Notes for March 2025

CAF – 02
Tax Practices
Tax Year 2025

Notes
Notes for for September
March 20252022 attempt
attempt
Table of Contents
1. Syllabus 11. Losses, deductible allowances, tax credits and exemptions
2. System of taxation in Pakistan 12. Taxation of individual and association of persons
3. Constitutional provisions on taxes 13. Tax Regimes
4. Ethics 14. Returns, Assessment, Records & Audit
5. Basic concepts of taxation 15. Appeals, References, Petitions
6. Salary 16. Sales Tax Computations
7. Income from property 17. Registration, Deregistration, Suspension, Blacklising
8. Income from business 18. Returns & Records
19. Sales Tax Schedules •
9. Capital gains •
10. Income from other sources 20. Income Tax Rates
2
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Syllabus
Chapter 1 – 3 Chapter 4 – 16 Chapter 17 – 19
5%
10%
s
60-75%
rovisions and ethic 20%
5-10% 75%
60%
80
20-30% 30%
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35
30
15
10
Teaching Hours
3
System of Taxation in Pakistan
1. History of tax laws
2. Objectives of tax laws
3. Tools of taxation and Tax strategies
4. Basics of taxation
5. Principles of levy
6. Characteristics of tax laws
7. Revenue Sources
4
History of Tax Laws
1. Income Tax Act 1860 repealed in 1865
2. Income Tax Act 1886
3. Income Tax Act 1918
4. Super Tax Act 1917 consolidated into Income Tax Act 1922
5. Super Tax Act 1920
6. Income Tax Ordinance 1979
7. Income Tax Ordinance 2001
5
Revenue
Objectives of Tax Law Non revenue
Development
Tax Law Objective
Tax on salary income Revenue Collection
Any amount transferred otherwise than banking channel will be Documentation of economy
deemed as income
Tax on moveable assets of the taxpayers Fair distribution of wealth
Higher taxes on import of luxury goods Reduction in imports of unnecessary goods and create good balance of
trade
Allow ability of expenditure of research & developments Promotion of research & developments
Zero rating on Exports Promotion of Exports
Tax credit on Donations to approved institutions To promote culture of payment of donation to only organised and
regulated institutions
Tax credit on investments Promote investments in listed companies
Tax exemptions to software exports Promote software Industry
6
Tools of Taxation
1. Tax Structure a) Proportional

2. Exemptions b) Regressive
3. Tax Concessions c) Progressive
4. Deductible Allowances
5. Tax Credits
6. Rebates
7
Basics of Taxation
1. Equality
2. Certainty
3. Convenience of Payment
4. Economy of Collection
8
Principles of Levy
1. Benefit Principle
2. Ability to Pay Principle
3. Equal Distribution Principle
9
Characteristics of Tax Laws
1. Enforced contribution
2. Payable in cash
3. Proportionate in character
4. Levied on income / transaction / property
5. Levied by state having jurisdiction
6. Levied by law making body of state
7. Levied for public purposes
8. Fiscal adequacy
9. Equality >>>ability of citizen to pay
10. Administrative feasibility
11. Consistency with economic goals
10
Revenue Collection
Income Tax
CVT Direct Tax
(Federal Consolidated Fund)

WWF FBR
Tax Receipts
Exchequer
Revenue Receipts
Sales Tax Taxes
Internal Receipts
Indirect
FED
Outflows
Inflows
Tax
Custom Duty
Other Taxes
Non Tax Receipts
Capital Receipts
Loans & Grants External Receipts Deficit
11
Constitutional Provisions on Taxes
1. Federal & Provincial Government
2. Annual Budget Statement (ABS)
3. Budget Approval Process

4. Supplementary Budget The Constitution of The Islamic Republic of Pakistan 1973
5. Distribution of Revenues among Provinces

6. Legislative list
7. Provincial Financial Procedures
12
Federal Government
Law
Parliament Cabinet Relevant
Regulations
Majlis-e-Shora
Constitution of Pakistan
Rules
Prime Minister Department
President
Minister A Minister B Minister C
(FBR)
Act
Senate
(Upper House)
Non-Muslim
General
Women
National Assembly
Technocrats /
Total
Province
Non-Muslim
General
Women
Ulema
(Lower House)
Total
Province
Balochistan 14 3 17
Balochistan 14 4 4 1 23
KPK 35 8 43
Punjab 148 35 183 KPK 14 4 4 1 23
Sindh 61 14 75 Punjab 14 4 4 1 23
ICT 2 2 Sindh 14 4 4 1 23
FATA 12 12 ICT 2 1 1 4
10 10 FATA 4 4
Total 272 60 10 342 Total 62 17 17 4 100
13
Revenue Collection
Income Tax
CVT Direct Tax
(Federal Consolidated Fund)

WWF FBR
Tax Receipts
Exchequer
Revenue Receipts
Sales Tax Taxes
Internal Receipts
Indirect
FED
Outflows
Inflows
Tax
Custom Duty
Other Taxes
Non Tax Receipts
Capital Receipts
Loans & Grants External Receipts Deficit
14
Spending
Office Expenses/Admn Expenses,
Expenditure Charged upon Federal Consolidated Fund [Article-81]
Any other sum declared by Constitution OR

against Pakistan, by any Court or Tribunal
Sums required to satisfy any judgement
(Federal Consolidated Fund) Remuneration remuneration of officers and
servants
Debts Payable by Federal Govt.

Exchequer
President O
Majlise - shora
Outflows
Inflows
Judges of Supreme Court and Islamabad High

Court
Speaker, Deputy Speaker of National Assembly
A
Chief Eelection Commissioner
Chairman, Deputy Chariman of Senate
Auditor General of Pakistan
15
Budget Approval Process
• A head of expenditure is called “Grant”
National Assembly (NA) • Every grant should be recommended by
Federal Government
- Annual Budget Statement (ABS) placed
before NA
- ABS is open for discussion
Senate President
- No voting required
- After discussion, a Schedule of
Expenditure (SOE) will be prepared
- SOE will be signed by Prime Minister
-Signed SOE will again be presented to NA
- This time SOE is not open for discussion
- Budget is approved
Finance Bill
Finance Act
16
Supplementary Budget
National Assembly (NA)
- Supplementary Budget Statement (SBS)
placed before NA
- SBS is open for discussion
Senate President
- No voting required
- After discussion, a Schedule of
Expenditure (SOE) will be prepared
- SOE will be signed by Prime Minister
-Signed SOE will again be presented to NA
- This time SOE is not open for discussion
- Supplementary Budget is approved
Finance Supplementary Bill
Finance Supplementary Act

17
Distribution of Revenues among Provinces
• Punjab - Provincial - Provincial
• Sindh
Finance Minister Finance Minister
+ +
- Any other person - Any other person
with consultation with consultation
President shall constitute of Governor Federal of Governor
Finance
which will finalize
National Finance Commission - Provincial Minister - Provincial NFC Award
Finance Minister Finance Minister
(NFC) + +
- Any other person - Any other person
with consultation with consultation
of Governor of Governor
• KPK • Balochistan
18
Legislative List
Federal legislative list:
1. Duties of customs, including export duties.
2. Duties of excise, including salt, but not including alcoholic liquors, opium or other narcotics;
3. Taxes on income other than agricultural income;
4. Taxes on corporations.
5. Taxes on the sales and purchases of goods imported, exported, produced, manufactured or consumed, except sales tax on services.
6. Taxes on the capital value of the assets, not including taxes on immovable property.
7. Taxes on mineral oil, natural gas and minerals for use in generation of nuclear energy.
8. Taxes and duties on the production capacity of any plant, machinery, undertaking, establishment or installation in lieu of any one or more of them.
9. Terminal taxes on goods or passengers carried by railway, sea or air; taxes on their fares and freights.
Province can legislate all taxes, other than above, such as:
1. Sales tax on services
2. Taxes on transfer of immoveable property
3. Professional tax
4. Tax on luxury houses
5. Tax on registration of luxury vehicles etc.
6. Property tax
19
Provincial Financial Procedures
Federation Province Prime Minister Chief Minister
Federal Consolidated Fund Provincial Consolidated Fund
20
Ethics
Legislator Administrator Practitioner Tax Payer
Canons of Taxation-(by • Fairness • Integrity • Utilitarianism
Adam Smith) • Transparency
• Canon of Equity • Equity • Objectivity • Deontology
• Canon of Certainity • Accountability
• Canon of Convenience
• Confidentiality • Virtue ethics
of Payment Responsibilites of Tax Administrators
• Canon of Economy of
Tax Avoidance vs Tax Evasion
• Obey taxation laws, no undue favors to tax payer • Professional

Collection • Honesty and integrity to maintain respect of Govt and Taxpayer Tax Avoidance vs
Behavior
• Impartial, fair, neutral and consistent in administing tax laws, without any prejudic to to Tax Evasion
Additional Canons race, social status, economic circumstances
• Provide prompt, efficient and quality services to taxpayer
• Professional
• Canon of Productivity
Competence &
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• Canon of Elasticity • Refrain from actively participating in political activities

• Accuracy of records and its confidentiality Due Care
• Canon of Flexibility
• Refrain from soliciting gifts
ICAP Code of Ethics
• Canon of Simplicity
• Make reasonable efforts to collect proper amount of tax at lowest possible cost
• Canon of Diversity • Diligently respond to valid tax refund claims ICAP Code of Ethics
• Educate Taxpayer on their rights and responsibilities
Whistle Blower
21
Ethics
- Tax avoidance is generally the legal exploitation of the tax regime to one's own - Tax evasion is the general term for efforts by individuals, firms, trusts and other
advantage, to attempt to reduce the amount of tax that is payable by means that are entities to evade the payment of taxes by illegal means.
within the law whilst making a full disclosure of the material information to the tax
authorities. - Tax evasion usually entails taxpayers deliberately misrepresenting or concealing
the true state of their affairs to the tax authorities to reduce their tax liability,
Examples of tax avoidance; and includes, in particular, dishonest tax reporting.
(i) using tax deductions
(ii) changing one's business structure through incorporation or Examples of tax evasion;
(iii) establishing an offshore company in a tax haven. (i) under declaring income, profits or gains; or
(ii) overstating deductions.
continued ….
22
Ethics
Payment of tax is avoided by complying with law but defeating Payment of tax is avoided through illegal means or fraud.
the intension of the law.
Taking advantage of loopholes in the law Employing unfair means & practices
It is done by complying the provision of law It is an unlawful way of paying lower taxes and defaulter may
be punished.
Tax Avoidance is also called tax planning and is done before the Tax evasion is blatant fraud and is done after the tax liability
tax liability arises. has arisen.
Eg. making use of donating to approved charity recognized by Falsifying income tax return
the FBR, to claim a tax credit in future when computing the tax
liability.
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Ethics
ICAP Code of Ethics Tax Calculation for Accounting Entries
Threats which may arise; All Audit Clients

- Advocacy Threat Materiality of amounts should be considered. Threats
- Self Review Threat which may arise;
- Advocacy Threat
Factors to evaluate level of threat; Usually, no threat is created from following work; - Self Review Threat
- The particular characteristics of the engagement
- The level of tax expertise of the client’s - Assisting clients with their tax reporting obligations Audit Clients that are Not Public Interest Entities
employees. by drafting and compiling information, including the Safeguards:
- The system by which the tax authorities assess amount of tax due required to be submitted to the - Using professionals who are not audit team members
and administer the tax in question and the role of applicable tax authorities - Having an appropriate reviewer who was not involved
the firm or network firm in that process in providing the service
- The complexity of the relevant tax regime and the - Advising on the tax return treatment of past
degree of judgment necessary in applying it transactions and responding on behalf of the audit Audit Clients that are Public Interest Entities
client to the tax authorities’ requests for additional A firm or a network firm shall not prepare tax
information and analysis (for example, providing calculations of current and deferred tax liabilities (or
explanations of and technical support for the assets), if it is material.
approach being taken
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Ethics
Whistle Blower
Whistle blower means a person who reports
- concealment or
- evasion of income tax
leading to detection / collection of
- Taxes
- Fraud
- corruption or
- Misconduct To the competent authority having power to take action against
- the person or
- an income tax authority
committing
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Basic Concepts of Taxation
1. Tax Year 7. Important Definitions
a) Public Company
2. Types of Person b) Private Company
c) Non Profit Organization
3. Residential Status d) Small & Medium Enterprise
e) Small Company
4. Tax Regimes f) Permanant Establishment
g) Women Enterprise
5. Common Rules
6. Geographical Source of Income

26
27
1. Tax Year [S-74]
Time Bracket
Time period of 12 months Time period of
End date is 30th End date is other less than 12
June than 30th June months
Normal Tax Year Transitional Tax
Special Tax Year (STY)
(NTY) Year (TTY) Industry Special Tax Year SRO Ref
Denoted by Calendar Year Denoted by Calendar Sugar Manufacturing 1st October - 30th September 134(R)/68,
Denoted by Calendar July 31,1968
relevant to NTY in which Year relevant to NTY in
Year in which NTY ends
Year end falls which Year end falls Rice Exporter 1st January - 31st December 367(I) /74,
January 14,1974
FBR has authority to TTY occurs because of
prescribe STY change in TY from NTY to Insurance 1st January - 31st December 878 (I) /95,
STY or vice versa August 30,1995
TTY is the period between TY end date of last tax year and commencement date of next TY
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Change in Tax Year
NTY STY STY NTY STY - 1 STY - 2
Tax Payer will give an application in writing to Commissioner of Income Tax (CIT)
CIT is convinced that Not Convinced

compelling need
exists Give tax payer an opportunity
of being heard in person
Grant Permission through an

order in writing Not Convinced
1) issue rejection orders

2) record reasons of rejection
in order
Tax Payer may file review application to FBR & decision of FBR shall be final
29
Tax Year Practice
Determine the tax year in respect of each accounting periods mentioned below:
a) 1.09.2015 to 31.08.2016 STY TY 2017
b) 01.04.2016 to 30.06.2016 TTY TY 2016
c) 1.01.2016 to 31.12.2016 STY TY 2017
d) 1.04.2016 to 31.03.2017 STY TY 2017
e) 1.05.2016 to 30.04.2017 STY TY 2017
f) 1.07.2016 to 30.06.2017 NTY TY 2017
30
2. Type of Person
a) Tax Payer [S-2(66)]
b) Person [S-80]
31
a) Tax Payer [S-2(66)]
Any person or representative of person who;
i. Derives an amount chargeable to tax

ii. Is required to collect/deduct tax
iii. is required to furnish return of income
iv. is required to pay tax
under Income Tax Ordinance 2001
32
b) Person [S-80]
Following shall be treated as person;
i. Individual
ii. Company formed in Pakistan or elsewhere
iii. AOP formed in Pakistan or elsewhere
iv. Federal government
v. Foreign government
vi. Political subdivision of foreign government
vii. Public International Organization
33
Company means following
i. Company as defined in Companies Act 2017
ii. Body Corporate formed by or under any law in force in Pakistan
iii. Modaraba
iv. body incorporated by or under any law of country outside Pakistan relating to
incorporation of companies
v. cooperative society, finance society or any other society
vi. non-profit organization
vii. Trust
viii. foreign association declared by FBR to be a company
ix. Provincial Government
x. Local Government
xi. Small company as defined in Section -2
34
Association of Persons includes following
i. Firm (means relation between persons who have agreed to share profits of business
carried on by all or any one of them acting for all)
ii. Hindu Undivided Family
iii. Artificial Juridical Person
iv. Any body of persons formed under foreign law
And does not include “Company”
35
3. Residential Status
a) Resident Individual
b) Resident Company
c) Resident AOP
36
a) Resident Individual [S-82]
i. Not based on Nationality, based on Physical Presence in Pakistan 0 – 182 days 183 days or more
Non Resident Resident
ii. Government servant posted abroad will be treated as resident, irrespective of his physical stay in Pakistan
iii. Citizen of Pakistan, present in one foreign country 0 – 182 days

Resident
iv. Citizen of Pakistan, who is not resident taxpayer of any other country, will be treated as resident
v. Counting of days shall be made in accordance with Rule-14 of Income Tax Rules, 2002
37
Rule-14 of Income Tax Rules, 2002
Days not to be counted Days to be counted
i. Day or part of day in Pakistan solely Part of a day shall be counted as a whole
by reason of being in transit between day in following cases;
two different places outside Pakistan i. Day of arrival in Pakistan
ii. Day of departure from Pakistan
iii. Public Holiday
iv. Leave, including sick leave
v. Holiday spent in Pakistan before,
during or after activity in Pakistan
vi. Day when activity was interrupted
due to Strike, lockout, delay in
receipt of supplies
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b) Resident Company [S-83]
i. Company incorporated in Pakistan
ii. Provincial Government Resident
iii. Local Government No further condition required
iv. Company incorporated outside Pakistan Resident

if, Control and Management of
affairs situated wholly in
Pakistan at any time in a Tax
Year
39
b) Resident AOP [S-84]
Resident if, Control and Management of affairs situated wholly or partly in Pakistan at
any time in a Tax Year
40
Residential Status Practice
i. Mr. Raza is working as Director Operations in the Ministry of Tourism. On 15 July 2024 he was posted to Pakistan Embassy in Federal Govt Employee Resident
Italy for two years.
ii. Anderson LLC was incorporated as limited liability Company in UK. The control and management of its affairs was situated Control & Mngt in wholly in Resident
wholly in Pakistan. However, with effect from 01 November 2024, the entire management and control was shifted to UK. Pak any time in TY
iii. On 01 February 2025, Mr. Sameel was sent to Pakistan by his UK based company to work on a special project. He left Pakistan Stay less than 183 days Non
on 23 August 2025. Resident
iv. BBL is a non-listed public company incorporated under the Companies Act 2017. All the shareholders of the company are Company incorporated in Resident
individuals. The control and management of affairs of the company during the year was outside Pakistan. Pak
v. Mr. Salman a property dealer in USA came to Pakistan on 01 February 2024. During his stay upto 02 August 2024 in Pakistan, Total stay 184 days Resident
he remained in Peshawar upto 30 June 2024 and thereafter till his departure from Pakistan, in Quetta. Assume that
Commissioner has granted him permission to use calendar year as special tax year.
vi. Peshawar LLC (PLLC) was incorporated as a limited liability company in UAE. PLLC has 5 directors out of which 2 are involved Control & Mngt in wholly in Resident
in management, the rest of them were situated in UAE. The 2 directors control the affairs of the company from Pakistan. Pak any time in TY
41
4. Tax Regimes
1) Normal Tax Regime
2) Separate Block of Income
3) Final Tax Regime

a) Income subject to Separate Charge
b) Presumptive Tax Regime
4) Minimum Tax Regime
42
1. Normal Tax Regime
Revenue – Allowable Deductions = Taxable Income
Taxable Income x Tax Rate = Tax Imposed
Tax Imposed – Tax Credits = Tax Payable
43
2. Separate Block of Income
i. Taxpayers are allowed to deduct relevant expenses.
ii. Tax rates defined for these specific incomes, which are not final tax.
iii. These are income specific tax rates and “type of person” does not affect it.
iv. eg. Tax on Capital Gain on Immovable Property, Tax on Capital Gain on Securities etc
44
3(a). Final Tax Regime – Income subject to Separate Charge
i. Tax Imposed is final tax
ii. Income is not chargeable to tax under any Head of Income
iii. No deduction is allowed for expenditure incurred in deriving such income
iv. Not Allowed : Set off of Losses, Deductible Allowances, Tax Credits
v. e.g., Dividend, Profit on Debt, Royalty, FFTS, FFOSDS etc
45
3(b). Final Tax Regime – Presumptive Taxation
i. Tax deducted/collected is final tax
ii. Tax deducted/collected is not refundable
iii. Income is not chargeable to tax under any Head of Income
iv. No deduction is allowed for expenditure incurred in deriving such income
v. Not Allowed : Set off of Losses, Deductible Allowances, Tax Credits
vi. e.g., Exports & Prizes and Winnings etc
46
4. Minimum Tax Regime
i. Tax already collected/deducted is minimum tax. eg. Advance tax on commercial

imports, Tax at source under section 153 etc
ii. Tax on turnover is minimum tax. eg. Minimum tax under section 113
47
5. Common Rules
a) Apportionment of Deduction
b) Recouped Expenditure [S-70]
c) Currency Conversion [S-71]
d) Cessation of a Source of Income [S-72]
e) Fair Market Value [S-68]
f) Receipt of Income [S-69]
g) Rule to prevent Double Derivation and Double Deduction [S-73]

48
a) Apportionment of Deductions [S-67 & Rule 13]
Apportionment of Deductions [S-67]
Any expenditure/deduction/allowance that relates with following shall be me”
nco
apportioned on reasonable basis: follow its “I
“Deduction” will
a) derivation of income under more than one head of income
b) derivation of taxable income and income under Final Tax Regime
c) derivation of income under any head of income and for any other purpose
continued ……..
49
a. Apportionment of Deductions [S-67 & Rule 13]
Apportionment of Expenditures Deductions and Allowances [Rule-13]
Clearly Allocable to an Income Not clearly Allocable to an Income
deductible/chargeable Apportion on basis of following formula:

against that particular income Common Exp x Gross Receipts of a class of income/Gross Receipts of all classes of income
Class of Income may include following:
Salary Income
Income from Property
Income from Business (Speculative/Non Speculative)
Capital Gains Pakistan Foreign
Other Sources Source Source
Separate Block of Income Income Income
Exempt Income
Income under FTR
continued ……..
50
a. Apportionment of Deductions [Rule 13]
a) Gross receipts are net of Sales Tax & Federal Excise Duty
b) Nature and source of each class of income shall be considered for allocation
c) Above allocation shall be certified by CA or CMA, in case accounts are required to be audited. The certificate shall be
accepted by CIR only if variation in allocation from these rules is not more than 10%
d) In case accounts are not required to be audited then apportionment shall be accepted by CIR only if variation in allocation
from these rules is not more than 10%
e) In certain transactions where net gains, brokerage, commission or other income is taken, than Gross Profits shall be taken
as Gross Receipts
51
b) Recouped Expenditure [S-70] f) Receipt of Income [S-69] – Income shall be treated
• will be treated as Income in the year of receipt. as received, if:
• amount actually received by person,
c) Currency Conversion [S-71] • applied on behalf of person on his instructions or
• all amounts shall be taken in Pak Rupee. under any law
• In case of foreign currency, it will be converted to • made available to the person
Pak Rupee at SBP conversion rate on date when
amount is taken into account for the purpose of g) Rule to prevent double derivation and double
Income Tax deduction [S-73]
• Any income taxed on accrual basis shall not be
d) Cessation of Source of Income [S-72] taxed again on receipt basis and vice versa
• income derived before cessation of a source of • Any expenditure deducted on accrual basis shall
income shall be chargeable to tax as if the source not be taxed on payment basis and vice versa
of income has not ceased
52
e) Fair Market Value
Immovable Property Others
In case of • price it would ordinarily fetch on sale or
• FBR shall, from time to time, • Property supply in the open market
determine FMV of immovable • Rent
property of an area, through • Asset • FMV shall be determined without considering
notification in official gazette • Service • following:
• Benefit o restriction on transfer
• If value not determined by FBR • Perquisite o convertablility to cash
then following shall determine
FMV • If price not Ascertainable as above, then CIT
o District Officer (Revenue) will determine FMV
o Provincial or Other Authority
authorized in this behalf for
stamp duty
53
a) Pakistan Source Income [S-2(40) & 101]
b) Foreign Source Income [S-2(27) & 101(16)]
Resident Non Resident

Pakistan Source Income Taxable Taxable
Foreign Source Income Taxable Not Taxable
Section 11(5) & (6)
54
7. Important Definitions
Public Company [S-2(47)]
means
• a company in which 50% or more shares are held by
o Faderal Government OR
o Provincial Government OR
o Foreign Government OR
o Foreign Company owned by Foreign Government OR
• a company whoes shares are traded on a stock exchange registered in Pakistan and remained listed at end
of the year
• a unit trust, whose units are widely available to the public AND
• any other trust as defined in the Trusts Act, 1882
55
Private Company [S-2(45)]
• means a company that is not a Public Company
Non Profit Organization [S-2(36)]

means any person other than Individual which is;
• established for religious, educational, charitable, welfare or development purposes OR
• promotion of amature sport
AND
• formed and registered under any law as non-profit organization AND
• approved by the Commissioner for specified period AND
• none of the assets of such person are available for private benefit to any other person
56
Small & Medium Enterprise (SME) [S-2(59A)]
means a person;
• engaged in manufacturing u/s 153(7)(iv) AND
• turnover in a TY does not exceed Rs 250 million
If turnover in TY exceeds Rs 250 million

Then it will not be an SME in that TY and in any subsequent TYs
57
Small Company [S-2(59AB)]
means a company which fulfills all of following conditions:
• registered under Companies Act 2017, on or after 01.07.2015
• (Paid up Capital + Undistributed Reserves) =< Rs 50 million AND
• Number of employees =< 250 (at any time during tax year) AND
• Annual Turnover =< Rs 250 million AND
• not formed by splitting up OR reconstitution of a company already in existence AND
• is not a small and medium enterprise

58
Permanent Establishment [S-2(41)]
means a fixed place of business through which the business of the Includes
person is wholly or partly carried on
Place of management, branch, office, mine, oil or an Virtual Construction Furnishing Agent in Substantial Fixed Place
factory, workshop, premises for gas well, agricultural, business / Installation Services Pakistan equipment of business,
soliciting orders, warehouse, permanent quarry or pastoral or presence i.e., Project through installed to used or
sales exhibition or sales outlet, other any other forestry business employees generate maintained
than Liaison Office place of property through Activities income by person
extraction of internet Dependent Independent
Liaison Office continued for
natural Agent Agent
[S-2(30C)] more than 90
resources days in past
Negotiates 12 months
Contracts?
Yes
Sales No
Contract
Purchase
Contract
PE Not a PE
59
60
Woman enterprise means
• a start-up established on or after 01 July 2021 as
o sole proprietorship concern owned by a woman or
o an AOP all of whose members are women or
o a company whose 100% shareholding is held by women
Taxation
• Tax payable shall be reduced by 25%
• This benefit will not be available to business that is formed by
o transfer or
o reconstitution or
o splitting up of an existing business.
61
Heads of Income
Heads of Income
Income from Salary
Employee Employment Employer
Means any individual engaged in employment Includes: Means any person who engages and
i. Directorship or any other office remunerates an employee
involved in management of company
OR
ii. a position entitling the holder to a
fixed or ascertainable remuneration
OR
iii. holding or acting in any public office
Deciding a Salary case
3 Important Questions:
1. Geographical Source of Income Deciding a
2. Basis of Taxation
3. Residential Status recently changed Salary case
62
Heads of Income Salary

Income from Salary
1. Geographical Source of Income [S-101(1), (11) & (16)]
Employment Exercised
In Pakistan Outside Pakistan
In Pakistan PSI FSI
Payment of Salary made
Outside Pakistan PSI FSI
By or on behalf of FG/PG/LG in Pakistan

PSI wherever employment is exercised
Paid by Resident
PSI
Pension/Annuity Born by PENR
FSI
63

Income from Salary
2. Basis of Taxation Accrual Cash Basis Amount OR Perquisite treated as received [S-12(5)]:
as and when it is paid or provided;

[S-12(7)] All Other Cases By
Arrears of salary received in tax year caused higher taxation, then tax payer (i) Employer
by notice in writing to commissioner tax salary on accrual basis (ii) Associate of employer
(iii) Any 3rd party under agreement with employer or its
associate
By
(i) Past employer
(ii) Perspective employer
To
(i) Employee
(ii) Associate of employee
Receipt of Income [S-69]: (iii) Any 3rd party under agreement with employee or its
Amount/benefit/perquisite treated as received when: associate
(i) Actually received
(ii) Applied on behalf/instruction of person OR under any law
(iii) Made available to person
64

Income from Salary
3. Residential Status Recently Changed
Residential Citizen of Pakistan leaves Pakistan [S-51(2)]:
Short term Resident [S-50]:
Status
If a citizen of Pakistan leaves Pakistan in a Tax Year
Resident FSI of Resident Returning Expatriate [S- and remains abroad during that tax year FSI will be exempt
51(1)]:
Non Resident Conditions:
then Salary earned outside Pakistan shall be
PSI FSI If resident in a Tax Year but was exempt (i) Resident solely by reason
Non-Resident in preceding 4 of employment
Geographical Source of Income Tax Years (ii) Present in Pakistan for 3
years or less
Then all foreign source income
will be exempt in tax year in Exceptions:
which tax payer becomes Foreign Source Salary of Resident [S-102]: (i) Income from business
resident and the following tax Exempt if; established in Pakistan
year - Foreign tax on salary is paid by individual OR (ii) Foreign Source Income
- withheld by employer and paid to revenue brought into or received
authority of foreign country in Pakistan
65

Income from Salary
Deciding a Salary case:
1. Salary Definition
2. Deductions
3. Perquisites/Facilities/Benefits
4. Exemptions
66

Income from Salary
Salary [S-12(2)] Means: any amount received by employee from employment whether capital or revenue nature
Includes: -Pay Perquisites [Section-13] Allowances Expenditure Others
-Wages means incurred by -Pension,
-Other remuneration -items provided by employer in kind -Cost of Living employee but Annuity
-Leave pay OR Allowance paid by employer,
-Overtime -cash reimbursed for expenses other than office purpose -Subsistance Allowance other than official
-Bonus -Rent purposes
-Commission includes -Utilities
-Fee -Education
-Gratuity -Services of house keeper, driver, gardener, domestic assistant -Entertainment
-Work condition -Utilities -Travel Allowance;
Supplements -Any obligation of employee to employer, waived off by employer except for official tours
-Any obligation of employee to another person paid by employer
-FMV of property transferred to employee reduced by any payment
made by employee
- Leave encashment
- Leave encashment -Vehicle wholly or partly for private use - Medical Allowance -Profits in lieu of salary
-Accommodation -Employee Share Scheme
-Medical Facility
-Interest free loan 67
Heads of Income Salary Definition
Income from Salary

Leave Encashment [2nd Schedule, Part-I, Clause-19]:
Encashment of
Leave Preparatory to Retirement
Of
(i) Government Employee

(ii) Member of Armed Forces
Exempt from Tax
68
Valuation of Conveyance [Rule-5]:

Income from Salary
Usage Vehicle owned by employer Vehicle leased by employer
Personal Use only 10% of cost of vehicle 10% of FMV at commencement of lease
Taxable
Official & Personal use 5% of cost of vehicle 5% of FMV at commencement of lease
Official Use only Not Taxable
69
Income from Salary

Valuation of Accommodation [Rule-4]:
Amount that would have been paid

if accommodation was not provided
45% of MTS/Basic Salary
Higher
Taxable
Accommodation provided in mufasal areas
shall be taxable at 30% of MTS/Basic Salary
70
Income from Salary

Medical Allowance [2nd Sched, P-I, Clause 139]:
Medical Allowance Exempt upto 10% of Basic Salary
Medical Facility/Reimbursement Both
Totally exempt if following conditions Medical Allowance >>>>Totally Taxable

are met:
In accordance with terms of (i) Provide NTN of medical Medical Facility>>>>>>totally exempt if following
employment practitioner conditions are met
(ii) Attestation of expense by (i) Provide NTN of medical practitioner
employer (ii) Attestation of expense by employer
Medical Allowance >>>>exempt upto 10% of Basic Salary

Not in accordance with
Taxable
terms of employment
Medical Facility>>>>>>totally taxable
71

Income from Salary
Interest Free Loan [S-13(7) (8) & (14)]: Loan from employer
Benchmark Rate = 10% per annum
Markup
Yes No
charged?
@
benchmark Markup @ benchmark rate
Nothing Taxable Yes
rate or Included in Taxable Income
more
If loan is utilized by employee to acquire an asset No Above is not applicable on loan upto Rs 1,000,000/-
(generating income under any head of income) OR
Then employee shall be treated as having been paid Markup @ benchmark rate X Where such benefit is extended by the employer due to
markup @ benchmark rate or actual markup paid, – Markup charged by employer (X) waiver of interest by such employee on his accounts
which ever is higher. Included in Taxable Income X maintained with the employer.
72
Income from Salary

Profits in lieu of salary [S-12(2)(e)]
Includes:
(i) Payment of Employer's Contribution from provident fund
(ii) Amount on termination of employment, whether voluntary basis or under an agreement
[S-12(6)]
(iii) Compensation for redundancy or loss of employment (e.g., Golden Hand Shake)
(iv) Consideration for employee's agreement to : Tax payer has option to get it taxed @ last 3 years
• enter into employment agreement average rate of tax
• accept changes to conditions of employment
Last 3 year’s tax liability
• a restrictive covenant to any past, present or future employment Average rate of tax =
Last 3 year’s taxable income
73
Income from Salary

Employee Share Scheme [S-14] Option/Right Acquired Nothing Taxable
Option/Right Disposed Off Consideration X

- Cost Paid (X)
Exercised Option/Right & Shares received X Taxable under salary
Shares acquired with restriction on transfer Nothing Taxable
Shares acquired without any restriction on transfer FMV X

OR restriction removed afterwards - Consideration paid to acquire option & shares (X)
X Taxable under salary
Disposal value X
Shares disposed off - Consideration paid to acquire option & share (X)
- Amount previously included in Taxable income (X)
X Taxable under Capital Gains
74

Income from Salary
Deductions:
Section 12(4):
No deduction shall be allowed for any expense incurred by employee in deriving salary income.
75

Income from Salary
Perquisites/Facilities/Benefits:
1. Pension
2. Commutation of Pension
3. Gratuity & Commutation of Pension
4. Provident Fund
5. Tax on Salary Born by Employer
6. Services provided by employer to employee
7. Utilities
8. Obligation of employee waived by employer
9. Obligation of employee to 3rd party, paid by employer
10. Property or service provided to employee
11. Any other perquisite
12. Self Hiring of Property
13. Superannuation Fund
14. Benevolent Fund
76
Heads of Income Salary Perks

Income from Salary
Perquisites/Facilities/Benefits: Member of Armed Force
Totally Exempt
Employee of FG/PG
1. Pension [2nd Sched, Pt-I, Cl (8)&(9)]
Others
No Age>60 Yes Totally Exempt
Works for
same
No employer or
Yes Taxable
its associate
More than
Yes Higher amount is exempt
1 pension
No
Totally Exempt
77

Income from Salary
2. Commutation of Pension [2nd Sched, Pt-I, Cl (12)]
Received from Government

OR Totally Exempt
Received from Scheme approved by FBR
78

Income from Salary
3. Gratuity and Commutation of Pension [2nd Sched, Pt-I, Cl (13)]
Government Employee Un-approved Gratuity

Gratuity & Commutation Scheme Approved
OR OR
by FBR
Approved Gratuity Fund by CIT under 6th Schedule Un-approved Commutation
Rs 75,000/-
OR
Totally Exempt Exempt upto Rs 300,000/-
50% of amount
(Which ever is less is exempt)
Exemption not available to following:

(i) Payment not received in Pakistan
(ii) Payment received by Director of Company who is not employee of company
(iii) Payment received by Non Resident
(iv) Gratuity received by employee who has already received gratuity from same or another employer
79

Income from Salary
4. Provident Fund [2nd Sched, Pt-I, Cl (23)] & [6th Sched, Pt-I, Cl (3), (4) & (5)]
Govt. PF Recognized PF Un-recognized PF

Already taxed in salary, Already taxed in salary, therefore no
Employee Contribution Already taxed in salary, therefore no treatment
therefore no treatment treatment
Rs 150,000
OR No treatment when contribution is
Employer Contribution Exempt
10% of (Basic Salary + Dearness Allowance) made
(Lesser is exempt)
Return @ 16%
Returns credited during OR No treatment when returns are
Exempt
year 1/3rd of (Basic Salary + Dearness Allowance) credited
(Higher is exempt)
Only employee’s contribution is exempt
Accumulated Balance Paid Exempt Exempt
All other sums are taxable
Note: Dearness Allowance is a type of Cost of Living Allowance

80

Income from Salary
5. Tax on Salary Born by Employer [S-12(3)]
Amount of salary income shall be grossed up by amount of tax payable by employer.
Q. Mr. A has received taxable salary and allowances amounting to Rs 1,510,000 during tax year 2025. You are
required to calculate his taxable income and tax payable under each of following situations:
(i) 100% tax is to be borne by employer

(ii) 40% of tax is to be borne by employer and balance to be borne by Mr. A
(iii) Rs 50,000 is to be borne by employer and balance to be borne by Mr. A
(iv) Mr. A shall pay only Rs 50,000 as tax and balance tax to be borne by employer
81

Income from Salary
82

Income from Salary
83

Income from Salary
84

Income from Salary
85
Income from Salary
6. Services provided by employer to employee [S-13(5)]
House keeper Salary paid to them by employer X

Gardner
Driver Less: payment by employee to employer for these services (X)
Other domestic assistant X Taxable
86
Income from Salary
7. Utilities [S-13(6)]
Electricity Fair Market Value of utilities X

Gas
Water Less: payment by employee to employer for these utilities (X)
Telephone X Taxable
87

Income from Salary
8. Obligation of employee waived by employer [S-13(9)]
Waived Amount Taxable
9. Obligation of employee payable to 3rd party paid by employer [S-13(10)]
Paid Amount Taxable
10. Property or service provided to employee [S-13(11)]

Fair Market Value X
Less: payment by employee to employer (X)
X Taxable
88
Income from Salary
11. Any other perquisite [S-13(13)]
Fair MV of perquisite X
Less: payment by employee to employer for perquisite (X)
X Taxable
89

Income from Salary
12. Self Hiring of Property [S-15(5)]

Analysis Scenario 1 Scenario 2 Scenario 3
"Income from Salary" shall include Taxable Income

Basic Salary 100 100 100
value of accommodation in accordance with House Rent Allowance

Valuation of
45
0
0
45
0
45
Rule-4
Accommodation 45 45 45
Property Income
190 190 190
Cash Position
"Income from Property" shall include Income:

Salary 145 100 100
rent income in accordance with Section- Rent received
Expense:
45 45 45
15(4)&(5) - Rent (45)

145
(0)
145
(0)
145
90
Income from Salary

13. Superannuation Fund approved by Commissioner in accordance with Part-II of 6th Schedule [Cl-4-6] & 2nd Sched, P-I, Cl-25 :
Employer’s Contribution
Interest Credited
Exempt
Payment out of fund: On death
In lieu of annuity
During life time other than above Taxable
91

Income from Salary
14. Benevolent Fund [2nd Sched, P-I, Cl-24]
Any payment in accordance with

Exempt
"Central Employee Benevolent Fund & Group Insurance Act 1969"
92

Income from Salary
Exemptions:
1. Foreign Government Officials
2. Diplomatic & United Nations Exemptions
3. International Agreements
4. Perquisites without Marginal Cost to Employer
5. Special Allowance
6. Workers’ Participation Fund
7. Salary income of seafarer
8. Allowances to persons working outside Pakistan
9. Full Time teacher/researcher
93
Heads of Income Salary Exemptions

Income from Salary
Exemptions:
1. Foreign Government Officials [S-43]
Salary of foreign government employee shall be exempt from tax if:
(i) employee is citizen of foreign country and not citizen of Pakistan
(ii) services performed are similar to those performed by employees of Federal Government in foreign countries
(iii) foreign government grants similar exemption to employees of the Federal Government performing similar services in such foreign country
94

Income from Salary
Exemptions:
2. Diplomatic & United Nations Exemptions [S-42]
Following shall be exempt from tax:
(i) Individuals entitled to privileges under the Diplomatic and Consular Privileges Act, 1972
(ii) Individuals entitled to privileges under the United Nations (Privileges and Immunities) Act, 1948
(iii) Pension received by citizen of Pakistan due to former employment in the United Nations or its specialized agencies, if the person’s salary from
such employment was exempt under this Ordinance
95

Income from Salary
Exemptions:
Salary received under an AID AGREEMENT is exempt from Any income under a bilateral or multilateral technical assistance
3. Exemption under International tax subject to following conditions: AGREEMENT is exempt from tax subject to following conditions::
Agreements [S-44]
(i) Salary received by individual, who is not citizen of (i) Income is received by any person
Pakistan
(ii) Person is engaged as a contractor, consultant, or expert on a
(ii) Exemption will be to the extent provided in AID project in Pakistan
AGREEMENT
(iii) Exemption will be to the extent provided in AGREEMENT
(iii) AID AGREEMENT is between FG≈Fr.G FG ≈PIO
(iv) AGREEMENT is between FG≈Fr.G FG ≈PIO
If Pakistan is not permitted to tax (iv) Individual is not resident OR Is resident solely for
an income under TAX TREATY, performance of service under AID AGREEMENT (v) Project is financed out of funds released in accordance with
it will be exempt from tax AGREEMENT
(v) In case AID AGREEMENT is with Foreign Govt. then
FG can exempt income of any individual should be citizen of that country (vi) Person is not resident OR Is resident solely for performance of
person, for any official service under AGREEMENT
development assistance financed (vi) Salary is paid out of funds released to Pakistan under
loans and grants-in-aid AID AGREEMENT (vii) Income is paid out of funds under AGREEMENT
96
Income from Salary

Exemptions:
4. Perquisites without Marginal Cost to Employer [2nd Sched, P-I, Cl-53A]
Hotel/Restaurant Educational Institution Hospital/Clinic

Any other notified by FBR
Free/subsidized food Free/subsidized Medical
Free/subsidized education
during duty hours Treatment
Totally Exempt
97
Income from Salary

Exemptions:
5. Special Allowance [2nd Sched, P-I, Cl-39]
Any allowance, other than Conveyance and Entertainment

Allowance, specially granted to meet expenses wholly and Exempt
necessarily incurred in performance of office duties
Clarification:
The allowance solely expended in the performance of employee’s duty does not include;
(i) allowance which is paid in monthly salary on fixed basis or percentage of salary; or
(ii) allowance which is not wholly, exclusively, necessarily or actually spent on behalf of the employer
98
Income from Salary

Exemptions:
6. Workers’ Participation Fund [2nd Sched, P-I, Cl-26]
Amount received as worker, out of Workers' Participation Fund Exempt
99

Income from Salary
Exemptions:
7. Salary Income of Seafarer [2nd Sched, P-I, Cl-4]

Salary income shall be exempt if
Pakistani seafarer is on
Pakistan flag vessel Foreign vessel

for
183 days or more on vessel No limit of number of days
Following conditions required for exemption:
(i) Income remitted to Pakistan
(ii) through normal banking channel
(iii) within 2 months of relevant tax year
100

Income from Salary
Exemptions:
8. Allowance to person working outside Pakistan [2nd Sched, P-I, Cl-5]
Allowance from Govt of Pakistan

to a citizen of Pakistan Exempt
for rendering services outside Pakistan
101

Income from Salary
Exemptions:
9. Full Time teacher/researcher [2nd Sched, P-III, Cl-1(2)]
Tax payable in salary shall be reduced by 25% if following conditions are fulfilled:
(i) The individual is Full time teacher/researcher

(ii) in non-profit education/research institution, duly recognized by
a. Higher Education Commission (HEC)
b. Board of Education
c. University recognized by HEC
(iii) including in any Government research institute
Above shall not apply to teacher of medical profession who

(i) derive income from private medical practice or
(ii) receive share of consideration received from patients
102
Heads of Income
Heads of Income
Property
Owner/Landlord Tenant
Land/Building
Rent means:
Amount received/receivable Accrual Basis
By owner of land/building
As consideration to use/occupy OR right to use/occupy the land/building
Rent includes:
Forfeited deposit on contract for sale of land/building [S-15(1)&(2)]
Deciding a Property Income case
Deciding a
1. Geographical Source of Income Property
Income case
103
Heads of Income Property

1. Geographical Source of Income [S-101(9) & (10)]
Immovable Property Right to explore natural resources

situated in Pakistan in Pakistan
Rental Income shall be Pakistan Source Income
Gain on disposal of above property or right shall also be Pakistan Source Income
104

Deciding Income from Property Case:
Income from Property derived by a person shall be taxable under

"Normal Tax Regime”
Rental income shall be reduced by allowable expenses, detailed in Section-15A, and

remaining amount shall by included in taxable income under Normal Tax Regime
Rent
105

Rent
Advance ADJUSTABLE NON-ADJUSTABLE Advance (Building)
Rent
against Rent [S-16]
Taxable on automatically included in i. 1/10th of advance will be treated as Rent in
accrual taxable income because of • TY of receipt &
basis accrual basis of taxation • 9 subsequent TYs
ii. Nothing will be included in taxable income, in the tax year in which such advance is refunded
iii. If tenancy is terminated before 10 years and previous advance is returned and new advance is received then:
Amount of new advance X

- Amount charged to tax earlier (X)
1/10th of advance will be treated as Rent in
X • TY of receipt &
• 9 subsequent Tys
106

Rent [S-15], [S-39] & [S-66]

Important !!
(i) Rent received/receivable OR Fair Market Rent, which ever is higher, is taxable [S-15(4)]
(ii) Above is not applicable if Fair Market Rent has already been included in salary income due to self hiring of property [S-15(5)]
(iii) Following amounts shall be included in taxable income under the heads of income mentioned thereagainst;
• Ground Rent [S-39(1)(d)]

• Rental income from sub-lease of land or building [S-39(1)(e)]
Income from Other
• Rental income from lease of building, together with Plant & Machinery [S-39(1)(f)] & [S-15(3)]
sources
• Amount of amenities, utilities, other services connected with renting [S-39(1)(fa)] & [S-15(3A)]
• Amount received as consideration for vacating possession of building [S-39(1)(k)]
(iv) When a property is owned by two or more persons &

their share is definite and ascertainable
then
Persons shall not be treated as AOP
Share of each person's income from property shall be taxed separately
107

Allowable Deductions [S-15A]
i. Building Repair Allowance 1/5th of rent chargeable to tax
ii. Insurance Premium-Building Paid/Payable
iii. Rates, tax, charge, cess not being Income Tax Paid/Payable
iv. Ground Rent Paid/Payable
v. Markup on loan to acquire, construct, renovate, extend, reconstruct property Paid/Payable
vi. HBFC Loan / Scheduled Bank Loan on scheme based on sharing rent
(share in rent+share in appreciation in value) Paid/Payable
vii. Markup on mortgages/charges Paid
108

viii. Expenses wholly & • Paid/Payable
exclusively for deriving rent • maximum upto 4% of rent chargeable to tax
including administrative and
collection charges
ix. Legal Charges Paid/Payable (to defend title of property or defend any suit connected with property in a court)
x. Irrecoverable Rent Conditions:

i. Tenancy was bonafide
ii. defaulting tenant has vacated property OR steps have been taken to compel tenant to vacate property
iii. defaulting tenant is not occupying any other property of same person
iv. person has taken all legal steps for recovery OR reasonable grounds exist that legal proceedings will be useless
v. rent was previously included in taxable income and tax was duly paid
(if irrecoverable rent is subsequently recovered, then it will be included in taxable income in tax year of recovery)
xi. Any Expenditure Allowed on accrual basis, must be paid within 3 subsequent tax years, otherwise will be included in taxable income in 4th
subsequent tax year,. If unpaid amount which is included in taxable income, as above, is subsequently paid, then it will be allowed as
deduction in tax year in which it is paid.
109

xii. Any expenditure allowed to a person under this section as a deduction shall not be allowed as a deduction under any other head of income.
xiii. Inadmissible deductions [S-21] will be studied in "Income from Business"
110
Heads of Income
Heads of Income
Income From Business Skip Definition >>>
Skip Definition >>>

Business [S-2(10)]: Income from Business [S-18]:
Includes; Following incomes shall be chargeable to tax under head "Income from Business"
• Trade • Profits & gains Of any business carried on by person
• Commerce • Income derived by trade/profession/similar association from sale of goods OR provision of services to members
• Income from hire/lease of tangible movable property
• Manufacture
• FMV of any benefit* OR perquisite from any past, present or perspective business relationship
• Profession • benefit includes debt or profit on debt waived off under SBP(Banking Policy Deptt.)
• Vocation circular 29 of 2002
OR
adventure/concern • Management Fee derived by a management company including Modaraba Management Company
in nature of above Clarification:
Profit on debt : If person's business is to derive such income Income of co-operative societies
But does not from the sale of goods, immoveable
include then it's "Income from business"
property or provision of services to
otherwise it's "Income from Other Sources”
EMPLOYMENT its members is and has always
been chargeable to tax
Lease rentals from lease of any asset shall be "Income from business" if Lessor is scheduled bank, investment bank, DFI, Modaraba, Leasing Co.,
"Profit on debt" earned by Mutual fund OR Pvt Equity & venture capital fund
Income subject to
& distributed to Banking Co. or NBFC taxation under sections
5A, 5AA, 6, 7 and 7A
this distributed share shall be "Income from Business" and not "Income from Other shall not be chargeable
Sources" for to tax under section 18
111
Heads of Income
Heads of Income
Income From Business
Important Question:
Deciding a Business Income case
Deciding a
Business Income
case
112
Heads of Income Business

Basis of Taxation Value of benefit,
from trading
Cash Basis of Accounting [S-33] Accrual Basis of Accounting [S-34] liability for which
deduction was
Derive income When received When due to person (amount is due to person when he is entitled to receive it) allowed, will be
business income
Incur expense When paid When payable by person (amount is payable by person when
- all events determining liability have occurred
- amount of liability can be ascertained with reasonable accuracy)
Method of Accounting [S-32]
Un-paid Liability:
1. The method of accounting should be regularly employed
• if deduction allowed in a tax year for an expense which is neither paid in same tax year
2. Company must employ accrual basis of accounting.
nor paid in 3 subsequent tax years
3. Other persons may apply cash basis of accounting OR accrual basis of accounting
then it will be included in taxable income in 4th subsequent tax year
4. FBR can prescribe a class of persons to follow cash or accrual basis of
accounting
• if amount included in taxable income as stated above is paid in any later year
5. Change in method of accounting:
then it will be allowed as deduction in tax year in which it is paid
a. Application to Commissioner in writing
b. Satisfy commissioner that the change in method of accounting is Stock in trade [S-35]
necessary to clearly reflect taxable income Starting/1st period FMV when stock ventured in business
Opening Stock
c. Commissioner, if satisfied may approve, by an order in writing, that the Subsequent Period Cash Any of Marginal OR
method of accounting be changed Accounting Absorption Costing
Cost
6. While applying change in method of accounting, it must be ensured that no Accrual
Closing Stock Lesser of Absorption Costing
item of income or expense is omitted or accounted for more than once. Accounting
NRV
113

Deciding Business Income Case
1. Speculation Business 11. Intangibles

2. Deductions Allowed 12. Pre-commencement Expenditure
3. Deductions not allowed 13. Scientific Research Expenditure
4. Assets 14. Bad Debts
5. Acquisition & Cost 15. Employee Training & Facilities
6. Depreciation 16. Profit on Debt, Financial Cost and Lease Payments
7. Initial Allowance
8. Disposal & Consideration
9. Depreciation on asset partly used in business
10. Leasing Business
114

1. Speculation Business [S-19]:
Means:
business in which, contract for purchase or sale of commodity is settled, otherwise than by actual delivery of commodity
does not include following contracts to guard against future price fluctuations
i. contract in respect of materials to fulfill another contract of actual delivery of goods
ii. contract in respect of shares & stocks entered into by dealer or investor
iii. contract entered into by member of stock exchange or forward market to guard against jobbing or arbitrage transaction in ordinary course of business
Taxation of Speculation business:

i. It shall be treated as a separate business from any other business under head "Income from Business“
ii. Principles of apportionment of deductions under section 67 shall apply as if it is a separate head of income
iii. Loss from Speculation Business shall be treated under section 58
115

2. Deductions Allowed [S-20]:
i. Any expenditure incurred wholly and exclusively for purpose of business
ii. Depreciation of tangible assets, amortization of intangible assets & pre-commencement expenditures
iii. Legal & financial advisory services & administrative cost incurred by amalgamated company for it's amalgamation
iv. Animal used for business & profession becomes permanently disable or is dead then following deduction shall be allowed:
Actual Cost X
Less:Amount realized from animal carcass (X)
X
(Above is not applicable in case of animals which are stock-in-trade)
116

3. Deductions not Allowed [S-21]:
i. Cess, rate, tax on profits of business whether payable in Pakistan or outside Pakistan
ii. Tax deducted at source from amounts received
iii. All such payments shall not be allowed as deduction, if applicable tax at source, is not deducted while making payment
Except: in case of purchase of Raw Material & Finished Goods, the disallowed expense shall be limited to 20% of total purchases
iv. Amount of commission paid or payable in excess of 0.2% of Sales of items listed in 3rd Sched of Sales Tax Act, 1990
Entertainment means
to a person who is not appearing on ATL under ITO
meals, refreshment,
reasonable leisure facility
v. Entertainment expenses exceeding prescribed limits. Rule-10 specifies the prescribed limits as follows:
in accordance with
Expense has been incurred
traditions of business &
a. wholly & exclusively for business
subject to overall norms of
b. outside Pakistan for business transaction OR allocated as Head Office Expenses
Note: All these people business
c. inside Pakistan, for foreign customers & suppliers
d. at business premises for customers & clients (who are entertained)
should be related directly
e. on meetings of shareholders, directors, agents or employees
to the person’s business.
f. on opening of a new branch
g. on entertainment of persons related directly to business
117

vi. Contributions to following funds:

Un-recognized Provident Fund / Un-approved Pension Fund / Un-approved Superannuation Fund / Un-approved Gratuity Fund
vii. 50% of contribution to following funds:

Approved Gratuity Fund / Approved Pension Fund / Approved superannuation fund
viii. Contribution to Provident Fund OR any other fund for benefit of employees, in respect of which, arrangements have not been made for deduction of tax at
source at the time of making payments from the fund to employees
ix. Penalty / fine for violation of any law
x. Personal expenditure
xi. Amount transferred to Reserve OR capitalization of profits in any way
xii. Profit on debt / Brokerage / commission / Salary / remuneration paid by an AOP to its members
118

xiii. Expenditure under single head of account exceeding Rs 250,000/- paid other than by :
a. crossed cheque
b. crossed bank draft
c. crossed pay order
d. other crossed banking instrument
e. online transfer
f. payment through credit card
Above is not applicable to following:

a. Company [from date notified by FBR]
b. expenditure not exceeding Rs 25,000/-
c. expenditure on account of:
• Utility bills
• Freight charges
• Travel fare
• Postage
• Taxes/duties/fees/fines
119

xiv. Expenditure (paid/payable) by a Company, under single head of account exceeding Rs 250,000/- other than by Digital Means from business bank
account of the taxpayer notified to the Commissioner under section 114A
Above is not applicable to following:

a. expenditure not exceeding Rs 25,000/- Means
digital payments and financial services
b. expenditure on account of:
• Utility bills including but not limited to
• Freight charges • online portals or platforms for digital payments/receipts;
• Travel fare • online interbank fund transfer services;
• Postage • online bill or invoice presentment and payment services;
• Taxes/duties/fees/fines • over the Counter digital payment services or facilities;
• card payments using
This clause will be applicable from date notified by FBR o Point of Sale terminals,
o QR codes,
o mobile devices,
o ATMs,
o Kiosk or
• any other digital payments enabled devices or
• any other digital or online payment modes.
120

xv. Salary exceeding Rs 32,000/- per month, paid other than by:
a. crossed cheque OR
b. direct transfer to employee bank account OR
c. Digital Means
xvi. Capital expenditure
xvii. In case of pharmaceutical manufacturer any advertisement/publicity/sales promotion expense > 10% of turnover
xviii. Utility bills in violation of prescribed conditions and limits
xix. With effect from 1st October 2020, any expenditure attributable to sales made by industrial undertaking,
to person required to be registered but not registered under Sales Tax Act 1990.
The attributable expense shall be calculated as follows:
(A/B) x C FBR may exempt
Where; Disallowed expense shall not a person from
A = Total deductions claimed exceed 10% of claimed this clause
B = Turnover for the Tax Year deductions
C = Sales to one un-registered person upto Rs 100 million or above
121

xx. any expenditure attributable to sales claimed by any person

who is required to integrate but fails to integrate his business with FBR
through approved fiscal electronic device and software
Provided that disallowance of expenditure under this clause shall not exceed 8% of the allowable deduction.
Other inadmissible deductions:

• Any withholding tax to be borne by taxpayer itself is also not allowed as expense, except in case of salary.
• Any deduction for which taxpayer fails to provide documentary evidence [S-174(2)]
122

4. Assets:
i. Depreciable Asset [S-22(15)]:

Means any tangible movable property, immovable property or structural improvement to immovable property owned by a person that :
a. has normal useful life exceeding one year
b. is likely to lose value as a result of normal wear and tear or obsolescence AND
c. is used wholly or partly by person in deriving income from business
it shall not include any asset whose entire cost is allowed as deduction under Income Tax Ordinance 2001
ii. Structural Improvement [S-22(15)]:

Includes building, road, driveway, car park, railway line, pipeline, bridge, tunnel, airport runway, canal, dock, wharf, retaining wall, fence, power lines, water
or sewage pipes, drainage, landscaping or dam. Where any asset is jointly owned by Tax Payer and Islamic Financial Institution under Musharika
Financing or Diminishing Musharika Financing, such asset shall be treated to be owned by “Tax Payer”
iii. Eligible Depreciable Asset [S-23(5)]: [Proviso to S-22(15)]
a depreciable asset which is not:
a. furniture & fittings
b. road transport vehicle not plying for hire
c. plant & machinery previously used in Pakistan
d. plant & machinery whose entire cost is allowed as deduction under Income Tax Ordinance 2001
e. immovable property OR structural improvement to immovable property
123

4. Assets:
iv. Business Asset [S-75(7)]:

Means asset held wholly or partly for use in business, including stock-in-trade and depreciable asset
v. Personal Asset [S-75(7)]:

Means asset held wholly for personal use
124

5. Acquisition & Cost:
If not purchased through banking channel;
i. Acquisition [S-75]:
Then
when the person begins to own the asset including when the right is granted OR
amount shall not be considered as cost
when the personal asset is applied to business use i. for calculating depreciation/ amortization and
ii. for calculating gain on disposal.
Penalty @ 5% of higher of FBR value or DC rate will
be payable
ii. Purchase of Asset through Banking Channel [S-75A]:
Immovable property having FMV > PKR 5 million OR
Any other asset having FMV > PKR 1 million
iii. Cost [S-76]:

Consideration paid / payable in cash X
FMV of consideration given in kind X
Incidental expenditure for acquisition / disposal of asset X
Expenditure to alter or improve asset X
X
125

ii. Cost [S-76]:
a. Cost of Passenger transport vehicle not plying for hire shall not exceed Rs 7.5 million. [Section-22(13a)]
b. Cost of immovable property shall not include cost of land [Section-22(13b)]
c. Forex Gain/loss to be adjusted in cost of asset [Section-76(5 & 6)]

• if asset has been acquired with a foreign currency loan, then increase or decrease in liability due to foreign currency rate shall be adjusted in cost
of asset
• while determining above forex gain / loss the person's position under hedging agreement relating to foreign currency loan shall also be
considered
d. Grant, subsidy, rebate, commission or any other assistance in relation to acquisition of asset [Section-76(10)]
if chargeable to tax then it will be included in cost of asset and vice versa
e. If asset acquired in a non-arm's length transaction, then FMV of asset shall be treated as its cost [Section-78]
f. If personal asset is applied to business use, then its FMV shall be treated as its cost [Section-76(3)]
126

ii. Cost [S-76]:
g. If asset is produced or constructed by person, then its cost will include following:[Section-76(4)]
Total production/construction cost X
+Incidental expenditure for acquisition / disposal of asset X
+Expenditure to alter or improve asset X
X
h. If an asset is partly disposed off, then its cost shall be apportioned between the part disposed off and part retained on basis of respective FMV at time of
acquisition of asset [Section-76(7)]
i. If acquisition of an asset is derivation of an amount chargeable to tax, then its cost will include following:[Section-76(8)]
Amount chargeable to tax X
Amount paid to acquire asset X
X
j. If acquisition of an asset is derivation of an amount exempt from tax, then its cost will include following:[Section-76(9)]
Amount exempt from tax X
Amount paid to acquire asset X
X
127

6. Depreciation [S-22]:
Method of tax depreciation : Diminishing/Reducing Balance Method
Rate of Depreciation : as per 3rd Schedule Part-I
Full Year depreciation in year of acquisition
No Depreciation in year of disposal
7. Initial Allowance [S-23]:

Allowed for "eligible depreciable asset" used 1st time in Pakistan OR
which ever is later
Year in which commercial production is started
Rate of Initial Allowance : as per 3rd Schedule Part-II
128

8. Disposal and Consideration:
i. Disposal [S-75]:
Asset is treated as disposed off when:
• person parts with its ownership
• sold, exchanged, transferred, distributed, destroyed or lost
• cancelled, redeemed, relinquished
• Transmitted
• put wholly to private use from business use
• discarded or ceased to be used
Gain or loss on disposal shall be calculated as follows:

Consideration for disposal X
Less:
Cost X
Initial Allowance OR (X)

First Year Allowance OR (X)
Accelerated Tax Depreciation (X)
Normal Depreciation (X)

X
Gain / Loss on disposal X
129

ii. Consideration for Disposal [S-77]:
Amount Received X
FMV of consideration in kind X
X
Which ever is higher
FMV of asset at time of disposal X
a. If Asset is lost or destroyed, then consideration shall include compensation, indemnity or damages received from:
• insurance claim
• Settlement [Section-77(2)]
• judicial decision [Section-77(2)]

[Section-77(3)]
b. If asset applied to personal use from business use or is discarded, then consideration shall be FMV of asset [Section-77(3)]
c. If two or more assets disposed off in single transaction and consideration of each asset is not specified, then total consideration received shall be
[Section-77(5)]
apportioned on basis of FMV of each asset, at time of disposal [Section-77(5)]

d. If actual cost of passenger transport vehicle not plying for hire was more than Rs 7.5 million, then consideration shall be calculated as follows:
Actual consideration received on 7.5 million
[Section-22(10)]
x [Section-22(10)]
disposal Actual cost paid to acquire vehicle
130

ii. Consideration for Disposal [S-77]:
[Section-22(13d)]
e. If consideration for immovable property exceeds its cost, then it's consideration received shall be treated as cost. [Section-22(13d)]
[Section-78]
f. If asset disposed off in a non-arm's length transaction, then FMV of asset shall be treated as consideration. [Section-78]
[Section-22(14)]
g. If depreciable asset is exported/transferred outside Pakistan, then its cost shall be treated as consideration received. [Section-22(14)]
131

9. Depreciation on asset partly used in business:
i. Where asset is used partly for business purposes and partly for any other use, the depreciation expense shall be restricted to fair proportional part which
is used for business.
[Section-22(3)]
[Section-22(3)]
ii. Initial Allowance/First Year Allowance/Accelerated Tax Depreciation shall be allowed on total cost of asset. The fact that asset was partly used for
business is irrelevant here.
[Section-22(6)]
iii. Written Down Value of such assets shall be calculated, as if the asset was wholly used for business purposes. [Section-22(6)]
iv. Asset shall be treated to be wholly owned by the taxpayer if asset is jointly owned by a taxpayer and an Islamic financial institution licensed by SBP or
[Proviso to Section-22(15)]
SECP under Musharika or diminishing Musharika arrangement [Proviso to Section-22(15)]
v. On disposal of such asset, following shall be deducted from consideration

Total cost of asset X
Less:
Initial Allowance-if any (X) Tax WDV X
First Year Allowance-if any
Accelerated Tax Depreciation-if any
(X)
(X) OR Add:
Depreciation Expense disallowed X
X
Normal Depreciation allowed as deduction (proportionate basis) (X)
X
132

10. Leasing business:
Leasing Co., Investment Bank, Modaraba, Scheduled Bank, Development Finance Institution
i. Initial Allowance/First Year Allowance/Accelerated Tax Depreciation or Normal Depreciation is allowed as deduction only against lease rental income
[Sections-22(12), 23(4), 23A(2), 23B(2)]
[Sections-22(12), 23(4), 23A(2), 23B(2)] [Section-22(13c)]
ii. Asset shall be treated as used in the business of lessor [Section-22(13c)]
iii. On completion of lease term, asset shall be transferred to lesee and treated as disposed off by leasing company and the consideration received shall be [Section-77(4)]
residual value received by leasing company [Section-77(4)]

[Section-77(4)]
iv. The cost of asset realized through lease rentals + residual value should not be less than cost of the asset [Section-77(4)]
133

11. Intangibles [S-24]:
Means : patent, invention, design or model, secret formula or process, copyright, trade mark, scientific or technical knowledge, computer software, motion
picture film, export quotas, franchise, license, intellectual property, or other like property or right, contractual rights and any expenditure that provides an
advantage or benefit for a period of more than one year
other than expenditure incurred to acquire a depreciable asset or unimproved land
i. Cost of Intangibles:
Means expenditure incurred in acquiring or creating intangible
Includes expenditure for improving or renewing intangible
ii. Conditions for amortization:

a. intangible is wholly or partly used for business
b. normal useful life is more than 1 year
iii. Rules for amortization:

a. Year of acquisition; Number of days basis (An intangible available for use on a day shall be treated as used on that day)
b. Year of disposal; No amortization
134

11. Intangibles [S-24]:
iv. Rate of amortization:
Cost
Useful life in whole years Note:
if useful life is not ascertainable, then it will be treated as 25 years
v. Intangible partly used for business and partly for any other use:
Amortization expenses shall be restricted to fair proportion of intangible used for business.
vi. Disposal:
Upon disposal, following shall be included in income from business
Consideration X
Written Down Value X
X
135

12. Pre-commencement Expenditure [S-25]:
Means, expenditure incurred before commencement of business wholly and exclusively to derive taxable income
Includes,
• cost of feasibility studies
• construction of prototypes
• trail production
Does not include,
• expenditure to acquire land
• depreciable assets
• Intangibles
i. Method: Straight line basis

ii. Rate: as per 3rd Schedule, Part-III
No deduction shall be allowed for expense which allowed as deduction under any other provision of Income Tax Ordinance 2001
136

13. Scientific Research Expenditure [S-26]:
Expenditure for scientific research
Contribution to Scientific Research Institution to do research
wholly and exclusively to derive income from business
shall be allowed as deduction.
• Scientific Research:
Means activity in Pakistan in the field of natural or applied science for development of human knowledge
• Scientific Research Expenditure:

Means expenditure on scientific research, for development of business
Includes contribution to scientific research institution to do research for business
not include expense incurred for

o acquisition of depreciable asset or intangible
o acquisition of immovable property
o ascertaining existance/location/extent/quality of natural deposits
• Scientific Research Institution:

Means any institution certified by FBR to do scientific research in Pakistan
137

14. Bad Debts [S-29]:
i. Conditions to claim bad debts as expense
a. Amount was previoulsy included in taxable income
b. In case of a financial institution, the amount was lent to derive taxable income
c. amount is written off as bad debts in accounts
d. resonable grounds exist that debt is irrecoverable
ii. Subsequent recovery of bad debts written off:

Following shall be included in taxable income
Whole amount of debt 100,000
amount previously allowed as deduction (80,000)
20,000
Case (a) Case (b)
Subsequent recovery 60,000 10,000
Less: amount previously not allowed (20,000) (20,000)
• Provision for bad debts is not allowed to be deducted from accounting profit. Included in income from business 40,000
• Only actual bad debts against taxable sales are allowed to be deducted from (10,000)
Deduction from income from business
business income.
138

15. Employee Training & Facilities [S-27]:
Expenditure in respect of following is allowed:
a. Educational institution/hospital for benefit of employees/dependents

established in Pakistan
b. Institute for training of industrial workers
recognized/aided/funded by
Federal Govt / Proviscial Govt / Local Govt
c. Training of Pakistani citizen under scheme approved by FBR
139

16. Profit on debt, Financial costs and Lease Payments [S-28]:
i. Profit on debt:
• on loan utilized for business purposes
• paid by bank on deposit accounts
Foll
ng
wio
s hal
ii. Financial costs: l be a
• by originator on securitization of receivables in respect of special purpose vehicle (SPV) llowe
d as exp
ense
iii. Lease rentals
• paid to scheduled bank, financial institution or approved modaraba, leasing company, SPV
• The principal amount in above rental for the cost of passenger transport vehicle not plying for hire shall not exceed Rs 2.5 million
iv. Share of profit

• under musharika scheme paid to a bank
• under musharika scheme paid to certificate holders. Such scheme should be approved by SECP and Religious Board under Modaraba Ordinance 1980
• paid on funds borrowed from modaraba or participation term certificates
v. State Bank of Pakistan (SBPs) share of profit paid by

• House Building Finance Corporation (HBFC)
• National Development Leasing Corporation on investment/credit line provided by SBP
• Small & Medium Enterprises Bank
140
Heads of Income
Heads of Income
Capital Gains
Deciding a Capital Gains case
Deciding a
Capital Gains
case
141
Heads of Income Capital Gains

Geographical Source of Income [S-101(13)]
Gain on disposal of shares of Resident Company shall be Pakistan Source Income
142

Basis of Taxation
Accrual basis, as Gain / Loss is to be taxed in year of disposal

[S-37(1)]
143

Deciding a Capital Gains Case
1. Capital Gains [S-37]
2. Capital Gain on disposal of Securities [S-37A]
3. Special provisions relating to Capital Gains tax [S-100B]
4. Deduction of Losses from Capital Gains [S-38]
5. Rule 13A – 13P
6. Bonus Shares
7. Exemptions
8. Chapter Summary
144

1. Capital Gains [S-37] Capital Gain from disposal of immovable
Capital Asset: property shall be taxable as separate
Means “property of any kind held by person whether or not connected with business” block of income @ 1st Sched, P-I, Div-VIII
Does not include

i. Stock in trade
ii. Depreciable asset
iii. Intangibles
iv. movable property held for personal use by person or dependents excluding following:
a. painting, sculpture, drawing or other work of art
Capital Loss from disposal
b. Jewelry
of these assets shall not be
c. rare manuscript, folio or book
recognized, only capital
d. postage stamp or first day cover
gains will be recognized.
e. coin or medallion
[S-38(5)]
f. Antique
[S-37(5)]
145

Cost shall not include:
Gain on Capital Asset [S-37(2)]: • expenses deductible under any other provision of Income Tax Ordinance
Consideration X • inadmissible deductions under section 21
- Cost (X) [S-37(4)]
Gain/Loss X
Gain or Loss on disposal shall be recognized in year of disposal even if cash basis of accounting is being adopted. [S-37(1)]
No loss on disposal shall be recognized if gain from such asset is not taxable [S-38(2)]
146

Advance Tax on Shares [S-37(6-10)]:
Shares
Furnish prescribed Application to CIT requesting

information to CIT Seller Buyer payment without deduction of Adv. Tax OR
within 30 days of sale deduction at reduced rate
Payment
CIT may also demand
Deduct Advance Tax @ 10% of
information through
notice Pay to FBR
S-68 FMV
within 15 days
S-101A(4)
Without reduction of liabilities
Pay without deducting CIT agreed

Advance Tax (after inquiry)
147

2. Capital Gains on Securities [S-37A] Section 37 shall apply and section 37A shall Capital Gain from disposal of security shall be taxed as a separate
Security [S-37A(3)] : not apply on disposal of shares block of income
Means: • of a listed company, made otherwise than @ 1st Schedule, Part I, Division VII
• share of a public company through stock exchange & are not settled [S-37A(1)&(4)]
• voucher of PTC through NCCPL. The provisions of section Loss from securities shall be
37 shall apply on such disposal of shares setoff only against gains from securities &
• Modaraba Certificate
• through IPO during listing process can be c/f upto 3 subsequent TYs.
• an instrument of redeemable capital except where details are provided to
• debt Securities This c/f is allowed only for loss arising during TY 2019 &
NCCPL
• derivative products • By Banking Co & Insurance Co onwards.
• Unit of exchange traded fund [S-37A(1)] [S-37A(5)]
shares will be treated as security, if at time of disposal,

the company was a public company
Corporate debt security Government debt security
Term Finance Certificates (TFCs), Sukuk Certificates (Sharia Compliant Bonds), Treasury Bills (T-bills), Federal Investment Bonds (FIBs), Pakistan Investment
Registered Bonds, Commercial Papers, Participation Term Certificates (PTCs) and Bonds (PIBs), Foreign Currency Bonds, Government Papers, Municipal Bonds,
all kinds of debt instruments issued by any Pakistani or foreign company or Infrastructure Bonds and all kinds of debt instruments issued by Federal
corporation registered in Pakistan Government, Provincial Governments, Local Authorities and other statutory bodies
[S-37A(3A)(a)] [S-37A(3A)(b)]
148

3. Special provisions relating to Capital Gains tax [S-100B]
Capital gains on disposal of listed securities and tax thereon, including super tax under section 4C, subject to section 37A,
shall be determined in accordance with
Eighth Schedule
This section is not applicable on following:

• mutual fund
• banking company
• NBFC
• insurance company
• modaraba
• company, in respect of debt securities only and
• any other person notified by FBR
149

4. Deduction of Losses from Capital Gains [S-38]
If Gains from capital asset are not taxable

Then Losses from same asset shall not be allowed for setoff
[S-38(2)]
Loss on following assets shall not be recognized:

(a) A painting, sculpture, drawing or other work of art;
(b) jewelry;
(c) a rare manuscript, folio or book;
(d) a postage stamp or first day cover;
(e) a coin or medallion; or
(f) an antique.
[S-38(5)]
150

Capital loss shall not be recoginzed in case of following • Gain/loss computation shall be made on basis of FIFO inventory
transactions [Rule-13F] accounting method
Wash Sales : Sold security repurchased, within 1 month, to • FIFO not applicable in case of same day purchases, instead
maintain portfolio Average Method to be used [R-13N(5)]
Tax Swap Sale : Repurchase of security in same industry • NCCPL shall add 0.5% of trade (as incidental expenses) to
sector to maintain risk of portfolio transaction cost and consideration [R-13N(8)]
Cross Sale : Transaction made between two accounts of one • Capital loss shall be adjusted only against capital gain of security
investor. No sale made to any outsider.
151

[S-236Z] Bonus Shares issued by Companies
Every Company Bonus Shares Shareholder
Release Shares
Withhold Pay tax
10% Remaining Shares @ 10%
Bonus Shares Share Price
Final Tax
Pay tax @ 10% of
Share value within 15
days of book closure Listied Co.: Day-end price on 1st
day of book closure
Collect tax
Other Company: Prescribed value
Dispose off shares to
extent tax not paid by Tax not paid by
shareholder shareholder within 15
days of share issuance
152

Following Capital Gains are exempt from tax:
1. Transfer of a stock exchange membership rights
2. Capital gain on sale of shares of industrial undertaking set up in Export Processing Zones
3. Capital gain on sale of immovable property, earned by dependent of Shaheed belonging

to Pakistan Armed Forces or a person who dies during service of armed forces or Federal
or Provincial Governments
4. Capital Gain Tax rates shall be reduced by

a. 50%, on first sale of immovable property allotted to employee of Armed forces OR
FG OR PG (serving or retired)
b. 75% on sale of above immovable property, after 3 years of acquisition
153

Capital Gains
Asset
Stock in trade Moveable Property Immoveable
Depreciable asset Property
Personal Use Security [S-37A] Un-listed Security Others
Intangibles Separate
Tax
1st Sched,
@ BlockP-I, D-VIII
Other than following:

mutual fund, banking company,
Separate Block
Under section 38(5) Others Banking Co Listed Security NBFC, insurance company, Tax @
No loss to be Insurance Co modaraba, company, in respect of 1st Sched, P-I, D-VIII
recognized, only debt securities only and any other
gains will be Gain/loss calculation person notified by FBR
recognized
Separate
Tax
1st Sched,
@ BlockP-I, D-VII
Separate Block
As per 8th Sched Tax @
1st Sched, P-I, D-VII
Disposal
Gain Loss
Fully taxable Refer losses
154
Heads of Income
Heads of Income
Income from Other Sources
1. What is it ? [Section-39]
3. Deductions Allowed
155
Heads of Income Other Sources

What is it ? [S-39]
Income Loan/Advance/Deposit for issuance of shares/Gift Arrears of Profit on Debt
Income Loan/Advance/Deposit for issuance of shares/Gift Arrears of Profit on Debt
Gifts
Gifts
156

Income
Income of every kind RECEIVED in a tax year,
which is not included in any other Head of Income and S-85(5)
“relative” means:
is not exempt from tax and (a) an ancestor, a descendant of any of the grandparents, or an adopted child, of
the individual, or of a spouse of the individual; or
is not subject to tax under section 5, 6 & 7 (b) a spouse of the individual or of any person specified in clause (a).
Includes: xii. FMV of benefit for provision, use or exploitation of

i. Dividend property or natural resources
ii. Royalty xiii. Consideration for vacating possession of building, reduced
iii. Profit on Debt by amount paid to acquire possession of building {to be
iv. Additional payments on tax refunds under tax laws included in taxable income of current tax year and 9
v. Ground Rent succeeding tax years in equal proportion.}
vi. Rent from sub-lease of land or building xiv. Amount received from Approved Income Payment Plan OR
vii. Income from lease of building, together with Plant & Machinery Approved Annuity Plan
viii. Income from amenities/utilitites connected with renting of building xv. Amount/FMV of property received without consideration
ix. Annuity/Pension [except gift from relative as defined in S-85(5)]
x. Prize bond, lottery, raffle winnings, cross word puzzles, sale promotion prizes xvi. Bonus Shares
offered by a company
xi. Consideration for provision, use or exploitation of property or natural resources 157

Gifts
Gift in kind i.e., Funds / Money
Funds / Money If taxable, then Head of
Commodity or through
in Cash Income
Property Banking Channel
From Relatives Exempt Other Sources
From Employer Salary
From Tenant Property
From Business Relationship Taxable Other Sources
From Company as Shareholder Other Sources, as Dividend
Any other Other Sources
158

Loan/Advance/Deposit for issuance of shares/Gift
Loan/Advance/Deposit for issuance of shares/Gift

shall be treated as "Income from Other Sources" if:
received from a tax payer other than a Banking Company OR Financial Institution
AND
is received otherwise than by a Crossed Cheque or Banking Channel
Above is not applicable to advance payments for sale of goods or supply of services
159

Arrears of Profit on Debt
from investment in:
- National Saving Deposit Certificate

- Defense Saving Certificate
Which has resulted in income chargeable to tax at a higher rate of tax

then taxpayer may elect for profit to be taxed in the tax year to which it relates.
Taxpayer can elect this option by notice in writing to Commissioner before due date of filing return of income
OR
such later date as may be allowed by Commissioner in writing
160

Basis of Taxation [S-39(1)]
Income of every kind RECEIVED in a tax year
161

Deductions Allowed [S-40]
1. Expenditure paid to derive income from other sources, other than expenditure of Capital nature. An expenditure is of
Capital Nature if it has a useful life of more than 1 year
2. Zakat under Zakat & Ushr Ordinance 1980, paid by the person, at the time when profit on debt is paid to the person
3. Depreciation on Plant & Machinery and building is allowed as deduction in case where Building is leased together with
Plant & Machinery.
4. Initial Allowance on Plant & Machinery is allowed as deduction in case where Building is leased together with Plant &
Machinery
Deductions not allowed:

1. Expenditure allowed as deduction under any other head of income
2. Inadmissible Expenses under section 21
162
Heads of Income
Heads of Income
Losses
1. Set Off of Losses [Section-56, 58 & 59]
2. Carry Forward of Losses [Section-57, 58 & 59]
3. Limitation on Setoff & Carry Forward of Losses [S-59A]
4. Foreign Losses [S-104]
163
Heads of Income Losses

1. Set Off of Losses [Section-56, 58 & 59]
Set off against Business Capital Gains Other

Salary Property
Loss arising from Spec. Non Spec. Security Immovable Others Sources
Salary Loss not Possible

Property       
Spec.       
Business Not
Non Spec.       
Allowed
Security [S-56(1)]       
Capital
Immovables       
Gains
Others       
Other Sources       
• In case of losses from multiple heads of income, the loss from Business shall be set off last [S-56(3)]
• Losses from income which is exempt from tax shall not be treated
• Losses not set off shall be carried forward only against same head of income
164

2. Carry Forward of Losses [Section-57, 58 & 59]
Salary Loss not possible Loss sustained from 1st July
Property C/f Not Allowed 2020 & onwards by a Resident
Company managing hotel can
Carry forward allowed upto 6 subsequent tax years
Spec. be c/f upto 8 years
Loss from earliest tax year shall be set off first
Carry forward allowed upto 6 subsequent tax years
Loss from earliest tax year shall be set off first
Business Un-absorbed depreciation could be carried forward to unlimited time;
Non Spec. • Adjustment of un-absorbed depreciation in subsequent tax years shall be limited to 50% of business
income of subsequent year
• Above limit shall not apply if taxable income is less than Rs 10 million
Un-absorbed depreciation shall be considered last
Security Carry forward allowed upto 3 subsequent tax years only if loss pertains to TY 2019 and onwards
loss of PIA relating to tax year
Capital Immovables C/f Not Allowed
commencing on or after
Gains Carry forward allowed upto 6 subsequent tax years
Others January 2017 is allowed to be
Loss from earliest tax year shall be set off first carried forward for a period of
Other Sources C/f Not Allowed 10 years.
165

3. Limitation on Setoff & Carry Forward of Losses [S-59A]
i. In case of AOP, the loss shall be set off and carry forward only against income of AOP and in no case be utilized by its Member against their
taxable income
ii. In case of business loss, it shall be available to successor only by way of inheritance and shall not be available to any other successor
iii. Loss due to depreciation, initial allowance and amortization etc shall be carried forward to unlimited periods
• Adjustment of un-absorbed depreciation in subsequent tax years shall be limited to 50% of business income of subsequent year
• Above limit shall not apply if taxable income is less than Rs 10 million
iv. Business loss, speculation loss and capital loss cannot be carried forward unless determined by an order made under sections 120, 121 or
122
166

4. Foreign Losses [S-104]
1. Expenses incurred to derive foreign income are deductible only against that income
2. Foreign loss from a head of income, if not adjusted in relevant tax year, could be carried forward upto 6 subsequent tax years
3. In case there is brought forward loss of more than one tax year, the loss of earliest tax year shall be set off first
Above provisions narrate that :

i. loss from Foreign Source Income cannot be setoff against Pakistan Source Income
ii. loss from Foreign Source Income cannot be setoff against any other head of income under Foreign Source Income
iii. loss from Foreign Source Income can only be carried forward to 6 subsequent tax years against same head of income from foreign
source
167
Heads of Income
Heads of Income
Deductible Allowances
1. Zakat [S-60]
2. Workers’ Welfare Fund [S-60A]
3. Workers’ Participation Fund [S-60B]
4. Education Expenses [S-60D]
168
Heads of Income Deductible Allowances

1. Zakat [S-60]
Zakat under Zakat and Ushr Ordinance 1980
Profit on Debt Any other paid
Allowed as deduction from Allowed as deductible allowance

“Income from Other Sources”
If total income is less than amount of Zakat then:
• Refund
• Carry forward Not allowed
• Carry back
169

2. Workers’ Welfare Fund [S-60A]
• Amount paid under "Workers' Welfare Fund Ordinance 1971" will be allowed as deductible allowance
• If accrual basis of accounting is followed for "Income from Business" then deductible allowance will be allowed for
this payable expense
170

3. Workers’ Participation Fund [S-60B]
• Amount paid under "Companies' Profit (Workers' Participation) Act 1968" will be allowed as deductible allowance
171

4. Education Expenses [S-60D]
Allowed to Individual having taxable income less than Rs 1,500,000/-
Allowed only to one of the parents in respect of fees of their children
Parent have to provide NTN or Name of educational institution
Purpose Deductible Allowance for Tuition Fees paid in a Tax Year
Other Details 1. Deductible allowance shall not exceed lower of following:
• 5% of tuition fee paid
• 25% of taxable income
• 60,000 x Number of children
2. Deductible allowance, if not utilized fully against taxable income shall not be carried forward to
subsequent tax year
3. Employer is not allowed to deduct these expenses while withholding tax from salary under section 149
172
Heads of Income
Heads of Income
Tax Credits
1. Tax payable by a tax payer shall be reduced by the amount of Tax Credits allowed to the tax payer. [Section-4(2)]
2. Tax credits allowed to the tax payer will be categorized under following:
a) Foreign Tax Credits [Section-103]
b) Tax Credits under Part X of Chapter III
c) Tax Credit for Advance Tax and Tax deducted at source [Section 147 & Section 168]
3. Where more than one tax credits are allowed to a tax payer in a tax year then tax credits shall be applied in above
mentioned order [Section-4(3)]
173
Heads of Income
Tax Credits
Heads of Income Tax Credits

Foreign Tax Credits [S-103]
1. Needless to mention that Foreign Tax Credit is available to “Resident Person” in respect of “Foreign Source Income” taxable
in Pakistan Including “Withholding Tax”
(Average rate of Pakistan Income Tax) x (Net Foreign Source Income)
2. Foreign Tax Credit shall be:
Which ever is
a) Foreign Tax paid Tax Imposed ÷ Taxable Income
b) Pakistan Tax Payable in respect of income Less FSI after deducting directly relatable expenses &
Expenses apportioned in accordance with S-67
3. Where tax payer has FSI under more than one Head of Income, this section shall be applied separately to each Head
of Income
4. Unadjusted foreign tax credit shall not be refunded, carried back or carried forward
5. To avail this tax credit, foreign taxes must be paid with in two years after end of tax year in which foreign income was
derived
174
Heads of Income
Tax Credits

Tax Credits under Part X of Chapter III
1. Tax Credits of each item under Part X of Chapter III [Section 61 & 63] shall be calculated using following formula:
A Where:
Tax Credit = x C A = Tax Assessed before any Tax Credit under Part X of Chapter III
B
B = Taxable Income
C = This amount will be calculated for each type of tax credit under section 61 to 63
2. Where individual is member of AOP, component "B" shall include share of profit from AOP, even if tax on income of AOP has been paid by the
AOP [Section-65(1)(b)]
3. Component "A" shall be computed after including the share of profit from AOP [Section-65(1)(a)]
175
Heads of Income
Tax Credits

61. Charitable donations

63. Contribution to an Approved Pension Fund
64D. Tax credit for point of sale machine
65F. Tax credit for certain persons
65G. Tax credit for specified industrial undertakings
176
Heads of Income
Tax Credits

1. Charitable Donations [S-61]
Eligible Person Value “C” of formula Remarks
Any Person Lesser of: Amount paid or Property given to:
i. Amount of Donation i. Board of education or University in Pakistan established under Federal or Provincial Law
ii. Educational Institution, hospital or relief fund established in Pakistan by Federal, Provincial or Local Govt.
ii. 30% of Taxable Income in case iii. Any non profit organization or any person eligible for tax credit under section 100C
of Individual and AOP iv. Entities mentioned in 13th Schedule.
In case of donation to associate,
15% of Taxable Income If any property is given as donation, its FMV at the time it is given as donation shall be treated as donation. Valuation of
property shall be carried out in accordance with Rule-228(4) & valuation of vehicles shall be carried out in accordance with
iii. 20% of Taxable income in case Rule-228(2)
of Company If donation is given in Cash, then it must be paid by a Crossed Cheque
In case of donation to associate,
10% of Taxable Income
177
Heads of Income
Tax Credits

4. Contribution to approved pension fund [S-63]
Eligible Person Value “C” of formula Remarks
Eligible Person under Lesser of: Tax Credit under this section is not available to
section 2(19A) having i. Contribution to Approved Pension Fund under Voluntary Pension System Rules 2005 transfer of balance:
"Salary" or "Income from
Business" ii. 20% of Taxable Income From:
i. approved employment pension scheme
ii. annuity scheme
Additional 2% of taxable income for each year above 40 years of age shall be allowed to person iii. approved occupational saving scheme
who fulfills following conditions;
a) Joined pension fund after 01.07.2006 To:
b) Joined pension fund at 41 years or above individual pension account with any pension fund
c) Additional 2% will be allowed in first 10 years manager
d) Total contribution after addition of 2% should not exceed 50% of Taxable Income of preceding
tax year
e) Additional 2% is allowed only upto 30.06.2019
Limit:
Above 20% and additional 2% combined, should not exceed 30% of taxable income of preceding tax
year
178
Heads of Income
Tax Credits

5. Tax credit for point of sale machines [S-64D]
Eligible Person Amount of tax credit Remarks
Any person who is required to integrate with Board’s Lesser of: Point of sale machine means;
computerized system for real time reporting of sale or i. Amount invested for purchase of machine
receipt a machine meant for
ii. Rs 150,000/- per machine - processing and recording the sale transactions for goods or services,
either
- in cash or through
- credit cards
- debit cards
- online payments in an internet enabled environment.
179
Heads of Income
Tax Credits

6. Tax Credit for Certain Persons [S-65F]
Eligible Person Amount of Tax Credit Remarks
Following persons / Income: 100% of tax payable including Conditions for tax credit:
1. persons engaged in coal mining projects in Sindh, supplying coal - minimum
exclusively to power generation projects - alternate corporate tax and 1. Return has been filed
2. a startup as defined in Section 2(62A) for the tax year in which the final tax 2. In case of withholding agent, withholding tax statement filed
startup is certified by the Pakistan Software Export Board and the next 3. Sales tax returns (Federal/provincial) for the TY filled
following two TYs
180
Heads of Income
Tax Credits

7. Tax Credit for specified industrial undertaking [S-65G]
Eligible Person Amount of Tax Credit Remarks
1. Green field industrial undertaking as defined in Section 2(27A) engaged in ; 25% of eligible Eligible Capital
(i) the manufacture of goods or materials or the subjection of goods or materials to any process which substantially changes their investment, against Investments:
original condition; or - Tax payable Investment made
(ii) ship building: - Minimum tax and in purchase and
Provided that: - Final taxes. installation of new
a) the person incorporated between the 30.06.2019 and 30.06.2024 machinery,
b) the person is not Excess tax credit can be buildings,
- formed by the splitting up or reconstitution of an undertaking already in existence OR c/f upto 2 subsequent equipment,
- formed by transfer of machinery, plant or building from an undertaking established in Pakistan prior to commencement of the new Tys hardware and
business and
software, except
- is not part of an expansion project
self-created
2. Industrial undertaking set up by 30.06.2023 and software and used
engaged in the manufacture of plant, machinery, equipment and items with dedicated use (no multiple uses) for generation of capital goods
renewable energy from sources like solar and wind,
for 5 years, from the date such industrial undertaking is set up
181
Heads of Income
Tax Credits

Tax Credit for Advance Tax and Tax deducted at source [S-147 & S-168]
182
Heads of Income
Heads of Income
Exemptions
41. Agricultural Income [S-41]
42. Diplomatic & United Nations Exemptions [S-42] Refer
1. Income Tax Ordinance [Section 41 – 55 & 102] 43. Foreign Government Officials [S-43] Salary
44. Exemption under International Agreements [S-44] Exemptions
2. The Second Schedule 44A. Exemption under Foreign Investment (Promotion and Protection) Act 2022
i. Part I : Exemption from Total Income 45. President's Honours [S-45]
46. Profit on Debt [S-46]
ii. Part II : Reduction in Tax Rates 47. Scholarships [S-47]
48. Support payments under an agreement to live apart [S-48]
49. Income of Federal, Provicial or Local Government [S-49]
iii. Part III : Reduction in Tax Liability 50. Foreign-source income of short-term resident individuals [S-50]
51. Foreign-source income of returning expatriates [S-51]
iv. Part IV : Exemption from Specific Provisions 52. Deleted
53. Exemptions and tax concessions in Second Schedule [S-53]
54. Exemptions and tax provisions in other laws [S-54]
55. Limitation of Exemption [S-55]
183
Heads of Income
Heads of Income
Exemptions – Agricultural Income [S-41]
Agricultural income shall be exempt from tax
Agricultural income means :
Rent/Revenue from Any income from land situated in Pakistan and used for Any income from Building
Land situated in Pakistan & Agriculture OR

used for agricultural purposes owned and occupied by receiver of rent of land OR
Performance of process ordinarily employed to render
produce fit to be taken to market OR occupied by
used for
Sale of produce on which only above process has been
Cultivator performed
Receiver of rent in kind
AND
building is in immediate vicinity of Land
AND
building is required as a dewelling house, store house
or out building
184
Heads of Income
Heads of Income
Exemptions – Agricultural Income [S-41]
Agriculture Produce used as Raw Material [Rule-11]
If a cultivator or receiver of agricultural produce as rent in kind uses agriculture produce as raw materials in his business, then:
Total Income X
- MV of Agricultural Produce X
Income Chargeable to tax X
• Only MV is allowed as deduction
• No deduction shall be allowed for any expenditure incurred as cultivator or as a receiver of rent in kind
• if it is ordinarily sold in the market then MV = market price for the produce at the time it is used as raw material
• Otherwise; cultivation expense + land rent
185
Heads of Income
Heads of Income
Exemptions - Foreign Investment Promotion & Protection
Foreign Investment (Promotion and Protection) Act, 2022
2nd & 3rd Schedule
Copper
Qualified Investment Investor Associates 3rd Party Lenders
Income Tax Ordinance 2001

Provisions that existed
on 20 March 2022 applicable to
Provisions of Anti-Avoidance
the extent
S-106
S-106A
S-108 Income Tax Depreciation
S-109 Advance tax Initial Allowance
S-109A Withholding tax Pre commencement Expenditure
Minimum tax
Final tax
186
Heads of Income
Heads of Income
Exemptions
President's Honors [S-45]: Scholarships [S-47]:
Following awarded by President of Pakistan shall be exempt from tax: Scholarship granted to meet cost of person’s education shall be exempt
• Allowance attached to any honor, award, medal Except: where scholarship is paid directly or indirectly by an associate
• Any monetary award
Support payments under an agreement to live apart [S-48]:
Profit on Debt [S-46]: Income received by spouse as support payment under an agreement to
Profit on debt will be exempt from tax subject to following conditions: live apart shall be exempt
i. Received by Non Resident
ii. on security issued by resident person
iii. persons are not associates
iv. security was widely issued by the resident person outside Pakistan
v. security was issued for the purposes of raising a loan outside Pakistan
vi. loan is to be used for business carried on by the person in Pakistan
vii. profit on debt is paid outside Pakistan
viii. security is approved by FBR for purpose of this section
187
Heads of Income
Heads of Income
Exemptions
Income of Federal, Provicial or Local Government [S-49]:
Income of following is exempt from tax:
• Faderal Govt.
• Provicial Govt.
except its income from business outside its jurisdiction area
• Local Govt.
corporation
Deduction/collection of Advance tax not applicable on amount received by above. company
All exemptions under this section is not available to regulatory authority
owned/controlled directly/indirectly by above development authority
other body
Income from sale of spectrum licenses & renewal thereof by PTA on behalf of the Federal Govt. after 01.03.2014 institution
shall be treated as income of the Federal Government and not of the PTA
188
Heads of Income
Heads of Income
Exemptions
Exemptions and tax provisions in other laws [S-54]

Any exemption provided in any other law shall not have effect unless it is also provided for in the Income Tax Ordinance 2001
Limitation of Exemption [S-55]

If any income is exempt from tax it shall be limited to the original recipient of that income and shall not extend to any person receiving
any payment wholly or in part out of that income.
189
Heads of Income Person

Taxation of Individual
1. Principle of Taxation of Individual [S-86]
2. Deceased Individual [S-87]
3. Income of Minor Child [S-91]
4. Author [S-89]
190

1. Principle of Taxation of Individual [S-86]
Taxable income of each individual shall be determined separately
191

2. Deceased Individual [S-87]
Legal representative of deceased individual shall be Legal Representative

responsible for following: means: a person who in law represents the estate of a deceased person
tax payable, if individual had not died
includes: any person who intermeddles with the estate of the deceased and
tax payable on income from estates of deceased
where a party sues or is sued in representative character
individual
the person on whom the estate devolves on the death of the party so suing or sued
Above liability shall be limited to the capability of

estates of deceased.
Proceedings against deceased, before death shall be

treated as taken against Legal Representative AND
continued against Legal Representative
Proceedings against deceased, after death could be

taken as if deceased would have servived
192

3. Income of Minor Child [S-91]
Income of Minor Child under head "Income from Business" shall be treated as income of parent
with highest taxable income
Above not applicable on "Income from Business" acquired through inheritance
Minor Child [S-2(33)]

means an individual who is under the age of eighteen years at the end of a tax year
193

4. Author [S-89]
Author has an option that the amount received by him on account of royalties be
taxed in that tax year and the preceding two tax years in equal proportions
if time taken by author of his literary or artistic work exceeds twenty-four months
194

Taxation of Association of Persons
1. Principles of taxation of AOP [S-92]
2. Individual as member of AOP [S-88]
3. Change in control of an entity [S-98]
4. Change in the constitution of an association of persons [S-98A]
5. Discontinuance of business or dissolution of an association of persons [S-98B]
6. Succession to business, otherwise than on death [S-98C]
195

1. Principles of Taxation of AOP [S-92]
• AOP shall be taxed separately from its members.
• If AOP has paid tax on its profits, then share of profit of

member shall be exempt from tax.
Explanation :
• If member(s) of AOP is a Company, then AOP shall pay if income of AOP is exempt and no tax is payable,
then share received by member shall remain
tax on its profits excluding the share of company. That exempt
share will be included in taxable income of company
and shall be taxable @ applicable on company
196

2. Individual as Member of AOP [S-88]
Share of profit from AOP* , of individual member, shall be included in taxable income of individual member for rate purposes
Tax Payable = (A/B) x C

* excluding share in profit from income under
FTR [S-4(4) & S-169(2)]
A= is the amount of tax that would be assessed to the individual if share of profit from AOP were chargeable to tax
B= taxable income if share of AOP was chargeable to tax
C= actual taxable income
In case an AOP has a turnover of Rs.300 million or more during the tax year or any of the preceding tax years, the share of a
member will not be exempt from tax unless the association files financial statements duly audited by a firm of Chartered
Accountants or a firm of Cost and Management Accountants along with the income tax return.
197

3. Change in control of an entity [S-98]
If there is a change of 50% or more in the underlying ownership of an entity, any loss incurred before the change shall not be
allowed as a deduction after the change, unless the entity fulfills following conditions:
• it continues same business after the change, until the loss has been fully set off OR
• until the loss has been fully set off, it does not engage in any new business or investment
(where the principal purpose of the entity or the beneficial owners of the entity is to utilize the loss so as to reduce
tax payable on the income from the new business or investment)
"Entity" means Company or AOP
"Underlying ownership" means an ownership interest in the entity held, directly or indirectly through an interposed entity
or entities, by an individual or by a person not ultimately owned by individuals
198

4. Change in the constitution of an association of persons [S-98A]
If a change occurs in constitution of AOP then;
1. liability of filing the return of AOP shall be on those persons who were members of AOP at the time
of filing of return
2. income of AOP shall be apportioned among the members on time basis
3. if tax assessed on a member cannot be recovered from him it shall be recovered from the
association of persons as constituted at the time of filing the return
199

5. Discontinuance of business or dissolution of an association of persons [S-98B]
1. If AOP is dissolved or discontinues its business, then any tax payable by AOP is recoverable from any
person who was a member at the time of dissolution or discontinuance
2. In case of death of member of AOP, the tax payable can be recovered from legal heirs of the deceased
200

6. Succession to business, otherwise than on death [S-98C]
1. If successor carries on the same business, then following shall apply:

• predecessor shall be liable to pay tax on income before date of succession and
• successor shall be liable to pay tax on the income after the date of succession
2. If predecessor cannot be found, then successor shall be liable to pay tax on income before date of succession
3. Where any tax payable under this section in respect of such business or profession cannot be recovered from the
predecessor, it shall be recoverable from the successor, who shall be entitled to recover it from the predecessor.
201
12. Tax Regimes Presumptive Tax Regime
Final Tax Regime
Minimum Tax Reg
Heads of Income Normal Tax Reg. Minimum Tax Reg

Separate Charge Tax Collected/deducted is final tax
Losses Exemptions
Separate Charge Tax Collected/deducted is final tax
Salary Income 10
10
Exemptions
Property Income
Losses Business Income 10
Capital Gains 10
Income from Other Sources 10
Total Income 50
- Deductible Allowances (10)
Taxable Income 40
Rate from 1st Schedule 10%

Tax Imposed/Chargeable Final Tax
4
- Tax Credits (1)
Tax Payable 3
- Withholding Tax/Adv Tax (2) Final Tax
Income Tax Demand/Refund 1
202
Tax Collected/Deducted is Final Tax
Section 169
Tax at Source
[S-154] Exports
[S-156] Prizes & Winnings
[S-236Z] Bonus Shares issued by Companies
203
FTR
FTR
Bonus Shares (Section 39 & 236Z)

• Bonus shares are treated as Income from Other Sources of Shareholder under Final Tax Regime
• Company shall withhold ten percent of the bonus shares to be issued
• Shareholder will pay 10% of value of the bonus shares as tax, which will be Final Tax.
• Company shall deposit tax with 15 days of book closure
• If shareholder neither pays tax to company nor collects bonus shares, then company can dispose of shares to the extent of amount of tax
• In case of listed company, share value shall be determined on the basis of day-end price on the first day of closure of books
• In case of any other company, share value shall be determined as prescribed
204
Separate Charge
Separate Charge Separate Block of Income
[S-5] Tax on Dividends
Section 8 • To be discussed in
[S-5A Tax on undistributed profits relevant Head of Income
[S-5AA] Tax on Investment in Sukuks
[S-6] Tax on certain payments to Non Residents
[S-7] Tax on shipping and air transport income

of a non-resident person
[S-7A] Tax on shipping of Resident Person
[S-7B] Tax on Profit on Debt
[S-7E] Tax on deemed income

205
FTR [S-8]
FTR [S-8]
Dividend [Definition]
Company Shareholder
Deduct tax on gross amount @ 1st Sched, Part-III, Div-I Pay tax on gross amount @ 1st Sched, Part-I, Div-III
Deduct tax on gross amount @ 1st Sched, Part-III, Div-I Pay tax on gross amount @ 1st Sched, Part-I, Div-III
Tax Imposed will be Final Tax

[S-5]
Cash Dividend
[S-150] Dividend in specie
[S-236S]
Cash Dividend Dividend in specie Tax Imposed will be Final Tax

[S-150] [S-236S] [S-5]
Tax deducted will be Adjustable Shareholder shall pay Final Tax after adjustment of tax
deducted at source
206
FTR [S-8]
FTR [S-8]
Following distributions by a Company

Dividend – Definition
to its Shareholders is included in definition of Dividend
to the extent of its Accumulated Profits whether capitalized or not
i. Any distribution which entails release of assets including money of the company Except, such distributions which were made in cash AND
where shareholder was not entitled to participate in surplus
ii. Any distribution of Debentures, Debenture Stock or Deposit Certificate assets in the event of liquidation
iii. Any distribution on liquidation of company Except, where lending money is substantial part of business of
company in its ordinary course of business
iv. Any distribution on reduction of capital
Except, where dividend is paid and set off by company against
v. Loan or advance to shareholder or payment for the benefit of shareholder, made the loan or advance treated as dividend
by a private company (as defined in Companies Act 2017) or trust
(when loan will be repaid, then taxpayer can claim refund of tax paid by Except, remittance by branch of Petroleum Exploration and
him because of loan amount being treated as dividend) Production Foreign Company
Remittance of after tax profits by branch of a foreign company to the foreign

company is also included in definition of Dividend
207
FTR [S-8]
FTR [S-8]
Return on Sukuk
Special Purpose Vehicle
Company
OR

OR Sukuk Holder
Company
Deduct tax on gross amount @ 1st Sched, Part-III, Div-IB Pay tax on gross amount @ 1st Sched, Part-I, Div-IIIB
Deduct tax on gross amount @ 1st Sched, Part-III, Div-IB Pay tax on gross amount @ 1st Sched, Part-I, Div-IIIB

[S-5AA]
Return on Sukuk
[S-150A]
Return on Sukuk Tax Imposed will be Final Tax

[S-150A] [S-5AA]
Tax deducted will be Adjustable Receiver of return shall pay Final Tax after adjustment
of tax deducted at source
208
Sukuk Certificate
Funds for Purchase of Turbines Funds
Title to Turbines Wapda

Lease Turbines
First Sukuk
Wapda Sukuk Holder
Lease Rental Return to Sukuk Holder
Company
Purchase
Pay Exercise Price Ltd Redeem Sukuk
Turbines Get Title of Turbines Return Sukuk
209
FTR [S-8]
FTR [S-8]
Payments to Non Residents
Payment to Non Resident
for Pakistan Source
Royalty , Fee For Offshore Digital Services OR FFTS Non-Resident
Deduct tax on gross amount @ 1st Sched, Part-I, Div-IV Pay tax on gross amount @ 1st Sched, Part-I, Div-IV
Deduct tax on gross amount @ 1st Sched, Part-I, Div-IV Pay tax on gross amount @ 1st Sched, Part-I, Div-IV

[S-6]
Payment to Non Resident
[S-152(1)]
Payment to Non Resident Tax Imposed will be Final Tax

[S-152(1)] [S-6]
Tax deducted will be Adjustable This section shall not apply on following:
1. Royalty: where property or right giving rise to royalty is effectively
connected with PE of Non Resident. Such royalty shall be treated as
business income of PE of Non Resident.
2. FFTS & FFODS: where services giving rise to fee are rendered through
PE of Non Resident. Such fee shall be treated as business income of PE
of Non Resident.
3. Royalty or FFTS exempt from tax.
210
[S-2(54)] Royalty
Royalty means any amount Paid Payable Periodical or lumpsum as consideration for following
(i) Use or right to use Patent Secret formula
Invention Process
Design Trade mark
Model Other like property/right
copyright or a literary, artistic or scientific work including but shall not include consideration for
(ii) Use or right to use films or video tapes for use in connection with television or sale, distribution or exhibition of
tapes in connection with radio broadcasting cinematograph films
receive or right to receive Satellite/Cable Television
(iii) visual image or sound Optic Fiber in connection with Radio
transmitted by Similar technology Internet broadcasting
(iv) Supply of Technical/industrial/commercial/scientific Knowledge/skill
(v) Use or right to use Industrial/commercial/scientific equipment
Business Income
(vi) supply of any assistance ancillary and subsidiary to any property or right mentioned above
(vii) disposal of any right or property mentioned above
211
[S-2(23)] FFTS Provision of
Service vs Know-how
means any consideration, whether periodical or lump sum, for rendering :
Managerial
Technical Business Income
Consultancy Services FFTS
Including services of technical or other personnel
It does not include following
(a) consideration for services in connection with construction, assembly or like project
(b) consideration chargeable under head "Salary"
212
[S-2(22B)] Fee for Offshore Digital Services
means any consideration for providing following services by Non-Resident
• online advertising including

• digital advertising space,
• designing, creating, hosting or maintenance of websites,

• digital or cyber space for websites,
• advertising, e-mails, online computing, blogs, online content and online data,
• providing any facility or service for uploading, storing or distribution of digital content including
• digital text, digital audio or digital video, online collection or processing of data related to users in
Pakistan,
• any facility for online sale of goods or services or any other online facility
213
TY 2022 onwards [S-7E] Tax on deemed income
1. One Capital Asset 3. Self-owned agriculture land excluding; 8. Capital assets owned by;
2. Self-owned business premises • Farmhouse & land annexed to it • provincial government, local government,
local authority, development authority
4. Capital Asset allotted to
Resident Person • builders and developers for land
Shaheed or his dependents of Armed Forces development and construction, registered
Excluding
with Directorate General of Designated
Person or his dependents who dies during Non-Financial Businesses and Professions
service of armed forces, FG/PG
War wounded person in service of armed forces, FG/PG Not excluded if not in ATL
Capital Asset Except for 10th Sched, R-2 (Persons
Ex-serviceman or serving personal of armed forces, FG/PG
not required to file return)
Deemed Income
5% of FMV on last day of TY 5. Any property from which income is chargeable to tax and tax is paid
6. Capital asset in 1st TY of acquisition where tax under S-236K has been paid
Tax on Deemed Income 20%
7. All other Capital Assets having aggregate FMV =< PKR 25 million
214
[S-7E] Tax on deemed income
Federal Government may include or exclude any person or property 2. Self-owned business premises
for the purpose of this section • from where the business is carried out
• was on ATL at any time during TY
Ex-serviceman or serving personal of armed forces, FG/PG

Capital Asset means
• property of any kind, • being original allottees
• held by a person, • duly certified by the allotment authority
• whether or not connected with a
Farmhouse means
business,
• a house constructed
• on atleast 2000 sq.yrds
does not include
• covered area of atleast 5000 sq.fts
(i) any stock-in-trade
• used as single dwelling unit
(ii) any shares, stocks or securities
• with or without an annex
(iii) depreciable asset
In case of more than one dwelling units in a compound and average area of the compound is more than 2000
(iv) Intangible
square yards for a dwelling unit, each one of such dwelling units shall be treated as a separate farmhouse
(v) any other movable asset
215
[S-113] Minimum Tax
Company AOP Individual Turnover means: Excluding Including
Specific Conditions Resident Turnover 100 million or above Gross Sales Sales Tax Commission
In TY 2017 or after FED
Trade Discount (mentioned on
Tax payable is less than invoice)
General Conditions
[%age given in column (3) of Table in 1st Sched, P-I, Div-IX] x [Turnover] Deemed income on which
Due to: Final Tax has been paid
(i) Loss of the year Gross Fees
Tax Payable shall not (ii) Set off of loss of earlier year Deemed income on which
Gross Fees
include: (iii) Exemption from tax Final Tax has been paid
(Services)
(i) Final Tax (iv) Tax Credits OR Rebates
(ii) Tax Payable u/s 4B & 4C
Gross Fees
(v) Allowances/Deductions (including Depreciation & Amortization) Gross Fees Deemed income on which
(Contracts) Final Tax has been paid
✓ Turnover shall be treated as income Share of profit
from AOP
Share of Explanation: Turnover will
✓ Pay tax on basis of turnover @ 1st Sched, Part-I, Div-IX Company in AOP include receipts from sale of
in above immoveable property, taxable as
✓ The excess tax paid due to minimum tax, shall be carried forward for adjustment against tax amounts business income.
liability upto 3 subsequent tax years
216
Returns
1. Tax Return
2. Persons Liable to File a Tax Return
3. Method of Filing of Tax Return
4. Revision of Tax Return
5. Due Date for Filing of Tax Return
6. Filing of Wealth Statement
7. Filing of Tax Return on Discontinuance of Business
8. Extension of time for furnishing of tax return

217
Tax Return
218
Persons Liable to File a Tax Return
Every Income
Business
Income>300,000
company exceeds
Resident & taxable limit
foreign
income/asset
statement
NPO
Electricity FTR
connection Income
Resident & Notified

Membership by FBR
Obtained Charged to
tax in past 2
NTN years
Vehicle, Eng.Cap
> 1,000 CC B/f Loss
Immovable
Flat in RA, • widow
CA>2,000sq.ft Imm. Property
in RA,
Flat Property,
LA>500sq.yrd • Orphan, age < 25 years;
LA>500sq.yrd
in ML • disabled person; or
• non-resident person. 219
Method of Filing of Tax Return
Relevant Declaration of
particulars or
information records kept
Documents Signed
Manual Filing E – Filing
Statements
Payment of
tax
Wealth
Annexure
statement
Prescribed Return of Foreign income and

form Income assets statement
220
Revision of Tax Return
Commissioner may waive this condition if Commissioner is satisfied that filing of revised
Revised accounts or revised audited accounts accounts or audited accounts is not necessary
Reasons for revision of return, in writing, duly

signed This condition shall not apply if
• revised return is filed within 60 days of filing of return.
• taxable income declared is more than or the loss declared is less than the income or loss,
Approval of the Commissioner in writing for as the case may be, determined under Assessments
revision of return.
If Commissioner do not grant permission within 60
Taxable income declared is not less than income days, the approval shall be deemed to have been
determined by commissioner or appellate authority granted.
Loss declared is not more than loss may be, determined by

commissioner or appellate authority
221
Due Date for Filing of Tax Return
Section Tax Return Filer Return Period Due Date
118(1) A return of income of a company Tax year ending between 1st On or before 31 December next
January to 30 June following the end of tax year
118(1) &(3) All other cases of person filing All year ends On or before 30 September next
returns following the end of tax year
118(5) Return in response to notice Year end as specified in Due date fixed for submission of tax
under section 117 notice return.
(discontinuance of business)
114(4) Return in response to notice Year end as specified in Due date specified in the notice for
under section 114(5) (return notice submission of tax return or thirty days
liable to be filed but not filed) from the date of issuance of notice.
222
Filing of Wealth Statement
Start of Year Reconciliation End of Year
223
Filing of Tax Return on
Discontinuance of Business
Commissioner IR
Inform within 15 days
224
Extension of Time for Furnishing of Tax Return
Any other reasonable cause • May grant extension if refused by CIR
• May grant further extention
Chief Commissioner
Misadventure
• Maximum 15 days extension

• Apply by due date
Sickness
Absence from Pakistan

Commissioner IR
225
Assessment, Records and Audit
1. Assessment
2. Special Provisions with respect to Assessment
3. Amendment of Assessment
4. Action against assessment / Amended assessment order
5. Records
6. Audit
226
Assessment
• Complete return timely
Normal submitted
Assessment • Complete wealth statement
timely submitted
End of a TY Deadline for order

• Return not submitted
Best • Wealth Statement not 6 years
Judgement submitted
Assessment • Accounts/documents/record End of a TY in which order u/s Deadline for order
not produced 114(4) issued
2 years
• Concealed asset is
Provisional impounded
Assessment • Offshore asset discovered
227
Special Provisions with respect to Assessment
Civil Court
Conclusive evidence of assessment
Disputed
Preoperty
• Cannot be quashed or void or Can be void if
voidable for want of form • not in conformity with Income Tax
• Will not be affected due to any Ordinance, 2001; or
mistake, defect or omission therein • the person assessed is not
Assessment order may be issued at any
designated in it according to
time within one year after the end of the
common understanding
financial year in which the decision of the
court is made
228
Amendment of Assessment
No amendment is allowed
Assessment By Whom Circumstances unless the taxpayer has been
given proper opportunity of
Normal being heard.
Taxpayer by
Assessment /
Best Judgement revision of return Audit
Assessment / Definite
Provisional Commissioner
Information
Assessment
Erroneous & Tax authorities cannot amend assessment if assessment was erroneous but not
Presuicidal to
Interest of Revenue prejudicial to interest of revenue
No limit on further amendment(s)
End of FY in which original

assessment order was made
5 years
which ever is later
End of FY in which first
1 year
amendment was made
Deadline for further amendment 229

Action against assessment /
Amended assessment order
• Suo-moto or on application of Chief Commissioner IR • Taxpayer intends to settle his case
taxpayer can call for record of Commissioner IR • Call record, give opportunity of being heard,
issuance of an exemption or decide and communicate decision to taxpayer
lower rate certificate Additional Commissioner IR • Taxpayer will pay agreed taxes & forego his
• Revise orders of subordinate right of appeal
after giving opportunity of being • CIR will amend assessment
heard to taxpayer Assessment Oversight Committee • If consensus not achieved, case will be
Not referred back to CIR
• Suo-moto call for record of
assessment proceedings and revise Applicable
assessment, if necessary
• Revision cannot be prejudicial to
taxpayer Case involving concealment of income
• Cannot revise if appeal or decision
of appeal is pending
• Can order lower level to make
Case involving question of law
necessary revision within 180 days
230
Records
1. Every taxpayer deriving income from business
2. Taxpayers with business income upto Rs.500,000 and new taxpayers deriving income from business
3. Taxpayers with business income exceeding Rs. 500,000 and wholesalers, distributors, dealers and commission agents
4. Professionals like medical practitioners, legal practitioners, accountants, auditors, architects, engineers etc.
5. Manufacturers (with turnover exceeding Rs. 2.5 million)
6. Others
7. Record Keeping Places
231
Records
all sums of money received and expended by the taxpayer and the matters in respect of which the receipt
Every and expenditure takes place.
all sales and purchases of goods and all services provided and obtained by the taxpayer.
taxpayer all assets of the taxpayer
deriving all liabilities of the taxpayer; and
income in case of a taxpayer engaged in assembly, production, processing, manufacturing, mining or like
from activities, all items of cost relating to the utilization of materials, labour and other inputs.
Maintain record for six years after the end of the tax year to which they relate.
business 6 years shall not apply where any proceeding under the Ordinance is pending before any authority or
court the taxpayer shall maintain the record till final decision of the proceedings
232
Records
Taxpayers Serially numbered and dated cash-memo / invoice
/ receipt for each transaction of sale or receipt
taxpayers name or the name of his business, address, national
tax number or CNIC and sales tax registration number
with business containing the description, quantity and value of goods sold or services
rendered
income upto Where each transaction does not exceed Rs. 100,
one or more cash-memos per day for all such
Rs.500,000 transactions may be maintained
and new Daily record of receipts, sales, payments, purchases and
taxpayers expenses a single entry in respect of daily receipts, sales,
purchases and different heads of expenses will suffice
deriving
income from Vouchers of purchases and expenses
business
233
Records
Serially numbered and dated cash-memo / invoice / receipt for each transaction of sale or receipt containing following:
Taxpayers with
business (a) taxpayer’s name or the name of his business, address, national tax number or CNIC and sales tax registration number, if any
income (b) the description, quantity and value of goods sold or services rendered; and
exceeding Rs. (c) in case of a wholesaler, distributor, dealer and commission agent, where a single transaction exceeds Rs. 10,000, name and
address of customer
500,000 and Where each transaction does not exceed Rs. 100, one or more cash-memos per day for all such transactions may be maintained
wholesalers, Cash book and/or bank book or daily record of receipts, sales, payments, purchases and expenses; a single entry in respect of daily receipts,
distributors, sales, purchases and different heads of expenses will suffice.
General ledger or annual summary of receipts, sales, payments, purchases and expenses under distinctive heads.
dealers and
commission Vouchers of purchases and expenses and where a single transaction exceeds Rs. 10,000 with the name and address of the payee
agents Where the taxpayer deals in purchase and sale of goods, quarterly inventory of stock-in-trade showing description, quantity and value
234
Records
Serially numbered and dated patient-slip / invoice /receipt for each transaction of sale or receipt containing the following
Professionals
like medical (a) taxpayer's name or the name of his business or profession, address, national tax number or CNIC and sales tax registration
number, if any
practitioners, (b) the description, quantity and value of medicines supplied or details of treatment/ case/ services rendered (confidential
details are not required) and amount charged
legal (c) the name and address of the patient / client
practitioners, The condition of recording address of the patient on the patient slip under this clause shall not apply to general medical
accountants, practitioners
auditors, Daily appointment and engagement diary in respect of clients and patients provided that this clause shall not apply to general
medical practitioners
architects, Daily record of receipts, sales, payments, purchases and expenses; a single entry in respect of daily receipts, sales, purchases
and different heads of expenses will suffice
engineers etc. Vouchers of purchases and expenses
235
Records
Serially numbered and dated cash-memo / invoice/receipt for each transact ion of sale or receipt containing the following
Manufacturers
(a) taxpayer's name or the name of his business address, national tax number or CNIC and sales tax registration number, if any
(with
(b) the description, quantity and, value of goods sold
turnover
(c) where a single transaction exceeds Rs. 10,000 with the name and address of the customer
exceeding Rs.
Cash book and/or bank book
2.5 million)
Sales day book and sales ledger (where applicable)
Purchases day book and purchase ledger (where applicable)
General ledger
Vouchers of purchases and expenses and where a single transaction exceeds Rs. 10,000 with the name and address of the payee;
Stock register of stock-in-trade (major raw materials and finished goods) supported by gale in-ward and outward records and quarter ly
inventory of all items of stock-in-trade including work- in-process showing description, quantity and value.
236
Records
• Dividend warrants
• Royalty agreement.
• Evidence and detail of profit yielding debt
• Evidence of profit on debt and tax deducted
• Evidence of Zakat deducted
• Ground rent, rent from the sub - lease of land or building, income from the lease of any building together with plant or machinery and consideration for
Income from other sources
vacating the possession of a building
• Lease agreement
• Lease termination agreement
• Evidence pension received.
• Evidence of income from prizes and winnings and tax deducted thereon, like certificate in the prescribed form.
• Evidence of mode of receipt of a loan , advance deposit or gift i.e., by a crossed cheque or through a banking channel.
• Evidence of cost of acquiring the capital asset
Capital gain • Evidence of deduction for any other costs claimed
• Evidence in respect of consideration received on disposal of the capital asset.
• Tenancy agreement
• Tenancy termination agreement
Income from property
• Receipt of rent received
• Evidence of deductions
Salary • Salary certificate indicating the amount of salary and tax deducted there from.
General • Evidence of deduction for any other expenditure claimed.

237
Record Keeping Places (Rule 33)
Taxpayer required to maintain proper
Sr # Records to be kept
books of account, documents and records
1. Income from business The place where the taxpayer is carrying on the business or, where the
business is carried on in more places than one, at the principal place of
business or at each of such places if separate books of accounts are
maintained in respect of each place.
2. Income from sources other than business the person's place of residence or such other place as may be so
declared by such person.
3. Place to be clearly stated on tax returns Place shall be clearly stated on the tax return form in the column
requiring the details of the records maintained.
238
Audit Sectoral benchmark ratios
means
• standard business sector
ratios
• notified by the FBR
• on basis of comparative cases
Broadening of Tax Base Includes
• financial ratios
Information • production ratios
Indicative income and tax • gross profit ratio
• net profit ratio
• recovery ratio
• Can conduct audit of any of past 6 years Audit Panel • wastage ratio and
• Should be given access to record 2 or more members from: Firm of CA/CMA • such other prescribed ratios
• officer of Inland Revenue (Chairman)
Taxpayer has not • firm of chartered accountants
• furnished record or • firm of cost and management accountants or
• complete record or Taxable • any other person as directed by FBR Information / record not provided by taxpayer
• provided sufficient income has not Audit on basis of
explanation regarding been correctly Sectoral Benchmark Ratios Commissioner may proceed to make best judgment assessment
the defects in records declared
Audit Report Amend assessment after giving opportunity of being heard
239
Appeals, References and Petitions
1. Appeals and circumstances giving rise to appeal
2. Appeals to the Commissioner (Appeals)
3. Appeals before Appellate Tribunal
4. Reference application before High Court & Supreme Court
5. Alternative Dispute Resolution Committee
6. Other appeal related matters

240
Appeals and circumstances giving rise to appeal
Alternative Dispute Resolution Supreme Commissioner
Court (IR)
Case upto
Rs 20 million
Case above
Rs 20 million Commissioner
High Court
Appeals
Appellate Pecuniary
Tribunal Jurisdiction
241
Appeals to the Commissioner (Appeals)
Application Proceedings Decision
Prescribed Notice of hearing to CIR & Taxpayer Assessment Case
• Form After giving opportunity of being heard to CIR • Confirm
• Manner • Stay against recovery of tax for 30 days • Modify
• Verification • Another stay for 30 days may also be granted o Cannot increase demand or reduce
• Fee • Adjournments can be given from time to time refund, unless opportunity of being
o Appeal against assessment order heard given to tax payer
Company= Rs 5,000 Can allow appellant to file any new grounds of appeal, o In case of AOP, CIR shall be authorized
Others = Rs 2,500 before hearing if omission was not considered willful or to make necessary amendments to
o Other Orders unreasonable assessment of Member of AOP.
Company = Rs 5,000 • Annul
Others = Rs 1,000 No such document/material will be allowed to be Others
Due tax paid presented, which was not presented to CIR unless • As appropriate
Time Limit : 30 Days appellant was prevented by a sufficient cause.
Condonation can be allowed by CIR(A) Pass order within 120 days + 60 more days for which
reason to be recorded
Following shall not be counted:
• Adjournments requested by appellant
• Postponed due to stay/remand/ADRC
242
Appeals before Appellate Tribunal
Composition Powers/Status Application Proceedings Decision
Chairman – appointed by FG for 3 • Under administrative Prescribed At the first hearing : Types of decision
years control of Ministry of • Form • Give taxpayer option about ADR • Affirm
Law & Justice and not • Manner • if the taxpayer declines, fix hearing • Modify – cannot increase
Members – appointed by FG under FBR
• Advocate High Court with 15 • Verification date recovery or decrease refund
years experience + prescribed • Fee unless opportunity of
Company = Rs 20,000 Ensure strict adherence by the taxpayer showing cause given to
qualification
Others = Rs 5,000 and CIR, to the hearing schedule taxpayer
• Practicing CA with 10 years
experience No adjournment shall be granted, • Annul
• Practicing CMA with 10 years Time Limit of appeal : 30 Days • Remand case to CIR/CIR(A)
except;
experience
Condonation can be allowed by AT, • for compelling reasons to be Opportunity of being heard to
• Officer IR in BS-21 or above
• Officer IR in BS-20, for atleast 3 if convinced that appellant was recorded and both parties
years. prevented by sufficient cause. • on mandatory cost payment, which
shall not be less than Rs 50,000. Decision within 90 days
Existing members will continue to Extension of 90 days may be
hold office till completion of term / Tax should be paid before appeal, unless allowed by Ministry of Law &
resignation / removal. stay granted by AT Justice.
Maximum 90 days stay could be granted. For pending appeals, time limit
is 180 days.
243
Reference application before High Court &
Supreme Court
High Court
• File reference
o within 30 days of decision of AT or CIR(Appeals) - (subject to Pecuniary Jurisdiction) Supreme Court
o in the prescribed form, with a statement of case, stating any question of law or a mixed question of law and • Supreme Court is the final forum for appeal
facts of order.
o with complete record AT / CIR(Appeals) within 15 days of reference. • Article 185 of the Constitution of Pakistan provides that
• If HC is satisfied that a question of law or a mixed question of law and facts arises, it may proceed to hear any aggrieved party to the decision of the High Court
the case. can prefer appeal before the Supreme Court of Pakistan.
• Chief Justice shall constitute bench(es), of atleast 2 judges of HC.
• Decision time limit = 6 months • Accordingly, no provision in this regard is required in
• HC shall constitute sufficient number of benches so that all cases could be decided within 6 months. the Income Tax Ordinance, 2001.
• After decision of HC, the orders of AT / CIR(Appeals) shall stand modified accordingly.
• Send a copy of the judgment under the seal of the High Court to AT & CIR(Appeals).
• An application by the aggrieved person other than the Commissioner shall be accompanied by a fee of Rs 50,000.
• Application by the Commissioner should be accompanied by a written authorization by the relevant Chief
Commissioner
244
Alternative Dispute Resolution Committee
Dispute/Hardship
Criminal
• Tax liability > Rs 50 million*
Proceedings Chairperson: Retired HC Judge or equivalent, nominated by FBR, from panel notified by L&JD
• Refund admissibility
• Extent of waiver of DS/Penalty Chief Commissioner of jurisdiction Panel
Aggrieved • Other specific relief to resolve dispute 10 years experience in
1 Person nominated by taxpayer from Panel notified by FBR • CA
Person * Not applicable on SOE • CMA taxation & not auditor or
FBR will • Advocate representative
communicate ADRC • Retired BPS-21 or above IRS Officer
15 days
Application to FBR composition • Reputable Businessman nominated by COCI
to form ADRC
Tax Recovery will be stayed till earlier of: Binding on CIR if Taxpayer
• Decision OR withdraws appeal &
Mention in application: • Dissolution of ADRC communicates withdrawal Decision within 90 days of
• Explain dispute under litigation within 60 days to CIR dissolution of ADRC
• Request for an ADRC
• Initial proposal for resolution
• Enquiry
45 + 15 days Decision by
• Tax payment offer • Expert Opinion
(record reasons) majority
• Undertaking of acceptance of • Audit
decision & withdrawal of litigations
• SOE shall withdraw all cases No Decision within 60 days, ADRC dissolved FBR will communicate ADRC dissolution
immediately
245
Other Appeal Related Matters
Assessment giving effect to an order
Decision of appellate authority Time within which the new assessment order has to be made
Direct relief provided to taxpayer Two months from the date the order is served on the commissioner
Assessment order wholly or partly set One year from the end of the financial year in which the commissioner, or
aside Commissioner (Appeals) is served with the order provided no further appeal or
reference is preferred against the order of the appellate authority either by the
commissioner of the taxpayer
Any other decision Two years from the end of the financial year in which the commissioner is
served with the order
246
CAF – 02
Tax Practices
Sales Tax
When you want to give up
Remember, why you started !!
Sales Tax Computations
1 month
Tax Period
Basic Structure
Tax Period Tax Period
How to calculate Output Tax?
How to calculate
Output Tax? Sales x Sales tax rate = Output Tax 100
[S-2(20)]
Which Input is adjustable?
Which Input is Purchase x Sales tax rate = - Input Tax (60)

Home
adjustable? [S-2(14)]
40
How much of input is adjustable?
How much of Sales tax payable

input is
adjustable?
DR/CR Notes
DR/CR Notes Cottage Industry

248
Sales Tax Computation
Tax Period [S-2(43)]
means
- period of 1 month OR
- such other period as specified by FBR, in official gazzette, with approval of Federal Ministry-in-charge
249
Output Tax
How to calculate?
Registered Person
[S-2(25)] Taxable Activity
[S-2(35)]
Registered Person Taxable Activity Value of Supply

[S-2(46)]
[S-2(25)] [S-2(35)] Value of Supply

[S-2(46)]
[S-2(12)]
Goods
Goods Taxable Supplies

[S-2(41)]
[S-2(12)]
Taxable Goods
[S-2(39)]
Taxable Goods Taxable Supplies Will charge Sales Tax

Exempt Goods
[S-13]
[S-2(39)] [S-2(41)]
Exempt Goods
Rate of Sales Tax
[S-3]
Time of Supply
[S-2(44)]
Time of Supply Rate of Sales Tax

[S-13]
[S-2(44)] [S-3]
Imports
[S-2(33)]
Supply
Supply
Exports
[S-2(33)]
To Registered
Person
Local Supply
Un-registered
Person
250
Output Tax
How to calculate?
Registered Person [S-2(25)]
means a person who:

- is registered OR
- is liable to be registered under Sales Tax Act
A person liable to be registered but not registered shall not be entitled to any benefit available to
a registered person under any provision of Sales Tax Act or the rules made thereunder
251
Output Tax
How to calculate?
Taxable Activity [S-2(35)]
means any economic activity carried on by a person whether or not for profit
Includes Does not include

- business, trade or manufacture - activity of employee to employer
- supply of goods, rendering of services - private recreation pursuit or hobby
- one-off adventure in nature of trade - above activity done by person other
- anything done during commencement or termination of than individual
economic activity
252
Output Tax
How to calculate?
Taxable Supplies [S-2(41)]
Importer
Supply of taxable goods by manufacturer
wholesales
other than goods exempt u/s 13 distributor
retailer
and including zero rated goods u/s 4
253
Output Tax
How to calculate?
Taxable Goods [S-2(39)]
means all goods, other than those exempt u/s 13
254
Output Tax
How to calculate?
Exempt Goods [S-13]
Goods mentioned in 6th Schedule
Goods specified by Federal Govt, through notification in official gazzette, where immediate action is needed for any of following:
- national security,
- natural disaster,
- national food security in emergency situations &
- implementation of bilateral and multilateral agreements
Power to deliver goods without payment of Sales Tax [S-60]
Federal Govt can authorize delivery of goods without payment of sales tax, in following cases and subject to such conditions as it may deem fit:
i. Imports for re-exportation by registered importer
ii. Imports of raw material & subsequent export after manufacture by registered manufacturer cum exporter
255
Output Tax
How to calculate?
Goods [S-2(12)]
Include
• moveable property, other than
o actionable claims
o moneys
o stocks/shares/securities
256
Output Tax
Supply [S-2(33)] How to calculate?
Sale
means OR to dispose off goods as owner
transfer of right
includes:
- sale or transfer under hire purchase agreement
- auction of goods to satisfy debt
- possession of goods immediately before the person ceases to be registered person
- transfer of goods manufactured (i.e., goods belonging to another person), to the owner or to person nominated by him
- putting to private, business or non business use
of goods produced during taxable activity
for purposes other than taxable supplies
FBR with approval of Federal Minister-in-charge, can also specify transactions which may or may not constitute supply
257
Output Tax
Value of Supply [S-2(46)] How to calculate?
• Local Supplies
• Imports
258
Output Tax
Value of Supply – Local Supplies How to calculate?
No Discount Discounted Price

Consideration in money, which will be received Discounted Price X
(including Federal Excise Duty & Provincial Taxes) - Sales Tax (X)
(excluding sales tax) X
Condition: Discount is in conformity of norms of business

Sales tax invoice should show discounted price
continued…
259
Output Tax
Taxable supply for consideration in kind OR partly in kind
Open Market Price X
- Sales Tax (X)
Same method will be used in following cases:

- supplies to associates made for consideration lower than open market price
- to determine value of processed goods, in case where exempt goods were provided to registered person for processing
- Instalement sales
- Any other case, where it is difficult to determine nature of transaction
Valuation Committee, comprising of representatives of trade and Inland Revenue shall determine value of supply in following
situation:
- where there is sufficient reason to believe that the value of a supply has not been correctly declared in the invoice
Valuation Committee shall be constituted by Commissioner
continued…
260
Output Tax
In case of a taxable supply, with reference to retail tax :
Price of taxable goods X
- Retail Tax (X)
In case of manufacture of goods belonging to another person:

Actual consideration received by the manufacturer for the value addition carried out
In case of supply of electricity by an independent power producer:

amount received on account of energy purchase price only
excluding
amount received on account of capacity purchase price, energy purchase price premium, excess bonus, supplemental charges etc.
continued…
261
Output Tax
in case of supply of electric power and gas by a distribution company:
total amount billed Explanation.-
including Value of supply does not include subsidy
price of electricity and natural gas, as the case may be, provided by the FG or PG to the electricity
charges, rents, commissions and all duties and taxes local, provincial and federal consumers and has never been chargeable to
excluding sales tax
amount of late payment surcharge and the amount of sales tax
in case of registered person who is engaged in;

- purchasing used vehicles from general public
- on which sales tax had already been paid at the time of import or manufacturing, and
- which are, later on, sold in the open market after making certain value addition
value of supply will be the difference between sale and purchase price of the said vehicle on the basis of the valuation method prescribed by the Board.
262
Output Tax
Value of Supply – Imports How to calculate?
In case of import of goods, other than those specified in 3rd Sched:
value of supply shall be as determined u/s 25 of Customs Act 1969,

Including
Customs Duty and Excise Duty
263
Output Tax
Time of Supply [S-2(44)] How to calculate?
Goods Services In case part payment is received
Under Hire Other than Hire When rendered In case of exempt In all other cases
Purchase Purchase supplies
When agreement is When: supply shall be accounted supply shall be

entered into - Delivered for in tax period in which accounted for in tax
- Made available whichever is earlier exemption is withdrawn period of supply
- Payment received
264
Output Tax
Rate of Sales Tax How to calculate?
• Other than zero rated supplies [S-3]
• Zero Rated Supplies [S-4]
• Change in rate of tax [S-5]
265
Output Tax
Scope of Tax [S-3] How to calculate?
1) Goods supplied by Registered person
sales tax charged @ 18% on value of supplies/imports
Imports
Supplies to un-registered person OR

Further tax @ 4% Shall be charged
Supplies to person who is not an active taxpayer
Federal Govt can specify goods on which further tax not to be charged
2) FBR can also levy tax on:

- Production capacity Sales tax @ mentioned in 10th Schedule
- Fixed basis
3) Retail Items (as per 3rd Schedule) sales tax charged @ 18% on retail price
this shall also be printed on each item • FG may impose higher sales tax on 3rd Schedule items
• FBR may include/exclude any item from 3rd Schedule continued…
266
Output Tax
4) 8th Schedule items shall be charged to Sales tax @ mentioned in 8th Schedule
these items are local supplies
5) 9th Schedule items shall be charged to Sales tax @ mentioned in 9th Schedule
these items are imports
6) Liability to pay tax:

- Supplies Supplier
However section 8A specifies joint and several liability in a supply chain
- Imports Importer
Not applicable on Services under Provincial Sales Tax

7) Sales tax withholding provisions have been mentioned in 11th Schedule
Online marketplace operator will withhold tax from suppliers
8) Gas transmission and dispatch company supplying gas to CNG stations shall charge sales tax @ 18% of value of supplies to consumers
9) Federal Govt can charge Extra Tax upto maximum of 18% on specified goods in addition to the taxes mentioned above
continued…
267
Output Tax
10) Retailer, other than Tier-1 Retailer, shall pay sales tax on basis of electricity bill as follows:
- bill upto Rs =20,000/- per month 5%
- bill more than Rs=20,000/- per month 7.5%
This is in addition to sales tax charged on electricity consumption & input tax adjustment is not allowed against this sales tax
CIR shall issue order regarding exclusion of a person who is either a Tier-1 retailer, or not a retailer.
Discontinuance of gas and electricity connections [S-14AB]

Through General Order, FBR can direct any electricity or gas DISCO to disconnect supply to
i) Any person, including Tier-1 retailer, who fails to register with sales tax OR
ii) Tier-1 retailer, not integrated with FBR computer system
On registration / integration, FBR can issue General Order to restore connection

continued…
268
Output Tax
11) - Tier-1 retailers shall pay sales tax @ applicable to the goods sold
- Tier-1 retailers shall integrate their retail outlets with FBR's computerized system for real-time reporting of sales
12) - In case of steel products/ship plates, minimum production

shall be determined in accordance with 13th Schedule
- Higher of actual supplies or minimum production shall be

treated as supplies for the month
269
Output Tax
Zero Rating [S-4] How to calculate?
Sales tax @ 0% shall be charged on following:
1) Exports
2) 5th Schedule items
3) Provisions and stores on conveyance proceeding to destination outside Pakistan, as mentioned u/s 24 of Customs Act 1969
4) Goods specified by Federal Govt through notification whenever circumstances exist to take immediate action for;
- national security,
- natural disaster, Exceptions:
- national food security in emergency situations & 1. Goods exported, but have been or are intended to be re-imported
2. Goods entered for export under the Customs Act, 1969, but not
- implementation of bilateral and multilateral agreements exported
3. Goods exported to a country specified by the FG
FG can restrict amount of input tax on such zero rated supplies which otherwise
chargeable to sales tax
270
Zero Rating Vs Exempt Supply

Distinction points Zero Rated Supply Exempt Supply
Definition Zero rated supply means a taxable supply which is charged to Exempt Supply means a supply which is exempt from tax under
tax at the rate of zero per cent under section 4 section 13
Products covered Goods exported, notified by FBR or listed in 5th Schedule are Goods listed in 6th Schedule are exempt supplies. FG and FBR
charged to sales tax at the rate of zero per cent. may specify any goods exempt from levy of tax
Invoicing Requirements Invoice shall be raised for the goods supplied but sales tax No sales tax invoice shall be raised.
shall be charged at the rate of zero per cent.
Registration A person engaged in zero rate supplies has to be registered A person engaged exclusively in the exempt supplies is not
with the Sales tax department. liable to be registered under the Sales Tax Act.
Input tax credit Input Tax paid related to zero rated supplies is refundable. Input Tax paid related to Exempt supplies is inadmissible.
271
Output Tax
Change in rate of tax [S-5] How to calculate?
Bill of
lading
Bill of
lading Manifest of Conveyance
Bill of entry /
GD
Goods Declaration (GD)
272
Output Tax
Change in rate of tax [S-5] How to calculate?
Local Supplies Imports
Rate in force at time of supply

GD is presented in
Goods are cleared advance of the arrival If the tax is not paid
Goods are entered for from warehouse of the conveyance within seven days of the of
home consumption the goods declaration u/s
104 of the Customs Act,
Rate in force on date Rate in force on the tax shall be charged at
Rate in force on date when GD for clearance the date on which the rate as is in force on
when GD is presented of goods is presented the manifest of the the date on which tax is
u/s 79 of Customs Act u/s 104 of Customs conveyance is actually paid
1969 Act 1969 delivered
273
Which input is adjustable?
• Tax credits not allowed [S-8]
• Determination of tax liability [S-7]
• Certain transactions not admissible [S-73]
• Destruction of goods [R-23]

274

Tax credits not allowed [S-8]
A registered person shall not be entitled to deduct input tax paid on:
1. the goods or services which are not used or not to be used for the manufacture or production of taxable goods or for taxable supplies made or to be
made by him;
2. the goods on which extra amount of tax is payable under sub-section (5)of section 3;
3. any other goods or services which the Board with the approval of the Minister Incharge of the Federal Government may by a notification in the official
Gazette specify;
4. the goods or services in respect of which sales tax has not been deposited in the Government treasury by the respective supplier;
5. fake invoices;
6. purchases made by a registered person in case he fails to provide information relating to his imports, purchases, sales etc. as required by the Board
through a notification u/s 26(5);
7. purchases in respect of which a discrepancy is indicated by CREST or input tax of which is not verifiable in the supply chain;
continued…
275

8. goods and services not related to the taxable supplies made by the registered person;
9. goods and services acquired for personal or non-business consumption;
10. goods used in, or permanently attached to, immoveable property, such as building and construction materials, paints, electrical and sanitary fittings,
pipes, wires and cables, but excluding pre-fabricated buildings and such goods acquired for sale or re-sale or for direct use in theproduction or
manufacture of taxable goods;
11. vehicles falling in Chapter 87 of the First Schedule to the Customs Act,1969, parts of such vehicles, electrical and gas appliances, furniture furnishings,
office equipment (excluding electronic cash registers), but excluding such goods acquired for sale or re-sale;
12. services in respect of which input tax adjustment is barred under the respective provincial sales tax law;
13. import or purchase of agricultural machinery or equipment subject to sales tax at the rate of 7% under Eighth Schedule to this Act; and
continued…
276

14. from the date to be notified by the Board, such goods and services which, at the time of filing of return by the buyer, have not been declared by the
supplier in his return or he has not paid amount of tax due as indicated in his return.
15. goods purchased which are attributable to supplies made to un-registered distributor, on pro-rata basis, for which sale invoices do not bear NIC or NTN
of the recipient
277

Determination of tax liability [S-7]
Output tax X excluding "Further Tax" charged @ 4% from un-reg person
- Input tax (X)
if not claimed in relevant tax period, then can be claimed in
X
6 subsequent tax periods
Conditions:
1. should be supported by Sales Tax Invoice bearing name and registration number of tax payer who is claiming input tax
2. supplier must have declared such supply in his return and he has paid amount of tax due as indicated in his return
3. in case of supply of electricity or gas, a bill bearing his registration # and the address where the connection is installed
4. in case of imports, it should be supported by :
a. Bill of entry OR Goods Declaration
b. Sales Tax Registration number
c. Customs clearance u/s 79, 81 or 104
5. in case of purchase through auction, it should be supported by Treasury Challan (showing amount of sales tax paid) bearing name and registration
number of tax payer who is claiming input tax
278

Certain transactions not admissible [S-73]
Input tax in respect of following transactions is not allowed:
1. Amount above Rs =50,000/- paid other than through crossed cheque or other banking channel, to a single supplier in a tax period
• Online transfer of funds and transaction through credit cards shall be considered transaction through banking channel, if verifiable from bank
statement of buyer and supplier Payable and receivable adjustment shall be treated as payments, provided that:
• Exception; utility bills (i) applicable sales tax has been charged and paid by both and
(ii) prior approval of CIT for adjustments
2. Credit purchases not paid within 180 days
Not applicable on following:
However, FBR may extend time through condonation u/s 74
(i) FG/PG/LG deptts, authorities, etc. not
engaged in making of taxable supplies’
3. Amount paid should be credited in business bank account of supplier (ii) Foreign Missions, diplomats and
“business bank account” means a bank account utilized by the registered person for business transactions AND privileged persons.
(iii) Registered persons engaged in
declared to the Commissioner through Form STR-1 or change of particulars in registration database manufacturing and supply of fertilizer upon
submission of required documents.
4. Input in respect of >>>>sales made by registered person to un-registered persons (iv) All other persons not engaged in supply
of taxable goods
Exception; input in respect of sales made to an un-registered person,
• upto Rs 10 million a month &
• upto Rs 100 million a year 279

Destruction of goods [R-23]
If buyer returns goods because these are unfit for consumption and
are required to be destroyed by the supplier,
then goods shall be destroyed

after obtaining permission from Collector of Sales Tax, and
under supervision of officer of Sales Tax not below the rank of Assistant Collector.
The input tax in respect of such destroyed goods shall not be admissible
280
How much of input is adjustable? limit not applicable on

Adjustable input tax [S-8B] Fixed Assets and Capital Goods
1. Adjustment of input tax limited upto 90% of output tax
2. Input tax in excess of above OR refund can be claimed subject to following conditions:
a. in case of Registered person whoes accounts are audited in accordance with Companies Act 2017, a statement of value addition less than the limit
is certified by Auditors
b. in case of any other person, conditions as may be specified by FBR
c. adjustment shall be made on yearly basis in 2nd month following end of financial year
3. FBR may also prescribe any other limit for any person or class of transactions
4. Penalty on Auditor:
Any auditor found guilty of misconduct in furnishing the certificate shall be referred to the Council for disciplinary action under section 20D of
Chartered Accountants, Ordinance, 1961
5. In case of locally manufactured electric vehicles subject to reduced rate of tax under the 8th Schedule
input tax allowed shall be limited to amount of output tax and no refund or carry forward of excess input tax shall be allowed
6. In case a Tier-1 retailer does not integrate his retail outlet, the adjustable input tax for whole of that tax period shall be reduced by 60%
281
DR / CR Notes
DR / CR Notes [S-9] [R-20 & 21]
If sales tax invoice has been issued by supplier, then in following situations a debit or credit note shall be issued by
supplier;
✓ Adjustments, which lead to reduction in output tax or increase in input tax
can only be made if the corresponding Debit Note or Credit Note is issued
- cancellation of supply OR within 180 days of the relevant supply.
- return of goods OR ✓ The Collector of Sales Tax may, at the request of the supplier, in specific
cases, by giving reasons in writing, extend this period by a further 180
- change in the nature of supply OR days.
- change in the value of the supply OR
- in case of any other event in which the amount shown in the tax invoice or the return needs to be modified
After issuance of debit or credit note a corresponding adjustment could be made in sales tax return
282
DR / CR Notes
Cancellation or return of supply [R-20] Change in value of supply or amount of sales tax [R-21]
shall issue Debit Note, if value of supply or amount of sales tax has increased
Buyer shall issue a Debit Note, in duplicate (original for
supplier and copy will be retained) Supplier shall issue Credit Note, if value of supply or amount of sales tax has
decreased
(as acknowledgement, buyer shall issue a debit note)
Debit note shall specify following:
- Quantity cancelled or returned Debit or Credit note shall specify following:
- value of supply - name and NTN of recipient
- related sales tax - name and NTN of supplier
- name & NTN of supplier - number and date of sales tax invoice
- number & date of ST Invoice - value of supply and sales tax on original invoice
- reason of issuing debit note - revised value and sales tax
- signature and seal of authorized person - difference of value and sales tax adjustable
- reason of issuing revision
If buyer is un-registered person, then supplier shall issue Credit - signature and seal of authorized person
note specifying above particulars
Debit or Credit Note shall be issued in duplicate (copy for issuer and original for other party)
283
DR / CR Notes
Change in value of supply or sales tax

Cancellation or return of supply
Increased Decreased
Supplier Issuer only if buyer in un-registered person Issuer Issuer
Buyer Issuer Issue reciprocal note as acknowledgment
284
Cottage Industry
Exempt supplies
Purchase from Cottage Industry:

Local supplies of goods made by a cottage industry are exempt from sales tax.
[Sr.#3 of Table-2 of 6th Sched]
Cottage Industry
• manufacturing concern No Further Tax
• no industrial gas / electricity connection
• located in residential area Sales to Cottage Industry
• total labour force =< 10
• annual turnover =< Rs 8 million There is no requirement of registration under section 14, for Cottage Industry.
Hence it is treated as un-registered person, yet a registered person will not
charge further tax on supplies made to Cottage Industry
285
To get something you never had
You have to do something you never did !!
286
Registration, De-registration, Suspension, Blacklisting
1. Requirement of Registration
2. Registration Process
3. Temporary Registration
4. Compulsory Registration
5. Cancellation of Multiple Registrations
6. De-registration
7. Suspension
8. Blacklisting
Requirement of Registration
Exempt Supplies
Refund
Exporter
Not paying Sales Tax
Importer Wholesaler
through Electricity
Bills
Retailer Dealer
Manufacturer
Taxable Distributor
Not Cottage Supplies
Industry
Registration Process
Biometric verification at
• Bank account certificate
Specify RTO / LTU NADRA e-sahulat
• Electricity / gas consumer
• Computerized STR - 1 number
• particulars of branches • In case of individual, single
• Change in particulars • Public Company >> Registered
Office • GPS tagged photographs of member AOP or Company
also required on this • Other manufacturers >> business premises (other than manufacturer),
biometric verification at time
form within 14 days Factory / Process location • GPS tagged photographs of
machinery & utilities connection of registration and
• Other non manufacturers >>
main business activity • Balance sheet • re-verification required
Application • FBR can also specify every year in July
Upload requisite
Information / Documents
Temporary Registration
If invoice issued, input
No refund allowed during Monthly sales tax return will be disallowed
Temporary Registration should be filed
Temporary Cannot issue Sales

Want to import
Application Registration – Tax Invoices on
P&M, but don’t Can import P&M
through computer within 72 hours, basis of emporary
have registration
valid for 60 days registration
• Submit post-dated cheque equal to

the difference in duties and taxes to
be availed as a manufacturer
• Can be encashed in case of default
Compulsory Registration
Person Not Registered
Notice format STR – 6
will be applicable now

All provisions of STA
Person required to be Decision after
Reply from Compulsory
registered but not CIR issue notice opportunity of
person Registration
registered being heard
If person has been wrongly

registered, then
In case of no reply
• CIR shall cancel registration
• person shall not be liable to
pay any tax
Cancellation of Multiple Registrations
In other cases of
multiple
registrations,
retain only one
Then
multiple If manufacturing and surrender
all others
registrations
may be
allowed.
units are in
different LTU or
RTO.
De – registration
Reasons: He ceases to carry on his business
His supplies have become exempt from tax
He transfers or sells his business
Merger with another person
• Form STR – 3
Failure to file tax return for six consecutive months
Application • Or CIR may on his own proceed if return for 6 months not filed
• Taxpayer cannot be de-registered if record not provided

Audit or Inquiry
CIR will issue

• Within 90 days of application
order
Suspension
Reasons: non-availability of the registered person at the CIR is satisfied that registered Suspend Registration without No input
given address person has issued fake invoices, notice allowed
evaded tax or committed tax during
refusal to allow access to business premises or
fraud suspension
records
abnormal tax profile, such as taking excessive input tax Issue show cause notice within
adjustments, continuous carry-forwards, or sudden increase in Inform other RTOs/LTUs to 7 days, otherwise suspension
turnover
suspend registration of other will be void
substantial purchases / sales with other blacklisted similar cases
or suspended person
Mention that he may be blacklisted due to
non-filing of sales tax returns Blacklisting Revocation any of following:
a) there is no response to the
notice;
on recommendation of a commissioner of any other Reply b) he has not provided the required
jurisdiction + record
Opportunity of being heard c) he has not allowed access to his
any other reason to be specified by the
Commissioner Further business record or premises; and
Inquiry d) any other reason specified by the
Commissioner
Blacklisting Appeal against it can be made
Order:
From date of hearing • Taxes or penalties payable
notice, 90 days limit • Reasons of Blacklisting
Otherwise, suspension • Time period for which input tax
Offence will be void

Blacklisted will be disallowed
Opportunity Copy to relevant RTO / LTU which will

disseminate details of invoices to all RTO
of being / LTU and input tax claimed by any
registered person shall be disallowed
heard
Returns & Records
1. Returns
2. Return Filing Dates
3. Records
4. Audit of Sales Tax Affairs
5. Drawing of Samples
Returns
Monthly Return Quarterly Return Annual Return Special Return Final Return
• By 15th of following month • Filed by persons specified by • Filed by By 30th Sept • Filed by date specified by the • Filed by date specified by the
• In case of electronic filing, by FBR following end of financial year commissioner in its notice commissioner in its notice
18th of following month • Required from private or • Required from persons and • Required when person applies
• Filed in bank or FBR public limited company periods specified by FBR or CIR for de-registration
• Any other person specified by • Contain information about
FBR Quantity of goods
manufactured or produced,
Purchases made, Goods
supplied, Payment of arrears
made
CIR can grant extension of 15 days in return filing date due to:
Chief Com. can grant further 15 days
a) absence from Pakistan or
extension or longer extension for
b) sickness or other misadventure or
exceptional reasons
c) any other reasonable cause
Return Filing Dates
Filer Nature of Return Due Date

Registered Person Monthly return 15th of next month following any tax period
Electronic filing – 18th of next month, where sales tax payable with the return paid till 15th
Registered or unregistered Special return On the date specified by the Commissioner in its notice calling for such return.
Person applied for de registration Final return On the date specified by the Commissioner.
Every private or Public Limited Company Annual return 30th of September following the year end.
Maintain record for
Years
Records
refer following details↓
Audit of Sales Tax Affairs
Drawing of samples
3 Schedule
rd
Sr # Description Sr # Description
1. Fruit Juices and Vegetable Juices 11. Toilet Soap
2. Detergents 12. Shampoo
3. Toothpaste 13. Milky Drinks
4. Shaving Cream 14. Powder Drinks
5. Perfumery and Cosmetics 15. Toilet paper & tissue paper
6. Ice Cream 16. Spices sold in retail packing bearing brand names and trademarks.
7. Tea 17. Cement sold in retail packing
8. Aerated Waters or Beverages 18. Shoe polish and shoe cream
9, Syrups and Squashes 19, Mineral / Bottled water
10. Cigarettes 20. Other household and specified items
302
Special rates of tax [S-3(2)(b)]
The Federal Government is empowered to prescribe any higher or lower rate of tax in respect of any class of taxable goods. Vide SRO 297(I)/2023 dated 08
March 2023 Federal Government has directed to charge sales tax @ 25% on import and sub sequent supply of following goods:
Sr # Imported Goods/Articles Tax Rate Sr # Imported Goods/Articles Tax Rate

1 Confectionery 25% 15 Jams , jellies and preserved fruits 25%
2 Vehicles in CBU Condition 25% 16 Leather jackers and apparels 25%
3 Sanitary and bathroom wares 25% 17 Fresh , chilled , frozen , preserved or processed meat 25%
4 Carpets ( excluding those from Afghanistan ) 25% 18 Musical instruments 25%
5 Chandeliers and lighting devices or equipment 25% 19 Pasta 25%
6 Chocolates 25% 20 Arms and ammunition excluding defence stores 25%
7 Corn flakes and other ready to use cereals 25% 21 Sunglasses 25%
8 Decorations or ornamental articles 25% 22 Tomato ketchup and sauces 25%
9 Dog and cat food only 25% 23 Travelling bags and suitcases 25%
10 Doors and window frames 25% 24 A ship designed or adapted for use of recreation or pleasure or 25%
11 Fish 25% private use
12 Footwear 25% 25 An aircraft designed or adapted for use for recreation or pleasure 25%
13 Fruits and dry fruits ( excluding those imported through land 25% or
route or private use
barter mechanism 26 Articles of jewellery 25%
14 Furniture 25% 27 Wristwatches 25%
303
5 Schedule
th
Sr # Description
1 Supplies of raw materials, components and goofs for further manufacture of goods in the Export Processing Zone.
2. Supply to diplomats, diplomatic missions, privileged persons and organizations
3. Supplies made to exporters under the Duty and Tax Remission Rules, 2001
4. Supplies of raw materials, components and goods for further manufacture of goods in the Gwadar Free Zone and
export thereof
304
Rates – Depreciation
Sr # Type of Asset Rate

1. Building (all types) 10%
2. Furniture (including fittings) and machinery and plant (not otherwise specified), Motor vehicles (all types), ships, 15%
technical or professional Books
3. Computer hardware including printer, monitor and allied items, Machinery & Equipment used in manufacture of IT 30%
Products, aircrafts and aero engines
4. In case of mineral oil concerns the income of which is liable to be computed in accordance with the rules in Part-I of
the Fifth Schedule. 100%
(a) Offshore platform and production Installations. 20%
5. A ramp built to provide access to persons with disabilities not exceeding Rs. 250,000 each 100%
305
Rates – Initial Allowance
The rate of initial allowance under section 23 shall be 25% for Plant & Machinery
306
Rates – Pre-commencement Expenditure
The rate of amortisation of pre-commencement expenditure under section 25 shall be 20%.
307
Rates – Profit on Debt
For Individuals and AOP’s

• Profit on debt upto Rs. 5 million is taxable as separate charge @ 15% under section 7B if received from prescribed persons mentioned
in section 151(1) i.e. from banks, any government, national saving scheme etc.
• Any profit on debt exceeding Rs. 5 million would be taxable under normal tax regime under the head income from other source at
applicable slab rates.
o The withholding agents shall deduct tax at the rate of 15% of the yield for noncorporate taxpayers.
o Payment on account of interest on loan through loan agreement is not subject to tax deduction and therefore the same is taxable
under the normal tax regime in case of all persons (individual, AOP, Company) under the head income from other source.
o Similarly, in case of individual, profit on debt on behbood saving certificates/pensioners benefit account is taxable under NTR
with maximum tax rate @ 5%.
308
Rates – Dividend
Tax rates on gross amount of dividend received from a Company;
• 7.5% in case of dividend paid by Independent Power Producers where such dividend is a pass-through item under an Implementation
Agreement or Power Purchase Agreement or Energy Purchase Agreement and is required to be reimbursed by Central Power
Purchasing Agency (CPPA-G) or its predecessor or successor entity
• 15% in case of individuals, AOPs, mutual funds, Real Estate Investment Trusts and any other person not covered by 7.5% and 25%
categories.
• 25% in case of;

▪ a person receiving dividend from a company where no tax payable by such company, due to exemption of income or carry
forward of business losses or claim of tax credits,
▪ dividend received from mutual funds deriving fifty percent or more income from profit on debt
309
Rates – Capital Gain on Immovable Property
Properties acquired after

Properties acquired on or before 30th June 2024
1st July 2024
Sr #
Constructed
Holding period Open plot Flats All Properties
property
1. Where holding period does not exceed one year 15% 15% 15% • Active taxpayers 15%
2. Exceeds one year but does not exceed 2 years 12.5% 10% 7.5%
• Non-active persons at the
3. Exceeds 2 years but does not exceed 3 years 10% 7.5% 0% progressive slab rates specified in
4. Exceeds 3 years but does not exceed 4 years 7.5% 5% — Division I for individuals and AOP
5. Exceeds 4 years but does not exceed 5 years 5% 0% — (this rate shall not be less than
6. Exceeds 5 years but does not exceed 6 years 2.5% — — 15% in any case) and at corporate
tax rate specified in Division II for
7. Exceeds 6 years 0% — — companies.
Note:
In this context, "immovable property" refers specifically to capital assets and does not include offices, factories, or immovable property held by real estate dealers.
310
Rates – Capital Gain on Securities
Where securities acquired on or after 01 July 2024 Where securities acquired on or after 01 July 2022
Holding Period Rate of Tax for active taxpayers Rate of Tax for active
Holding Period
Active taxpayers taxpayers
15% for persons appearing on the Active Taxpayers Less than one year 15%
List on the date of acquisition and the date of disposal More than one year but less than two years 12.5%
of securities More than two years but less than three years 10%
Irrespective of More than three years but less than four years 7.5%
Non-active taxpayers More than four years but less than five years 5%
holding period Progressive rates specified in Division I for individuals More than five year but less than six years 2.5%
and association of persons and (29%) Division II for More than 6 years 0%
companies.
However, the rate of tax shall not be less than 15% in
Where securities acquired between 01 July 2013 to 30 June 2022
any case.
Holding Period Rate of Tax for active taxpayers
Irrespective of holding period 12.5%
Capital gain rate for future commodity contracts entered
into by members of Pakistan Mercantile Exchange will be Where securities acquired before 01 July 2013
Holding Period Rate of Tax for active taxpayers
5% regardless of date of acquisition. Irrespective of holding period 0%
311
Tax rates for Salaried individual Tax rates for Non-salaried individuals and AOP
Where the income of an individual chargeable under the head “salary” exceeds 75% of
his taxable income
Sr # Taxable Income Rate of Tax Sr # Taxable Income (Rs.) Rate of Tax
1. Where the taxable income does not exceed 0% 1. Where the taxable income does not exceed 0%
Rs. 600,000 Rs.600,000
2. Where taxable income exceeds Rs. 600,000 5% of the amount exceeding Rs. 2. Where the taxable income exceeds Rs.600,000 15% of the amount exceeding
but does not exceed Rs. 1,200,000 600,000 but does not exceed Rs. 1,200,000 Rs.600,000
3. Where taxable income exceeds Rs. 1,200,000 Rs. 30,000 plus 15% of the amount 3. Where taxable income exceeds Rs. 1,200,000 Rs. 90,000 plus 20% of the
but does not exceed Rs. 2,200,000 exceeding Rs. 1,200,000 but does not exceed Rs. 1,600,000 amount exceeding Rs. 1,200,000
4. Where taxable income exceeds Rs. 2,200,000 Rs. 180,000 plus 25% of the 4. Where taxable income exceeds Rs. 1,600,000 Rs. 170,000 plus 30% of the
but does not exceed Rs. 3,200,000 amount exceeding Rs. 2,200,000 but does not exceed Rs. 3,200,000 amount exceeding Rs, 1,600,000
5. Where taxable income exceeds Rs. 3,200,000 Rs. 430,000 plus 30% of the 5. Where taxable income exceeds Rs. 3,200,000 Rs. 650,000 plus 40% of the
but does not exceed Rs. 4,100,000 amount exceeding Rs. 3,200,000 but does not exceed Rs. 5,600,000 amount exceeding Rs. 3,200,000
6. Where taxable income exceeds Rs. 4,100,000 Rs. 700,000 plus 35% of the 6. Where taxable income exceeds Rs. 5,600,000 Rs. 1,610,000 plus 45% of the
amount exceeding Rs. 4,100,000 amount exceeding Rs. 5,600,000
If: Taxable Income of any Individual or AOP exceeds Rs 10 million

Then: Surcharge shall be payable @ 10% of tax imposed [S-4(4AB)]
312
313

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CAF – 02

Tax Year 2025

Description automatically generated with low confidence

2. Objectives of tax laws

3. Tools of taxation and Tax strategies

6. Characteristics of tax laws

1. Tax Structure a) Proportional

2. Ability to Pay Principle

3. Equal Distribution Principle

(Federal Consolidated Fund)

Loans & Grants External Receipts Deficit

2. Annual Budget Statement (ABS)

3. Budget Approval Process

5. Distribution of Revenues among Provinces

Parliament Cabinet Relevant

(Federal Consolidated Fund)

Loans & Grants External Receipts Deficit

Expenditure Charged upon Federal Consolidated Fund [Article-81]

Any other sum declared by Constitution OR

Debts Payable by Federal Govt.

Judges of Supreme Court and Islamabad High

Finance Supplementary Bill

Finance Supplementary Act

Federal Consolidated Fund Provincial Consolidated Fund

• Obey taxation laws, no undue favors to tax payer • Professional

Description automatically generated

• Canon of Elasticity • Refrain from actively participating in political activities

Threats which may arise; All Audit Clients

6. Geographical Source of Income

CIT is convinced that Not Convinced

Grant Permission through an

1) issue rejection orders

a) 1.09.2015 to 31.08.2016 STY TY 2017

b) 01.04.2016 to 30.06.2016 TTY TY 2016

c) 1.01.2016 to 31.12.2016 STY TY 2017

d) 1.04.2016 to 31.03.2017 STY TY 2017

e) 1.05.2016 to 30.04.2017 STY TY 2017

f) 1.07.2016 to 30.06.2017 NTY TY 2017

i. Derives an amount chargeable to tax

under Income Tax Ordinance 2001

And does not include “Company”

iii. Citizen of Pakistan, present in one foreign country 0 – 182 days

iv. Company incorporated outside Pakistan Resident

2) Separate Block of Income

3) Final Tax Regime

4) Minimum Tax Regime

Revenue – Allowable Deductions = Taxable Income

Taxable Income x Tax Rate = Tax Imposed

Tax Imposed – Tax Credits = Tax Payable

i. Taxpayers are allowed to deduct relevant expenses.

ii. Income is not chargeable to tax under any Head of Income

iii. No deduction is allowed for expenditure incurred in deriving such income

v. e.g., Dividend, Profit on Debt, Royalty, FFTS, FFOSDS etc

ii. Tax deducted/collected is not refundable

iii. Income is not chargeable to tax under any Head of Income

iv. No deduction is allowed for expenditure incurred in deriving such income

v. Not Allowed : Set off of Losses, Deductible Allowances, Tax Credits

vi. e.g., Exports & Prizes and Winnings etc

i. Tax already collected/deducted is minimum tax. eg. Advance tax on commercial

b) Recouped Expenditure [S-70]