Tax Credits – Summary

Tax Liability Personal Tax Rates a

Add: Separate Block Golden handshake etc. b
Income from property c
Capital Gains u/s 37 A d
Sale of Immovable Property e
Total (a to e) P
Less Tax Credits
Senior Citizen Allowance / Disabled Person
Category - A
Full Time Teacher or a Researcher Allowance Separate Working
Foreign Tax Credit
Average Relieves:
Allowances for Investment in Shares / SUKUKS (Insurance Premium Paid) K
On premium on health insurance K2 Category - B
Contribution to an Approved Pension Fund Y
Donations to Charitable Institutions L
T

𝑻𝒂𝒙 𝑨𝒔𝒔𝒆𝒔𝒔𝒆𝒅
Average Relieves = 𝑻𝒂𝒙𝒂𝒃𝒍𝒆 𝑰𝒏𝒄𝒐𝒎𝒆1 𝒙 𝑻
Category - C
Advance Tax

Type of Credit Conditions Necessary Calculation of Credit

Senior Citizen a) Taxable income up to Rs.1,000,000/-
Allowance / (Taxable income means income other than FTR
Disabled person income). Tax Liability (P) x 50%
(Para 1B of
Division 1 of 1st b) Taxpayer aged 60 years or more on the first day
of that tax year,
schedule)
c) Disabled person holding CNIC (age not
matters)
Full Time Teacher He should a full time teacher or a researcher,
or Researcher  Employed in a non profit education or research Tax liability of salary x 40%
Allowance institution.
(Clause 2 part III  Institution is duly recognized by Higher (Note if employee is also a senior
of 2nd Schedule) Education Commission (HEC), citizen, then reduce tax by 50% and
(FTTA)  a Board of Education or then apply)
 a University recognized by the HEC, including For senior citizen = Tax on salary x
government training and research institution,
50% x 40%
Foreign Tax Credit a) A person must be resident Lower of
u/s 103 (FTC) b) Foreign income is taxable in Pakistan Actual Tax Paid
c) There is no tax treaty between both countries. Or
d) Tax is paid within two years after the end of the The Pakistan tax payable in respect of the
tax year in which the foreign income to which income at average rate of tax:
the tax relates. 𝑭𝒐𝒓𝒆𝒊𝒈𝒏 𝑺𝒐𝒖𝒓𝒄𝒆 𝑰𝒏𝒄𝒐𝒎𝒆
( see also losses chapter for more practice) 𝒙 𝑻𝒂𝒙
𝑻𝒐𝒕𝒂𝒍 𝑻𝒂𝒙𝒂𝒃𝒍𝒆 𝑰𝒏𝒄𝒐𝒎𝒆

1
Taxable Income including share from AOP

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 Tax Credits – Summary
Average Relieves
Type Conditions Amount Lower of Rs.
A resident filer person other than a company 1- Actual investment
Acquiring new shares OR SUKUKS offered to the
(2shares, sukuks or
public by a listed or shares acquired from the
Privatization Commission of Pakistan (original allottee). insurance)
S 62 Shares are required to be held for 24 months from the
Allowances for 2- 20% of taxable
date of purchase. (reversal of tax credit)
Investment in OR 3
income
Shares (Insurance
 Any life insurance premium paid on a policy to a life K
Premium Paid)
insurance company registered by the Securities and 3- Rs.2,000,000/-
Exchange Commission of Pakistan.
(NOT FOR
 Having salary or business income
COMPANY)
 Insurance and life insurance is not surrender within 2
years of its acquisition (commissioner will re-
compute taxable income of previous years)

S 62 A A resident filer person other than a company; 4- Actual amount

Tax Credit for Health insurance premium paid;
5- 5% of taxable
Investment in To any insurance co. (registered under ins. Ordinance);
Health Insurance & income K2
(New) Deriving income from salary or income from business.
6- Rs150,000/-
(FOR INDIVIDUAL
ONLY)
An Individual holds NTN or Valid CNIC. 1- Actual amount
Driving income under the head salary or income from 4
S 63 2- 20% of taxable
business.
Contribution to an Contributes or pay premium in the year in approved income L
Approved Pension pension fund under the Voluntary Pension System
Fund Rules, 2005.

Paid by a crossed cheque or in kind to: 1- Actual amount

S 61
 Any board of education, educational institution 5
Donations to 2- 20% of taxable
or any university in Pakistan run by Govt. M
Charitable
 any govt. hospital or relief fund income
Institutions
 Any non-profit organization.
Total T

Other Issues:
3.3 Tax Credits for profit on Bahbood Saving Certificates – PIII of 2nd Sch. (Adjustment)
3.5.2 Donation u/c 61 of 2nd Schedule (Deductible allowances)
4.4 Profit on Debt - S 60 C (Deductible allowance)
4.5 Education Expense – S 60 D (Deductible allowance)

2
S 2(58) shares in relation to a company, includes a Modaraba certificate and the interest of a beneficiary in a trust
(including units in a trust)
3
Taxable income excluding share from AOP
4
However, this 20% limit shall be relaxed up to 30.6.2019 in case of a person joining the pension fund at the age of
41 year or above. Such person would be allowed an additional contribution of 2% per annum for each year of age
exceeding 40 years. However, such contribution or premium shall not exceed 30% of taxable income of the preceding
year
5
30% for Individual and AOP

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 Tax Credits – Summary

CFE – Group of Colleges

Class – Assignment
(Key area: Taxable Income, IFP, Business, CG)
ZJL Enterprises is run by Mr. Imran Shahzad and is engaged in the business of manufacturing and
supply of pharmaceutical products. Following information has been extracted from ZJL’s un-
audited financial statements for the year ended 30 September 2015.

Rs. in ‘000
Sales 218,500
Cost of sales (157,580)
Gross profit 60,920
Administrative and selling expenses (39,000)
Financial charges (4,700)
Other income 29,280
Profit before taxation 46,500

Additional information:
Sales includes:
(i) Sale of polio vaccines of Rs. 30,000,000 to Red Cross mission in KPK. The entire amount was
realized during the year.
(ii) Discounted sale of Rs. 3,600,000 to one of the NGO’s operating welfare hospitals in KPK province.
A discount of 25% was allowed to the NGO on their purchases.
(iii) Sales Tax is added in the sales tax @ 17%.

Cost of sales includes:

(i) Cost of opening and closing stock-in-trade of Rs. 25,690,000 and 29,200,000 respectively comprising
of raw and packing materials, work-in-process and finished goods. ZJL computes the cost of stock-in-
trade using marginal cost method. The values of opening and closing stock-in-trade under absorption
cost method were Rs. 28,460,000 and Rs. 32,350,000 respectively.
(ii) Accounting depreciation of Rs. 2,210,000.
(iii) Sales Tax Rs.500,000/-.

Administrative and selling expenses include:

(i) Withholding tax of Rs. 600,000 i.e. 20% of purchase price, paid in August 2015 (borne by ZJL) on the
plot of land handed over to the winner of a lucky draw which was organized under a sales promotion
scheme. ZJL acquired this plot in January 2014 at a cost of Rs. 23,000,000. The market value of the
plot at the time of lucky draw was Rs.40,000,000/-.
(ii) Rs. 1,800,000 paid to improve the embodied features of production software.
(iii) Rs. 650,000 in respect of the cost of two ramps. The ramps were built to provide access to persons
with disabilities.
(iv) Accounting depreciation of Rs. 1,980,000.

Other income includes:

(i) Rs.2,450,000 received from employees against sale of five vehicles. The market value and tax written
down value of these vehicles at the time of sale was Rs. 5,250,000 and Rs. 3,320,000 respectively. As
per company’s policy the vehicles are sold at their book values.

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 Tax Credits – Summary
(ii) Gain on sale of securities in Mali Limited (ML), a listed company, amounting to Rs. 6,000,000. On
1 July 2012 ZJL acquired 200,000 shares in ML at Rs. 50 per share constituting 55% interest in ML.
On 1 August 2015 ZJL sold 100,000 shares in ML at a negotiated price of Rs. 85 per share to a foreign
investor. The market value of these shares at the time of sale was Rs. 80 per share. On 15 September
2015 ZJL sold the remaining 100,000 shares in ML at a negotiated price of Rs. 75 per share to a local
investor. The market value of the shares at the time of sale was Rs. 78 per share. The gain was
computed at the average of the negotiated prices. ZJL reported the above transactions to the relevant
Stock Exchange through its broker and was also in compliance with all the requirements of the SECP.
(iii) Rent received from a shop Rs.30,000 per month. This shop was given to ABC Ltd. company but
they did not deduct tax at source.

Further information:
 Total tax depreciation amounts to Rs.4,300,000.
 Detail of WHT (other than mentioned above)
 Section 147 was Rs.1,000,000
 Tax paid with electricity bills was Rs.150,000

Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder, compute the
taxable income, net tax payable by or refundable to ZJL for tax year 2016 and amount of tax to be
carried forward, if any.

Note:-
 Your computation should commence with the profit before tax figure of Rs. 46,500K.
 Show all relevant exemptions, exclusions and disallowances.

Tax Credit Practice

Mr. Z requested you to calculate his tax liability from the following information:
a) Taxable salary Rs.6,000,000 as a full time teacher from an approved non-profit educational
institution
b) Taxable income from other sources Rs.2,000,000
c) Taxable business income from a foreign country Rs.1,500,000 where Mr. Z paid income tax of
Rs.75,000. There is no tax treaty with that foreign country.
d) Mr. Z visited that foreign country for 182 days during the year and that was his only foreign
traveling.
e) Zakat was deducted at source Rs.70,000. He also paid zakat of Rs.230,000 to his relatives
f) Donation was paid by him Rs.110,000 to a private approved charitable institution in cash for which
he has a proper receipt
g) He donated his household furniture to a government hospital. FMV is estimated at Rs.1,050,000
h) He obtained a loan 3 years ago for the acquisition of his house under a housing finance scheme
from a scheduled bank. He paid mark up on the loan Rs.190,000 during the year
i) He purchased the following shares during the year:
i. Shares of Rs.650,000 of a private company as an original allottee
ii. Shares of Rs.2,060,000 of a listed company as an original allottee
iii. Shares of Rs.250,000 of a listed company from his relatives

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