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Income from Business

09
CHAPTER

2-2 Income from Business .

profession. This definition is inclusive/ flexible.2-3 Business Defined Section 18 o o ³Business includes any trade. However. The definition starts with the word ³includes´ is always general. commerce or manufacture. it does not include employment´. vocation or any adventure or concern in the nature of trade. . it means other meanings can also be added. commerce or manufacture.

2-4 Meaning of Business Profit motive Rendering services Business cannot be carried on with oneself .

2-5 Meaning of Business --cont Business includes trade It includes commerce and manufacture Business can be any adventure in the nature of trade. commerce or manufacture but does not include employment .

the management company.2-6 Income Chargeable under Business Section 18 Profits and gains of any business/profession o Income from the sale of Goods or provision of services by trade/professional or similar association. o Income from the hire or lease of tangible moveable property. o Any profit on debt-the banks/financial institute o . o Any management fee derived . o Fair Market Value of any benefit or perquisiteBusiness Relationship.

Speculation Business Section 19 2-7 o ³Speculation business´ means any business in which a contract for purchase and sale of any commodity (including stock and shares) is settled otherwise than by the actual delivery. but does not include a business in which: .

.2-8 SPECULATION BUSINESS Section 19 o o A contract for purchase of material is entered into. (This contract will not be a speculative activity). for the manufacture or merchandizing and to safeguard against the price fluctuations entered into another contract. A contract in respect of stocks and shares entered into by a dealer or investor to guard against the loss in the person¶s holding of stocks and shares through price fluctuation.

Separate books of Accounts are maintained for speculative and nonspeculative businesses.2-9 Why to show Speculative income separately from Non-Speculative business income? An Analysis o o o o Section 58 and 67 provides answer to this question. Section 67--.Apportionment of deductions on the basis of nature and size of the activities. .set off and carry forward of losses. Section 58 --.

000 Income from normal business-B Income from speculative business 50.000 75. Calculate total taxable income of the company. Income from normal business-A Rs 150. provided the following information about its income for the tax year 2010.75.000 Answer: Total income chargeable to tax 2.I A B C Ltd.2-10 Example .000: .

. sustains a loss of Rs 75.2-11 Example . suppose the ABC company Ltd.000 will be carried forward to the next year to be adjusted against speculative profit.000 Loss of Rs 75.II Continuing with the above example. Solution: Income chargeable to tax = Rs 200.000 from speculative business instead of profit.

Recognized Sports Board Income of Mudaraba Company . Recognized Vocational Institution.2-12 EXEMPTION ON BUSINESS INCOME Under Part 1 of the 2nd Schedule Income from Text Book Board Income of University or Educational Institution established not for profit motive. Recognized Computer Training Institution.

company. .2-13 1. Deduction on account of Financial costs.ADMISSIBLE DEDUCTIONS Section 20 Amalgamation Deprecation expenses and Expenses to incurred by amortization Derive a amalgamated Income on assets.

Bad Debts Expenditures an educational institute or hospitals for the benefit of employees and their dependents. Expenses incurred in deriving income from business section 20(1) o o o o o o o o o o Examples. cess or rate (other than income tax) Repair of business assets Bonus to employees. .2-14 A. Cost of goods manufactured & sold Rent of premises used for business Any tax. Training of employees Annual subscription Expenditures on visits of trade delegations sponsored by the Federal Govt.

.2-15 B. Depreciation and Amortization Section 20(2) oDepreciable Assets oIntangibles and useful life is more than one year oPre-commencement expenditures Note: This topic will be discussed later on under sections 22 to 25 and the 3rd Schedule of the Income Tax Ordinance 2001.

Amalgamation Expenses Section 20(3) o.Legal expense. o. Financial advisory services o. .2-16 C. Other administration costs relating to planning & implementation of amalgamation.

Deduction on account of Financial costs Section 28(1) 1. Profit on debt paid 2.2-17 D. Lease rentals for a leased asset .

Default of tax deductions on payment of: o Salary o Rent o Brokerage/commission o Profit on debt Profit on debt paid Lease rentals for a leased asset o . Taxes on Profit-Income Tax etc.DEDUCTIONS NOT ALLOWED Section 21 o o o o o o Non-Business/Personal Expenditure Capital Expenditure except depreciation/amortization. Entertainment Expenses over and above the prescribed limit. Personal Expenses of the trader.2-18 2 .

000 Salary Account exceeding Rs.2-19 Deductions not allowed-Continued o o o o o o o Any contribution to un-recognized fund.000 . a) Profit on debt. 10. 50. Fine or penalty for violation of Law/Rules. Default of mode of payment Single Account exceeding Rs. Payments to Member of an Association of Person. Brokerage/commission c) Salary/other remunerations. b).