Sharif ud din Khilji

Chief Executive
Khilji & Co. Chartered Accountants

PRINCIPLES OF TAXATION

SK TAX NOTES
OF INDIVIDUALS
(EXCLUDING SPECIAL INDUSTRIES (IF ANY), MINIMUM TAX, FINAL TAX
REGIME, ADVANCE TAX, RETURNS, ASSESSMENT, APPEALS, RECOVERY,
PENALTIES, NON-RESIDENTS, DOUBLE TAXATION TREATY,)

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Presentation Agenda
• Topics already covered
• Deceased Individuals

SK TAX NOTES
• Individual as member of AOP
• Authors
• Income splitting
• Succession of business 2
Deceased Individuals - 1
• 87. Deceased individuals.— (1) The legal
representative of a deceased individual shall be
liable for —
• (a) any tax that the individual would have become
liable for if the individual had not died; and

SK TAX NOTES
• (b) any tax payable in respect of the income of the
deceased’s estate.
• (2) The liability of a legal representative under this
section shall be limited to the extent to which the
deceased’s estate is capable of meeting the liability.
• (2A) The liability under this Ordinance shall be the
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first charge on the deceased’s estate.
Deceased Individuals
• (3) For the purpose of this Ordinance, —
• (a) any proceeding taken under this Ordinance against the
deceased before his or her death shall be treated as taken
against the legal representative and may be continued against
the legal representative from the stage at which the
proceeding stood on the date of the deceased’s death; and

SK TAX NOTES
• (b) any proceeding which could have been taken under this
Ordinance against the deceased if the deceased had survived
may be taken against the legal representative of the deceased.
• (4) In this section, “legal representative” means a person who
in law represents the estate of a deceased person, and
includes any person who intermeddles with the estate of the
deceased and where a party sues or is sued in representative
character the person on whom the estate devolves on the 4
death of the party so suing or sued.
Individual as member of AOP
• 88. An individual as a member of an association of persons.— If,
for a tax year, an individual has taxable income and derives an
amount or amounts exempt from tax under sub-section (1) of
section 92, the amount of tax payable on the taxable income of the
individual shall be computed in accordance with the following

SK TAX NOTES
formula, namely: —
• (A/B) x C where —
• A is the amount of tax that would be assessed to the individual for
the year if the amount or amounts exempt from tax under sub-
section (1) of section 92 were chargeable to tax;
• B is the taxable income of the individual for the year if the
amount or amounts exempt from tax under sub-section (1) of
section 92 were chargeable to tax; and
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• C is the individual’s actual taxable income for the year.
Individual as member of AOP
• Example
• Taxable Income 1,200,000
• Share from AOP 800,000
• Total income 2,000,000
• Tax liability 190,000

SK TAX NOTES
• Tax payable = A /B * C
• Tax payable = 190,000 / 2,000,000 * 1,200,000= 114,000

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Individual as member of AOP
• Example
• Taxable Income 1,200,000
• Share from AOP 800,000
• Total income 2,000,000
• Tax liability 190,000

SK TAX NOTES
• Tax credit for AOP share = A /B * C
• Tax AOP share = 190,000 / 2,000,000 * 800,000= (76,000)
• Net tax payable 114,000

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Tax on Tax for salaried individual
• Salary 700,000
• Tax on salary (100,000=5%) 5,000
• Employer pays salary 700,000-5,000 695,000
• Deduct tax and pay to Govt. 5,000
• If the employer agrees to pay Rs.700,000 net of tax i.e. tax will not be
deducted from employee payment the employer will bear the tax cost.
• Normal salary 700,000

SK TAX NOTES
• Tax paid by employer 5,000
• Total salary 705,000
• Tax liability 105,000 * 5% 5,250
• Tax paid by employer 5,250,
• Employee salary 705,250
• 105,250 * 5% 5,262.50 (paid by employer)
• Employee salary 705,262.50
• Tax 5,263.125 (paid by employer) 8
• Employee salary 705,263.125
• Tax 5,263
•
Tax on Tax for salaried individual

•Employee salary =
Salary paid to

SK TAX NOTES
employee + tax cost
borne by employer
• 9
Authors
• 89.Authors.— Where the time taken by an
author of a literary or artistic work to complete
the work exceeds twenty-four months, the
author may elect to treat any lump sum amount
received by the author in a tax year on account

SK TAX NOTES
of royalties in respect of the work as having been
received in that tax year and the preceding two
tax years in equal proportions. (3 saal tak)
• For example an author receives Rs.1,200,000 in
tax year 2020. now Rs.400,000 each will be
included in taxable income of TY 2018, 2019 & 10
2020.
Fixed Tax Regime & FTR
• Fixed Tax Regime: Where tax rate applies on gross
income and considered a separate head of income –
For example: Property income, capital gain on
immovable property.
• Final Tax Regime: Tax is deducted at source on the
income earned and such tax is considered as final tax

SK TAX NOTES
and no more tax is required to be paid.
• For example
• Dividend income = 10,000
• Tax deducted = 1,500 – final tax liability
• Examples: Dividend, Profit on Debt, Capital gain on
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public company securities (shares, debentures etc.),
export, Prize bonds.
 Normal Tax Regime
• Salary income
• Capital Gains = Private company shares & personal assets
• Income from other sources = Sub-lease, income from lease of
building together with p& m etc.

SK TAX NOTES
• Income from property = NTR for all.
• Income from business: usually all are in NTR except few like
exports.
• Difference b/w NTR & FTR:
• No losses and tax credits (except tax deducted at source) is
allowed against FTR
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 Numerical solving with FTR
• Basic salary 2,000,000
• Other allowances 1,000,000
• Dividend/ Profit on debt/ Prize bonds
• These are FTR but examiner don’t identify you must remember. How info is
given:
• Dividend income 100,000
• Tax deducted on Dividend 15,000

SK TAX NOTES
• Solution
• Salary income ----
• Tax liability on salary -----
• Separate Heading FTR
• Dividend -----
• Tax liability on Dividend ---
• Total tax liability = sal + div = - ---
• Tax credits (FTC, CH. 10, TDS) 13
 Numerical solving with FTR
• Basic salary 2,000,000
• Other allowances 1,000,000
• Dividend/ Profit on debt/ Prize bonds
• These are FTR but examiner don’t identify you must remember. How info is
given:
• Dividend income (net of 15% tax) 85,000
• Solution

SK TAX NOTES
• Salary income ----
• Tax liability on salary -----
• Separate Heading FTR
• Dividend 85,000 / .85 or 85% 100,000
• Tax liability on Dividend 15,000
• Total tax liability = sal + div = - ---
• Tax credits (FTC, CH. 10, TDS)
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 Numerical solving with FTR
• Pak source bus income ----
• Foreign source ---
• Dividend income ----
• Foreign tax credit:
• Foreign tax paid or
• Pakistan tax payable – do not include tax liability or taxable income of FTR
or fixed tax for the purpose of working out average rate of tax

SK TAX NOTES
• Similarly for CH. X tax credits = A/B * C
• A = tax liability – do not include FTR liability Fixed tax liability
• B = taxable income – do not include FTR or Fixed Tax Regime income

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Individual with Foreign & FTR
• Example
• Taxable Income 1,200,000
• Foreign source income 800,000
• Dividend 100,000
• Total income (NTR) 2,000,000

SK TAX NOTES
• Tax liability (NTR) 190,000
• Tax liability FTR 15,000
• Total tax liability 205,000
• Foreign tax credit (assumed foreign tax paid is also 76,000)
• Tax = 190,000 / 2,000,000 * 800,000= (76,000)
• Net tax payable 129,000
• NTR 114,000 16
• FTR 15,000
Individual with Donation & FTR
• Example
• Taxable Income 2,000,000
• Dividend 100,000
• Total income 2,100,000
• Tax liability (NTR) 190,000

SK TAX NOTES
• Tax liability FTR 15,000
• Total tax liability 205,000
• Donation paid 200,000
• Tax = 190,000 / 2,000,000 * 200,000= (19,000)
• Net tax payable 186,000
• NTR tax liability 171,000
• FTR tax liability 15,000 17
Individual with Business & FTR
• Example
• Revenue 4,500,000
• Expenses (including donation 200K to approved NPO) 2,000,000
• Accounting profit 2,500,000
• Dividend 500,000
• Total 3,000,000
• Inadmissible ded
• Donation paid to approved NPO 200,000
• Admissible ded

SK TAX NOTES
• Tax dep 700,000
• Dividend 500,000
• Taxable Income (NTR –business) 2,000,000
• Dividend 500,000
• Tax liability (NTR) 190,000
• Less; tax credit on donation (200K*190K/2m) (19,000)
• NTR tax liability 171,000
• Tax liability FTR 75,000
• Total tax liability 265,000
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