or more than 2 pensions ( higher will be exempt) b. Fund III. iv.INCOME TAX (Tax Year 2012) 4) Medical facility & medical Allowance both given i. Facility ( T.T ) b. Gratuity a. Pension ( Exempt ) a. i. if no additional cost incurred by the employer  Other Benefits :  Loan provided by employer Loan X 14% X time = XXX add in salary Note : if any interest paid by employee then that amount will be deduct from above answer .E ) ( T. ii. Under the contract a.E ) (exempt upto Rs. Approved I. and the remaining will be added in salary. Unapproved ( T. Allowance (Exempt upto 10% of BS ) 5) Asset is given to employee Permanently FMV of Asset – payment by employee = add in salary 6) Marginal cost: Nothing will be added in salary.T ) Not Under the contract a.E ) b.

+ Employer Cont.a) 10% X ( BS + DA ) Whichever Or 100. = Employer + employee contribution Unrecognized PF Annual X Withdrawal Employer Contribution + interest = add in salary Recognized PF Note X Note: Rs. By : Kashif Nawaz Jakhar Page 11 . Rs. Balance X Rate If any figure missing we can calculate with the help of above formula .a ) 1/3 X ( BS + DA ) Whichever Or 16% X Acc. Provident Fund.000 is lower Interest on Acc. Employer contribution (p. Balance (p.Balance is lower XXX (xxx) XXX add in salary XXX add in salary XXX (XXX) Note : Acc. Balance = Employee cont. + interest Formula ::: ( For calculate missing figure ) Interest = Acc.INCOME TAX (Tax Year 2012) 3.

70 On march 2010.INCOME TAX (Tax Year 2012) EMPLYEES SHARE SCHEME 60 Capital Gain Rs. FMV = Rs. 50/share Offer value = Rs. 10 = FMV – Offer Value By : Kashif Nawaz Jakhar Page 12 .20 Benefit given by Market 40 Salary Rs.60/ share Sale = Rs.5000 Option sale of 200 shares @ sale price Rs.40/ share SOLUTON: Persons Kashif Rameez Salary Capital Gain Salary 2010 4000 X X 2011 X X 5000 (500 X 10 ) Capital Gain 500 X 30 = 15000 X Farhan Salary 2600 {3000-(200 X 2 ) Capital Gain 2012 X X X X X 3000 (300 X 10 ) 6000 {300 X (60-40)} SP-FMV=70-40=30 X X Here Rs. 30/share No. 3000 Acquisition of shares Balance(300) Acquisition Sale Rs.10 Benefit given by employer or company 30 Example : Persons Kashif Rameez Farhan 2010 2011 2012 Option sale = Rs. of share = 500 shares Advance = 2 per share On march 2011 FMV= Rs.

By : Kashif Nawaz Jakhar      Shares of public limited company Redeemable debentures Modaraba certificates PTC vouchers Derivatives If these assets sold  With in 6 months = 10% of gain is taxable  With in one year = 7.INCOME TAX (Tax Year 2012) CAPITAL GAINS Definition : The Gain from Disposal of Capital Assets.cost of disposal  I. C A B Explanation: a) Gain  b) Disposal Sale price/FMV --. 100% add in taxable income.75% add in salary c) Capital Assets  Disposal Means  Sale  Transfer  Destroyed  Gift  Relinquished Capital Assets : These o o o o o So. & 75% of gain is taxable Capital Gains 37 Gain/Loss 37 A Gain Taxable income in case of Gain I. are not capital assets Immovable Intangible Depreciable Stock-in-trade Other movables ( cars ) These are Capital Assets o Shares o Debentures o Shares of Private company o Shares of AOP o Membership cards of stock exchange After one year 25% of gain is Exempt.100% add in taxable income II. Disposal within year. Disposal after one year . Sale with in one year . Disposal after one year . 75% add in taxable income.5% of gain is taxable  After one year = No tax Page 13 . II.

INCOME TAX (Tax Year 2012) Non recognition rule: under the following conditions income is not taxed. 1) Inheritance 2) Gift 3) To transfer to a spouse 4) In case of dissolution of a company ASSETS whose Gain is Taxable But no treatment of loss 1) 2) 3) 4) 5) Jewelry Coins Medallions Postage stamp Sculpture By : Kashif Nawaz Jakhar etc Page 14 .

AOP 25% III. By : Kashif Nawaz Jakhar Page 15 . NTR ( normal Tax Regime ) 2. Company 35%  Incomes should be under there related head of incomes  Revenue – Expense = Income  Sale price – purchase price = income  Return file in case of NTR. Dividend for o Company Shall be considered under NTR. NTR : Just add the income on the basis of persons and applied tax.INCOME TAX (Tax Year 2012) Final Tax Regimes Regime: Traditions 1. FTR ( Final Tax Regime ) 1. So for companies the dividend shall be recorded under the head of “Income from business “ in case of banking business.  PERSONS I. 2. Individual  Salaried  Non Salaried II. Note i. FTR :  No expenses are allowed e. Dividend for o Individual o AOP Shall be considered under FTR ii. Revenue = income  No heads of incomes  Tax rates are independents for persons  No loss  Income is Tax on gross basis  Statement file in case of FTR.g.

Solution : Formula : 875 . X 100 = 1000 87.5 By : Kashif Nawaz Jakhar Page 16 . e.INCOME TAX (Tax Year 2012) Dividend Income : Dividend income shall be deducted @10% of gross dividend which shall be considered full and final tax for the other than a corporate shareholder .g. Net dividend after deducting Tax and Zakat is Rs. 875 Calculate gross dividend .

So the tax deduct or collect on such items is Final tax. Dividend . Price winning . imports D I C E = = = = Deduction from Income Collection from Expense 3. Deduction Of Tax: Deduct from Income Payer will deduct the Tax in case of deducting authority Income over which Deduction of Tax Applied Supply of Goods . Advance Tax : ( NTR ) The items which fall under NTR ( according to law ). Withholding TAX Aisa tax jo kisi bhi source say collect ya deduct hova hoo. Collection Of Tax :    Formula to Remember Collect from expense Services provider will collect the tax Expenses over which Collection of tax applied Cell phone payment . Final Tax : ( FTR ) The items which fall under FTR ( according to law ). So the tax deduct or collect on such items is Advance tax 4.INCOME TAX (Tax Year 2012) Important Terms  Deduction Of Tax  Collection Of Tax  Advance Tax  Final Tax 1. Export    2. Services . By : Kashif Nawaz Jakhar Page 17 . Salary .

Compulsory to pay as final tax Condition Turnover > 5 m but < 10 m Turnover > 10 m By : Kashif Nawaz Jakhar Rate of Tax Rs.25000 + 0.25000 + 0.75% of Turnover > 10 m Page 18 .5% of Turnover > 5 m Rs.INCOME TAX (Tax Year 2012) Table For understanding Persons Supply Trading Manufacturing Contracts Individual/ AOP Unlisted companies listed companies FTR FTR FTR FTR NTR FTR NTR NTR NTR Retailers ( sale goods for final consumptions ) Individual / AOP Turnover < 5 million Turnover > 5 millions Option to pay tax @ 1% of Sale as Final Tax.

XXXX (xxx) (xxx) (xxx) . By : Kashif Nawaz Jakhar . Page 19 .INCOME TAX (Tax Year 2012) TAX CREDIT Rs. Tax liability Less: Senior citizen allowance Less: Full time teacher allowance Less: Foreign Tax Credit Less: Less: Less: Less: Investment in shares Pension fund Donation Profit on debt (xxx) (xxx) (xxx) (xxx) XXXX (xxx) Less: Advance Tax or Tax Payable XXXX Tax Refundable (f negative figure) (XXXX) Note( Related to Tax Credit ) Lower Invest.000 ------ Profit on debt Actual Amount 30 % ------ 50 % % of taxable income 750.000 FORMULA : A X Lower = Tax credit Taxable Income . In shares Pension Fund Donation Actual Amount Actual Amount Actual Amount 15 % 20 % 500. A .

or A researcher of a recognized non-profit educational or research institution including government training and research institution .750.I Lower Profit on debt   Loan for house build.9 & 2. Then his tax payable shall be reduce by 75%. If the foreign source income of a resident person is taxable in Pakistan then the taxpayer shall be allowed tax credit in respect of foreign income tax paid by him as lower of: not Then his tax liability shall be reduced by 50%. Must be original allottee Did not dispose in one year o o o actual 15 % of T.INCOME TAX (Tax Year 2012) Rules Of Tax Credit : Conditions Senior citizen allowance Full time teacher allowance Foreign tax credit Eligibility amount   Age 60 years or more Taxable income does exceed Rs.   Investment in shares Foreign income tax paid.10 of K.500.000 Lower Contribution fund to o pension See illustration no.000   A full time teacher .  actual  20% of T. o o Shares must be of listed Comp. 2.I Rs. Loan from bank or financial institution    Actual 50% of T.000     Approves Institution Govt.I Rs. and Pakistan tax payable in respect of foreign source income at average rate of tax. 10.I Donation   Eligible person (u/s 19A ) PF must be approved   Actual 30% of T.petiwala By : Kashif Nawaz Jakhar Page 20 Lower Lower .00. hospital Not trough CASH May be direct or by cheque.

T) X Tax payable X 75% = XXX Taxable Income Where : F.T.T means = Full time Teacher After deducting senior citizen allowance  Foreign Tax Credit : Formula : Tax payable(Note 1) X Foreign source income = xxxx Taxable Income Tax paid in foreign Country = xxxx Note 1 : Tax Payable xxxxx Less: Senior citizen allowance (xxxxx) Less: Full time Teacher allowance (xxxxx) Tax Payable ( Note 1 ) xxxxxx By : Kashif Nawaz Jakhar Lower will be deducted from tax payable Page 21 .T.INCOME TAX (Tax Year 2012)  Full Time Teacher Allowance : Formula : Taxable salary(as F.

* Tax * Personal expenditure By : Kashif Nawaz Jakhar Pre-commencement Dis-Allowed (80% discussion) Or ( inadmissible ) Research & Development Conditionally e.g. * salary in certain condition paid through cash * Tax is deducted Page 22 .INCOME TAX (Tax Year 2012) INCOME FROM BUSINESS Taxable Income (Income – Deduction = T.g.Income) Deduction ( 5 % discussion) ( 95 % Discussion ) Exempt Non speculative Speculative WE discuss about it: 1: Definition 2: Losses Special (Separate Calculation) Depreciation Allowed (20% discussion) Or ( Admissible ) Amortization Without any condition e.

INCOME TAX (Tax Year 2012) Example : ( of allowed and disallowed expenses ) !!!!!!!! Income statement according to IAS !!!!!! Particulars Rs. 500 Add: Disallowed Expenses Salary Depreciation Income tax 10 50 40 100 Less: Allowed Expenses: Dividend Income Depreciation 20 70 (90) Taxable Income By : Kashif Nawaz Jakhar 510 Page 23 . Purchase Opening Stock Factory Salary Depreciation Admin salary 300 100 40 70 30 Sales Closing Stock 1000 50 Profit 510 1050 1050 Solution : Computation OF Taxable Income : Rs. Particulars Rs. Accounting Profit Rs. Particulars Purchase Opening Stock Factory Salary (10) Depreciation (70) Income Tax Admin salary 300 100 50 50 40 30 Profit 500 Rs. Sales Closing Stock Dividend 1000 50 20 1070 1070 !! Income statement according to Income Tax Ordinance 2001 !! Particulars Rs.

337.INCOME TAX (Tax Year 2012) SECTION.000 Income under NTR ( expenses are allowed ) = Rs. Apportionment of Expenses : e.000 30. FTR Common Expenses 500.g.000 (turnover) Expenses 600. ALLOWED EXPENSES All expenses incurred for business.000 purchases salary depreciation Income under FTR ( no expenses allowed ) = Rs.778 Formula for calculate Expense: Sale(under NTR) Total Turnover By : Kashif Nawaz Jakhar X Expense = xxxx Page 24 .000 Expenses Expenses 333333 27778 16667 266667 22222 13333 =900. 20. 500.000 50.000 NTR 400.

commission o Deducting the authority but did not deduct tax o Then the tax expense not allowed.g.  Salary Paid Notes : o Salary . XXX XXX ( Trading Liability ) . a. XXX ( Trading Liability ) . Salary XXX To Salary Payable c.INCOME TAX (Tax Year 2012) Section . Cash To Loan XXX b. Z By : Kashif Nawaz Jakhar XXX ( Capital Liability ) . TRADING LIABILITY Those liabilities which effect the P & L A/C e. Purchases To Mr. 21: In-Admissible Expenses  Not Allowed Expenses: Following expenses are not allowed  TAX :  Income Tax  Sales Tax  Advance Tax  Violation Of Law ( Penalty ) Allowed (For Business) Disallowed (Against Law)  AOP Salary or other benefit by AOP to its members are not allowed. Page 25 .

e. hospital ( Chapter #2) Rate: 30 % 30 % Conditions: o Pay in cash o By cheque o In any kind Conditions: o Do not pay in cash o By cheque o In any kind  Preliminary Expenses: are disallowed upto commercial production ( pre-commencement expense )  Trading Liability: Not paid with in 3 years.INCOME TAX (Tax Year 2012) DONATION INCOME TAX U/S 61 of 2nd Schedule Less: ( as Zakat ) Rate: Donation to approved institution.g. Govt. By : Kashif Nawaz Jakhar Page 26 .

FORMULA : ( cost – initial allowance ) X Rate of depreciation e. ( 100 – 50 ) X 10% = 5 INITIAL ALLOWANCE ( Rate 50% ) All depreciable assets are also eligible depreciable assets except the following : 1. Transport vehicle not plying(use) for hire e.  Depreciation shall be charged after deducting initial allowance . Furniture and Fixture 2. INITIAL ALLOWANCE ON VEHICLE CASES Rent a car + Daewoo ( eligible depreciable asset ) By : Kashif Nawaz Jakhar Director’s car + company car ( not plying for hire ) Page 27 .INCOME TAX (Tax Year 2012) Chapter # 12 DEPRECIATION The Rules and Regulation For Depreciation Rules:  Depreciation shall be charged on depreciable assets. Second time used plant and machinery Note: In Pakistan one asset is : Depreciable + eligible depreciable asset Only for 1st user . For all other users that asset will be only a depreciable asset.g. business or rent a car 3.g.

INCOME TAX (Tax Year 2012) Eligible depreciable Assets:  Life more than one year  Subject to wear and tear  For business use IMPORTANT NOTES  Initial allowance @ 50% shall be charged on the eligible depreciable assets in the 1st year only. By : Kashif Nawaz Jakhar Page 28 .  Depreciation shall be charged on reducing balance method. Depreciation Rates Depreciation rates are as follows. Rates 10 % Assets Building 30 % Computer and related equipment 15 % All other assets HINT Try to compute depreciation in the examination / prepare the depreciation schedule on written down value bases.

50. By : Kashif Nawaz Jakhar Page 29 .000) 4.000 (5. 30.000 50.INCOME TAX (Tax Year 2012) Assets use partially for Business: If an asset .000 5.000 NOTE  Full year depreciation charge in the year of purchase.000 (50.00.30.00.000 60 % 5. we will charge  deprecation proportionally  BUT initial allowance fully Example: Business use ( 60 % ) & for other objectives ( 40 % ) Full yearly Cost Initial allowance Depreciation 10. use partially for business and partially for other objectives .000.  No depreciation is charged in the year of disposal.000) 5.000 (60%) .00.00.00. 5.

INCOME TAX (Tax Year 2012) GAIN or LOSS in disposal of Depreciable Asset: The gain or loss on disposal of depreciable assets charged to income from business. COMPUTATION OF GAIN or LOSS Gain or Loss = Sale price/FMV ( higher) –. By : Kashif Nawaz Jakhar Page 30 .  No depreciation is charged in the year of disposal.Tax WDV WHERE: Tax written down value = Cost – Tax depreciation WHERE: Tax Depreciation = Depreciation + Initial allowance NOTE  Full year depreciation charge in the year of purchase.

000 – 361250 Gain = 138750  it’s the income from business in 2009.  now less depreciation Rs.000 650.000 500.000 2008 Depreciation(15%) (63750) 361250 (63750) 361250 127500 2009 Depreciation(15%) (54188) 307062 (54188) 307062 108376 b(II) Computation of Gain or Loss Assume the plant sold for Rs.000 in 2009.g.000 (75000) 425.000 (75000) 425.000 150.000) 500. = sale price – tax WDV = 500.000 10. By : Kashif Nawaz Jakhar Page 31 . now compute the gain or loss. numerical example Year 2007 cost Initial allowance(50%) Depreciation(15%) Furniture & Fixture Plant 500.000 Tax allowance 500.000 (500.500.INCOME TAX (Tax Year 2012) Examples : a(I) Computation of Depreciation e. 54188 of this year from this income .00.

000) 500. b(II) !!!! Calculation of Profit or Loss !!!!!!!!! when !!!!!Asset partially used for business !!!!! Assume the plant sold for Rs.000 – 583250 ] = 83250 income from business By : Kashif Nawaz Jakhar Page 32 .000 – [ 10. = sale price – Tax WDV = Sale price .INCOME TAX (Tax Year 2012) a(II) Asset Partially Used For Business (assume 60% for business use ) Year 2007 Plant Cost Initial allowance Depreciation(15%) 2008 Depreciation(15%) 2009 Depreciation(15%) 10.000 (75000) 425.000 45000 545.000 38250 583. allowance 500.500.000 (63750) 361.000 .062 Tax Allowance/ dep.( cost – depreciation allowances ) = Sale price – [ cost – ( initial allowance + depreciation)] = 500.250 (54188) 307.250 NOTE: the depreciation column must be draw and calculate depreciation.000 (500.00.00.

000 Page 33 .g.g. at which that was purchased. e. out of Pakistan . 1500.000 Case 3: NOTE: It is assume that the asset .000 X 15 % 1020.000 *Where 1500. So. “” CAR “” its not about vehicle .000 ( 180.000 = 1275.000 By : Kashif Nawaz Jakhar “ Y “ car 1200. 1500. we will consider Rs.000 ) 1200.000 – 225. Tax depreciation = Gain 500. e.sale price + tax Depreciation = cost – cost + tax Depreciation = Tax depreciation = Tax depreciation “”It means that the INCOME will be equal to the TAX DEPRECIATION “”. because all cars are vehicle but all vehicles are not cars.000 ) 1500.00. Year 2010 “ X “ car Cost Depreciation ( 15 % ) 20. 1500. Maximum cost of car is Rs.000 = 500. then the cost shall be consider as sale price sale price will be consider as cost.000 X 15 % Written Down Value *1275.INCOME TAX (Tax Year 2012) Cases for Gain or Loss ( three cases ) Exceptions: Building ( Case 1 ) Export of use asset ( Case 2 ) = sale price – Tax WDV = Sale Price – ( cost – tax Depreciation ) NOTE: = sale price – Tax WDV = Sale Price – ( cost – tax Depreciation ) NOTE: If sale price is above the cost price If a used asset sold.000 NOTE Even it is purchased above the Rs. =Sale Price – ( sale price – tax Depreciation ) = cost – ( cost – tax Depreciation ) =Sale Price .000 ( 225. sold at price .000 and the depreciation will be calculated on this amount.000 . So.

000 ) By : Kashif Nawaz Jakhar = sale price – Tax WDV = 1500. X 100 20. 1500.000 So.000 “ Y “ car = ( sale price x n ) – Tax WDV = 1125.000 Gain = 480.INCOME TAX (Tax Year 2012) ASSUME Both cars were sold for Rs.00. sale price = 1500.000 X 75% = 1125.20. jitni cost ki %age allow ki gai thi FORMULA : n= 1500.000 . = sale price – Tax WDV and .000 X 100 cost only for those assets whose cost id above Rs.1500.000 – 1275.000 each NOTE: sale price ki amount utni laini hai .000 Page 34 .000 “ X “ car 1500.000 – 10.000 Loss = ( 150.

2011 = 200. 300. .INCOME TAX (Tax Year 2012) AMORTIZATION      NOTE amortization is allowed on intangible assets.000 Life = 15 years Date of purchase . amortization shall be charged on per day used method.000 . e. = 14168 = 14876 7 X 365 2012 Patent Purchase price= Rs.000 . cost 2011 = useful life Solution.000 NOTE: use full life in days By : Kashif Nawaz Jakhar Page 35 . x 181 = 300. 1-1-2011 Year end = 30 June.g.000 . Year Copy Right Purchase price= Rs. x days used = cost .000 Life = 7 years Date of purchase . x 365 7 X 365 = 28571 x days used x 181 10 X 365 = 300. 2011 Solution. in this case. 1-1-2011 Year end = 30 June. x 365 10 X 365 = 30. useful life = 200. intangible asset--------definition .000 . 200. no amortization in the year of disposal the maximum life of a intangible asset is 10 years. if life exceeds 10 years or unknown . 10 years will be consider as the life of intangible asset.

it will the income for 2009 under NTR.0000 20. A B C Situations. Formula : Allowed – Actual = + or – NOTE If answer is + then = add in income from business If answer is .000 50.000 in Tax` Department for allowing us expense.000 on credit in 2009.000 D 80. A didn’t pay back.000 ---income Ways of asking question about Bad Debts in exam. we claim Rs. 1) Conditions of Bad Debts : how to claim bad debts in the department. 50. 100. 2010 : Mr.000 50.expense allowed 30.000 ---Income No treatment 50.000 --. 2011: No.000 Nothing nil 50.INCOME TAX (Tax Year 2012) BAD DEBTS Sale to Mr. A for Rs. but tax department allow expense to us Rs. 100.then = less from income from business By : Kashif Nawaz Jakhar Page 36 .( bad debts ). (Receipts) Actual Bad Debts Tax Treatment 100. 2) Recovery of Bad Debts : Tax treatment .000 100.000.

50.000 500 11. Amount of Lease ( Rs. ( Rs.000 ) Depreciation ( 10.000 1.500 Expense claim in Tax : The amount which paid against lease that amount will be allowed.INCOME TAX (Tax Year 2012) !!!!!!! Perquisites for claiming Bad Debts !!!!  The amount must be declared as income before. 50.000 ) Capital Interest ( 1000 ) Insurance ( 500 ) Expense claim in accounting : depreciation Interest Insurance 10. !!!!!!! ACCOUNTING TREATMENT OF LEASE !!!! amount paid for lease. NOTE : it is not necessary that the department will allow the whole amount as expanse which we claimed in the department.(pahly)  Entry of bad debts has been passed in the books of accounts.000 ) By : Kashif Nawaz Jakhar Page 37 .

e.INCOME TAX (Tax Year 2012) !!!!!!!!! PROFIT ON DEBT !!!!!!!! ( Interest )  We borrow the amount . BANK Loan & lease are both allowed to SPV.  So interest is our expense ALLOWED EXPENSE  debt is utilized for business . SPV: Originator SPV .g. SALE OF DEBTOR  SPV Special purpose vehicle A person or Organization which used for special purpose. That income will be exempt because income earning is not its objective. SPV Originator 6 million By : Kashif Nawaz Jakhar 1 m --income(exempt) 5 m – loan return Bank Page 38 .5 interest 5 m loan single company = loan 5 million Group = loan 20 million NOTE NOTE loan from subsidiary is not allowed . NOTE If any Income earned by SPV .its not the part of cost.5 interest Itefaq Itefaq ( IT ) (Sugar) Investment .

By : Kashif Nawaz Jakhar 20 80 Rate : 25 % Page 39 .INCOME TAX (Tax Year 2012) METHODS OF ACCOUNTING Accrual Basis ( Absorptional Costing ) Company Cash basis ( Marginal Costing ) Individual / AOP Option Closing Stock Valuation Absorptional Costing ( Add all kinds of Costs ) Marginal Costing ( Fixed FOH will be excluded ) e.g. Factor of Production Absorptional Costing Factor of Production Marginal Costing Material Labour FOH Variable Fixed 50 10 Material Labour FOH Variable 50 10 20 10 90 Define Small company .

excise duty  Services  Share from AOP  Provisions : 1st Year 2nd Year forward Excess of actual Tax Liability shall be carry for subsequent 3 years.  Sale Excludes sales tax .  Who will pay Tax :  Resident Company  Individual having Turnover 50 million or Above.INCOME TAX (Tax Year 2012) MINIMUM TAX  Rate : 1 % of Turnover Higher Or Actual Tax Liability  income is exempt .  Turnover : means. Higher of :  Actual Tax liability &  1 % of Turnover will be payable.O from Actual Tax Liability will be advance tax and that excess amount will be deduct in the next year from actual tax liability.  AOP having 50 million or Above. And then the remaining of actual tax liability will be compare with 1 % of turn over. By : Kashif Nawaz Jakhar Page 40 . Advance Tax = Actual Tax Liability – 1 % of Turn Over Advance Tax =Remaining Actual Tax Liability – 1 % of Turn Over HINT Excess of 1 % of T.

By : Kashif Nawaz Jakhar Page 41 .INCOME TAX (Tax Year 2012)  EXCEPTIONS:  Minimum tax not apply . o o o Hospital or educational institution for the benefit of employees. receiving income from services.  Employee Training and Facilities : allowed expenditures other than capital expenditures .g. Modaraba . if business entity declare gross loss before depreciation and other inadmissible expenses. PHD  TAX paid on import Stage : Tax collected by collector of custom on import of.  no adjustment or refund shall be allowed.g. who is not Tax deducting authority then the said services income is not subject to minimum Tax. NOTE : HINT Services provided to a person . non-profit organization.  Minimum tax not apply on certain cases. e. e. This provision of minimum tax is not applicable for a company . For the training of industrial workers run by federal or Provincial Government Training of citizen of Pakistan .  Commissioner has the power to re-asses the income.  edible oil &  packing material  TAX deduct from services as minimum Tax :  6 % at source from gross income.

if expenditure incurred in Pakistan  For business purpose !!!!!! Scientific Research !!!!! Any activity in the field of natural (mining. 30. 1500 Monthly bill exceeds Rs. oil refinery) or Applied Science (new technology) for the development of human knowledge.400 but does not exceeds Rs. By : Kashif Nawaz Jakhar Page 42 .80 to Rs.  No refund or adjustment shall be allowed.INCOME TAX (Tax Year 2012)  Advance Tax on Electricity Bill As minimum Tax : advance tax is payable on 1. 20.000 per month shall be treated as minimum tax. Industrial Bills RANGE : TAX Amount From Rs.  Scientific Research Expenditure :  Deduction allowed .000 Users Rate Commercial Industrial 10 % 5%  Electricity bill for person other than Company :  Bill upto Rs. Commercial & 2. 2000 If monthly bill exceeds Rs.

A type ticket: A type ticket say ap train k box 1 & 2 main baith sakty hain.INCOME TAX (Tax Year 2012) CH # 15 : LOSSES General concepts : ENGINE 1 in urdu 2 3 4 Categories of tickets :  A type ticket  B type ticket  C type ticket Usage of tickets : explanation in Urdu. 1 & 2 main baith sakty hain. ager in boxes main jaga na hoo tu ap next any wali 6 ( six ) trains main bhe ap un k box no. aor ager is train main jaga nai hai tu ap any wali kisi bhi train main nai baith sakty. B type ticket: B type ticket say ap mojoda train k kisi bhi box main baith sakty hain. By : Kashif Nawaz Jakhar Page 43 . laiken in boxes k elawa ap kisi bhi aor box main nai baith sakty.

HINT for understanding mojoda train main bathny say morad hai ==== next train main bathny say morad hai By : Kashif Nawaz Jakhar set off ==== carry forward. Page 44 . 3 main hii baith sakain gay.INCOME TAX (Tax Year 2012) C type ticket: C type ticket ki madad say ap mojoda train k to kisi bhi box main baith sakty hain laiken ager mojoda train main jaga na hoo to ap next any wali 6 ( six ) trains main un k box no.

LOSSES under NTR.  Carry forward: Transfer to next year. HEADS OF INCOMES UNDER NTR  salary  income from property NO Loss  separate block of income  income from business  non-speculative  speculative  capital gain  37  37-A  other losses.  Inter head adjustment: adjustment in the same head. B type EXPLANATION:  A type: can be carry forward but they can by set off only against the incomes of their heads.  Set off : adjustment of one income or loss in other head .INCOME TAX (Tax Year 2012) Ch # 15. No Loss C type A type A type Losses can be set off only against the incomes from other items U/S 37 A. By : Kashif Nawaz Jakhar Page 45 . but they can be set off only in 1st year.  B type: can be set off only  C type: can be carry forward and set off. because under FTR losses and expenses are not allowed.

Compute taxable income II. Losses to be c/f. non-speculative By : Kashif Nawaz Jakhar Case 2 Rs.(000) Salary Non-speculative business Speculative Capital gain Other Losses 500 (800) (400) 700 (300) Case 2 Rs. amount of loss to be carry forward Solution: I.INCOME TAX (Tax Year 2012) Example : 1 Case 1 Rs.(000) 500 (900) (400) 700 (300) Total Income 1200 1200 Requirement : I.(000) 1200 (300) 900 (800) 1200 (300) 900 (900) 100 ------ ( 400 ) ( 400 ) Page 46 .(000) Total Income Other losses Non-speculative business Total Income II. Case 1 Rs.

non-speculative (1000-900) ( 100 ) Speculative ( 400 ) By : Kashif Nawaz Jakhar ------( 400 ) Page 47 . amount of loss to be carry forward Solution: I.(000) 500 (1000) (400) 700 300 Total Income 1200 1500 Requirement : III.(000) Total Income Other losses Case 2 Rs. Losses to be c/f.(000) 1500 Non-speculative business 1200 (300) 900 (900) Total Income ------- 500 .(000) Salary Non-speculative business Speculative Capital gain Other Losses or Gain 500 (1000) (400) 700 (300) Case 2 Rs.INCOME TAX (Tax Year 2012) Example : 2 Case 1 Rs. Compute taxable income IV. Case 1 Rs. (1000) II.

2009 2010 2011 ( 100 ) ( 200 ) ( 500 ) If there is gain in 2012 . then use FIFO method of adjustment of losses. B: In case of carry forward losses. 2012 2009 2010 2011 By : Kashif Nawaz Jakhar 10000 ( 100 ) ( 200 ) ( 500 ) 200 . year wise.INCOME TAX (Tax Year 2012) HINT A: In case set off losses. 1st set off other losses 2nd set off non-speculative business losses. Page 48 .

INCOME TAX (Tax Year 2012) GROUP TAXATION as a single fiscal unit. Basis of computation of income II.  Loss of any group will be set-off against income of any other group.  55% or more  75% or more NOTE in case of listed companies. 1984 will form. I.  Inter corporate dividend income with in the group companies entitled to group taxation shall be exempt . GROUP RELIEF { surrender of tax loss by a subsidiary company } Note  a subsidiary company may surrender its assessed loss ( excluding b/f loss and capital loss ) for the tax year in favor of its holding company or any subsidiary of the holding company. Features of group taxation: Note  100% owned group of companies locally incorporated under companies ordinance 1984. By : Kashif Nawaz Jakhar Page 49 .  The holding company shall directly hold . share capital of the subsidiary company as under.  consolidated group accounts as required under companies ordinance . Any un-adjusted loss shall be revert back to the subsidiary company and shall be carry forward in the normal manner. in case of non-listed companies. tax payable by the person  GT relief will not be available to losses prior to the formation of the group. The loss surrender by 1 subsidiary company may be adjusted by the holding company or subsidiary company against its business income in the tax year and the following two tax year.

the losses were surrender for two years. Page 50 . 2007----. So. 2010.INCOME TAX (Tax Year 2012) Example : S H stands for stands for 1st year = 30 subsidiary company holding company 2nd year = 40 S-2 H LOSS = 100 (surrender) Listed Company S-1 Assume : loss incurred in 2006 (adjusted in next 6 tax years) 2012. 2012 S-1 Remaining 30 were adjusted by original subsidiary company.2008 S-2 losses = 30+40= 70 By : Kashif Nawaz Jakhar 2009. 2011.

with the approval of Board of directors . Subsidiary company . 11. continuous the same business during the said period of 3 years. 2. 8. 3. 4. may . 6. equal to the amount of tax saving in this respect. 5. 7. As a consequences of disposal of shares during the stipulated period of 5 years . group companies are locally incorporated companies under companies ordinance 1984. board of directors approval of both the companies is required. The tax relief availed would be reversed if holding company’s equity interest falls below 75% or 55%. it is required to be listed with in 3 years from the year in which loss is claimed. The subsidiary company cannot surrender its assessed losses for more than the 3 tax years. Inter corporate dividend with in the group companies entitled to group taxation shall be exempt.INCOME TAX (Tax Year 2012) Conditions of Group Relief 1. Trading company with in the group shall be entitled to avail group relief. If the holding company is a private company. transfer cash to loss surrendering company . Ownership of share capital shall be continued for 5 years to the extent of 75% or 55%. Loss claiming company . all the companies in the group shall comply with specific corporate governance requirement. This transfer shall would not be allowed tax expense for the loss claiming company or taxable income for the loss surrendering company. 10. 9. By : Kashif Nawaz Jakhar Page 51 .

10 S-1 This Cash of RS.  Transfer of shares between the companies and the shareholder . By : Kashif Nawaz Jakhar Page 52 .10 received by Loss surrendering company will be not treated as income of this company. would not be taxable capital gain provided the transfer is .INCOME TAX (Tax Year 2012) Some Important Concepts S H stands for stands for 1st year = 30 subsidiary company holding company 2nd year = 40 Benefit = Rs15 S-2 H LOSS = 100 (surrender) Cash Rs. to acquire share capital for the formation of the SECP or STATE BANK has been obtained in this effect. in one direction .

2. If any partner have no income other than the share from AOP ( income from AOP ) then his . For calculating full time teacher allowance “share from AOP” shall be excluded. For average relief “share from AOP “ shall be included.0000 Actual Excluding Share from AOP Lower And : Tax liability X Lower Taxable income (Including share from AOP ) . For checking individual status “ share from AOP “ shall be excluded. Rules For 1. 4. Investment in shares 2. 6. profit on debt Assume for “ Investment in shares “ : 10% of Taxable income 300. this income ( share from AOP ) shall be exempt. In Case of Loss ( Loss of AOP ): Loss shall not be distributed among the partners . 5. Donations 3. 3. 7. In case of income: Income shall be distributed among the partners . if any partner have income other than the share from AOP ( income from AOP ) then his . Contribution in pension fund 4.INCOME TAX (Tax Year 2012) CH # 6 ASSOCIATION OF PERSONS ( AOP ) Important Notes 1. By : Kashif Nawaz Jakhar Page 53 . this income ( share from AOP ) shall be included only for tax purpose.

000 150.00.000 . 650.50.000 @ 10% Less: 500. Partners Rate of share Share from AOP Business Income A ( Individual ) B ( Individual ) C ( Ltd Company ) 20% 30% 50% 150. X share form AOP Taxable Income ( individual ) 65000 .000 ) Distributable Income 7.000 Tax Payable By : Kashif Nawaz Jakhar ( 15000 ) 50.000 65000 Tax ( individual) .50. business income Add: share from AOP Total Taxable Income Tax Liability Tax on Rs.000 375. Also compute tax payable .000 650. Solution : (i) Mr.000 . A Rs. Income After Tax Not Distributable Income Assume there are 3 partners of AOP. 10.000 225.000 ------------500.000 500. 650.000 X 150.INCOME TAX (Tax Year 2012) Example : Total taxable business income = Rs.000 Tax ( 25% ) = Rs ( 2.000 Requirement : compute taxable income of AOP and its members. Page 54 .

00.000 ( 93750) 212500 . B.000 Tax payable By : Kashif Nawaz Jakhar 500. B’s income shall be exempt because he has no income other than share from AOP.000 875. (iii) C ltd Company : Rs.000@ 35% Less: Tax ( of AOP) Taxable Income ( AOP ) . Mr. Page 55 .000 .INCOME TAX (Tax Year 2012) (ii) Mr.000 375. X 10.000 375. 875. 306250 X share form AOP 250. Business income Add: share from AOP Total Taxable Income Tax Liability Tax on Rs.

RS XXXXX Tax Liability Less : Senior citizen Allowance Less : Full time Teacher Allowance Less : Foreign Tax Credit Less Less Less Less RS XXXXX XXXXX XXXXX (XXXX) (XXXX) (XXXX) XXXXX (XXXX) (XXXX) (XXXX) (XXXX) XXXXX (XXXX) XXXXX Page 56 .INCOME TAX (Tax Year 2012) General Format of ( Income tax numerical ): Compute Taxable Income Salary Income Capital Gain Business Income Other source income Zakat Donation Add : share from AOP Taxable Income Computation of tax liability . Tax liability Property 37-A : : : : Investment in shares Donation Contribution Profit on debt Less : Advance Tax Tax Payable By : Kashif Nawaz Jakhar XXXX XXXX XXXX XXXX XXXX ( XXX ) ( XXX ) XXXXX ( XXXX ) XXXX .

12. How to Compute: Mostly in exam this amount will be given.500.000 instead of Rs. will be income of the employee because .000. Advance Tax Less from tax liability. so now Total salary = 500. it was basically the expense of employee .500.512. and paid by the employer.000 Tax employee paid by employer = 12.000 According to Tax department the tax paid by the employer .INCOME TAX (Tax Year 2012) TAX ON TAX Tax of employee paid by the employer.000 instead of Rs. Partially paid by employer and partially paid by employee Example Case 1: Total salary = 500. By : Kashif Nawaz Jakhar Page 57 . 510. Compute: Cases 1. Fully paid by employer 2. So now the Total salary of the employee will be Rs.000 is Rs.000 Tax employee paid by employer = 10.510. will be income of the employee because . Impacts: Tax Born by Employer 1.000. Income Tax in Salary. it was basically the expense of employee . 2. Assume Tax on Rs.000.000 Explanation : According to Tax department the tax paid by the employer . So now the Total salary of the employee will be Rs.

544% Advance Tax ( paid by employer ) By : Kashif Nawaz Jakhar 513050 13050 13050 ------ Page 58 . XXX @XXX % is = XXX 1 Marginal Relief Rs.000 Tax paid by employer = 13050 Total taxable Income Tax on Rs. Taxable Income = 500. Means : Tax on Rs. XXXX @ XXX % = XXX Marginal amount {difference between total taxable income and Marginal relief @ XXX% } = XXX 2 = XXX Lower of 1 & 2 will be Tax liability = XXXX NOTE the same calculation should be repeated for  minimum 3 times  Maximum 5 times After the repeated calculations now the individual will calculate tax as below. 513050 @ 2.INCOME TAX (Tax Year 2012) NOTE The Tax calculation will be same as we calculte in other questions. The following figures are assumed figures.

Y will be exempt Rs. X only for Rate purpose If we assume that Mr. Y have no any source of income other than share from AOP. EXAPMLE : Salary Electricity Bills Share from AOP Mr.400 is balancing figure Distributable Income Calculation of distributable income taxable Income ( AOP ) Less: Tax liability Distributable income 1200 (700) 500 THE END By : Kashif Nawaz Jakhar Page 59 .INCOME TAX (Tax Year 2012) SHARE FROM AOP  Computation of taxable income  Taxation of members Computation of taxable income : Assume share fro AOP is equally distributed among the members of AOP. X ( 50% ) Mr. So in this condition the share from AOP for Mr. Y ( 50% ) Total 50 ------200 10 40 200 60 40 400 250 250 500 This amount will be added in the income from other sources of the Mr.