Short Notes On Income Tax

Tax Year 2012
Short Notes
On
INCOME TAX
Topics Covered:
1. Salary
2. Employee share scheme
3. Income from property
4. Capital Gains
5. Final Tax Regime
6. Tax Credit
7. Income From Business
8. Tax on Tax
9. Losses
10. Minimum Tax
11. AOP
BY : Kashif Nawaz Jakhar

Contact No# 0331-4791167
INCOME TAX (Tax Year 2012)
PREFACE
Al-Hamd-O-Lillah, the 2nd addition of Short Notes on Income Tax
has been completed. These notes have been prepared under the
senior guidance of my dearest teacher Mr. Imran Shehzad (ACA) sb,
who guided me through the way in the preparation of such quality
notes for the students of Module-C.
In these note, I covered almost all the material areas covering upto
50 to 60 marks in the paper including numerical calculations and
fair presentations of the conceptual queries frequently asked by the
ICAP-Examiner.
These notes include:
a) Salary
b) Income from property
c) Income from business
d) Capital Gain (37 & 37A)
e) Income from other sources
f) Final Tax Regime
I try to retain the focus of the ICAP-examiner in paper construction
relative to the marks allocation as:
Topics
Individual or AOP
Conceptual queries
Marks
20-25
30-35
I recommend to study these notes with reference to

INCOME TAX & SALES TAX Khalid Petiwalas Notes.
I hope my efforts will help you to retain maximum marks in your
examination.
Utmost efforts have been made to make these notes free from
errors, yet there is always a room for improvement. Any suggestion
from you will highly be appreciated.
Kashif Nawaz
By : Kashif Nawaz Jakhar
Page 2
TABLE OF CONTENTS
Sr. no. Topics
Page no. Sr. no. Topics
Page no.
Basic concepts
12
Bad Debts
36
Salary
13
SPV
37
Provident Fund
11
14
Methods of
Accounting
39
Employee Share
Scheme
12
15
Minimum Tax
40
Capital Gain
13
16
Losses
( concepts )
43
Final Tax
Regime
15
17
Losses
45
Tax Credit
19
18
Group Taxation 49
& Group Relief
Income From
Business
22
19
AOP
53
In-admissible
Expenses
25
20
Tax on Tax
57
10
Depreciation
27
21
Share from
AOP
59
11
Amortization
35
22
Page 3
COMPUTATION OF TAX LIABILITY (Under NTR)
Part A
Profile of Assessee
Part B
Computation of Income
Rs.
Name:
Salary ( U/S 12 )
xxx
NTN :
Income From Business

a) Speculative
Xxx
(1) Personal Status

I.
II.
Salaried
Non-Salaried
III.
AOP
IV.
Company
II.
Resident
Non-Resident
III.
Pakistan source
IV.
Foreign Source
(3) Tax Year

I. Normal tax Year
Tax on Tax Able Income
xxx
Tax on person
Add :
Income Prom Property
Capital Gain ( U/S ) 37A
Capital Gain ( U/S 37 )
xxx
Tax Credits:
Income From Other Sources
xxx
Less: Allowances
Less:
Senior Citizen Allowances

(xxx) Full time Teacher Allowances
(xxx) Foreign Tax credit
(xxx)
(xxx) Less : Average Relief
(xxx)
(xxx)
(xxx)
xxx
xxx
(xxx)
(xxx)
(xxx)
(xxx)
b) Non-Speculative
WWF
WWPF
Zakat
Donations U/S 61
(2) Residential Status

I.
Part C
Computation of Tax Liability Rs.
Add:
Income from property
Capital gain ( U/S ) 37 A
Total Income
( excluding share from AOP )
xxx
Investment in shares
Contribution to PF
Donation
Profit On debt
xxx
xxx
xxx
Less; Advance Tax
Add:
Share from AOP
xxx
Total Taxable Income
XXX
II. Special Tax Year
Collection of Tax
Deduction of Tax
Advance Tax ( u/s 147 )
Tax Payable /Refundable
III. Transitional Tax Year
Page 4
(xxx)
(xxx)
(xxx)
XXX

INCOME TAX ( Tax year 2012)
TAX LAWS
Income Tax Ordinance
Ordinance
Income Tax rules
Explanation
Schedule
STATUS
Personal Status
Individual
Salaried
Residential Status
AOP ( 25%)
Company ( 35%)
Resident
Non Resident
Non Salaried
Salaried Person :
Total Salary Income . X 100=If answer is >50%,then salaried person.
AOP ( Association of person ) 25%

Resident when control and management of affairs is
situated wholly or partially in Pakistan.
AOP may be a * firm * joint venture * Hindu undivided
family * but does not include a company.
Page 5

Company : 35%
(1)
private (2) Public (3) Banking
Company incorporated in Pakistan , provincial govt. , and local

govt. are resident
Other companies are resident if control and management
affairs are situated wholly in Pakistan.
Resident :
183 or more days
Half day consider full day
NOTE: Only transit days are excluded.
Computation of Taxable income

Income is classified as by law
Geographical Source of Income
1) Pakistan source Income
2) Foreign source income
Heads of income
Regimes
1) Normal
2) Final
SCOPE OF TAXABLE INCOME

1. Resident
Both incomes are taxable
2. Non resident
Only Pakistan source income is taxable
Page 6

3. Foreign source income of a short term resident
Pakistan source income is taxable
Foreign source income exempt which is not
brought / received in Pakistan
He is in Pakistan only for employment not for
business
Present in Pakistan for not exceeding 3 years
4. Foreign source income of a Returning Expatriate
non resident for last 4 years
National of Pakistan
An individual
Income ( current & next year exempt )
TAX YEAR
Normal Tax Year
Special Tax Year
1july 02------30june 03
A period of 12 months
ending on 30th June
1-10-2008-to 30-09-2009
A period of 12 months
ending on any date
other than 30th June
Transitional Tax Year
Whenever there is a change in

tax year the period in between
the normal tax year and special
tax year is treat as transitional
tax year
Page 7

HEADS OF INCOME
1.
2.
3.
4.
5.
Salary
Income from property
income from Business
capital gain
income from other sources
SALARY : ( taxed on receipt basis )

relationship of employee and employer
Cash basis
Income From property : ( taxed on accrual basis )

Rent from immoveable property ( Land & building )
Forfeited deposit against sale of immovable Property
Only for that year in which Forfeited
Advance unadjusted Rent
{Unadjusted amount X 1/10} in that year
Signing amount
Note :
I. Mod of payment is irrelevant
II. Any benefit given by tenant to his landlord is rent
Income from business

Trade , manufacturing . any profession
Capital Gain ( gain from disposal of capital assets )

Shares , coins , postage stamp, jewelry
Income from other sources

If any income does not fall under any other heads . then it
will be under the head of income from other sources.
e.g.,
Dividend
Page 8
SALARY
Any kind of benefit transfer or
given by employer to employee will be taxed and it will be add in the
salary income of the employee.
Components of salary
Basic Salary
T.T
Perquisites
Allowances
Accommodation
Conveyance
Medical facility
Others benefits
H.R.Allowance ( T.T )
Conveyance allowance
( T.T )
Medical allowance
(exempt upto 10% of B.S)
Loans
U. bills
Comp. shares
TA / DA
Terminal benefits
Gratuity
Provident fund
Pension
Golden hand
Shake
Perquisites
1) ACCOMMODATION :
45% of BS or Actual Expense of employer(rent)
( whichever is higher = add in salary )
2) Conveyance:
Only for office use
Owned ( cost )
I. Personal
II. Personal + Business use
Leased ( FMV )
I. Personal
II. Personal + Business use
( T.E )
( 10% )
( 5% )
( 10% )
( 5% )
3) Medical Facility :
a) Facility Given
i.
ii.
Under the contract

Not Under the Contract
( T.E )
(T.T )
b) Re-imbursement
c) Insurance
Amount contributed by employer will be added in
salary
Page 9

4) Medical facility & medical Allowance both given
i.
ii.
Under the contract

a. Facility
( T.E )
b. Allowance
( T.T )
Not Under the contract
a. Facility
( T.T )
b. Allowance
(Exempt upto 10% of BS )
5) Asset is given to employee Permanently
FMV of Asset payment by employee = add in salary
6) Marginal cost:
Nothing will be added in salary, if no additional cost incurred
by the employer
Other Benefits :
Loan provided by employer
Loan X 14% X time = XXX add in salary
Note : if any interest paid by employee then that amount
will be deduct from above answer . and the remaining will be
added in salary.
Terminal Benefits
1. Pension ( Exempt )
a. In case of 2 or more than 2 pensions
( higher will be exempt)
b. In case of re-employment with same employer or group
No amount will be exempt
2. Gratuity
a. Approved
I. Government
II. Fund
III. Scheme
b. Unapproved
( T.E )
( T.E )
(exempt upto Rs.200,000 )
Rs. 75000 or 50% of gratuity amount

( lower will be exempt)
Note : unapproved conditions or exemptions will

be not applied on the following Cases.
i.
ii.
iii.
iv.
Non employee
Non resident
Not received in Pakistan
Re-employment
Page 10

3. Provident Fund.
= Employer + employee contribution
Unrecognized PF
Annual
X
Withdrawal Employer Contribution + interest = add in salary
Recognized PF
Note
X
Note:
Rs.
Rs.
Employer contribution (p.a)
10% X ( BS + DA )
Whichever
Or 100,000
is lower
Interest on Acc. Balance (p.a )
1/3 X ( BS + DA )
Whichever
Or 16% X Acc.Balance
is lower
XXX
(xxx)
XXX
add in salary
XXX
add in salary
XXX
(XXX)
Note :
Acc. Balance = Employee cont. + Employer Cont. + interest
Formula ::: ( For calculate missing figure )
Interest = Acc. Balance X Rate
If any figure missing we can calculate with the help of above
formula .
Page 11

EMPLYEES SHARE SCHEME
60
Capital Gain
Rs.20
Benefit given by Market

40
Salary
Rs.10
Benefit given by employer or company

30
Example :
Persons
Kashif
Rameez
Farhan
2010
2011
2012
Option sale = Rs.5000

Option sale of 200 shares
@ sale price Rs. 3000
Acquisition of shares
Balance(300) Acquisition
Sale Rs.60/ share
Sale = Rs. 70
On march 2010.
FMV = Rs. 50/share
Offer value = Rs. 30/share
No. of share = 500 shares
Advance = 2 per share
On march 2011
FMV= Rs.40/ share
SOLUTON:
Persons
Kashif
Rameez
Salary
Capital Gain
Salary
2010
4000
X
X
2011
X
X
5000
(500 X 10 )
Capital Gain
500 X 30 = 15000
X
Farhan
Salary
2600
{3000-(200 X 2 )
Capital Gain
2012
X
X
X
X
3000
(300 X 10 )
6000
{300 X (60-40)}
SP-FMV=70-40=30
X
X
Here Rs. 10 = FMV Offer Value
Page 12
CAPITAL GAINS
Definition : The Gain from Disposal of Capital Assets.
C
A
B
Explanation:
a) Gain
b) Disposal
Sale price/FMV --- cost of

disposal
I. Sale with in one year ,100%

add in taxable income
II. Disposal after one year ,75%
add in salary
c) Capital Assets
Disposal
Means
Sale
Transfer
Destroyed
Gift
Relinquished
Capital Assets :
These
o
o
o
o
o
So,
are not capital assets

Immovable
Intangible
Depreciable
Stock-in-trade
Other movables ( cars )
These are Capital Assets

o Shares
o Debentures
o Shares of Private company
o Shares of AOP
o Membership cards of stock
exchange
After one year 25% of gain

is Exempt. & 75% of gain is
taxable
Capital Gains
37
Gain/Loss
37 A
Gain
Taxable income in case of Gain

I. Disposal within year, 100% add
in taxable income.
II. Disposal after one year , 75%
add in taxable income.
Shares of public limited company

Redeemable debentures
Modaraba certificates
PTC vouchers
Derivatives
If these assets sold

With in 6 months = 10% of gain is taxable
With in one year = 7.5% of gain is taxable
After one year
= No tax
Page 13
Non recognition rule:

under the following conditions income is not taxed.
1) Inheritance
2) Gift
3) To transfer to a spouse
4) In case of dissolution of a company
ASSETS whose Gain is Taxable But no treatment of loss
1)
2)
3)
4)
5)
Jewelry
Coins
Medallions
Postage stamp
Sculpture
etc
Page 14
Final Tax Regimes

Regime: Traditions
1. NTR ( normal Tax Regime )
2. FTR ( Final Tax Regime )
1. NTR :
Just add the income on the basis of persons and applied tax.
PERSONS
I. Individual
Salaried
Non Salaried
II. AOP
25%
III. Company
35%
Incomes should be under there related head of incomes
Revenue Expense = Income
Sale price purchase price = income
Return file in case of NTR.
2. FTR :
No expenses are allowed
e.g.
Revenue = income
No heads of incomes
Tax rates are independents for persons
No loss
Income is Tax on gross basis
Statement file in case of FTR.
Note
i.
Dividend for
o Individual
o AOP
Shall be considered under FTR
ii.
Dividend for
o Company
Shall be considered under NTR.
So for companies the dividend shall be recorded
under the head of Income from business in case
of banking business.
Page 15

Dividend Income :
Dividend income shall be deducted @10% of gross
dividend which shall be considered full and final tax for the other than a
corporate shareholder .
e.g.
Net dividend after deducting Tax and Zakat is Rs. 875
Calculate gross dividend .
Solution :
Formula :
875 .
X 100 = 1000
87.5
Page 16
Important Terms
Deduction Of Tax
Collection Of Tax
Advance Tax
Final Tax
1. Deduction Of Tax:
Deduct from Income

Payer will deduct the Tax in case of deducting authority
Income over which Deduction of Tax Applied
Supply of Goods , Dividend , Services , Price
winning , Salary , Export
2. Collection Of Tax :
Formula to Remember
Collect from expense

Services provider will collect the tax
Expenses over which Collection of tax applied
Cell phone payment , imports
D
I
C
E
=
=
=
=
Deduction from
Income
Collection from
Expense
3. Advance Tax : ( NTR )
The items which fall under NTR ( according to law ).

So the tax deduct or collect on such items is Advance tax
4. Final Tax :
( FTR )
The items which fall under FTR ( according to law ). So

the tax deduct or collect on such items is Final tax.
Withholding TAX
Aisa tax jo kisi bhi source say collect ya
deduct hova hoo.
Page 17
Table For understanding

Persons
Supply
Trading
Manufacturing
Contracts
Individual/ AOP
Unlisted companies
listed companies
FTR
FTR
FTR
FTR
NTR
FTR
NTR
NTR
NTR
Retailers ( sale goods for final consumptions )

Individual / AOP
Turnover < 5 million
Turnover > 5 millions
Option to pay tax @ 1% of Sale

as Final Tax.
Compulsory to pay as
final tax
Condition
Turnover > 5 m but < 10 m
Turnover > 10 m
Rate of Tax
Rs.25000 + 0.5% of Turnover > 5 m
Rs.25000 + 0.75% of Turnover > 10 m
Page 18
TAX CREDIT
Rs.
XXXX
(xxx)
(xxx)
(xxx)
. A .
Tax liability
Less: Senior citizen allowance
Less: Full time teacher allowance
Less: Foreign Tax Credit
Less:
Less:
Less:
Less:
Pension fund
Donation
Profit on debt
(xxx)
(xxx)
(xxx)
(xxx)
XXXX
(xxx)
Less: Advance Tax
or
Tax Payable
XXXX
Tax Refundable (f negative figure)
(XXXX)
Note( Related to Tax Credit )
Lower
Invest. In shares
Pension Fund
Donation
Actual Amount
Actual Amount
Actual Amount
15 %
20 %
500,000
------
Profit on debt
Actual Amount
30 %
------
50 %
% of taxable income
750,000
FORMULA :
A
X Lower = Tax credit
Taxable Income
.
Page 19

Rules Of Tax Credit :
Conditions
Senior citizen allowance
Full time teacher allowance
Foreign tax credit
Eligibility amount
Age 60 years or more

Taxable income does
exceed Rs. 10,00,000
A full time teacher ; or

A researcher of a recognized
non-profit
educational
or
research institution including
government
training
and
research institution .
Then his tax payable

shall be reduce by
75%.
If the foreign source income of a

resident person is taxable in
Pakistan
then the taxpayer shall

be allowed tax credit in
respect
of
foreign
income tax paid by him
as lower of:
not
Then his tax liability

shall be reduced by
50%.
Foreign income tax

paid; and
Pakistan tax payable
in respect of foreign
source income at
average rate of tax.
o
o
Shares must be of listed

Comp.
Must be original allottee
Did not dispose in one year
o
o
o
actual
15 % of T.I
Rs.500,000
Approves Institution
Govt. hospital
Not trough CASH
May be direct or by cheque.
actual
20% of T.I
Donation
Eligible person (u/s 19A )

PF must be approved
Actual
30% of T.I
Lower
Profit on debt
Loan for house build.

Loan from bank or financial
institution
Actual
50% of T.I
Rs.750,000
Lower
Contribution
fund
to
pension
See illustration no. 2.9 & 2.10 of K.petiwala

Page 20
Lower
Lower

Full Time Teacher Allowance :
Formula :
Taxable salary(as F.T.T) X Tax payable X 75% = XXX
Taxable Income
Where :
F.T.T means = Full time Teacher
After deducting senior

citizen allowance
Foreign Tax Credit :

Formula :
Tax payable(Note 1) X Foreign source income = xxxx
Taxable Income
Tax paid in foreign Country
= xxxx
Note 1 :
Tax Payable
xxxxx
Less: Senior citizen allowance
(xxxxx)
Less: Full time Teacher allowance (xxxxx)
Tax Payable ( Note 1 )
xxxxxx
Lower will be deducted

from tax payable
Page 21

INCOME FROM BUSINESS
Taxable
Income
(Income Deduction = T.Income)
Deduction
( 5 % discussion)
( 95 % Discussion )
Exempt
Non speculative
Speculative
WE discuss about it:
1: Definition
2: Losses
Special
(Separate Calculation)
Depreciation
Allowed (20% discussion)

Or ( Admissible )
Amortization
Without any condition

e.g.
* Tax
* Personal expenditure
Pre-commencement
Dis-Allowed (80% discussion)

Or ( inadmissible )
Research
&
Development
Conditionally
e.g.
* salary in certain condition
paid through cash
* Tax is deducted
Page 22

Example : ( of allowed and disallowed expenses )
!!!!!!!! Income statement according to IAS !!!!!!
Particulars
Rs.
Particulars
Purchase
Opening Stock
Factory Salary (10)
Depreciation (70)
Income Tax
Admin salary
300
100
50
50
40
30
Profit
500
Rs.
Sales
Closing Stock
Dividend
1000
50
20
1070
1070
!! Income statement according to Income Tax Ordinance 2001 !!

Particulars
Rs.
Particulars
Rs.
Purchase
Opening Stock
Factory Salary
Depreciation
Admin salary
300
100
40
70
30
Sales
Closing Stock
1000
50
Profit
510
1050
1050
Solution :
Computation OF Taxable Income :
Rs.
Accounting Profit
Rs.
500
Add: Disallowed Expenses

Salary
Depreciation
Income tax
10
50
40
100
Less: Allowed Expenses:

Dividend Income
Depreciation
20
70
(90)
Taxable Income
510
Page 23

SECTION. 20.
ALLOWED EXPENSES
All expenses incurred for business.
Apportionment of Expenses :
e.g.
FTR
Common Expenses
500,000
NTR
400,000
Expenses
Expenses
333333
27778
16667
266667
22222
13333
=900,000 (turnover)
Expenses
600,000
50,000
30,000
purchases
salary
depreciation
Income under FTR ( no expenses allowed ) = Rs. 500,000

Income under NTR ( expenses are allowed ) = Rs. 337,778
Formula for calculate Expense:
Sale(under NTR)
Total Turnover
X Expense = xxxx
Page 24

Section . 21:
In-Admissible Expenses
Not Allowed Expenses:
Following expenses are not allowed

TAX :
Income Tax
Sales Tax
Advance Tax
Violation Of Law ( Penalty )
Allowed
(For Business)
Disallowed
(Against Law)
AOP
Salary or other benefit by AOP to its members are not

allowed.
Salary Paid
Notes :
o Salary , commission
o Deducting the authority but did not deduct tax
o Then the tax expense not allowed.
TRADING LIABILITY
Those liabilities which effect the P & L A/C
e.g.
a. Cash
To Loan
XXX
b. Salary
XXX
To Salary Payable
c. Purchases
To Mr. Z
XXX
( Capital Liability )
.
XXX
( Trading Liability )
.
XXX
XXX
( Trading Liability )
.
Page 25
DONATION
INCOME
TAX
U/S 61 of 2nd Schedule

Less: ( as Zakat )
Rate:
Donation to approved institution.

e.g. Govt. hospital
( Chapter #2)
Rate: 30 %
30 %
Conditions:
o Pay in cash
o By cheque
o In any kind
Conditions:
o Do not pay in cash
o By cheque
o In any kind
Preliminary Expenses:
are disallowed upto commercial production

( pre-commencement expense )
Trading Liability:
Not paid with in 3 years.
Page 26

Chapter # 12
DEPRECIATION
The Rules and Regulation For Depreciation

Rules:
Depreciation shall be charged on depreciable assets.

Depreciation shall be charged after deducting initial
allowance .
FORMULA :
( cost initial allowance ) X Rate of depreciation
e.g.
( 100 50 ) X 10% = 5
INITIAL ALLOWANCE
( Rate 50% )
All depreciable assets are also eligible
depreciable assets except the following :
1. Furniture and Fixture
2. Transport vehicle not plying(use) for hire
e.g. business or rent a car
3. Second time used plant and machinery
Note:
In Pakistan one asset is :
Depreciable + eligible depreciable asset
Only for 1st user . For all other users that asset will be only a
depreciable asset.
INITIAL ALLOWANCE ON VEHICLE

CASES
Rent a car + Daewoo

( eligible depreciable asset )
Directors car + company car

( not plying for hire )
Page 27

Eligible depreciable Assets:
Life more than one year
Subject to wear and tear
For business use
IMPORTANT NOTES
Initial allowance @ 50% shall be charged on the

eligible depreciable assets in the 1st year only.
Depreciation shall be charged on reducing balance
method.
Depreciation Rates
Depreciation rates are as follows.
Rates
10 %
Assets
Building
30 %
Computer and related equipment
15 %
All other assets
HINT
Try to compute depreciation in the examination /
prepare the depreciation schedule on written down
value bases.
Page 28
Assets use partially for Business:

If an asset , use partially
for business and partially for other objectives , we will charge
deprecation proportionally
BUT initial allowance fully
Example:
Business use ( 60 % ) & for other objectives ( 40 % )
Full yearly
Cost
Initial
allowance
Depreciation
10,00,000
(5,00,000)
5,00,000
(50,000)
4,50,000
60 %
5,00,000
5,00,000
50,000 (60%)
. 30,000.
5,30,000
NOTE
Full year depreciation charge in the year of
purchase.
No depreciation is charged in the year of disposal.
Page 29
GAIN or LOSS in disposal of Depreciable Asset:

The gain
or loss on disposal of depreciable assets charged to income from
business.
COMPUTATION OF GAIN or LOSS

Gain or Loss = Sale price/FMV ( higher) - Tax WDV
WHERE:
Tax written down value = Cost Tax depreciation
WHERE:
Tax Depreciation = Depreciation + Initial allowance
NOTE
Full year depreciation charge in the year of
purchase.
No depreciation is charged in the year of disposal.
Page 30

Examples :
a(I)
Computation of Depreciation
e.g. numerical example
Year
2007
cost
Initial
allowance(50%)
Depreciation(15%)
Furniture &
Fixture
Plant
500,000
10,00,000
Tax
allowance
500,000
500,000
(75000)
425,000
(500,000)
500,000
(75000)
425,000
150,000
650,000
2008
Depreciation(15%)
(63750)
361250
(63750)
361250
127500
2009
Depreciation(15%)
(54188)
307062
(54188)
307062
108376
b(II)
Computation of Gain or Loss
Assume the plant sold for Rs.500,000 in 2009. now compute the
gain or loss.
= sale price tax WDV
= 500,000 361250
Gain = 138750
its the income from business in 2009.

now less depreciation Rs. 54188 of this year from
this income .
Page 31
a(II)
Asset Partially Used For Business
(assume 60% for business use )
Year
2007
Plant
Cost
Initial allowance
Depreciation(15%)
2008
Depreciation(15%)
2009
Depreciation(15%)
10,00,000
(500,000)
500,000
(75000)
425,000
(63750)
361,250
(54188)
307,062
Tax Allowance/ dep.

allowance
500,000
45000
545,000
38250
583,250
NOTE: the depreciation column must be draw and calculate

depreciation.
b(II)
!!!! Calculation of Profit or Loss !!!!!!!!!
when
!!!!!Asset partially used for business !!!!!
Assume the plant sold for Rs.500,000 .
= sale price Tax WDV

= Sale price - ( cost depreciation allowances )
= Sale price [ cost ( initial allowance + depreciation)]
= 500,000 [ 10,00,000 583250 ]
= 83250
income from business
Page 32
Cases for Gain or Loss
( three cases )
Exceptions:
Building
( Case 1 )
Export of use asset

( Case 2 )

= Sale Price ( cost tax Depreciation )
NOTE:

= Sale Price ( cost tax Depreciation )
NOTE:
If sale price is above the cost price

If a used asset sold, out of Pakistan ,
then the cost shall be consider as sale price sale price will be consider as cost.
So,
So,
=Sale Price ( sale price tax Depreciation )
= cost ( cost tax Depreciation )
=Sale Price - sale price + tax Depreciation
= cost cost + tax Depreciation
= Tax depreciation
= Tax depreciation
It means that the INCOME will be equal
to the TAX DEPRECIATION .
e.g.
Tax depreciation = Gain
500,000
= 500,000
Case 3:
NOTE:
It is assume that the asset , sold at
price , at which that was purchased.
CAR
its not about vehicle . because all

cars are vehicle but all vehicles are not cars.
Maximum cost of car is Rs. 1500,000
NOTE
Even it is purchased above the Rs. 1500,000 , we will

consider Rs. 1500,000 and the depreciation will be calculated on
this amount.
e.g.
Year
2010
X car
Cost
Depreciation ( 15 % )
20,00,000
( 225,000 )
1500,000 X 15 %
Written Down Value
*1275,000
*Where 1500,000 225,000 = 1275,000
Y car
1200,000
( 180,000 )
1200,000 X 15 %
1020,000
Page 33

ASSUME
Both cars were sold for Rs. 1500,000 each
NOTE:
sale price ki amount utni laini hai , jitni cost ki %age allow ki
gai thi
FORMULA :
n=
1500,000 X 100
cost
only for those assets whose cost id above Rs.1500,000
So,
and ,
sale price = 1500,000 X 75% = 1125,000
X car
1500,000 . X 100
20,00,000
Y car
= ( sale price x n ) Tax WDV

= 1125,000 1275,000
Loss = ( 150,000 )

= 1500,000 10,20,000
Gain = 480,000
Page 34
AMORTIZATION
NOTE
amortization is allowed on intangible assets.

intangible asset--------definition .
amortization shall be charged on per day used method.
no amortization in the year of disposal
the maximum life of a intangible asset is 10 years.
if life exceeds 10 years or unknown , in this case,

10 years will be consider as the life of intangible
asset.
e.g.
Year Copy Right
Purchase price= Rs. 200,000
Life
= 7 years
Date of purchase . 1-1-2011
Year end = 30 June, 2011
Solution,
cost
2011 = useful life
Solution,
.
x days used
cost
.
useful life
= 200,000 . x 181
= 300,000 .
= 14168
= 14876
7 X 365
2012
Patent
Purchase price= Rs. 300,000
Life
= 15 years
Date of purchase . 1-1-2011
Year end = 30 June, 2011
= 200,000
. x 365
7 X 365
= 28571
x days used
x 181
10 X 365
= 300,000 .
x 365
10 X 365
= 30,000
NOTE: use full life in days

Page 35
BAD DEBTS
Sale to Mr. A for Rs. 100,000 on credit in 2009. it will the income
for 2009 under NTR.
2010 :
Mr. A didnt pay back. we claim Rs. 100,000 in Tax`
Department for allowing us expense.( bad debts ). but tax
department allow expense to us Rs. 50,000.
2011:
No.
A
B
C
Situations. (Receipts)
Actual Bad Debts
Tax Treatment
100,000
50,000
Nothing
nil
50,000
100,000
80,0000
20,000
50,000 ---Income
No treatment
50,000 --- expense
allowed
30,000 ---income
Ways of asking question about Bad Debts in exam.

1) Conditions of Bad Debts :
how to claim bad debts in the
department.
2) Recovery of Bad Debts :

Tax treatment .
Formula :
Allowed Actual = + or
NOTE
If answer is + then = add in income from business
If answer is - then = less from income from business
Page 36
!!!!!!! Perquisites for claiming Bad Debts !!!!

The amount must be declared as income before.(pahly)
Entry of bad debts has been passed in the books of
accounts.
NOTE :
it is not necessary that the department will allow the
whole amount as expanse which we claimed in the department.
!!!!!!! ACCOUNTING TREATMENT OF LEASE !!!!

amount paid for lease.
Amount of Lease ( Rs.50,000 )
Depreciation
( 10,000 )
Capital
Interest
( 1000 )
Insurance
( 500 )
Expense claim in accounting :

depreciation
Interest
Insurance
10,000
1,000
500
11,500
Expense claim in Tax :

The amount which paid against lease that
amount will be allowed. ( Rs. 50,000 )
Page 37
!!!!!!!!!
PROFIT ON DEBT !!!!!!!!

( Interest )
We borrow the amount .

So interest is our expense
ALLOWED EXPENSE
debt is utilized for business .its not the part of cost.
SALE OF DEBTOR
SPV
Special purpose vehicle

A person or Organization which used for
special purpose.
e.g. SPV:
Originator
SPV
.5 interest
Itefaq
Itefaq ( IT )
(Sugar)
Investment
.5 interest
5 m loan
single company = loan 5 million

Group
= loan 20 million
NOTE
NOTE
loan from subsidiary is not allowed

.
BANK
Loan & lease are both allowed to

SPV.
NOTE
If any Income earned by SPV . That income will be exempt
because income earning is not its objective.
SPV
Originator
6 million
1 m --income(exempt)
5 m loan return
Bank
Page 38
METHODS OF ACCOUNTING
Accrual Basis ( Absorptional Costing )
Company
Cash basis ( Marginal Costing )
Individual / AOP
Option
Closing Stock Valuation
Absorptional Costing
( Add all kinds of Costs )
Marginal Costing
( Fixed FOH will be excluded )
e.g.
Factor of
Production
Absorptional
Costing
Factor of
Production
Marginal
Costing
Material
Labour
FOH
Variable
Fixed
50
10
Material
Labour
FOH
Variable
50
10
20
10
90
Define Small company .
20
80
Rate : 25 %
Page 39
MINIMUM TAX
Rate :
1 % of Turnover
Higher
Or
Actual Tax Liability
income is exempt .
Who will pay Tax :

Resident Company
Individual having Turnover 50 million or Above.
AOP having 50 million or Above.
Turnover :
means,
Sale
Excludes
sales tax , excise duty
Services
Share from AOP
Provisions :
1st Year
2nd Year
forward
Excess of actual Tax Liability shall be carry

for subsequent 3 years.
Advance Tax = Actual Tax Liability 1 % of Turn Over
Advance Tax =Remaining Actual Tax Liability 1 % of Turn Over
HINT
Excess of 1 % of T.O from Actual Tax Liability will be advance tax and
that excess amount will be deduct in the next year from actual tax
liability. And then the remaining of actual tax liability will be compare
with 1 % of turn over.
Higher of :
Actual Tax liability
&
1 % of Turnover
will be payable.
Page 40

EXCEPTIONS:
Minimum tax not apply , if business entity declare
gross loss before depreciation and other inadmissible
expenses.
Commissioner has the power to re-asses the income.
Minimum tax not apply on certain cases.
e.g. Modaraba , non-profit organization.
Employee Training and Facilities :

allowed expenditures other than capital expenditures
.
o
o
o
Hospital or educational institution for the benefit of

employees.
For the training of industrial workers run by federal
or Provincial Government
Training of citizen of Pakistan . e.g. PHD
TAX paid on import Stage :

Tax collected by collector of
custom on import of,
edible oil
&
packing material
TAX deduct from services as minimum Tax :

6 % at source from gross income.
no adjustment or refund shall be allowed.
NOTE :
HINT
Services provided to a person , who is not Tax deducting

authority then the said services income is not subject to minimum
Tax.
This provision of minimum tax is not applicable for a company , receiving income
from services.
Page 41

Advance Tax on Electricity Bill As minimum Tax :
advance tax is payable on
1. Commercial
&
2. Industrial Bills
RANGE :
TAX
Amount
From Rs.80 to Rs. 1500
Monthly bill exceeds Rs.400 but does not exceeds Rs.

2000
If monthly bill exceeds Rs. 20,000

Users
Rate
Commercial
Industrial
10 %
5%
Electricity bill for person other than Company :

Bill upto Rs. 30,000 per month shall be treated
as minimum tax.
No refund or adjustment shall be allowed.
Scientific Research Expenditure :

Deduction allowed , if expenditure incurred in
Pakistan
For business purpose
!!!!!! Scientific Research !!!!!

Any activity in the
field of natural (mining, oil refinery) or Applied Science (new
technology) for the development of human knowledge.
Page 42
CH # 15 :
LOSSES
General concepts :
ENGINE 1
in urdu
Categories of tickets :
A type ticket
B type ticket
C type ticket
Usage of tickets :
explanation in Urdu.
A type ticket:
A type ticket say ap train k box 1 & 2 main
baith sakty hain. ager in boxes main jaga na hoo tu ap next any wali
6 ( six ) trains main bhe ap un k box no. 1 & 2 main baith sakty hain.
laiken in boxes k elawa ap kisi bhi aor box main nai baith sakty.
B type ticket:
B type ticket say ap mojoda train k kisi bhi box
main baith sakty hain. aor ager is train main jaga nai hai tu ap any
wali kisi bhi train main nai baith sakty.
Page 43
C type ticket:
C type ticket ki madad say ap mojoda train k to
kisi bhi box main baith sakty hain laiken ager mojoda train main
jaga na hoo to ap next any wali 6 ( six ) trains main un k box no. 3
main hii baith sakain gay.
HINT
for understanding
mojoda train main bathny say morad hai ====

next train main bathny say morad hai
set off
==== carry forward.
Page 44

Ch # 15.
LOSSES
under NTR. because under FTR losses
and expenses are not allowed.
HEADS OF INCOMES UNDER NTR
salary
income from property
NO Loss
separate block of income
income from business
non-speculative
speculative
capital gain
37
37-A
other losses.
No Loss
C type
A type
A type
Losses can be set off only against the

incomes from other items U/S 37 A.
B type
EXPLANATION:
A type:
can be carry forward but they can by set off only
against the incomes of their heads.
B type:
can be set off only
C type:
can be carry forward and set off. but they can
be set off only in 1st year.
Set off :
adjustment of one income or loss in
other head .
Inter head adjustment: adjustment in the same head.
Carry forward:
Transfer to next year.
Page 45
Example : 1
Case 1
Rs.(000)
Salary
Non-speculative business
Speculative
Capital gain
Other Losses
500
(800)
(400)
700
(300)
Case 2
Rs.(000)
500
(900)
(400)
700
(300)
Total Income
1200
1200
Requirement :
I. Compute taxable income
II. amount of loss to be carry forward
Solution:
I.
Case 1
Rs.(000)
Total Income
Other losses
Total Income
II. Losses to be c/f.
non-speculative
Case 2
Rs.(000)
1200
(300)
900
(800)
1200
(300)
900
(900)
100
------
( 400 )
( 400 )
Page 46
Example : 2
Case 1
Rs.(000)
Salary
Speculative
Capital gain
Other Losses or Gain
500
(1000)
(400)
700
(300)
Case 2
Rs.(000)
500
(1000)
(400)
700
300
Total Income
1200
1500
Requirement :
III. Compute taxable income
IV. amount of loss to be carry forward
Solution:
I.
Case 1
Rs.(000)
Total Income
Other losses
Case 2
Rs.(000)
1500
1200
(300)
900
(900)
Total Income
-------
500 .
(1000)
II. Losses to be c/f.

non-speculative (1000-900) ( 100 )
Speculative
( 400 )
------( 400 )
Page 47

HINT
A: In case set off losses.

1st set off other losses
2nd set off non-speculative business losses.
B: In case of carry forward losses.

year wise.
2009
2010
2011
( 100 )
( 200 )
( 500 )
If there is gain in 2012 , then use FIFO method of adjustment of

losses.
2012
2009
2010
2011
10000
( 100 )
( 200 )
( 500 )
200 .
Page 48
GROUP TAXATION
as a single fiscal unit.
Features of group taxation:
Note
100% owned group of companies locally incorporated under

companies ordinance 1984.
Loss of any group will be set-off against income of any other
group.
consolidated group accounts as required under companies
ordinance , 1984 will form.
I. Basis of computation of income
II. tax payable by the person
GT relief will not be available to losses prior to the
formation of the group.
Inter corporate dividend income with in the group companies
entitled to group taxation shall be exempt .
GROUP RELIEF
{ surrender of tax loss by a subsidiary company }
Note
a subsidiary company may surrender its assessed loss

( excluding b/f loss and capital loss ) for the tax year in favor
of its holding company or any subsidiary of the holding
company.
The holding company shall directly hold , share capital of the
subsidiary company as under,
55% or more
75% or more
NOTE
in case of listed companies.

in case of non-listed companies.
The loss surrender by 1 subsidiary company may be adjusted by the holding company
or subsidiary company against its business income in the tax year and the following
two tax year.
Any un-adjusted loss shall be revert back to the subsidiary company and shall be
carry forward in the normal manner.
Page 49

Example :
S
H
stands for
stands for
1st year = 30
subsidiary company
holding company
2nd year = 40
S-2
H
LOSS = 100
(surrender)
Listed Company
S-1
Assume :
loss incurred in 2006 (adjusted in next 6 tax years)
2012.
the losses were surrender for two years.
So,
2007----- 2008
S-2
losses = 30+40= 70
2009, 2010, 2011, 2012

S-1
Remaining 30 were adjusted by
original subsidiary company.
Page 50
Conditions of Group Relief

1. Ownership of share capital shall be continued for 5 years to the
extent of 75% or 55%.
2. Trading company with in the group shall be entitled to avail
group relief.
3. If the holding company is a private company, it is required to
be listed with in 3 years from the year in which loss is claimed.
4. group companies are locally incorporated companies under
companies ordinance 1984.
5. board of directors approval of both the companies is required.
6. Subsidiary company , continuous the same business during the
said period of 3 years.
7. all the companies in the group shall comply with specific
corporate governance requirement.
8. Inter corporate dividend with in the group companies entitled
to group taxation shall be exempt.
9. The subsidiary company cannot surrender its assessed losses for
more than the 3 tax years.
10. The tax relief availed would be reversed if holding companys
equity interest falls below 75% or 55%. As a consequences of
disposal of shares during the stipulated period of 5 years .
11. Loss claiming company , may , with the approval of Board of
directors , transfer cash to loss surrendering company , equal to
the amount of tax saving in this respect.
This transfer shall would not be allowed tax
expense for the loss claiming company or taxable income for the
loss surrendering company.
Page 51

Some Important Concepts
S
H
stands for
stands for
1st year = 30
subsidiary company
holding company
2nd year = 40
Benefit
= Rs15
S-2
H
LOSS = 100
(surrender)
Cash Rs.10
S-1
This Cash of RS.10 received by Loss surrendering

company will be not treated as income of this company.
Transfer of shares between the companies and the
shareholder , in one direction , would not be taxable capital

gain provided the transfer is , to acquire share capital for the
formation of the SECP or STATE BANK has been obtained in
this effect.
Page 52

CH # 6
ASSOCIATION OF PERSONS ( AOP )
Important Notes
1. In Case of Loss ( Loss of AOP ):

Loss shall not be distributed among the
partners .
2. In case of income:
Income shall be distributed among the
partners .
3. If any partner have no income other than the share from
AOP ( income from AOP ) then his , this income ( share
from AOP ) shall be exempt.
4. if any partner have income other than the share from
AOP ( income from AOP ) then his , this income ( share
from AOP ) shall be included only for tax purpose.
5. For checking individual status share from AOP shall
be excluded.
6. For calculating full time teacher allowance share from
AOP shall be excluded.
7. For average relief share from AOP shall be included.
Rules For
1. Investment in shares 2. Donations 3. Contribution in
pension fund 4. profit on debt
Assume for Investment in shares :

10% of Taxable income
300,0000
Actual
Excluding Share from

AOP
Lower
And :
Tax liability
X Lower
Taxable income (Including share from AOP )
.
Page 53

Example :
Total taxable business income = Rs. 10,00,000
Tax ( 25% )
= Rs ( 2,50,000 )
Distributable Income
7,50,000 .
Income After Tax
Not Distributable Income
Assume there are 3 partners of AOP.

Partners
Rate of share
Share from AOP
Business Income
A ( Individual )
B ( Individual )
C ( Ltd Company )
20%
30%
50%
150,000
225,000
375,000
500,000
------------500,000
Requirement :
compute taxable income of AOP and its members.
Also compute tax payable .
Solution :
(i) Mr. A
Rs.
business income
Add: share from AOP
Tax Liability
Tax on Rs. 650,000 @ 10%
Less:
500,000
150,000
650,000
65000
Tax ( individual)
. X share form AOP
Taxable Income ( individual )
65000
.
650,000 X 150,000
Tax Payable
( 15000 )
50,000 .
Page 54

(ii) Mr. B;
Mr. Bs income shall be exempt because he
has no income other than share from AOP.
(iii) C ltd Company :

Rs.
Business income
Add: share from AOP
Tax Liability
Tax on Rs. 875,000@ 35%
Less:
Tax ( of AOP)
Taxable Income ( AOP )
306250
X share form AOP
250,000
.
X
10,00,000 375,000
Tax payable
500,000
375,000
875,000
( 93750)
212500
Page 55
General Format of
( Income tax numerical ):
Compute Taxable Income

Salary Income
Capital Gain
Business Income
Other source income
Zakat
Donation
Add : share from AOP
Taxable Income
Computation of tax liability .

Tax liability
Property
37-A
:
:
:
:
Donation
Contribution
Profit on debt
Less : Advance Tax
Tax Payable
XXXX
XXXX
XXXX
XXXX
XXXX
( XXX )
( XXX )
XXXXX
( XXXX )
XXXX .
RS
XXXXX
Tax Liability
Less : Senior citizen Allowance
Less : Full time Teacher Allowance
Less : Foreign Tax Credit
Less
Less
Less
Less
RS
XXXXX
XXXXX
XXXXX
(XXXX)
(XXXX)
(XXXX)
XXXXX
(XXXX)
(XXXX)
(XXXX)
(XXXX)
XXXXX
(XXXX)
XXXXX
Page 56
TAX ON TAX
Tax of employee paid by the employer.
Impacts:
Tax Born by Employer
1. Income
Tax in Salary.
2. Advance Tax
Less from tax liability.
How to Compute:
Mostly in exam this amount will be given.
Compute:
Cases
1. Fully paid by employer

2. Partially paid by employer and
partially paid by employee
Example
Case 1:
Total salary
= 500,000
Tax employee paid by employer = 10,000
Explanation :
According to Tax department the tax paid by the
employer , will be income of the employee because , it was
basically the expense of employee . So now the Total salary of the
employee will be Rs.510,000 instead of Rs.500,000.
Assume Tax on Rs. 510,000 is Rs. 12,000. and paid by the employer.
so now
Total salary
= 500,000
Tax employee paid by employer = 12,000
According to Tax department the tax paid by the employer , will be
income of the employee because , it was basically the expense of
employee . So now the Total salary of the employee will be
Rs.512,000 instead of Rs.500,000.
Page 57

NOTE
The Tax calculation will be same as we calculte in other questions.
Means :
Tax on Rs. XXX @XXX % is
= XXX
1
Marginal Relief
Rs. XXXX @ XXX % = XXX
Marginal amount
{difference between total taxable income and Marginal relief @
XXX% }
= XXX
2
= XXX
Lower of 1 & 2 will be Tax liability = XXXX
NOTE
the same calculation should be repeated for
minimum 3 times
Maximum 5 times
After the repeated calculations now the individual will calculate tax
as below.
The following figures are assumed figures.
Taxable Income
= 500,000
Tax paid by employer = 13050
Total taxable Income
Tax on Rs. 513050 @ 2.544%
Advance Tax ( paid by employer )
513050
13050
13050
------
Page 58
SHARE FROM AOP

Computation of taxable income
Taxation of members
Computation of taxable income :

Assume share fro AOP is equally distributed among the members of
AOP.
EXAPMLE :
Salary
Electricity Bills
Share from AOP
Mr. X ( 50% )
Mr. Y ( 50% )
Total
50
------200
10
40
200
60
40
400
250
250
500
This amount will be

added in the income
from other sources of
the Mr. X only for
Rate purpose
If we assume
that Mr. Y have
no any source of
income other
than share from
AOP.
So in this
condition the
share from AOP
for Mr. Y will be
exempt
Rs.400 is balancing
figure
Distributable Income
Calculation of distributable income

taxable Income ( AOP )
Less: Tax liability
Distributable income
1200
(700)
500
THE END
Page 59

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