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Chapter 05

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INCOME FROM PROPERTY

Property means: Building , Land

Income from Property means: Rent

Rent means :-

Amount Received / Receivable by the owner of building for its use.

Any forfeited deposit paid under a contract for the sale of land/build

Un-adjusted advance received by the owner (10 equal proportion).

Subsequent recovery of irrecoverable unpaid rent.

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INCOME FROM PROPERTY EXEMPTED

Income from Agriculture.

Income from Property held by Trust .

Self occupied Residential Property.

Self occupied Business Property.

RATES OF TAX

Up to Rs: 150,000/- P.A Nil

150,001/- to 400,000/- 5% of exceeding Rs: 150,000/-

400,001/- to 1,000,000/- 12,500/- + 7.5% of exceeding Rs: 400,000/

Exceeding 1,000,000/- Rs:57,500/- + 10% of exceeding

Rs: 1,000,000/-

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Chapter 06

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CAPITAL AND REVENUE RECEIPT /

EXPENDITURE

Necessity :-

Income Tax is levied on revenue receipts and not on capital.

Expenditure of revenue nature are deducted from income toascertain profit. The difference in capital and revenue receipt/

expenditure is must

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CAPITAL EXPENDITURE

A transaction which increases the assets.

Examples :-

Balance Sheet effect.

Purchasing of assets.

Commencement of business expenditure.

Extension of business.

Increase in earning capacity.

Acquiring Rights / Patents.

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REVENUE EXPENDITURE

Operational expenditure.

Examples :-

Income statement (P & L A/c) effect.

Salaries.

Rent & Utility Bills.

Legal expenses.

Repair & Maintenance.

Payment for use of Right , Patent , Trade Mark etc.

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Chapter 07

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INCOME FROM BUSINESS

Business means:- Trade

Commerce

Manufacturing

Profession

Vocation

Adventure in the nature of Trade

Concern in the nature of Trade

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DEDUCTIONS

Operating Expenditure relating to business

Pre-Commencement Expenditure

Scientific Research Expenditure

Expenditure on Education and Health of Employees / Families

Training of Employees

Mark up on debt

Financial cost of Lease

Bad Debts

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DEDUCTIONS NOT ALLOWED

Cess, Rate, Taxes

Tax Deducted at Source

Payment to Non-Resident

Expenditure on Entertainment in Excess of prescribed Limits Sum Paid to Unrecognized or Unapproved Fund

Fine or Penalty Paid or Payable for Violation of Law

Personal Expenditure Incurred by the Person

Amount Transferred to Reserve Fund or Capitalized

Remuneration Paid to a Member of the Association

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COMPUTATION OF TAXABLE INCOME

N

et Profit or EBT. (Earning Before Tax)

ADD

Inadmissible Expenses (about Property or Capital Gain )

Expenses not relating to Business

(Personal Exp or Other Business exp)

Income not included

(Recovery of Bed Debts pertaining to previous year)

LESS

Expenses relating to Business (Omitted/not included)

Income not relating to Business (Income from Property)

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CALCULATION OF TAX

No tax on taxable income up to :-

Rs: 100,000/- Male

Tax as per Schedule Tax Relief.

Gross Tax

Taxable Income

X Amount admissible as Tax Relief

( Max 40% of Taxable Income)

Rs: 125,000/- Female

Condition

Not salaried person or income from salary should be 50%

or less of total income

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QUESTION

Following Income Statement relates to M/s. QR Traders ( Business Individual),

for the year ended June 30, 2008.

Income

Less: Expenses- Salaries & allowances

- Electricity charges

- Telephone expense

- Rent expenses

- Printing & stationery

- Traveling & conveyance- Vehicle running expenses

- Legal & professional charges

- Misc. expenses

- Accounting depreciation

EBT

Tax Year 2008

Rupees

221,000

500,000

48,000

24,000

18,000

60,000

14,000

12,000

19,000

12,000

6,000

8,000

279,000

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Following expenses are not fully verifiable, as such 15% of each shall be

disallowed :

Misc. expenses unverifiable.

Tax depreciation allowed Rs. 6,000/-

Printing & stationery Rs. 14,000/-

Vehicle running expenses As. 19,000/-

Required : Find out taxable income and tax payable thereon.

QUESTION (Cont)

N

otes:

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Chapter 08

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DEPRICIATION

Definition:-

A decrease in the value of asset through wear & tear.

KINDS OF DEPRICIATION

ALLOWANCE

Initial First year NormalAccelerated

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KINDS OF DEPRICIATION

ALLOWANCE

Initial Allowance (I A) is allowed in the year asset is used for the

purpose of business in Pakistan first time or tax year in which

production starts which ever is later.

Rate is 50% of the cost of Asset.

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FIRST YEAR ALLOWANCE

(FYA)

Allowance on Plant , Machinery & Equipment forIndustry.

Assets installed in under developed / Rural areas (Specified by Govt.)

Assets be owned and managed after 01st July, 2008.

Rate is 90% of the cost .

In lieu ofInitial Allowance (I A is not admissible) .

Objective :-

To Accelerate industrial process in under developed areas.

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ACCELERATED DEPRECIATION

Admissible on Plant, Machinery and Equipment installed

for generation of Alternate Energy.

Must be installed by an industrial undertaking set up

any where in Pakistan.

The asset is put to use after July 01, 2009.

Rate is 90% of the cost .

In lieu ofInitial Allowance (I A is not admissible) .

Objective :-

To overcome the energy crisis being faced in the country.

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NORMAL DEPRICIATION

ALLOWANCE

As per rate specified in section 22 part I 3rd schedule.

Class Rate

Building 10%

Furniture & Fixture,

Plant & Machinery,

Vehicle , Ships 15%Computer Hardware 30%

Offshore Platforms 20%

Below ground installation 100%

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AMORTISATION OF INTANGIBLE

ASSETS

Intangible means:-

Any Patent, Invention, Design, Model, Secret Formula, Copyright,

Trade Mark, Technical or Scientific Knowledge, Franchise, License. Any expenditure that provides benefit for more than one year.

Formula :

Cost of Assets / Useful Life of Assets (Whole Year)

Maximum Allowable Life - Ten Years.

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DISPOSAL OF ASSETS

No Depreciation is charged in disposal year.

Sale proceeds is :

Income if more than written down value

(Gain on Disposal of Assets)

Expenditure if less than written down value

(Loss on Disposal of Assets)