Bismillah Ir Rahman Ir

Raheem
 INCOME TAX

Presented by:
FARAZ FAZAL SHIEKH ADVOCATE.
L.L.B.,
MBA (MARKETING),
MBA (TAXATION),
TRADE MARK AGENT,
Sr. V. PRESIDENT TAX BAR ASSOCIATION,
SECRETARY GENERAL TAX BAR (06-07), (12-13)
& (14-15),
MBA (FINANCE),
FACULTY MEMBER NAB,
INCOME TAX PRACTITIONER,
MEMBER (ADRC) FBR,
EXECUTIVE MEMBER TAX BAR RITBA (6
TIMES).
Message of the day

If you prepare a force of Loins and

selected a dog to command, then all the
Loins will fight like dogs.

AND

If you prepare a force of dogs and

selected a Loin to command, then all the
“Tipu Sultan”

dogs will fight like LOINS.

 (a) WHAT IS INCOME?

a. As per Black’s Law Dictionary: - Earnings, salary, pay, remuneration,

wages, stipend, emolument; revenue, receipts, takings, profits, gains,
proceeds, turnover, yield, dividend, incomings, money received.
b. As per Dictionary Meaning: - Money received, especially on a regular
basis, for work or through investments.
c. In short terms we can say that “the income is a yield which a person
gain”.
d. More precisely we can say “any gain”.
e. Is the context of serial # “c to d” above, is there any difference of legal
and illegal income?
Albert Einstein once said : -

“the hardest thing in the

world to understand is the
income tax”.

Although Einstein wasn’t talking in Pakistan’s

context, but it holds true for the ever changing
income tax laws in our country.
5 a (3) INCOMES.

a. Definition and Scope of Income.

b. Sources (Heads) of Income.
c. Taxable Incomes.
d. Income Exempt from Taxes.
e. Agricultural Income.
 (b) DEFINITION & SCOPE OF
INCOME?

a. As per sec 2(29) of the Income Tax Ordinance, 2001: -

“Income includes:
(a) any amount chargeable to tax under the
Income Tax Ordinance, 2001;
(b) any amount subject to collection or
deduction of tax at the time of import of goods;”
Sec 11 SOURCES (HEADS) OF INCOME.

1. Salary.
2. Income from House Property.
3. Income from business or profession.
4. Capital gains. &
5. Income from other sources.
Sec 12 SALARY.

Main features are: -

1. Relationship of employer and employee.
2. Income received from local body.
3. During or after employment.
4. Employees included Managing director,
director or an agent of a company.
5. Whether received or not.
 Sec 12 SALARY.

Scope of salary income: -

1. Salaries.
2. Wages.
3. Annuity, pension or gratuity.
4. Fee, commission and allowances.
5. Profit in lieu of or in addition to salary / wages.
Sec 12 INCOME FROM SALARY.

Points to remember: -
1. Personal Liability.
2. Deductions not allowed.
3. Normal tax regime.
4. Basic statutory exemption of Rs.400,000/-.
Sec 15 INCOME FROM PROPERTY
(RENT).

Main features are: -

1. From immoveable property (Land, Building
etc).
2. Amount received or receivable.
3. Don’t transfer the ownership.
4. Fair Market rent.
5. Forfeited amount.
 INCOME FROM PROPERTY NOT TAXABLE
U/S 15.

1. Ground Rent.
2. Rent from building together with plant and
machinery.
3. Rental income by subletting.
4. Mining rights or royalties.
5. Provision of amenities, utilities or any other
service connected with property.
 INCOME FROM PROPERTY EXEMPT FROM
TAX.

1. Income from agricultural Land.

2. Income from agricultural Building.
3. Income from property held under Trust.
4. Rental value of owner’s occupied residential
property.
5. Rental value of owner’s occupied business
property.
Sec 15 INCOME FROM PROPERTY
(RENT).

Points to remember: -
1. Individual Liability in case of co-owner ship.
2. No deductions allowed.
3. Final tax regime.
4. Basic statutory exemption of Rs.200,000/-.
5. Separate tax rates / Block of income.
Sec 15 TAX RATES (RENT).

COMPANIES

15% of the gross amount of rent

Sec 15 TAX RATES (RENT).

Individuals.

Annual Rent (Rs.) Tax Rate

Up to 200,000 NIL

200,000 -to- 600,000 5% of the amount above Rs.200,000.

600000 -to- 1 Million Rs.20,000 + 10% above Rs.600,000.

1 Million -to- 2 Million Rs.60,000 + 15% of above 1 Million.

Above 2 Million Rs.210,000 + 20% of above 2 Million

Sec 18 INCOME FROM BUSINESS /
PROFESSION.

Scope: -
1. Trade.
2. Commerce.
3. Manufacture.
4. Profession.
5. Vocation.
INCOME FROM BUSINESS NOT TAXABLE U/S
18.

1. Remuneration received by a professional man

as an examiner.
2. Income of a non-professional writer to a
newspaper.
3. Casual income, prize bonds, lottery.
4. Winning of cross word puzzle.
5. Professional dues after discontinued business.
 INCOME FROM BUSINESS EXEMPT FROM
TAX.

1. Income of any university or other educational

institute not made for profit.
2. Income from export of software.
3. Agricultural income.
4. Income from Trust.
5. Income from other non profitable
organizations.
Sec 18 INCOME FROM BUSNIESS.

Points to remember: -
1. Liability in case of AOP.
2. Deductions allowed.
3. Normal tax regime (assessment powers).
4. Basic statutory exemption of Rs.400,000/-.
5. Accounts to be maintained.
 INCOME FROM CAPITAL & REVENUE.

Scope: -
1. Purchasing of an asset.
2. Period of Benefit.
3. Initiation of Business.
4. Extension of Business.
5. Principle of earning capacity.
 INCOME FROM CAPITAL & REVENUE.

Points to remember: -
1. Sale of an asset.
2. Amount received on account of Right.
3. Receipt to be judged in the hands of recipient.
4. Lump sum receipt.
5. Isolated transaction.
 INCOME EXEMPT FROM TAX.

Scope: -
1. Completely exempt from tax.
2. Partially exempt.
3. Exemption subject to fulfillment of certain
condition/s.
4. Liable to pay tax at the lower rate.
5. Allowed at the reduction in tax liability.
 INCOME EXEPMT FROM TAX.

Covered under Second Schedule of the Income

Tax Ordinance, 2001.

Continuously modification process.

 INCOMES EXEMPT FROM TAX.

Examples: -
1. Agricultural Income.
2. Pensions.
3. Scholarships.
4. Allowances.
5. Incomes of Non-Profitable organizations.
Sec 41 AGRICULTURAL INCOME.

Agricultural Income means, income which is: -

1. Derived from Land.
2. Land is situated in Pakistan.
3. Land is used for agricultural purpose.
 EXAMPLES OF AGRICULTURAL
INCOME.

1. Rent received by lessor of agricultural land.

2. Income received by lessee of agricultural land.
3. Income of a building used for agricultural
purpose.
4. Fee paid by tenant for renewal of lease.
5. Income from ware houses used for agricultural
purpose.
 EXAMPLES OF NON AGRICULTURAL
INCOME.

1. Income from stone quarries.

2. Income from fisheries.
3. Income from mining / royalties.
4. Income from flour mills.
5. Income from cotton ginning factories.
 INCOME EXEMPT FROM TAX.

Second schedule

• Foreign Exchange Regulation Act, 1947.

• Foreign Currency Accounts (Protection)
Ordinance, 2001.
• Others.
 INCOME EXEMPT FROM TAX.

Second schedule (3)

The tax in respect of income from services

rendered outside Pakistan shall be charged at
the rate of one per cent of the gross receipts,
provided that such receipts are brought into
Pakistan in foreign exchange through normal
banking channel.
 INCOME EXEMPT FROM TAX.

Second schedule 4(3A)

The tax in respect of income from construction

contracts out side Pakistan shall be charged at
the rate of one per cent of the gross receipts
provided that such income is brought into
Pakistan in foreign exchange through normal
banking channel.
 (a) WHAT IS ASSET?

a. As per Black’s Law Dictionary: - an item of property owned by a

person or company, regarded as having value and available to meet
debts, commitments, or legacies:
b. As per Dictionary Meaning: - advantage, blessing, good point,
strength, forte, virtue, resource, merit, estate, holding, possessions,
valuables, belongings etc.
c. In short terms we can say that “anything which has some value in the
hands of holder”.
d. More precisely we may say “any thing having worth”.
e. As per Merriam Webster “an item of value owned”
 ASSETS

• A
ny item of economic value owned by an in
dividual or
corporation, especially which could be co
nverted to
cash.

Examples are cash, securities,

accounts receivable,
inventory, office equipment,
 ASSETS
Moreover it says:
From an
accounting perspective, assets are divided int
o the following categories:
-
• Current assets (cash and other liquid
items),
• Long-term assets (
real estate, plant, equipment), prepaid and
deferred assets (
expenditures for future costs such as
(c) FORMS OF ASSET?

a. Movable.

b. Immovable.
 (c) MOVABLE ASSET?

a. Car / vehicles.
b. Machinery / Plant.
c. Furniture / Fixture.
d. Currency Note.
e. Stocks. etc
 (c) IMMOVABLE ASSET?

a. Land.
b. House.
c. Shop.
d. Structure.
e. Any construction. etc
 (d) MODE OF ACQUISITION OF ASSETS

a. Purchases.
b. Inheritance.
c. Gifts.
d. Exchange.
e. Entitlement.
(d) ASSETS

How to determine cost / value of an asset.

(4) ASSETS

Documents to determine the Cost of Assets.

• Purchase / Sale Deed.
• Record of Money Transfers.
• Examination of Sellers / Buyers.
• Examination of Witnesses.
• Taking into Account Parallel Cases.
• How to unearth undeclared Assets.
 EXPENSES.

1. Something spent to attain a goal or accomplish a purpose:

or an expense of time and energy on the project.

2. A loss for the sake of something gained; a sacrifice:

achieved speed at the expense of accuracy.

3. An expenditure of money; a cost: an improvement that was

well worth the expense;

4. Charges incurred by an employee in the performance of

work:

5. Informal Money allotted for payment of such goods or

services.
 VARIOUS KINDS OF EXPENSES.

1. Capital Expenses.

&

2. Revenue / Operating Expenses.

I. Administrative / set expenses.
II. Selling / Variable Expenses.
1. Direct expenses.
• Wages.
• Freight.
• Carriage inward.
• Royalty on production.
• Factory expenses.
• Factory depreciation.
• Fuel, oil and power.
• All other expenses related to
purchase of goods.
2. Selling / Indirect expenses.
• Office expenses.
• Sales expenses.
• Advertising.
• Bad debts.
• Depreciation of office assets.
• Interest on loan.
• All other expenses relating to sale
and marketing
 Analysis of Tax Records for Incomes &
Assets.

Quantum of Incomes and Addition in Assets.

• Wealth Statement of Previous Year.
• Wealth Statement of Current Year.
• Wealth Reconciliation Statement.
• Prepare Wealth Statement by own
sources.
• Prepare Wealth Reconciliation by own
sources.
 EXPENDITURE

• DOCUMENTED.

• NON DOCUMENTED.
 DOCUMENTED EXPENDITURES.

• Vehicles.
• Property purchase.
• Taxes (Federal & Provincial) etc.
• Utility bills.
• Credit cards.
• Foreign travels.
• Children school fee.
• Expenses paid through bank.
• Club memberships.
 NON DOCUMENTED
EXPENDITURES.
• Grocery / food items.
• Petrol / travelling.
• Entertainment.
• Employee salaries / labor etc.
• Donations.
• Clothing.
• Shopping etc.
• Commission to dealers etc.
• Health Services (few).
Q&A Session
WITHHOLDING
Of
INCOME TAX
 FILERS & NON-FILERS OF TAX
RETURNS [Section 2(23A) & (35C)]

FA 2014 introduced the concept of recognizing a person as

a Filer or a Non-Filer which are defined as follows: -

 (23A) “filer” means a taxpayer whose name

appears in the active taxpayers’ list issued by the
Board from time to time or is holder of a taxpayer’s
card” 

 (35C) “non-filer” means a person who is not a filer

Active Taxpayers List
1
 FILERS & NON-FILERS OF TAX
RETURNS [Section 2(23A) & (35C)]
Significant distinction has been created between Filer and
Non-Filer under the withholding tax provisions where
higher rates/ amounts applicable for Non-Filers; details of
which are as under:
Description Section referenc
Import of goods 148
Dividend 150
Profit on Debt 151
Services & Goods 153(1)
Cash withdrawals 231A
Private motor vehicles (Registration) 231B

2
 FILERS & NON-FILERS OF TAX RETURNS
[Section 2(23A) & (35C)]

Description Section reference

Motor vehicles 234
Advance tax from seller of immovable property 236C

Advance tax from purchaser of immovable

236K
property
sale of specified products to distributors, dealers
236G
and wholesalers

3
 Some other different provisions
PROVISIONS SCOPE

231A -------------------Cash Withdrawal from Bank.

231AA---------------- Advance Tax on Transaction in Bank.
231B ------------------Advance Tax in Private Motor Vehicles.
233 ------------------- Brokerage and Commission.
234 ------------------- Tax on motor vehicles.
235 ------------------- Electricity Consumption.
235A ------------------ Domestic Electricity Consumption.
236 ------------------- Telephone Users.
236A ------------------ Advance Tax on sale by Auction.
236B ------------------Advance Tax on Purchase of Air Ticket.
236C ------------------Advance Tax on Sale / Transfer of Property.
236D ------------------Advance Tax on Functions & Gathering.
236H ------------------Advance Tax on Sales to Retailers
4
 Some other different provisions
PROVISIONS SCOPE

236I -------Collection of Advance Tax by Educational Institutions.

236K ------Advance Tax Sale/Transfer of immoveable Property.
236W -----Person registering or attesting the transfer of
ownership of immoveable properties.
153(1)(a) ------------- Payment for Goods.
153(1)(b) ------------- Payment for rendering of services.
153(1)(c) ------------ Payment for execution of contracts.
155 ------------------- Payment of Rent.
149 ------------------- Salary
150 ------------------- Dividends.
151 ------------------- Profit on Debts.
156 ------------------- Prizes and winnings.

5
 Exemptions

SRO 586(I)/91: -
Excluding the transactions from
withholding of income tax.

6
 BANK DEPOSITS

All deductions are to be deposited

in the bank with in a 7 days from the
date of liable for deduction.
STATEMENT OF TAX DEDUCTION U/S 165

The statement of all deductions

made and deposit of tax are to be
furnished with the department on bi-
annually basis.
CERTIFICATE OF COLLECTION OR
DEDUCTION OF TAX U/S 164

The certificate of collection or

deduction of tax in a prescribed
manner be provided u/s 164 of the
Ordinance, 2001.
Q&A Session

61
JAZAK ALLAH

Email: Faraz_Law@hotmail.com