Income Tax Ordinance 2001

Only extracts of important points, for full coverage refer the Act
Definitions
• Tax: means any tax imposed under Chapter II, and includes any penalty,
fee or other charge or any sum or amount leviable or payable under
this Ordinance.
• “taxpayer” means any person who derives an amount chargeable to tax
under this Ordinance, and includes:
- any representative of a person who derives an amount chargeable to
tax under this Ordinance
- any person who is required to deduct or collect tax
- any person required to furnish a return of income or pay tax under this
Ordinance;
Taxable income (section 9)
• The taxable income of a person for a tax year shall be the total
income of the person for the year reduced (but not below zero) by
the total of any deductible of the person for the year

Total income (section 10)

• The total income of a person for a tax year shall be the sum of the
(a) person’s income under all heads of income for the year; and
(b) person’s income exempt from tax under any of the provisions of this
Ordinance.
Heads of income (section 11)
• For the purposes of the imposition of tax and the computation of
total income, all income shall be classified under the following heads,
namely: —
(a) Salary
(b) Income from property
(c) Income from business
(d) Capital Gains
(e) Income from other sources
Heads of income (section 11) (Cont’d)
• the income of a person under a head of income for a tax year shall be
the total of the amounts derived by the person in that year that are
chargeable to tax under the head as reduced by the total deductions,
if any, allowed under this Ordinance to the person for the year under
that head.
• where the total deductions allowed under this Ordinance to a person
for a tax year under a head of income exceed the total of the amounts
derived by the person in that year that are chargeable to tax under
that head, the person shall be treated as sustaining a loss for that
head for that year of an amount equal to the excess
Salary (section 12)
Any salary received by an employee in a tax year, other than salary that
is exempt from tax under this Ordinance, shall be chargeable to tax in
that year under the head “Salary”
Income from property (section 15)
The rent received or receivable by a person [for] a tax year, other than
rent exempt from tax under this Ordinance, shall be chargeable to tax
in that year under the head “Income from Property”
Income from Business (section 18)
The following incomes of a person for a tax year, other than income
exempt from tax under this Ordinance, shall be chargeable to tax under
the head “Income from Business”
Cont’d

• the profits and gains of any business carried on by a person at any

time in the year
• any income derived by any trade, professional or similar association
from the sale of goods or provision of services to its members;
• any income from the hire or lease of tangible movable property
• the fair market value of any benefit or perquisite, whether convertible
into money or not, derived by a person in the course of, or by virtue
of, a past, present, or prospective business relationship
• any management fee derived by a management company (including a
modaraba management company)
Capital Gain (section 37)
Subject to this Ordinance, a gain arising on the disposal of a capital
asset by a person in a tax year, other than a gain that is exempt from
tax under this Ordinance, shall be chargeable to tax in that year under
the head “Capital Gains”

Income from other sources (section 39)

Income of every kind received by a person in a tax year, [if it is not
included in any other head] other than income exempt from tax under
this Ordinance, shall be chargeable to tax in that year under the head
“Income from Other Sources”
Resident & non-resident persons (section
81)
A person shall be a resident person for a tax year if the person is —
(a) a resident individual, resident company or resident association of
persons for the year; or
(b) the Federal Government.

A person shall be a non-resident person for a tax year if the person is

not a resident person for that year
Resident individual (section 82)
• present in Pakistan for a period of, or periods amounting in aggregate
to, one hundred and eighty-three days or more in the tax year
• present in Pakistan for a period of, or periods amounting in aggregate
to, one hundred and twenty days or more in the tax year and, in the
four years preceding the tax year, has been in Pakistan for a period of,
or periods amounting in aggregate to, three hundred and sixty-five
days or more; or
• Is an employee or official of the Federal Government or a Provincial
Government posted abroad in the tax year
Resident company (section 83)
• it is incorporated or formed by or under any law in force in Pakistan
• the control and management of the affairs of the company is situated
wholly in Pakistan at any time in the year; or
• it is a Provincial Government or Local Government in Pakistan.

Resident company (section 84)

• An association of persons shall be a resident association of persons
for a tax year if the control and management of the affairs of the
association is situated wholly or partly in Pakistan at any time in the
year.
Tax year (section 74)
• For the purpose of this Ordinance and subject to this section, the tax
year shall be a period of twelve months ending on the 30th day of
June (hereinafter referred to as ‘normal tax year’) and shall be
denoted by the calendar year in which the said date falls.
• Where a person’s income year is different from the normal tax year, or
where a person is allowed to use a twelve months’ period different
from normal tax year, such income year or such period shall be that
person’s tax year (hereinafter referred to as ‘special tax year’) and
shall be denoted by the calendar year relevant to normal tax year in
which the closing date of the special tax year falls
Receipt of income (section 69)
For the purposes of this Ordinance,
a person shall be treated as having received an amount, benefit, or
perquisite if it is —
(a) actually received by the person;
(b) applied on behalf of the person, at the instruction of the person or
under any law; or
(c) (c) made available to the person.
Tax on taxable income (section 4)
• Subject to this Ordinance, income tax shall be imposed for each tax
year, at the rate or rates specified in the First Schedule, as the case
may be, on every person who has taxable income for the year.
• The income tax payable by a taxpayer for a tax year shall be computed
by applying the rate or rates of tax applicable to the taxpayer under
this Ordinance to the taxable income of the taxpayer for the year, and
from the resulting amount shall be subtracted any tax credits allowed
to the taxpayer for the year