Profit on Debt

FAQs

Q1. Which income is included in the definition of profit on debt?

Ans: Profit from the following sources combined as a one source of income is profit on debt.
- Bank Deposits/Micro Finance Bank
- NSS
- T Bills
- CoD/TFCs
- PIB/Sukuks

Q 2. At what rate profit on debt is taxed for individuals, sole proprietor and partnerships?
Ans:

Q 3. At what rate profit on debt is taxed for companies and how they can reduce their taxes?
Ans: Profit on Debt for companies is charged at 29% corporate rate. However, the companies
can reduce this to 15% by investing in Money Market & Income Mutual Funds and opting for
cash dividend which is taxed at 15% full and final.

Q 4. What should be our pitch for new to Funds customers who may be apprehensive about
Funds/Investments?

Ans: I would like to take this opportunity to bring into your knowledge Money Market Funds
provide a daily liquidity and place money in High quality Bank deposits and short term Treasury
Bills, hence your risk does not change while routing your cash flows through Money Market
Mutual Funds. Profit is credited daily and there is no restriction or penalty on withdrawal which
can be done on a same day basis.

In summary:

· Taxes on Interest Income for Filers will range between 15 %-35% of profits from bank
deposits and Government Bonds
· Taxes on Mutual Funds will remain 10% of profits
Q 5. Have we got any tax opinion on profit on debt from a firm?
Ans: Yes. We have the opinion from a very renowned Audit firm of Pakistan i.e. A.F.Ferguson
& Co. Moreover, we have compiled the commentary of 12 Audit firms on Profit on Debt saying
exactly the same thing.

Q 6. If a sole proprietor has a business that also earns profit on debt and the individual in his
personal capacity also earns profit on debt, how profit on debt will be taxed?
Ans: Profits of both sole proprietor business and individual will be combined and taxed
accordingly. Meaning, the total profit on debt combined from sole proprietor business and
personal will be taken as a number to determine the applicable slab.

Q 7. If someone keeps money in different bank accounts and in different bonds, does it
impact the tax on profit on debt?
Ans: The profit from all the avenues will be combined and taxed accordingly.

Q 8. Is dividend income and capital gains included in the definition of profit on debt?
Ans: No. They are not part of profit on debt.

Q 9. Which losses can be adjusted against capital gains and how?

Ans: Capital Loss realized from equity/equity Funds during a tax year can be carried forward
for next three years and can be adjusted against Capital Gains of mutual funds.

Q 10. Can a capital loss be adjusted against income from profit on debt?
Ans: Capital losses can only be adjusted from Capital Gains in Mutual Funds and cannot be
adjusted against profit on debt.

Q 11. Do we have to file a refund against capital loss adjustment?

Ans: We report all capital gains to National clearing company who already has the
information of realized capital losses. National clearing does the adjustment without going
through FBR and refunds the amount to us against a credit of the investor. Units are issued
against such refund. We deduct CGT and submit this to National clearing who then setoff the
losses and refunds the excess deduction

Q 12. There are various tax slabs for income from profit on debt. Does a marginal tax system
apply or a single slab rate applies?
Ans: A single slab tax rate will be applied if the profit on debt moves from one slab to other.
For example if someone earns a profit on debt of 5.2m, entire income of 5.2m will be taxed at
17.5%
Q 13. Can a realized loss from VPS be adjusted against capital gains?
Ans: No. Realized loss cannot be adjusted from the capital gain on VPS.

Q 14. What are the tax rates for non-filers from profit on debt and capital gains?
Ans: For non-filers, the rate of WHT & CGT will be increased by 100%

Q 15. Customer had a capital loss in 2017 can he get his rebate this year?
Ans: No. The client can get the capital loss adjustment from July 2018 onwards for the next 3
years.

Q 16. If someone is investing in PIB directly and withdraw 2 month before maturity than what
will be the tax rate; normal or profit on debt?
Ans: It will be profit on debt as interest received through coupon and interest accrued are
classified as profit on debt.

Q 17. Can capital loss be adjusted in one go? How?

Ans: If the capital loss amount is equivalent to capital gain amount, the loss will be adjusted
completely.

Q 18. Capital loss is 1 million; the client invested 10 million, made a profit of 1.2 million. If CGT
is 10% what is the Net Capital Gain value?
Ans: Net Capital Gain is Rs. 200,000
Q 19. Capital loss can only be adjusted in FY 2019-20?
Ans: Capital Loss realized from equity/equity Funds during a tax year (from July 2018
onwards) can be carried forward for next three years and can be adjusted against Capital Gains
of Mutual Funds.

Q 20. If a non-filer invests in multiple banks in chunks, then what bank will deduct at source?
20% or 30% ?
Ans: Every bank will deduct WHT of 30% at source provided the profit for the year is above
500,000.

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