INCOME FROM BUSINESS

Q.13.Deductions allowed against income from business

While calculating the income under the head Income from business the following
deductions shall be made.
1- Expenditure related to business
Any expenditure related to business incurred by a person during the tax year is allowable as
deduction while calculating the taxable income under the head Income from business. Some
important expenses are given below
a- Rent & repair of building use for business purpose.
b- Repair and insurance of machinery used for business purpose.
c- Bonus and commission of employees.
d- Employer contribution to recognized provident fund.
e- Expenditure on training of workers.
2- Expenditure on Acquisition of Intangible assets
Any expenditure incurred by a person during the tax year is allowable as deduction if it is
related to acquiring an Intangible asset with a use full life of more than one year according to the
provisions section 22 to 25.
3- Expenditure incurred by amalgamated company
Any expenditure incurred by a person during the tax year is allowable as deduction if it is
related to legal and financial services and administrative cost is related to planning and
implementation of amalgamation.
4- Pre commencement Expenditure
All the expenses before starting a business is called pre commencement expenditure like
cost of feasibility study. A person shall be allowed a deduction for pre commencement expenditure if
he fulfills the following conditions
a- Expenditure shall be amortized on a straight line method
b- Rate of deprecation is 20 %
c- Expenditure is incurred for business purpose

5- Scientific Research Expenditure

It means any work done in Pakistan for the development of human knowledge in the field of
natural and applied sciences. A person shall be allowed a deduction for scientific research
expenditure if he fulfills the following conditions
a- The expenditure is incurred in Pakistan
b- The expenditure is incurred for research business
c- Scientific research Institution is approved by Central board of revenue
6- Employee training and facilities
Any expenditure related to business incurred by a person during the tax year is allowable as
deduction under the head Income from business if it is related to
a- Expenditure on educational institution and hospital
b- Expenditure on training of industrial workers
c- Expenditure on training of any person.
7- Profit on debt, financial cost and lease payment
Any expenditure related to business incurred by a person during the tax year is allowable as
deduction under the head Income from business if it is related to
a- Expenditure on profit on debt use for business purpose
b- Any sum paid to schedule bank as lease payment in respect of any assets
c- Any payment made to a modarbas
d- Any payment made under a scheme of musharika
e- Any payment made to a Musharika certificate holder
8- Bad debts
Any amount as bad debts incurred by a person during the tax year is allowable as deduction
under the head Income from business if he fulfills the following conditions
a- The debt is written off during the tax year
b- There are reasonable ground for believing that the debt is irrecoverable
9- Provision regarding Consumer loan
A banking company or a non banking finance company or House building Finance
Corporation shall be allowed as deduction not exceeding 3% of income for the tax year as reserve for
bad debts on consumer loans. This loss is carry forwarded if not set off in relevant year.
10- Profit on non performing debts
A banking company or non banking finance company shall be allowed as deduction for any
profit accruing on a non performing debt.
11- Amount transfer to participatory reserve
The company shall be allowed a deduction for a tax year for any amount transferred to
participatory reserve if the following conditions are fulfills
a- Any amount transferred under section 120 of the companies ordinance 1984
b- Amount not exceeding the 5 % of the value
c- Accumulation amount should not exceed 10 % of the capital
12- Worker welfare fund
Any amount of worker welfare fund paid during the year is allowable as deduction under the
head Income from business. This amount is necessary to be paid by every industrial organization.
13- Workers Participation fund
Any amount of worker participation fund paid during the year is allowable as deduction
under the head Income from business.

Deduction not allowed against income from business

Q.14. While calculating the income under the head Income from business the
following deductions are not allowed.
1- Cess, Rate, Taxes
Any amount paid or payable by the person in Pakistan or outside Pakistan by the way of any
Cess rate or taxes imposed on the profit of the business.
2- Tax deducted at source
Any amount of tax deducted at source under sections 149 to 158 from an amount received
by a person is not allowed as deduction.
3- Payment to non resident
Any amount paid to a non resident person on account of salary, rent, commission or
payment of services is not allowed as deduction.

4- Expenditure on entertainment in excess of prescribed limit

Any entertainment expenses in excess of prescribed limit or in violation of term and
condition is not allowed as deduction.
5- Sum paid to unapproved fund
Any amount paid by a person to unrecognized provident fund, superannuation fund, pension
fund or gratuity fund which is not approved is not allowed as deduction.
6- Employer contribution to other fund
Any amount paid by an employer to any fund for the benefit of their employees is not
allowed as deduction.

7- Fine paid on violation of laws

Any fine paid by a person on violation of any law, rules and regulations is not allowed as
deduction.
8- Personal expenditure
Any personal expenditure incurred by a person is not allowed as deduction.
9- Amount transferred to reserve fund
Any amount transfer to reserve fund in any way is not allowed as deduction.
10- Remuneration paid to a member of the association
Any profit on debt, Commission, salary or other remuneration paid to a member of
association is not allowed as deduction.
11- Payment exceeding fifty thousand rupees
Any amount paid under a single account head in aggregate exceeding 50,000 rupees made
other than by a cross Cheque, cross bank draft is not allowed as deduction.
12- Payment of salary exceeding Rs. 15,000 per month
Any salary paid exceeding 10,000 rupees made other than by a cross Cheque