Income Tax: Chapter #09: AOP and NPO

Misc. Concepts:

In case of a deceased individual, legal representative of the deceased person shall be liable for the tax
liability of the deceased person. However, legal representative shall pay only that tax which can be
recovered from him.

Any income of a minor child taxable under head income from business shall be chargeable to tax as
income of the parent of the child. It shall not apply where the income of a minor child is from a business
inquired through an inheritance. Any income of minor child other than business income is taxable in the
hand of minor.

AOP:

AOP is separate entity from its owners and shall pay tax separately from member of the AOP. AOP is
resident if control and management of AOP is situated wholly or partly in Pakistan at any time of the tax
year. A resident AOP is taxed on its worldwide income whereas non-resident is taxed on its Pakistani
source income. Profit on debt paid by AOP to its members shall not be allowed as deductible expense to
AOP. JV is treated as AOP.

Where AOP has paid tax on its income, any amount paid to the members of AOP is exempt from tax.
However, it shall be added in the income of the members for rate purposes only. Losses of AOP cannot
be adjusted against income of members and vice versa.

Incase where company is a member of AOP, the share of profit of company shall not be added in the
taxable income of AOP and shall be deducted from the taxable income of AOP and added in the income
of company under head income from other sources. However, this shall not be applicable in case of loss.
Loss from AOP is added back in the income of company. Further, share of company from turnover of
AOP shall be added in the turnover of company in order to calculate 1.25% minimum turnover tax.

Loss incurred by a company can be set off against share of profit in AOP. Company shall also be given tax
credit for any tax withheld in AOP( tax credit shall be given in relation to company’s share).

Not for Profit Organizations:

Tax credit of 100% is allowed subject to meeting the conditions as mentioned in section 100-C. Tax
credit on FTR income and minimum tax is also given. Capital gain and dividend income is fully taxable.
Property income is exempt.

Admin and management expenditures shall not increase 10% of receipts. However, this is not applicable
where the operation of NPO have commenced during the preceding 3 years and total receipts during the
tax year are less than 100 million. This limit is applicable only to NPOs and not to trusts. Further, this is
applicable to admin expenses only and not to cost of operations.

If NPO, welfare and trusts are unable to spend more than 75% of their income on charitable and welfare
activities, the amount not spend shall be taxed @10% whereas their status of NPO shall remain intact.

If 100% tax credit is not applicable, then tax is charged @29%/20%.