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Part – I
BASIC CONCEPTS of TAXATION
Assessment of Student’s
Tax basic concepts. understanding.
Tax & Economy Class Discussion and Query Session
1. Preliminaries & Definition
Tax Definitions. on Taxation.
Taxes in Pakistan History of Income & Sales Tax in
Pakistan.
Part – II
HEADS of INCOME – SALARY Income – Taxation
Definition. Lecture on the Topic.
What is Salary & salaried Presentation of an Actual salary Slip
3. SALARY Income – I Individual and Salary Certificate.
Practical Example of Perqs. Benefits
What does it include.
and Allowances.
Exemptions in Salary Incomes. Lecture on the Topic.
4. Calculation of Taxable incomes Method of Tax Slab development.
SALARY Income – II
Examples to calculate Gross Salary
Tax Slabs for Salary Income
and Taxable Salary.
Lecture on the Topic.
Salary Tax Credits & Rebates. Mathematical Formula calculation.
Practical Question for calculation Class Assignment for Individual’s Tax
5. SALARY Income – III Calculation.
of Tax Charge for Salary Income
Presentation on filed Return of
Salary Tax Planning
Salaried Individual.
Part – II
HEADS of INCOME – Income from Property & Capital Gains
Basic Concept &
Lecture on the Topic.
6. Income from Property What does it include Discussion on the skeleton of
Rent Income subject to Tax calculation for Income from property.
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Part – III
Payment of Taxes – as Prepayments
Part – III
SALES TAX
Lecture on the Topic.
Sales Tax mode of direct & major
Basic concept of Sales Tax & collection of Tax
10. Sales Tax – Basic Concept SALES TAX ACT – 1990 Class Discussion on VAT vs Sales
Tax
Sales Tax Collection mechanism
Assignment to students to evaluate
affect of sales Tax on Inflation and
increase in prices
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PERSON for Taxation purpose are classified into following categories u/s 80 :
An INDIVIDUAL;
a COMPANY or
ASSOCIATION of PERSON incorporated, formed, organized or established in Pakistan or
elsewhere;
For the purposes of Taxation —
Association of person includes a firm, a Hindu undivided family, any artificial juridical person
and
anybody of persons formed under a foreign law, but does not include a company;
COMPANY means —
i. a company as defined in the Companies Ordinance, 1984 (XLVII of 1984);
ii. a body corporate formed by or under any law in force in Pakistan;
iii. a modaraba;
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(a) Salary;
(b) Income from Property;
(c) Income from Business;
(d) Capital Gains; and
(e) Income from Other Sources.
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Status of Resident & Non-Resident Persons
A person shall be a resident person for a tax year if the person is a Resident Individual, Resident
Company, Resident Association of Persons (AOP) for the year; or is the Federal Government.
While a person shall be Non-Resident person for a tax year if the person is not a resident person
for that year.
Resident individual – Section 82
An individual shall be a resident individual for a tax year if the individual — is present in
Pakistan for a period (in continuity or in aggregate) of, one hundred and eighty-three (183) days
or more in the tax year;
Resident company – Section 83
A company shall be a resident company for a tax year if :—
(a) It is incorporated or formed by or under any law in force in Pakistan;
(b) The control and management of the affairs of the company is situated wholly or almost
wholly in Pakistan at any time in the year; or
(c) It is a Provincial Government or local authority in Pakistan.
Resident Association of Persons (AOP) – 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.
The income of a Resident Person under a head of income shall be computed by taking into
account amounts that are Pakistan-source income and amounts that are foreign-source income.
The income of a Non-resident Person under a head of income shall be computed by taking into
account only amounts that are Pakistan-source income. All Persons who does not cover under the
above stated criteria of Resident Person are Non Resident Person.
Every Assessee / Person needs to obtain a National Tax Number (NTN) as an evidence of its
being registered with Income Tax Authorities. For NTN, its obligatory on Person to file an
application & obtain the NTN number & certificate. This NTN is used by Tax Authorities as a
reference for all future dealings/events / transactions with the Person or by the the Person with
Tax Authorities.
Process of obtaining NTN
Every taxpayer shall apply in the prescribed form and in the prescribed manner for registration.
The Commissioner having jurisdiction over a case, where necessitated by the facts of the case,
may register a taxpayer in the prescribed manner.
Taxpayers‘ registration scheme shall be regulated through the rules to be notified by the Board.
Active taxpayers’ list
Any Tax Payer who has been deregistered at his own application or by the department on any
default/penal action or voluntarily basis would become a non-active TaxPayer and as such
would be delisted from Active TaxPayer lists.
The Board shall have the power to institute active taxpayers‘ list. Active taxpayers‘ list shall be
regulated as may be prescribed
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Following persons are required to furnish a return of income for a tax year:–
every company;
every person (other than a company) whose taxable income for the year exceeds the
maximum amount that is not chargeable to tax under this Ordinance for the year;
any non-profit organization / approved welfare institution as defined in ITO;
any person who has been charged to tax in respect of any of the two preceding tax years;
any person who claims a loss carried forward under this Ordinance for a tax year;
any person who owns immovable property with a land area of 250 square yards or more or
owns any flat located in areas falling within the municipal limits existing immediately before
the commencement of Local
Government laws in the provinces; or areas in a Cantonment; or the Islamabad Capital Territory
any person who owns immoveable property with a land area of 500 square yards or more
located in a rating area
any person who owns a flat having covered area of 2,000 square feet or more located in a rating area;
any person who owns a motor vehicle having engine capacity above 1000 CC;
any person who has obtained National Tax Number, including an AOP.
A return of income – shall be in the prescribed form and shall be accompanied by such
annexures, statements or documents as may be prescribed;
fully state all the relevant particulars or information as specified in the form of return,
including a declaration of the records kept by the taxpayer; and
be signed by the person, being an individual, or the person‘s representative.
The Commissioner may, by notice in writing, require a person, or his representative, as the case
may be, to furnish a return of income by the date specified in the notice for a period of less than
12 months, where -
the person has died;
the person has become bankrupt or gone into liquidation;
the person is about to leave Pakistan permanently;
the Commissioner otherwise considers it appropriate to require such a return to be furnished.
Commissioner may, by notice in writing, require any person who, in the Commissioner‘s
opinion, is required to file a return of income under this section for a tax year or assessment year
but who has failed to do so to furnish a return of income for that year within 30days from the
date of service of such notice.
A Revised return may be filed by a Person, if any person who having furnished a return
discovers any omission or wrong statement therein, may file revised return subject to the
following conditions :-
it is accompanied by the revised accounts or revised audited accounts, as the case may be; and
the reasons for revision of return, in writing, duly signed, by the taxpayers are filed with the return.
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Any person who is not obliged to furnish a return for a tax year because all the person‘s income is
subject to FINAL TAXATION (Final discharge at transaction level) shall furnish to the
Commissioner a statement showing such particulars relating to the person‘s income for the tax year
in such form and verified in such manner as may be prescribed and will not file a separate return.
Wealth statement.-
REQUIREMENT
Every resident taxpayer filing a return of income for any tax year who has a declared or assessed
income shall furnish a wealth statement and wealth reconciliation statement for that year along
with such return.
Where a person, who has furnished a wealth statement, discovers any omission or wrong
statement therein, he may, without prejudice to any liability incurred by him under any provision
of this Ordinance, furnish a revised wealth statement at any time before an assessment, for the
tax year to which it relates.
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 head of SALARY.
Salary means any amount received by an employee from any employment, whether
of a revenue or capital nature, including —
a) any pay, wages or other remuneration provided to an employee, including leave pay, payment in lieu of
leave, overtime payment, bonus, commission, fees, gratuity or work condition supplements (such as for
unpleasant or dangerous working conditions) [Provided that any bonus paid or payable to corporate
employees receiving salary income of one million rupees or more (excluding bonus) in tax year 2010, shall
be chargeable to tax at the rate provided.
Value of perquisites.— For the purposes of computing the income of an employee for a tax
year chargeable to tax under the head “Salary”, the value of any perquisite provided by an employer
to the employee in that year that is included in the employee’s salary under section 12 shall be
determined in accordance with this section.
1. Where, in a tax year, a motor vehicle is provided by an employer to an employee wholly or partly
for the private use of the employee, the amount chargeable to tax to the employee under the head
“Salary” for that year shall include an amount computed as may be prescribed.
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3. Where, in a tax year, utilities are provided by an employer to an employee, the amount chargeable
to tax to the employee under the head “Salary” for that year shall include the fair market value of
the utilities provided, as reduced by any payment made by the employee for the utilities.
4. Where a loan is made, on or after the 1st day of July, 2002, by an employer to an employee and
either no profit on loan is payable by the employee or the rate of profit on loan is less than the
benchmark rate, the amount chargeable to tax to the employee under the head “Salary” for a tax
year shall include an amount equal to—
the profit on loan computed at the benchmark rate, where no profit on loan is payable by the
employee, or
the difference between the amount of profit on loan paid by the employee in that tax year and the
amount of profit on loan computed at the benchmark rate, as the case may be
5. Where, in a tax year, an obligation of an employee to pay or repay an amount owing by the
employee to the employer is waived by the employer, the amount chargeable to tax to the
employee under the head “Salary” for that year shall include the amount so waived.
6. Where, in a tax year, an obligation of an employee to pay or repay an amount owing by the
employee to another person is paid by the employer, the amount chargeable to tax to the
employee under the head “Salary” for that year shall include the amount so paid.
Q . 5 (Salary Taxation) –
SHAYAN is a Chief Financial Officer in a reputable Air-Line having an extensive experience in
his field with bright future.
His salaries & benefits were as follows. Prepare Tax computation for Mr.Shayan for the year :
Basic Salary (per month) 224,500
House Rent Allowance (per month) 78,300
Cost of Living Allowance (per month) 14,600
Furnished Accommodation provided by Employer Annual Letting Value is Rs. 1,200,000
Medical Allowance (per month) 25,000
Leave Encashment (Annual basis) 142,500
BONUS (Annual basis) 1,021,500
CAR 1300cc Car, having Market Value/cost of 2,280,000
House Servant amount availed 1 servant, whose salary was 11,000
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H. The provisions of rent income taxation, shall not apply in respect of an individual or association of
persons who derive income chargeable to tax under this section not exceeding two hundred
thousand rupees in a tax year and does not derive taxable income under any other head
In computing the income of a company chargeable to tax under the head “Income from Property”
for a tax year, a deduction shall be allowed for the following expenditures or allowances, namely:-
1. In respect of repairs to a building, an allowance equal to one-fifth of the rent chargeable to tax in
respect of the building for the year, computed before any deduction allowed under this section;
2. any premium paid or payable by the company in the year to insure the building against the risk of
damage or destruction;
3. any local rate, tax, charge or cess in respect of the property or the rent from the property paid or
payable by the company] to any local authority or government in the year, not being any tax payable
under this Ordinance;
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11. where any unpaid rent allowed as a deduction is wholly or partly recovered, the amount recovered
shall be chargeable to tax in the tax year in which it is recovered.
Where a person has been allowed a deduction for any expenditure incurred in deriving rent chargeable
to tax under the head “Income from Property” and the person has not paid the liability or a part of the
liability to which the deduction relates within three years of the end of the tax year in which the
deduction was allowed, the unpaid amount of the liability shall be chargeable to tax under the head
“Income from Property” in the first tax year following the end of the three years.
Where an unpaid liability is chargeable to tax as a result of the application of sub-section (3) and the
person subsequently pays the liability or a part of the liability, the person shall be allowed a deduction
for the amount paid in the tax year in which the payment is made.
Any expenditure allowed to a person under this section as a deduction shall not be allowed as a
deduction in computing the income of the person chargeable to tax under any other head of income.
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Where an amount referred above is refunded by the owner to the tenant on termination of the
tenancy before the expiry of ten years, no portion of the amount shall be allocated to the tax year in
which it is refunded or to any subsequent tax year except as provided for in next para.
Where the circumstances specified in above para occur and the owner lets out the building or part
thereof to another person and receives from the succeeding tenant any amount which is not
adjustable against the rent payable by the succeeding tenant, the succeeding amount as reduced by
such portion of the earlier amount as was charged to tax shall be treated as rent chargeable to tax
under the head “Income from Property” as specified in the ordinance.
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1st. Rent received or receivable by the owner of land or building is chargeable to under ‘Income from Property’.
2nd. Rent means any amount received or receivable by the owner of land or a building, and also includes any
forfeited deposit for the sale of land or a building and non-adjustable amount in connection with building.
3rd. Advance rent is not chargeable in the year of receipt but rather in the year in which it is earned.
4th. In case rent received/receivable is less than FMV, the fair market rent is to be charged to tax.
5th. Any rent received or receivable in respect of the lease of a building with plant and machinery is
chargeable to tax under Income from Other Sources.
6th. Any amount included in rent of the provision of amenities, utilities or any other service connected with
the renting of the building is chargeable to tax under Income from Other Sources.
7th. Taxpayer, being individual or AOP, Income from Property of which does not exceed Rs.200,000 in a
tax year and who does not derive income under any other head pays no tax on property income.
8th. Rent from agricultural land or building is exempt from tax.
9th. Non-adjustable amount received in connection with building is charged to tax over a period of ten year
in equal installment.
1. SHAYAN had a property in Clifton which he let out on rent and had following details available in
that respect for Tax purposes ?
Monthly rental value 32,000
Property rented for 10 months during the year.
Advance rent received (adjustable) was 200,000
Repairs & Maintenance Cost of the property 70,000
Litigation Charges for the case for Property title 48,000
Ali also took an amount on account of Collection Charges 18,000
Mark‐up aid on Financing of this Rented property 142,000
What would be Shayan’s Tax liability for the above Income on Property ?
Ali has a house located in Clifton, which he rented out at a monthly rental of 16,000. Ali also gets a
Advance Pugree (non-adjustable) of 200,000. Compute Ali’s Tax liability of Income from Property ?
3. Mr. Ashraf rented out his property at a monthly rental of 12,000. He had No other source of income.
Compute his Tax liability of Income from Property ?
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5. SALMAN had a property in Lahore & he himself lives in Karachi, while earning rent from the
property. He gave that property on rent to his cousin at a reduced rate with an intension that his
cousin also looked after the property. Details extracted from his rental agreement were as follows;
Monthly rental value 36,000
Property remained vacant for 1 months.
Market value of rent for the same property was 45,000
He also had a discontinued agreement against which he forfeited advance taken by him Rs.65,000.
How much does Salman need to pay as Tax for the year on his income from property ?
6. Mr. Shoaib had a property in Karachi, earning a monthly rent of 40,000. The Tenant defaulted for
2months, hence for remaining 3 months Mr. Shoaib gave the property on rent to another Tenant at
a monthly rental value of 38,000. Mr.Shoaib could not recover the rent of the 2 months defaulted
by first tenant. From the second Tenant the arrangement also included payment of utilities by
Mr.Shoaib which was recognized as 20% of rent.
He also had an Agricultural Land which he gave to a Farmer on rental arrangement of
Rs.200,000 per crop. For the year, the farmer could reap 2 crops from the available agricultural
land. How much does Mr.Shoaib need to pay as Tax for the year on his income from property ?
7. SAS Limited had a property which they rented out at a monthly rental value of 200,000 per month.
The property remained vacant for a month. While the Tenant gave advance rent for the next year’s
first 3 months as he was leaving country. Compute Tax liability of Income from Property ?
Q . 8 ( Income from Property ) –
Shayan Limited had a property in Clifton which he let out to his employee Mr. Saad on rent and
had following details available in that respect for Tax purposes ?
Monthly rental value 62,000 per month
Similar property rented in same building at fair market value. 75,000 per month
Advance rent received (adjustable) was 620,000
Mark-up paid on Financing of this Rented property 122,000
Repairs & Maintenance Cost of the property 168,800
Litigation Charges for the case for Property title 120,000
Payments on account of Collection Charges 25,000
Property Tax paid on the premises 28,000
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Capital Gain arising on the disposal of a capital asset by a person shall be computed in accordance with
the following formula, A – B, where —
the fair market value of the asset, on the date of its transfer or acquisition by the person shall be
treated to be the cost of the asset.
Capital Asset” means property of any kind held by a person, whether or not connected with a business,
but does not include
‐ any stock-in-trade, consumable stores or raw materials held for the purpose of business;]
‐ any property with respect to which the person is entitled to a depreciation deduction under section
22 or amortisation deduction under section 24; or
‐ any movable property excluding capital assets specified in section 38 (5) held for personal use by
the person or any member of the person’s family dependent on the person
‘A’ is the consideration received by the person on disposal of the security; and
The holding period of a security, for the purposes of this section, shall be reckoned from the date of
acquisition (whether before, on or after the thirtieth day of June, 2010) to the date of disposal of such
security falling after the thirtieth day of June, 2010.
For the purposes of this section “security” means share of a public company, voucher of Pakistan
Telecommunication Corporation, Modaraba Certificate, an instrument of redeemable capital,debt
Securities] and derivative products.
Deduction of losses in computing the amount chargeable under the head “Capital Gains”.—
In computing the amount of a person chargeable to tax under the head “Capital Gains” for a tax year,
a deduction shall be allowed for any loss on the disposal of a capital asset by the person in the year.
No loss shall be deducted under this section on the disposal of a capital asset where a gain on the
disposal of such asset would not be chargeable to tax. Further, No loss shall be recognized under this
Ordinance on the disposal of the following capital assets, :—
o A painting, sculpture, drawing or other work of art;
o jewellery;
o a rare manuscript, folio or book;
o a postage stamp or first day cover;
o a coin or medallion; or
o an antique.
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For immovable property allotted to persons mentioned in sub-section (4) of section 236C.
1. Immovable property is held irrespective of the holding period. 0%
For immovable property acquired on or after July 1, 2016, other than those mentioned against S. No. 1
2. Where holding period of immovable property is up to one year. 10%
3. Where holding period of immovable property is more than or equal to one year 7.5%
but less than two years.
4. Where holding period of immovable property is more than or equal to two years 5%
but less than three years.
5. Where holding period of immovable property is more than three years. 0%
For immovable property acquired before July 1, 2016, other than those mentioned against S. No. 1
6. Where holding period of immovable property is up to three years. 5%
7.
Where holding period of immovable property is more than three years: 0%”]
Provided that gain arising on the disposal of immovable property by a person in a tax year
to a Rental REIT Scheme shall be taxed at the rate of five percent upto thirtieth day of June,
2019, irrespective of the holding period.
Provided that rate of tax to be paid under sub-section (1A) of section 37 shall be reduced by
fifty per cent on the first sale of immovable property acquired or allotted to ex-servicemen
and serving personnel of Armed Forces or ex-employees or serving personnel of Federal and
Provincial Governments, being original allottees of the immovable property, duly certified
by the allotment authority