“COURSE REVIEW OF BUSINESS TAXATION”

Submitted to:

Miss Nosheen Rasool

Submitted By:
2332-B.Com-2018
Malik Mohammad Ali

Course Title:

Business Taxation
B.Com (Hons.) Session 2018-22
Department of Commerce and Finance
Government College University,
Lahore
WEEK -1

GOAL -1: INTRODUCTION AND SCOPE OF INCOME TAX IN

PAKISTAN

DEFINITIONS:
ACCUMULATED PROFITS

Accumulated Profits also called as preserved earnings, earned surplus or retained capital includes three
things which are given bellow:
I. All the reserves of business which are maintained out of its profits;
II. All profits of business up to the date these are distributed;
III. Profits are in any shape, either capitalized or not will be considered as accumulated profits until
their distribution to shareholders.

APPELATE TRIBUNAL

Appellate Tribunal is the highest judicial authority in matters of tax. The dispute between tax payer and
tax department is resolved by Appellate Tribunal. It has judicial as well as accountant members which are
appointed by Federal Government. Its decision is considered as final decision. In case of issue between
tax payer and appellate tribunal, the appeal is made to High Court of Pakistan.

AGRICULTURAL INCOME

Agricultural Income is the income which is derived from land; that must be situated in Pakistan; and that
land must be used for agricultural purposes. For example income derived from rent from agricultural land.
Income from growing of tea and land assigned to Jagirdar etc

TYPES OF AGRICULTURAL INCOME

Agricultural Income has been categorized into five classes:

I. Rent or revenue derived from Agricultural Income.

II. Income generated by agriculture.
III. Income derived from any building required for agricultural purposes.
IV. Income derived from sale of produce by cultivator or receiver of rent.
V. Income derived from land by performance of process employed by cultivator or receiver of rent
in order to render the produce fit for market.

EXAMPLES OF NON- AGRICULTURAL INCOME

Some of the non agricultural incomes are given bellow;

I. Income generated from stone quarries.

II. Income generated from a flour mill.
III. Income generated from markets.
IV. Income generated from mining.

EXAMPLES OF PARTLY AGRICULTURAL AND PARTLY NON-AGRICULTURAL

INCOME

There are some examples of income which are partly agricultural and partly non agricultural.

 Income of a person who grows tea leaves in Pakistan and then manufactures tea from them.
 Income of a cigarette company which grows tobacco and then manufactures cigarette from that
tobacco.

COMPANY

According to the Income tax Ordinance 2001:

 A company as defined in Companies Act ,2017;

 A Moradaba;
 A body corporate formed under law in Pakistan;
 A small company;
 A trust;
 A provincial Government;
 A Non- profits organizations.

KIBOR

KIBOR stands for “Karachi Inter Bank Offered Rate” which is applied on the first day of each quarter of
the financial year. It is a daily reference rate based on the interest rates at which banks offer to lend
unsecured funds to other banks in the Karachi wholesale (or "interbank") money market.

PERSON

According to Income Tax Ordinance 2001, a person includes following;

1- An individual;
2- A company;
3- An association of persons incorporated;
4- The Federal Government, a foreign government, or public international organization.

RESIDENT AND NON RESIDENT PERSONS

Income Tax Ordinance 2001 says that tax will be deducted on the basis of fact that person is resident or
not irrespective of nationality or domicile basis.

RESIDENT PERSON

A person will be resident if he fulfills any one of the following conditions:

 The person is present in Pakistan period or periods aggregating to 183 days or more in a tax year,
irrespective of his nationality..
  He is an employ of Federal or Provisional Govt.

RESIDENT COMPANY

A company will be resident if it fulfills any one of the following conditions:

 The company is incorporated under the any law in Pakistan.

 It is a local authority government or provisional government.
 The management and control and all affairs is situated wholly in Pakistan at any time in the year.

ASSOCIATION OF PERSONS

An association of persons will be considered as resident if its management and affairs are wholly
or partly situated in Pakistan at any time in year. In this case partly management in Pakistan is sufficient.

TAX YEAR

Tax year is a year in which tax is calculated for a person. There are three types of tax year in income tax.

 Normal Tax Year

Normal tax year is the year which ends on 30th June and starts from 1stJully which is also known as
Calendar Year such type of tax year is called as normal tax year.

 Special Tax Year

All the other tax year which are different from normal tax year are called as special tax year. For
example tax year of sugar industry is 1st October to 30th September.

 Transitional Year

Whenever a person or a company shifts its tax year from normal to special or special to normal a
changing period emerges. That changing time period is called as a transitional year.

TOTAL INCOME

The total income of a person is basically the sum of five major incomes.

 Salary
 Income from property
 Income from business
 Income from other sources
 Capital gains

WEEK -2
GOAL-2: INCOME FROM SALARY AND SCOPE OF SALARY
SALARY

According to section 11 of Income Tax Ordinance salary is the first head or source of income.

Salary is the amount earned by employee from employment which is usually monthly based.

FACILITIES PROVIDED BY EMPLOYER

There are many facilities which are provided to employee from employer which includes many
allowances etc.

1) Accommodation
 House Rent Allowance
House rent allowance is given to employee by employer which is fully taxable
 Accommodation Facility
Sometimes house facility is given to employee by employer and its value is calculated by
taking 45% of minimum time scale of basic salary.
2) Conveyance

Conveyance facility is also provided to employee by employer or sometimes conveyance allowance is

given to employee which is also wholly taxable. If conveyance facility is given only for personal use then
its value is calculated by taking 10|% of the cost which employer paid for acquiring the vehicle. If
conveyance is provided for both personal as well as office use then its value is calculated by taking 5|%of
the cost.

3) Medical Charges or Medical Allowance

Medical facility or medical allowance is also provided to employee by employer and medical allowance is
10% exempted of basic salary.

NUMERICALS OF SALARY
ILLUSTRATION -5

Mr. Azmat is working in the scale of Rs. 20,000-2,000-30,000. His basic salary is Rs. 20,0000per month.
During the tax year 2019 he is received from employer house allowance at the rate of 20,000per month.
Calculate the income of Mr. Azmat?

SOLUTION

Basic Salary @ RS.20,000 p.m. Rs. 240,000

House allowance @ Rs.20,000 p.m. 240,000

Income from salary Rs. 480,000

ILUUSTRATION – 6

Mr. Asghar is working in the scale of Rs. 25,000-1,000-35,000. At the present his basic salary is 26,000
per month. During the tax year 2019 Mr. Faisal provided a rent free accommodation. He was entitled to
an accommodation allowance of 15,000 per month, if this accommodation was not provided to him.
Calculate his total income?

SOLUTION

Basic Salary @ Rs.30,000 p.m. Rs. 312,000

Value of accommodation facility:

a) Amount received if accommodation

Was not given @ Rs.15,000 p.m. Rs. 180,000
b) 45@ of minimum of time scale of
Basic salary (26,000 ×12 × 45÷100) Rs. 140,400

The higher value will be add in income 180,000

Total income Rs. 4,92,000

ILLUSTRATION-9

Mr. Suleman’s annual salary for tax year 2019 is Rs, 280,000. He was also provided Rs. 2,500 per month
as conveyance allowance by his employer. Calculate the total income?

SOLUTION

Basic salary Rs. 280,000

Conveyance allowance @ Rs.25,00 p.m.

(Fully taxable) 30,000

Taxable Income of Mr. Saleem Rs.310,000

ILLUSTRATION-10

Mr. Asif Sarwar’s annual salary for the tax year 2019 is Rs. 640,000. He is provided a car for his personal
use by his employer. The car was purchased by the employer for Rs.1180,000. Compute the total income?

SOLUTION

Basic salary Rs. 640,000

Value of conveyance facility 118,000

(10% of acquisition cost of the car,

10@ of Rs. 1180,000)

Taxable income Rs.758,000

ILLUSTRATION- 13

Mr. Amjad’s annual salary is Rs.740,000. His employer also provides his medical allowance
RS.5000p.m.Actual medical expenses of Amjad during tax year 2019 were Rs. 42,218. Calculate the total
basic income of Mr. Amjad?

SOLUTION

Basic salary Rs. 740,000

Medical allowances (5000 × 12) 60,000

Exempt (10 @ of Basic salary) 54000

Included in total income 6000

Total income Rs. 746,000

WEEK-3
GOAL 2: INCOME FROM SALARY AND SCOPE OF SALARY
PROVIDENY FUNDS

Many organizations have maintained fund for the benefit of the employees which are called as a
provident fund. Provident fund has three types.

I. Government Provident Funds:

The funds which are maintained by government or semi government organizations are called as
government provident organizations. For example fund maintained by WAPDA etc.

II. Recognized Provident Funds:

The funds which are maintained by private organizations (which fulfill the conditions prescribed in the
law) are called as recognized provident funds.

III. Unrecognized Provident Funds

The funds which are maintained by the private organizations (which do not fulfill the conditions which
are prescribed in law) are called as Un-recognized provident funds.

ILLUSTRATION-15

Mr. Ali Awan’s annual salary is Rs. 700,000. He contributes to a recognized provident profit. During the
tax year 2019, the working of a provident fund was as follows:

Employee’s contribution Rs. 25,000

Employer’s contribution 35,000

Interest credited @ 15@ on the total

Amount in the fund 18,000

Calculate the total income?

Solution

Basic salary Rs. 400,000

Employer’s contribution (not included

Lesser than 150,000 or 10@ of basic salary) 25,000 -

Employee’s contribution (automatically 35,000 -

Included)

Interest credited (not included but rate is less 18,000 -

Than 16@)

Taxable income Rs. 400,000

ILLUSTRATION-17

Mr. Tariq Ahmad is employed in a scale of Rs. 32,000-3,000-47,000. His basic salary is Rs. 40,000 per
month. Other benefits provided to him by employer during the year ended on 30 thJune 2019 are given
bellow. Calculate his taxable income?

Dearness allowance Rs. 38,000

Entertainment allowance 36,000

Conveyance allowance 24,000

Contribution to Recognized fund

Mr. tariq’s contribution 13,000

Employer’s contribution 13,000

Interest credited 12,000

Travelling allowance 15,000

Notes

a. Mr. Tariq has been provided a rent free accommodation by his employer. If accommodation was
not provided then he was entitled to an accommodation allowance of Rs. 100,000.
b. Salary of sweeper is 72,000 who work in Mr. tariq’s accommodation which is paid by employer.

Solution

Basic salary Rs. 480,000

Dearness allowance 38,000

Entertainment allowances 36,000

Conveyance allowance 24,000

Contribution to Recognized provident fund Rs.

Employer’s contribution (automatically included) 13,000

Employee’s contribution (not to be included 13,000

Less than Rs. 150,000)

Interest credited (not included) 12,000

Travelling allowance 15,000

Entitlement of accommodation was 100,000

Not provided

45% minimum of time scale of 172,800

Basic salary, 45@ of 384,000

Whichever is less will be added in income 172,800

Salary of sweeper 72,000

Taxable income Rs. 822,800

NOTES

1. It is assumed that interest was credited on RPF at rate less than 16@.
2. Travelling allowance was given to be spent for performance of official duties.

WEEK -4
GOAL 2 INCOME FROM SALARY AND SCOPE OF SALARY
AVERAGE RELIEF

Some concession or deduction is allowed on some expenditures and investments by government to tax
payer which is called as average relief. It is provided if a person make any of the one expenditure;

i. Donation for Charitable Purposes

If a person donates any amount to any charitable organization then government gives grant to the tax
person. A person can donate to any hospital, any board of education or to any non- profit organization. If
an individual gives donation then the amount of an average relief is restricted to 30% of taxable income.
If a company donates to charitable institution then average relief is restricted to 20% of taxable income.

ii. Investment in Shares and Insurance

If a resident person makes an investment in purchasing of shares or in insurance under income ordinance
then he is also granted by average relief. The tax amount that will be credited are limited to actual
payment or 20,00,000 or twenty percent of taxable income whichever is less will be considered.

iii. Investment in Health Insurance

If a resident person makes an investment in any health insurance company then average relief is restricted
to 150,000 or 5% of taxable income is granted. This is not given to companies.

iv. Contribution to an Approved Person Pension Fund

If a person contributes in any approved pension fund then the average relief or tax concession is granted.
The amount for relief is restricted to 20@ of taxable income.

ILLUSTRATION-32

Calculate the tax payable by Mr. Ali Raza from the year ended 30 thJune 2019.

 Salary Rs. 95,000p.m

 Special pay Rs. 25,000 p.m.
 Bonus for the year Rs. 45,000
 Conveyance allowance Rs. 15,000 p.m.
 Free accommodation provided by the employer. He was entitled to a house allowance of
Rs. 720,000.
 Medical expenses are reimbursed by his employer because it was under the contract of
employment Rs. 24,000.
 Zakat paid under Zakat Ordinance during the year Rs. 48,000.
 Donation to approved charitable institution under section 61 Rs. 500,000.
 Legal expenses during the year Rs. 90,000.
 Amount paid for approved pension scheme during the year Rs. 190,000.
 Shares of listed companies purchased Rs. 10,00,000.
SOLUTION

Basic Salary @Rs.95,000 p.m. Rs. 11,40,0000

Bonus 45,000

Special Pay (25,000 × 12) 300,000

Conveyance allowance 180,000

Value of free accommodation Rs

45@ of salary or 11,40,000 which

Is 513,000

House allowance of 720,000, 720,000

Medical expenses reimbursed 24,000

Exempt (as paid under contract) 24,000 ------

Total income 23,85,000

Less Zakat paid 48,000

Taxable income 23,37,000

Computation of tax payable

Tax on Rs. 18,00,000 90,000

Tax on 537,000@ 15% 80,550

Total tax 170,550

Amount admissible for average relief

Donation to approved charitable institution 500,000

 (This is amount is under limit so it will be added) 500,000

 Contribution to approved pension scheme 190,000

(This is under limit of 20@ of taxable income) 190,000

 Share of listed companies purchased 10,00,000

(Maximum limit 20@of taxable income

Is 20,00,000 whichever is less 20@of taxable

Income is 467,040 467,040

Amount admissible for average relief 657,040

Rebate of Tax

= Gross Tax ÷ Taxable income × Average Relief

170550÷ 23,37,000 × 657,040 `47950

Total tax payable (170550 – 47950) 122,600

ILLUSTRATION- 44

Mr. Wazir is a professor in a private university recognized by HEC. His particulars for the year ended on
June 30, 2020 are as follows. His name is an active tax payer’s list.

Basic salary 425,000p.m

Leave encashment one month salary

Cost of living allowance two months salary

Hospitalizations expenses 327,000

Prize won on the lottery 30,000

Loan to a friend 300,000

Investment in shares 570,000

Mark up on house financing scheme 175,000

Advance tax deducted on car 45,00

Calculate the tax payable of Mr. Wazir?

NOTE

 Hospitalization expenses were made according by the employer which was under the contract.

SOLUTION

Basic salary (425,000 × 12) 51,00,000

Leave encashment 425,000

Cost of living allowance 850,000

Hospitalization expense 327,000

(Not taxable as term of contract)

Prize on lottery (Taxable under FTR) 30,000

Total income 63,75,000

Less mark up on house financing scheme 175,000

Taxable income 62,00,000

Computation of Gross Tax

Tax on 50,00,000 670,000

Tax on 12,00,000 @ 22.5% 270,000 940,000

Teaching allowance @ 25% of taxable income 235,000

Gross Tax 705,000

Calculation of Average Relief

Investment in shares 570,000

(Within the limit)

705,0000 ÷ 6200,000 × 570,000 64,815

Tax on income (705,000 - 64,815) 640,185

Advance tax deducted on the car 45,00

Tax payable 635,685

Tax on FTR

Prize won in the lottery 6,000

NOTE

 Loan given to a friend will not affect the income tax working.
 Teaching allowance has been reduced to 25% with respect to tax year 2020.
WEEK- 5

GOAL 3: INCOME FROM BUSINESS

INTRODUCTION

Income from business is the third source of income which a person may derive. Employment is not
included in business. Business includes trade, commerce, manufacture, profession, or vocation or concern
in the nature of trade, commerce, and profession etc. Basically an entity's net profit or loss is the income
from business and it is calculated by its revenue from all sources minus the costs of doing business.

Explanation

 Trade
Trade is defined as buying and selling of goods to earn profit.
 Commerce
Commerce is a wide term which not only includes selling and buying of goods but also deals with
services which are useful in trade, such as marketing etc
 Manufactures
Manufacturing is converting one form of product to another by hand or by using machines.
 Profession
People also earn profit by using their intellectual skills and that is called as an income from
profession e.g. income of doctors, professors and accountants etc.

ILLUSTRATION-3

Calculate the tax payable of Mr. Tahir who during the year ended on30 thJune 2019 enjoyed income from
the following sources:

a. Dividend from a private limited company 8,000

b. Income from the property 350,000
c. Zakat paid 5,000
d. Profit on special deposits certificate 25,000
e. Gift from father 10,000
f. Income from business 34,70,000
g. Agricultural income 12,000
h. He has claimed following amounts for rebate
i. Legal personal expenses 15,000
j. Purchased shares of public co. on 40,000
k. Stock exchange

Solution

Income from property 350,000 -----

Income from plot let out

To an oil company

(No deduction because it is treated

Separately)

Income from business 34,70,000

Income from other resources

Gift from father 10,000

Agricultural income 12,000

Total income 34,70,000

Less zakat paid 5,000

Taxable income 34,65,000

Computation on gross tax

Income tax exceeding 30,00,000 150,000

Income tax on balance 93,000 243,000

Add tax on property @ 5% exceeding 7,500

Amount 200,0000

Less -Rebate on tax in case of

Shares purchased 40,000 ----

Restricted up to 20@ of taxable income

Or Rs. 150,000 whichever is less

(318,5000 × 20÷100 = 763,000)

Gross tax ÷ Taxable income × amount allowed

250,500 ÷ 381,5000 × 40,000 2,626

Tax payable with return 247,874

Dividend from private co. 8,000@ 20% 1,600

Profit on special deposit 25,000 @ 10% 2,500

Tax under FTR 4,100

NOTES

 Personal legal expenses are not entitled for average relief in this case.
 It is assumed that he is non filer.
 In case of property tax is deducted on separate rate of tax.

WEEK - 6

GOAL 3: INCOME FROM BUSINESS

ILLUSTRATION – 4

Mr. Aslam is a practicing charted accountant. He furnishes his receipts and payment account for the year
ended 30th June 2019:

Rs. Rs.

Balance b/d 4,757 Motor car expenses 201

Audit fee 96,97,375 office expenses 2,075

Income from other

Accountancy work 24,740 membership fee 25

Institute fees 320 institute expenses 451

Examiner’s fee 1,050 personal expenses 2,425

Interest on investment 1,750 income tax 1,250

Rent from property 60,000 Motor car purchased 1,725

Insurance of property 150

Balance c/d 97,59,681

97,67,992 97,67,992

Compute his income from profession and also taxable income and tax payable for the tax year ended on
30th June 2019.

a. Office expenses include Rs. 308 for furniture purchased for his office.
b. One third of motor car expenses are in respect of his professional practice.
c. His investments are in commercial securities.
d. Depreciation allowance for motor car and furniture is Rs. 200.

Solution
Add Receipts from profession Rs. Rs.

Audit fee 96,97,375

Income from accountancy work 2,740

Institution fee 320

Examiner’s fee 1,050 97,01,485

Less Admissible expenses

Office expenses 1,767

Institute expenses 451

Membership fee 25

Motor car expenses 70

Depreciation 200 2,513

Add interest on investment

Income from property 60,000

Taxable income 97,00,722

Computation of Tax

Tax on Rs. 50,00,0000 600,000

Tax on Rs. 47,00,722 13,63,209 19,63,209

Total Tax Liability 19,63,209

Less Advance Tax 1,250

Tax payable with return 19,61,959

WEEK-7
GOAL 4: INCOME FROM PROPERTY

 INTRODUCTION

Property tax is an annual tax on real property of property holder. Sometimes it is applied, but not always,
a local tax. It is founded on the concept of market value. The tax base may be the land only, the land and
buildings, or various others permutations of these factors. For the purposes of this guide, property tax is
restricted to annual taxes and excludes one-off taxes on transfers, on realized capital gains or betterment,
or on annual wealth taxes.

EXPLANATION

 Property
Property is defined as a constructed building or land.
 Building
Building means block of brick or stone covered by roof.
 Land
Land is vacant plot used for erecting temporary hurts.
 Rent
It is the amount received by the owner of land or building for its use.

Illustration No - 1

Mr. Azam is the owner of the building, and that building is let out to Mr. Basit for Rs.9000 per month on
1stJully 2017. During the year he contracted with Mr. Bashir for the sale of building for Rs. 600,000 and
received Rs.10000 as token money and agreed to pay the balance amount at the end of the year. Before
the date of maturity Mr. Basit breaches the contract as per term of contract token money paid is forfeited
by Mr. Azam.

Calculate the income from property of Mr. Azam?

Solution

Amount of rent received (Rs. 9,000 × 12) 108,000

Amount of token money received 10,000

Total amount of rent chargeable tax 118,000

Week-8
GOAL 4: INCOME FROM PROPERTY
ILLUSTRATION – 2

Mr. Asad Ali rented out his property to Mr. Tabish for Rs. 5,500 per month on 1 st July 2017. He also
received un-adjustable advance amount to Rs. 50,000 from Mr. Tabish. The rental value of the property
was determined as Rs. 200,000 by the tax authorities.

Calculate the income from property of Mr. Asad Ali?

Solution

Rent value of property 200,000

1/10th of un-adjustable advance 5,000

Total amount of Rent chargeable to tax 205,000

Note

 Where an amount is refunded by the owner to the tenant on termination of the tenancy before the
expiry of ten years, no proportion of amount shall be allocated to the tax year in which it is
refunded or to any tax year thereafter.

ILLUSTRATION – 5

Rent chargeable to tax 12,000

Administration and collection changes 1,000

Solution

Rent chargeable to tax 12,000

Less Repair charges 1/5th of RCT 14,400

Administration and collection changes

Actual expenditures (Rs. 1,000)

Or 6 % of RCT whichever is less

Will be considered 1,000 15,400

Taxable property income 27,400

In this case, the amount actually spent on collection charges is Rs. 1,000 which is allowable deduction. If
collection charges exceed 6% of the rent chargeable to tax then it is restricted up to 6% and if the
collection charges are less than 6% of RCT then actual amount spent is allowance.

Week-9

In week -9 mid-term exams was conducted.

Week -10
GOAL 5: INCOME FROM CAPITAL GAINS
INTRODUCTION
Capital expenditures represent major investments of capital that a company makes to maintain or often, to
expand its business and generate additional profits for company. Capital expenses are for the acquisition
of long-term assets, such as building and plant etc. Because such assets provides us the income-
generating value for a company for a period of years, companies are not allowed to deduct the full cost of
the asset in the year the expense is incurred; they must recover the cost through year-by-
year depreciation over the useful life of the asset. Capital gain is also defined as the increase in income
from disposal of capital asset. Capital expenditures such as fixed assets are located on the statement of
financial position.

Revenue expenses are basically short-term expenses that are divided into two categories:

 Expenditures for generating revenue is the first category which includes expenses required to

meet the ongoing operational costs of running a business, which are essentially the same as
operating expenses. Revenue expenses can be fully tax-deducted in the same year the expenses
occur which is opposite to capital expenditures.

 Expenditures for maintenance of revenue-generating assets is the second category

which includes the ordinary repair and maintenance costs that are necessary to keep the asset in
working order without substantially improving or extending the useful life of the asset. Revenue
expenses associated with existing assets include repairs and regular maintenance also as
repainting and renewal expenses. Revenue expenditures are often considered to be recurring
expenses in contrast to the one-off nature of most are capital expenditures.
 Capital expenditures are for fixed assets or non-current assets, which are expected to be
productive assets for an extended period of your time. Revenue expenditures are for costs which
are associated with specific revenue transactions or operating periods, like the value of products
sold or repair costs etc.

Following tests are made to differentiate between capital and revenue expenditures.

PURCHASE OF AN ASSET

When we acquire assets, either it is floating asset or fixed asset. The amount which is spent on purchasing
a fixed asset is capital expenditure and the amount spent on purchasing floating or non-current assets is
revenue expenditure.

For example if a sugar industry acquires sugar it will be their revenue expenditures but if they acquire a
new plant in industry that will be their capital expenditure.

PERIOD OF BENEFIT

Period of benefit also gives us a difference between revenue and capital expenditures. If a benefit is
giving benefit for more than one accounting period it will be capital revenue, if it is giving a benefit for
less than one accounting period then it will be revenue expenditure.

INITIATION OF BUSINESS
All the expenditures that are made at the initiation of business it will be capital expenditure because they
all are made only at one time. For example amount spent on construction of building.

EXTENSION OF BUSINESS

All the expenses that are made for the purpose of extension in business are capital expenditures.
Construction of new building is the example of capital expenditure.

CAPITAL AND REVENUE RECEIPTS

SALE OF AN ASSET

The amount which is being received on account of fixed assets which is meant to earn profit is capital
receipt while the amount which is being received on account of floating assets is a revenue receipt.

AMOUNT RECEIEVED ON ACCOUNT OF RIGHT

The amount received by a person on account of right like trademarks, copyright etc. is called as amount
received on account of right. If the amount received for the complete surrender of time, it will be capital
receipt. If the amount received on the rights which is given by owner for specific period of time then it
will be revenue receipt.

SUBSTITUTION OF SOURCE OF INCOME

The amount received on the substitution of source of income is capital receipt, but where only it is a
substitution of income alone, it will be revenue receipt.

LUMPSUM RECEIP

The concept of lump-sum in capital and revenue receipt is confusing because a lump-sum receipt can be
revenue receipt and in certain cases, the amount received on monthly or annually can be capital receipt.

CAPITAL LOSS

When capital expenditure is incurred by a person and he gets a permanent benefit or an asset. In case of a
capital loss, the whole amount of investment is lost.

WEEK-12 & WEEK 13

GOAL 7 & GOAL 8: ASSESSMENT PROCEDURE
INTRODUCTION
Every taxpayer has got to furnish the main points of his income to the Income-tax Department. These
details are to be furnished by filing up his return of income. Once the return of income is filed up by the
taxpayer, then subsequent step is that the processing of the return of income by the tax Department. The
tax Department examines the return of income of each person. The method of examining the return of
income of each person by the Income-Tax department called as “Assessment”.

CYCLE OF ASSESSMENT

Cycle of assessment includes five major steps. These steps are given as bellow:

1. Cycle of assessment starts when an individual furnishes the return of income.

2. Tax payable by the person is decided in second step.
3. Payment of tax by the tax payer is completed in third step.
4. Recovery of tax from the defaulter tax payer is completed in fourth step.
5. Final step is refunding of tax.

RETURN

All the details of income, total income, taxable income and tax liability are provided to tax department in
a prescribed form. This form is technically known as a return of income or simply returns.

Who SHOULD FILE A RETURN

The following persons are required to furnish a return of income for a tax year, namely as;

1. Every Company;
2. Every one (other than a company) whose taxable income for the year exceeds the utmost amount
that's not chargeable to tax under this Ordinance for the year;
3. Any non-profit organization.
4. Any welfare institution approved.
5. A person has been charged to tax in respect of any of the 2 preceding tax years.
6. A person who claims a loss carried forward under this Ordinance for a tax year;. A person who
owns immovable property with acreage of 2 hundred and fifty square yards or more or owns any
flat located during areas existing within the commencement of government laws within the
provinces; or areas in a Cantonment; or the Islamabad Capital Territory.
7. A person who owns immovable property with a acreage of 5 hundred square yards or more
located during a rating area;
8. A person who owns a flat having covered area of two thousand square feet or more located during
a rating area;
9. Any person who owns an automobile having engine capacity above 1000 CC;
10. Any person who has obtained National Tax Number.
11. Any person who is that the holder of economic or industrial connection of connection of
electricity where the quantity of annual bill exceeds rupees a million.
12. Every individual whose Income from business‘s exceeds rupees 300 thousand but doesn't exceed
rupees 300 and fifty thousand during a tax year is additionally required to furnish return of
income from the tax year.

PERSONS WHO ARE NOT REQUIRED TO FURNISH A RETURN OF INCOME

All persons are required for furnishing a return of income according to the income law, except four types
of individuals. These four types of persons are not bound to furnish the return of income.

I. A widow
II. An orphan below age of 25 years.
III. A non- resident person.
IV. A disabled person.

WEEK-14
GOAL 8: INTRODUCTION TO SALES TAX ACT, 1990
INTRODUCTION

Sales tax may be a consumption tax which is imposed by the govt. on the sale of products and services.
Sales tax is an extra amount of cash which we've to pay, supported a percentage of the selling price of
goods and services that are purchased. For instance, if you buy a brand new television for $400 and live in
a locality where the sales tax is 20%, you would pay $58 in sales tax.

The sales tax rate in Pakistan is 17%. Sales tax is that the tax and also main revenue of state. Sales tax is
employed to buy state and native operating expense like schools, roads and fire departments. Many areas
believe nuisance tax to fund their budgets; in order that they are very serious about collecting all the sales
tax they're owed.

KINDS OF SALES TAX

1. Manufacturers' sales tax, may be a major sort of sales tax during which a tax on sales of tangible
personal estate by manufacturers and producers
2. Wholesale sales tax, a tax on sales of wholesale of tangible material possession when during a
form packaged and labeled ready for shipment or delivery to final users and consumers.
3. Retail sales tax, a tax on sales of retail of tangible holding to final consumers and industrial users.
4. Gross receipts taxes are criticized for his or her "cascading" or "pyramiding" effect, during which
an item is taxed quite once because it makes its way from production to final retail sale.
5. Excise taxes, applied to a narrow range of products, like gasoline or alcohol, usually imposed on
the producer or wholesaler instead of on the retail seller.
6. Use tax, are imposed directly on the buyer of products purchased without sales tax, generally
items purchased from a vendor don't seem to be under the jurisdiction of the taxing authority.
7. Securities turnover are excise, a tax on the trade of securities.

DIFFERENCE BETWEEN ZERO RATED AND EXEMPTED RAT TAX

Zero rated tax is applied on exports and has double benefit. Firstly, in zero rated tax there is no tax
applied and secondly the amount of tax liability is reduced. It is done to promote exports. Exempted tax is
an output tax. In exempted tax there is only single benefit because in this only tax is not applied but tax
liability is not reduced.

WEEK-15 AND WEEK-16

GOAL 10: PROVISION OF SALES TAX ACT& GOAL 11: PRACTICAL

IMPLICATIONS OF SALES TAX
Illustration No: 1
A company is engaged in manufacturing goods which are subject to sales tax. During the last 12 months,
his total turnover is as under:

i. Rs. 8 Million
ii. Rs. 12 Million
iii. Rs. 16 Million

Required: in above three cases, in which case he is liable to be registered?

Through the Finance Act, 2015 the concept of sales tax registration by manufactures is no more based on
turnover, so in all above cases it is mandatory to register under Sales tax Act, 1990.

Illustration No: 2

Mr. Muhammad Faheem is a manufacturer of certain chemicals which is taxable. His turnover during last
12 months is Rs. 300 Million.

Required:

Whether Mr. Faheem is liable to be registered or not?

Solution:

Through the Finance Act, 2015 the concept of sales tax registration by manufactures is no more based on
turnover, so Mr. Faheem is liable to registered under Sales Tax Act.

Illustration No: 3

Mr. Hassan is operating a general store data regarding to his business during August 2019 is as under:

 Average turnover Rs. 200,000 per month

 Average turnover Rs, 900,000 per month

Required:

In above two cases, in which case he is liable to be registered?

Solution:

In above cases, a retailer is liable to registered when he falls within the ambit of specified categories such
as retailer in air conditioned shopping centre etc.

Illustration No: 4

Falak shan is dealing in wholesale business in Akbari market. Is he required to be register?

Solution:

Yes, it is mandatory for Mr. Falak shan to register under Sales tax Act, 1990.
Illustration No: 5

Mr. Khalid Javed is a distributor of consumer goods and his annual turnover is Rs. 17 million: is he
required to be registered?

Solution:

Yes, it is mandatory for the distributor to be registered under the sales tax act, irrespective of turnover.

Illustration No: 7

Mr. Muhammad Ali is engaged in export business and his amount turnover is given as bellow:

 Rs. 11,00 million

 Rs. 7,00 million
 Rs. 12,00 million

Required:

 Is he is liable to be registered or not?

 If yes, then what will be his sales tax liability?

Solution:

Yes, he is liable to be registered under the Sales Tax Act 1990. No sales tax liability because he is
engaged in the export business.

Illustration No: 9

Mr. Muhammad Dawood is a manufacturer cum exporter is engaged in export business and his annual
turnover and other data is given as bellow;

 Total goods manufactured locally sold Rs. 10 million

 Total goods manufactured exported Rs. 90million

Required:

 In the above two cases in which he is liable to be registered.

 Calculate the sales tax chargeable in each case.

Solution:

In the above two case he is liable to registered under the Sales Act because it does not depend on
turnover.
Sales tax chargeable Rs.

1- Total goods manufactured locally Rs. 10 million

(Rs, 10 million @ 17%) 170,000

2- Total goods manufactured exported

(Rs. 90 million @ 0%) -----

There will be no tax liability because he is engaged in export business.

UNDERSTANDING ABOUT THE COURSE

After studying this course I have realized that why taxation is important in every economy and how tax
department calculates our tax. The government of developed and developing countries like Pakistan
massively relays on taxation measures to provide much needed financing of socio- economic
development and to reduce the inequalities of wealth in societies.