HEAD OF INCOME 3:

INCOME FROM BUSINESS

Section 80. PERSON

The following shall be treated as persons for the purposes of this Ordinance, namely:-
a) An individual;
b) a company or association of persons incorporated, formed, organized or
established in Pakistan or elsewhere;
c) the Federal Government, a foreign government, a political sub-division of a
foreign government, or public international organization.
Association of Persons 80(2)(a)
“Association of persons” includes

 a firm,

 a Hindu undivided family,

 any artificial juridical person and

 any body of persons formed under a foreign law,

 but does not include a company;

Company 80(2)(c)
“company” means -
i. a company as defined in the Companies Act, 2017;
ii. a body corporate formed by or under any law in force in Pakistan;
iii. a modaraba;
iv. a body incorporated by or under the law of a country outside Pakistan relating to incorporation of companies;
v. a co-operative society, a finance society or any other society;
vi. a non-profit organization;
vii. a trust, an entity or a body of persons established or constituted by or under any law for the time being in
force;
viii. a foreign association, whether incorporated or not, which the Board has, by general or special order, declared
to be a company for the purposes of this Ordinance;
ix. a Provincial Government;
x. a Local Government in Pakistan; or
xi. a Small Company as defined in section 2
Small & Medium Enterprise 2(59A)
Small Company 2(59AB)
“small and medium enterprise” means a person who is engaged in manufacturing as defined u/s
153(7)(iv) and his business turnover in a tax year does not exceed Rs. 250 million :
Provided that if annual business turnover of a small and medium enterprise exceeds
Rs. 250 million, it shall not qualify as small and medium enterprise in the tax year in
which annual turnover exceeds that turnover or any subsequent tax year.

“Small Company” means a company registered on or after Ist July, 2005, under the Companies Act,
2017, which,-
1) has paid up capital plus undistributed reserves not exceeding Rs. 50 million;
2) has employees not exceeding 250 any time during the year;
3) has annual turnover not exceeding Rs. 250 million;
4) is not formed by the splitting up or the reconstitution of company already in existence; and
5) is not a small and medium enterprise as defined in clause (59A).
BUSINESS 2(10)

Business is an activity undertaken to earn profit and includes any

 Trade
 Commerce
 Manufacture
 Profession
 Vocation or
 Adventure or concern in the nature of tcmpv
 Does not include employment
Section 18. INCOME FROM BUSINESS
- Scope
a) The profits and gains of any business carried on by a person at any time in the
year;
b) Any income derived by any trade, professional or similar association from the
sale of goods or provision of services to its members
c) Any income from the hire or lease of tangible movable property;
d) 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
e) Any management fee derived by a management company (including a modaraba
management company
ADMISSIBLE DEDUCTIONS Section 20

 Expenses incurred for the purpose of business

 Animals used for business
 Depreciation and amortization on tangible and intangible assets
 Amalgamation expenses incurred by an amalgamated company
 Financial costs
Expenses incurred for the purpose of
business
Wholly and exclusively otherwise proportionately
Accounting method: same as used regularly by the taxpayer
Examples:-
 Cost of goods purchased and utilized for the business
 Cost of goods manufactured and sold
 Rent of premises used for business
 Any taxes, charges, cess, rates, subscriptions paid for business or its assets
 Repairs and maintenance charges
 Insurance premium
 Salaries and employment benefits
 Actual bad debts
 Lease rental installments
 Training & travelling either local or foreign in connection with business
Animals used for business

 Otherwise than stick in trade

 In case of death or becoming permanently useless for business

 Actual cost of the animal

xxxx
 Less: amount realized in respect of carcass or animal (xxx)
 Amount to be allowed as deduction
xxxxx
Depreciation and Amortization

 Initial depreciation
 Regular Depreciation
 Amortization
and
 Pre-commencement expenditure
Amalgamation Expenses

 Legal expenses
 Financial Advisory Services
and
 Other administrative costs relating to planning and implementation of
amalgamation
Financial Costs

 Profit on debt
 Lease rental / installment for a business asset acquired on lease
(principal and interest both parts)
 A scheduled bank
 A modaraba
 A leasing company
 A special purpose vehicle

 For lease rental of a passenger transport vehicle not plying for hire, the maximum
deduction shall not exceed Rs. 7.5 million
Inadmissible Deductions