INCOME FROM Buses ¢ following data relate = praewing © Mr. A for the year £744.30 ane 2g © 202) Income from business (Pak) ome from business (Uk) 8s. 25.00,000 paid in UK sal 30,000 ome from busin y less (Pak) Rs. 25,00,000 come from business (UK) 500,000 able income (including foreign income) 0.00.00 tion of Gross Tax (non-salaried) Rs. le tax on Rs. 24,00,000 250,000 120,000 370,000 s Tax credit in case of foreign income tax 30,000 _ Tax payable 340,000 putation of tax credit in case of foreign income tax: Foreign income tax paid Rs. 30,000, Pakistan income tax on taxable income ii i reign income ; including foreign income Beditiome ‘Taxable income includingforeign income - 370,000 500,000 = Rs. 61,667 ~ 30,00,000 Whichever is less. ic, the amount of tax credit deducted from gross tax (Rs. 30,000 or Rs. 61,667) RA er fe & following particulars related to Mr. Abdul Jabbar Khan , calculte able for the tax year ended 30" June 2021 aon é s. 5 ie ee 22,00,000 ome from business (Pakistan) from business (U.K) 275,000200 INCOME Tax = y (Tax paid in UK Rs. 10,000) Capital gains from private company sding period less than one year) “Income from other sources Dividend from Public Company Donation to Punjab University ‘Mr. Abdul Jabbar Khan Tax Year: 2021 Tax Year Ended: 30.06.2021 de idual (non-Resident) ‘Computation of Taxable Income and Tax Payable Income from Property (Section 15) Rs, Gross rent from property (taxed separately) 500,000 Income from Business (Section 18) Business ii income Pakistan 22,00,000 Business it income UA re 275,000 Capital Gain (Section 37) 250,000 59,000 80,0 140,099 15,009 70,009 24,75,000 309,000 10,000 299,000INCOME FROM Business, On property income @ 5 % exceedit aE 10,000(500,000-200,000) 300,000 @ 5% ute the tax payable of Mr. Tahir who durin; npute the | . g the ded 30" J enjoyed income from the following sources: eens? Dividend from a private limited company Rs. 8,000 Income from property let out to an oil company 3,50,000 Z i 5,000 __ Profit on special deposit certificate 25,000 _ Gift from father 10,000 Income from business 34,70,000 _ Agricultural income 12,000 claimed the following amounts for rebate: p i 15,00 rsonal legal expenditure Ee 0 public co. listed on stock exchange 4 vurchased shares of202 INCOME Tax Solution Mr. Tahir Tax Year: 2021 Tax Year Ended: 30.6.2021 Personal Status: Individual (Non-Salaried Person) | Residential Status: Resident } Computation of Tax Payable Income from Property (Section 15) Rs. Income from plot let out to an oil company 3,50.000 (no deduction is allowed and the income "shall be taxed separately) Incoan from Business (Section 18) _ Income from business — Income from Other Sources (Section 39) - Gift from father 10,000 Agricultural income : 12,000 Total Income Less Zakat paid Taxable Income tion of Gross Tax (non-salaried case) 1e tax on Rs, 30,00,000 370,000 “Income tax on balance 465,000 @23% 116,250 Z Less Rebate on tax in case of. dae Shares purchased 40,000 . Restricted upto 20% of taxable income or Rs. 15,00,000 whichever less (3465,000 x 2% = 693000) Rs. 15,00,000 seiiehever so Rs. 40,000 Dut t allowed Rs. 40,000 or 693000) ° Allowed aioe Rs, 34,70,000 34,70,000 5,000 34,65,000 486,2505000 5 x on property income @ 5 % a ding Rs. 200,000 4 480,647 = 200,000) 150,000 @ 5 %(to be treated separately) 2,500 on business 488,147 from private co, 8,000 @ 15% 1,200 special deposit 25,000 _ 10% 2,500 3,200 5 onal legal expenditure is not entitled for average relief. case of property rent, tax is deducted under separate rate of tax. m is a practicing chartered accountant. He furnishes his receipt account for the year ended 30" June 2021: Rs. Rs, 4,757 Motor car expenses 210 96,97,375 Office expenses 2,075 Membership and 2,740 certificate fees 25 320 Institute expenses 451 1,050 Personal expenses 2,425 1,750 Income tax 1,250 60,000 Motor car purchased 1,725 Insurance of property 150 Balance c/d 97,59.681 97,67,992 i 97,67,992 rofession and also taxable income and tax is income from Pp! fc ans | after taking into account the following the tax year 2021, formation: fice expenses include Rs. 308 for furniture purchased for his ——— §6ai INCOME Tax 2. One third of motor car expenses are in Tespect of hj practice. SPrOfe son 3. His investments are all in commercial securities, : 4. Depreciation allowance for motor car and furniture is p, Solution m2, a Mr. Aslam Tax Year: 2021 Tax Year Ended: 30.6.2021 Personal Status: Individual (Non-Salaried Person) Residential Status: Resident Computation of Total Income and Taxable Income Add Receipts from Profession _ Rs. a Audit fees 96,97,375 Income from accountancy work 2,740 Institute fees 320 Examiner’s fees 1,050 97.01.45 Less Admissible Expenditure "Office expenses (Rs. 2,075 — 308) 1,767 Institute expenses 451 Membership and certificate fees ij 25 _ Motor car expenses (1/3) 70 ‘ _200 2513 96,98,972 1,750 60,000 iction from property is allowed it is taxed. ‘separately ‘upto Rs. 200,000) 97,00.722 12,20,000 12,95,253INCOME FROM Buswess tion of Taxable Profit Where ‘Loss Account is Available COUNT Consists. of tt ng. the accounting year whether paid noe se® : Hature Of Tevenlle nature, The credit side sont’ ne which are due during the accounting year whether received or x ble profits are computed in the following manner # fit as per Profit and Loss Account puting taxable profit of Profit and loss account, the taxable profit. If an Hite, Charged to profit and loss account, is partly admissible and partly issible, only the inadmissible part should be ndded back mses not Relating to Business or Profession expenses which are not related to business or profession but charged to and loss account are to be added back as such expenses have taxable profits. For example, if expenses relating to house “OF securities, etc. are found debited to the profit and loss account, nses should be added back. had reduced the taxable profits. For example, if any recovery is inst a debt allowed as bad debts in earlier years, the amount so is taxable income of the business or profession, snses Relating to Business or Profession . ses which are related to business or profession and ee ae le as deductions but not charged to profit and loss account, sho re Because such expenses will reduce the taxable profit. ome not Relating to Business or Profession i fe: ny i business or pro} f ich does not relate to d ple, if inv ‘ Me es cecour should be deducted. For examp ant , sion but cred stm+206 INCOME Tax. on securities, rent from house property or dividend, etc. are found profit and loss account, such income should be deducted, edited, 3. Allowable Depreciation as per Income Tax Rules If the taxable income exceeds the total of deductions, it is taxable If total deductions exceed the total income, it is loss. The above rules rot reversed if the profit and loss account discloses net loss instead of ng, a be ofit From the following profit and loss account ofa merchant, Mr. Rashe ed for the year ended on 30" June 2021, ascertain his taxable income from y,, business and also total taxable income: ta Rs. Rs Office salaries 4,800 Gross profit 37,75,532 General expenses 2,550 Discounts 3.956 _ Bad debts 2,100 Sundry receipts Reserve for doubtful debts 3,000 + Bad debts recovered 150 ‘Fire insura 450 Interest on government 2,500 securities (net) 2,832 ~ 2,375 Profit on sale of Investment 808 1,000 1,550 (1,500 1,200Mr. Rasheed Tax Year; 2021 Tax Year Ended: 30.06.2021 Residential Status: Resident ion to unapproved institution for doubtful debts permanent signboard ible depreciation business Income ‘ax payable ‘ax on Rs. 30,00,000 Tax on Rs. 766,740 @ 25 % ‘ax payable ernment securities under FTR 2 x 1m) @ 10% IN 6 ing profit and loss account fate the tax payable by him. for the Tax Y — ees Personal Status: Individual(non salaried person) Computation of Total Income and Taxable Income Rs. 500 3,000 1,500 2,375 1,000 1,500 1,200 2,832 808 1,000 370,000 191,685 Profit and Loss Account ‘ear Ended 30.06.2021 207 Rs. 37,60,305 37,66,740 relate to Mr. Umair (who is 62 yearsINCOME TAX 208 » Rs. 86,000 Gross profit okt 42,000 Income from house property "35g, 13,000 Discount received m Salaries and wages Printing and stationery ‘Auditor's fee a Reserve for depreciation 27,000 0 Fine 11,000 Fee paid to income tax practitioner 10,000 Advertising expenses 16,000 Net profit 11,35,000 i 13,40,000 Notes Salaries and wages include amount received by Mr. Umair himself for his services Rs. 36,000. Fee to income tax practitioner was paid for presenting the case before Appellate Tribunal. ome ee amounts to Rs. 18,000. i “Tax Year: 2021 _ Tax Year Ended: 30.06.2021. Status: Individual(non salaried person) Status: Resident of Total Income and Taxable Income Rs. Rs. ay 11,35,000 36,000 27,000 11,000 __74,000 12,09,000 35,000 18,000INCOME FROM Business, ible business income of Tax 14.74.000 tax on Rs, 600,000 10,000 1e tax On 574,000 @ 10% 57,400 67,400 payable with return, 67,400 _ Senior citizen relief is now not available Income from property is taxable under separate tax rat tax upto Rs. 200,000, Ki bar Rs. 11,60,000 Income from business 13,02,000 Agricultural income (agricultural tax to _ Government of Punjab has been paid) 2,20,000 Zakat paid during the year under Zakat Ordinance 14,250 Approved pension scheme 35,000 ~ Tuition fee paid for his son 45,000 ired. Calculate tax payable by’Mr. Gulfam. Mr. Gulfam _ Tax Year: 2021 Tax Year Ended: 30.6.2021 i ’ Personal Status: Individual(non-salaried person) Residential Status: Resident Computation of Tax Payable é Rs. Rs. 11,60,000 2,20,000 - 13,02,000 24,62,000INCOME TAX: “Tuition fee paid not allowed Total Taxable Income Computation of Gross Tax. Income tax on exceeding Rs: 24,00,000 250,000 tax on balance Rs. 47750@ 20 % 9.550 “Less Rebate on tax in case of _ Approved pension scheme _ Approved pension scheme Rs. 35,000 Restricted 20% of taxable income (2447750 x 22) = Rs. 489,550 or Rs. 35,000 Amount allowed Rs. 35,000 ~ Gross Tax _ Tenable Income | 259,550 24, os ae ; 311 x Amount Bikes g Eye Specialist and is listed on the panels of two uae A peer of his receipts and 18,80,000 24,00,000INCOME FROM Business Income from surgery (a) Hospitals 15,04,000 (b) Clinic 23,50,000 Property income 10,12,000 Other income ki 75,000 ~ Rentofclinic 3,00,000 6. Household expenses 19,60,000 Purchase of motor car 6,40,000 Purchase of surgical equipment 5,00,000 Salary to assistant 1,80,000 lic running expenses 2,40,000 Donation 3,00,000 _amount received from hospitals is net of withholding tax tax is deducted @ 6 %.) Danial owns a commercial building which he has rented out. t receipts are as follows: 8,70,000 : adjustable security deposit: Received from a new tenant ) 7,00,000 a | 15,70,000 ) Paid to old tenant | (received three years ago) | 5,00,000 ‘withheld by tenant | 50,000 ty tax on building | 8.000 _3,58,000 \ | 10,12,000 ipts | ea i : : was received for writing an article in an international r : Z ; ro / Health Day. Donation was given to a governmen ol Pe upgrading its library. Depreciation on motor car and nent ig Rs. 1.18400 and Rs. 75,000 respectively. te the taxable income, tax liability and tax payable by - Danial for the tax year 202): |212 INCOME TAX. Solution _ Dr. Danial Tax Year: 2021 Tax Year Ended: 30.06.2021 Personal Status: Individual (Non-salaried) Residential Status: Resident Option-(D) Income from Business (Section 18) Consultation fee Hospital (Rs. 18,80,000 = 0.94) 20,00,000 Clinic 24,00,000 Income from surgery re Hospital (Rs. 15,04,000 + 0.94) 16,00,000 Clinic 23,50,000 Other income Total income Less Deductions , ~— Rent of clinic 3,00,000 Salary to assistant 1,80,000 Clinic a expenses 2,40,000 eoree 1,18,400 surgical equipments 7: Income, aon bush ee 12,20,000 529,060 $3,50,000 75,000 9,13,400 75,11,600 17,49,060INCOME FROM Busiwess Note: Income from property (Section 15) Rented Income : ‘Add:Unadjustable amount (700,000-150,000/10 Paid to previous tenant $00,000 x 30/70 = 150,000 has been deducted _ Taxable income of property 870,000 55,000 925,000 (No deduction is allowed) ‘Tax payable on property income 20,000 32,500 Tax to be paid with return on property Total tax payable 14,63,206+2500 Property Income 925,000 Less deduction repairs allowance 185,000 _ Taxable amount 740,000 _ Income from business 75,11,600 82,51,600 12,20,000 Tax on Rs. 22,51,600@35% — 788.060 20,08,060 Less average relief on deduction ~ Donation Rs. 300,000 is within limits 73,006 19,35,054 ‘ax payable fae By adyance tax deducted 216.008 y hospital oe ae ea oH ‘Less tax withheld by tenur ceed 16,69,054 payable with return enial will adopt option(I) 213 52,500 50,000 2,500 14,65.706h 214 INCOME Tax Will the Commissioner of Income Tax allow the following exp XPensesy Advertisement. 1 2. Bad debts. 3. _ Employees welfare expenditure. 4. Loss of embezzlement by an employee. 5, Underwriting commission. 6. — Fines and penalties. 7. Expenses incurred in raising loans. 8. _ Rent paid to partners for the use of his premises. 9. _ Interest payable to partners 10. Sales tax.» 11. Preliminary expenses. 12. Price paid for purchase of copyrights or patents. 13. Loss of stock by savages of white aunts. 14. Drawings of,proprietor or partners. 15. Private or personal expenses of proprietor. . Accounting depreciation. Excessive remuneration paid to an employee to avoid tax. Employer's contribution to recognized provident fund. Brokerage paid for procuring orders. Professional charges paid to an income tax practitioner to _Tepresent the case before the Commissioner of Income Tax. Bre Ves 6. No Py No 12, No 15. No ne YesINCOME FROM Business 215 with reasons if the followin, Income Tax Ordinance: iB are admissible or non-admissible Rent of premises Establishment expenses Litigation expenses Initial expenses Cost of issue of shares sible Expenditure. We have already discussed that the tax is d at source from salary. If tax is not deducted at source, then it is r ible expenditure. Moreover, if the salary exceeds Rs. 25,000 per it should be paid through a crossed cheque or direct transfer of ad employees bank account. Otherwise it will be treated as imissible Expenditure. We have considered it that any rent paid for portion of the premises which is used for the purpose of business or ion, is mentioned in section 20 and is admissible expenditure. sible Expenditure. The reason is that the expenditure is incurred purpose of business and is a revenue expenditure. ible. If the object of litigation is to depend or maintain an ing title to a capital asset used for business purpose such litigation senses are allowable. If the object is to acquire a title, such expenses of capital nature and cannot be deducted. ncurred by a taxpayer in connection with Ilowable deduction. The legal expenses ition against the taxpayer are non- sible. Legal expenses i usiness or profession are al in a criminal prosecul ssible. nissible. When incurred in iness is admissible ex! is launched for ex selling the goods in the otdinary course penditure. Where a special advertising tending the business activities in new ae |v sil INCOME TAX. sirections, advertising charges will not be allowed because of ih being capital expenditure. i 4. Non-Admissible. Expenditure. An initial expenditure is considera ~ capital expenditure because it is not incurred for earning profits but fo seiting the profit earning, so itis a non-admissible expenditure : 8. Non-Admissible Expenditure. The expenditure incurred by a company for issue of its shares is a capital expenditure and as such is a non. admissible expense. State with reasons whether the following are admissible or not: 1, Audit fee 2. Provision for bad and doubtful debts 3. Excise duty 4, Interest on long-term loans : ? 6. Fines and penalties _ Loss of cash embezzled by an employee . Charity paid to a beggar Wealth tax paid - Zakat paid into Zakat Fund Income tax paid S except amount transferred to Participatory n 20, expenditure is hecessary for the purpose of is an admissible expenditure. biesed for breach of any law is not » Ol Taw is not a normal incident ofINCOME FROM Business 217 h the Carelessness of it is an admissible the Working, hours, it dmissible. The sums paid by way of Voluntary charities are not ed to be deducted because it is not for the Purpose of business or ession, rather it is a personal expense, Admissible. Wealth tax is a personal tax. ible. Zakat paid can also be deducted from gross total income. Admissible. All the taxes paid on profits of the business are non- issible. Teasons whether the following are admissible or not: oss of discontinued business, toa director of a company. eserve for meeting contingent liability. jount paid for purchase of goodwill. iscount on issue of debentures. Admissible. When a business is discontinued, the loss sustained by isiness becomes a capital loss, hence non-admissible. Admissible. It is a personal expenditure and so is non-admissible. ible. Income tax law allows that Zakat may be deducted from al income in order to arrive at the total income. issible. All the provisions, reserves and appropriations are not sd under the law, except for special reserve. Idmissible. The expenditure is incurred to purchase’a new asset issible. iving long-term benefit. jissi api i it relates to the acquisition issil i ‘tal expenditure as i imissible. It is a cap!Rs, 97,16.809 246,000 500,000INCOME FROM Business me tax paid 16,50,000 x deducted on prize bonds 75,000 321,000 500,000 70,000 isiness Income it paid to approved institution e business income on Rs. 60,00,000 12,20,000 Rs. 437,800@ 35 % 153,230 Insurance paid 320,000 imum limit Rs. 150,000 or 5 % of income i.e. 321,890) insurance relief will be allowed on Rs. 150,000 Final Tax Regime prize bond taxed 15 % 75,000 0 @ 15 %) from a company whose income taxable will be taxed @ 25 % 17,500 219 34.83.000 73.28,800 13,73.230 31,996 13,41.234 92.500 particulars relate to Mr. Tipu for the year endedrR yy INCOME TAX % 220 ly Rs, Salary Income 320,000 pay Income from Business 15,00,000 Profit on purchase and sale of agriculture produce 150,000 Profit on sale of constructed property (purchased on 2014) : 20,00,000 Remuneration from T.V. Talk 75,000 Income from export of I.T. Services 317,000 Divided received 40,000 Mark up on house financing scheme 145,000 Contribution to approved pension fund 250,000 Required:- Calculate tax payable by Mr. Tipu Solution Mr. Tipu _ Tax Year: 2021 Tax Year Ended: 30.06.2021 : Residential Status: Resident Fe _ Computation of Taxable Income and Tax Payable _ Income from salary Section 12 ~ fs 38,40,000 15,00,000 from purchased and sale of agriculture produce 150,000 from export of I.T. services 317,000 —NS INCOME FROM Busivess Remuneration from T.V. Talk Divided received(to be taxed under F.T.R.) 75,000 Total Income SSe5 boo . Mark up on house financing scheme(within the limit) 145,000 Taxable Income 54,20,000 _ Mr. Tipu is a non salaried person as his salary is less than 75 % of his taxable income) 620,000 426,000 10,46,000 atribution to approved pension fund within maximum limit of 20 % of ome 250,000 48,247 997,753 ; 6,000 <@ 15 % (40,000 @ 15%) TAX YEAR 2022 wing changes have been included inthe law for tax year 2022. EGlaiie 61 of second schedule has been omitted, Thus many Pee rrtations donations to whom was treated \as_ straight i ww eligible for the tax credit. : : Pele'ot ‘which she ae ‘will be deducted from dividend by the ill be as Her see ivi aid by independent pow F ee ic paid under implementation agreement Z sai purchase agreement or energy purchase of