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Short Notes On INCOME TAX Topics Covered: 1. Salary 2. Employee share scheme 3. Income from property 4. Capital Gains 5. Final Tax Regime 6. Tax Credit 7. Income From Business 8. Tax on Tax 9. Losses 10. Minimum Tax 11. AOP BY : Kashif Nawaz Jakhar Contact No# 0331-4791167 Tax Year 2012
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Page 1: Notes on Income Tax

Short Notes On INCOME TAX

Topics Covered:

1. Salary

2. Employee share scheme

3. Income from property

4. Capital Gains

5. Final Tax Regime

6. Tax Credit

7. Income From Business

8. Tax on Tax

9. Losses

10. Minimum Tax

11. AOP

BY : Kashif Nawaz Jakhar

Contact No# 0331-4791167

Tax Year 2012

Page 2: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 2

PREFACE

Al-Hamd-O-Lillah, the 2nd addition of “Short Notes on Income Tax” has been completed. These notes have been prepared under the senior guidance of my dearest teacher Mr. Imran Shehzad (ACA) sb, who guided me through the way in the preparation of such quality notes for the students of Module-C. In these note, I covered almost all the material areas covering upto 50 to 60 marks in the paper including numerical calculations and fair presentations of the conceptual queries frequently asked by the ICAP-Examiner. These notes include:

a) Salary b) Income from property c) Income from business d) Capital Gain (37 & 37A) e) Income from other sources f) Final Tax Regime

I try to retain the focus of the ICAP-examiner in paper construction relative to the marks allocation as:

Topics Marks

Individual or AOP 20-25

Conceptual queries 30-35

I recommend to study these notes with reference to “ INCOME TAX & SALES TAX ” Khalid Petiwala’s Notes. I hope my efforts will help you to retain maximum marks in your examination. Utmost efforts have been made to make these notes free from errors, yet there is always a room for improvement. Any suggestion from you will highly be appreciated.

Kashif Nawaz

Page 3: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 3

TABLE OF CONTENTS

Sr. no. Topics Page no. Sr. no. Topics Page no.

1 Basic concepts 5 12 Bad Debts 36

2 Salary 9 13 SPV 37

3 Provident Fund 11 14 Methods of Accounting

39

4 Employee Share Scheme

12 15 Minimum Tax 40

5 Capital Gain 13 16 Losses ( concepts )

43

6 Final Tax Regime

15 17 Losses 45

7 Tax Credit 19 18 Group Taxation & Group Relief

49

8 Income From Business

22 19 AOP 53

9 In-admissible Expenses

25 20 Tax on Tax 57

10 Depreciation 27 21 Share from AOP

59

11 Amortization 35 22

Page 4: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 4

COMPUTATION OF TAX LIABILITY (Under NTR)

Part A Part B Part C

Profile of Assessee Computation of Income Rs. Computation of Tax Liability Rs.

Name: NTN :

(1) Personal Status

I. Salaried

II. Non-Salaried

III. AOP

IV. Company

(2) Residential Status

I. Resident

II. Non-Resident

III. Pakistan source

IV. Foreign Source

(3) Tax Year

I. Normal tax Year

II. Special Tax Year

III. Transitional Tax Year

Salary ( U/S 12 ) Income From Business

a) Speculative

b) Non-Speculative

Capital Gain ( U/S 37 ) Income From Other Sources Less: WWF WWPF Zakat Donations U/S 61 Add: Income from property Capital gain ( U/S ) 37 A Total Income ( excluding share from AOP ) Add: Share from AOP Total Taxable Income

xxx Xxx xxx xxx xxx (xxx) (xxx) (xxx) (xxx) xxx xxx xxx xxx XXX

Tax on Tax Able Income Tax on person Add : Income Prom Property Capital Gain ( U/S ) 37A Tax Credits: Less: Allowances Senior Citizen Allowances Full time Teacher Allowances Foreign Tax credit Less : Average Relief Investment in shares Contribution to PF Donation Profit On debt Less; Advance Tax Collection of Tax Deduction of Tax Advance Tax ( u/s 147 ) Tax Payable /Refundable

xxx xxx xxx (xxx) (xxx) (xxx) (xxx) (xxx) (xxx) (xxx) (xxx) (xxx) (xxx) XXX

Page 5: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 5

INCOME TAX ( Tax year 2012)

TAX LAWS

STATUS

Salaried Person : Total Salary Income . Total Taxable Income

AOP ( Association of person ) 25%

Resident when control and management of affairs is situated wholly or partially in Pakistan.

AOP may be a * firm * joint venture * Hindu undivided family * but does not include a company.

Income Tax Ordinance

Schedule Ordinance

Income Tax rules

AOP ( 25%) Company ( 35%)

Residential Status Personal Status

Explanation

Resident Non Resident Individual

X 100=If answer is >50%,then salaried person.

Non Salaried Salaried

Page 6: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 6

Company : 35%

(1) private (2) Public (3) Banking

Company incorporated in Pakistan , provincial govt. , and local govt. are resident

Other companies are resident if control and management affairs are situated wholly in Pakistan.

Resident :

183 or more days

Half day consider full day

NOTE: Only transit days are excluded.

Computation of Taxable income Income is classified as by law

Geographical Source of Income 1) Pakistan source Income 2) Foreign source income

Heads of income

Regimes 1) Normal 2) Final

SCOPE OF TAXABLE INCOME

1. Resident

Both incomes are taxable

2. Non resident

Only Pakistan source income is taxable

Page 7: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 7

3. Foreign source income of a short term resident

Pakistan source income is taxable

Foreign source income exempt which is not brought / received in Pakistan

He is in Pakistan only for employment not for business

Present in Pakistan for not exceeding 3 years

4. Foreign source income of a Returning Expatriate

non resident for last 4 years

National of Pakistan

An individual

Income ( current & next year exempt )

TAX YEAR

Transitional Tax Year

1-10-2008-to 30-09-2009

A period of 12 months ending on any date

other than 30th June

Special Tax Year Normal Tax Year

1july 02------30june 03 A period of 12 months

ending on 30th June

Whenever there is a change in tax year the period in between the normal tax year and special tax year is treat as transitional

tax year

Page 8: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 8

HEADS OF INCOME

1. Salary 2. Income from property 3. income from Business 4. capital gain 5. income from other sources

SALARY : ( taxed on receipt basis )

relationship of employee and employer

Cash basis

Income From property : ( taxed on accrual basis ) Rent from immoveable property ( Land & building )

Forfeited deposit against sale of immovable Property Only for that year in which Forfeited

Advance unadjusted Rent {Unadjusted amount X 1/10} in that year

Signing amount Note :

I. Mod of payment is irrelevant II. Any benefit given by tenant to his landlord is rent

Income from business Trade , manufacturing . any profession

Capital Gain ( gain from disposal of capital assets )

Shares , coins , postage stamp, jewelry

Income from other sources If any income does not fall under any other heads . then it

will be under the head of income from other sources. e.g., Dividend

Page 9: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 9

SALARY Any kind of benefit transfer or given by employer to employee will be taxed and it will be add in the salary income of the employee.

Components of salary

Perquisites 1) ACCOMMODATION : 45% of BS or Actual Expense of employer(rent) ( whichever is higher = add in salary )

2) Conveyance:

Only for office use ( T.E )

Owned ( cost ) I. Personal ( 10% )

II. Personal + Business use ( 5% )

Leased ( FMV ) I. Personal ( 10% )

II. Personal + Business use ( 5% )

3) Medical Facility :

a) Facility Given i. Under the contract ( T.E ) ii. Not Under the Contract (T.T )

b) Re-imbursement c) Insurance

Amount contributed by employer will be added in salary

T.T H.R.Allowance ( T.T )

Conveyance allowance ( T.T )

Medical allowance

(exempt upto 10% of B.S)

Accommodation

Conveyance

Medical facility

Loans

U. bills

Comp. shares

TA / DA

Basic Salary Perquisites Allowances Others benefits Terminal benefits

Gratuity

Provident fund

Pension

Golden hand

Shake

Page 10: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 10

4) Medical facility & medical Allowance both given

i. Under the contract a. Facility ( T.E ) b. Allowance ( T.T )

ii. Not Under the contract a. Facility ( T.T ) b. Allowance (Exempt upto 10% of BS )

5) Asset is given to employee Permanently

FMV of Asset – payment by employee = add in salary

6) Marginal cost: Nothing will be added in salary, if no additional cost incurred by the employer

Other Benefits :

Loan provided by employer Loan X 14% X time = XXX add in salary Note : if any interest paid by employee then that amount

will be deduct from above answer . and the remaining will be added in salary.

Terminal Benefits 1. Pension ( Exempt )

a. In case of 2 or more than 2 pensions ( higher will be exempt)

b. In case of re-employment with same employer or group No amount will be exempt

2. Gratuity a. Approved

I. Government ( T.E )

II. Fund ( T.E )

III. Scheme (exempt upto Rs.200,000 )

b. Unapproved

Rs. 75000 or 50% of gratuity amount ( lower will be exempt)

Note : unapproved conditions or exemptions will be not applied on the following Cases.

i. Non employee ii. Non resident iii. Not received in Pakistan

iv. Re-employment

Page 11: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 11

3. Provident Fund. = Employer + employee contribution Unrecognized PF Recognized PF

Annual X Note

Withdrawal Employer Contribution + interest = add in salary X

Note: Rs. Rs. Employer contribution (p.a) XXX 10% X ( BS + DA ) Or 100,000 (xxx) XXX add in salary

Interest on Acc. Balance (p.a ) XXX 1/3 X ( BS + DA ) Or 16% X Acc.Balance (XXX) XXX add in salary

Note : Acc. Balance = Employee cont. + Employer Cont. + interest Formula ::: ( For calculate missing figure ) Interest = Acc. Balance X Rate If any figure missing we can calculate with the help of above formula .

Whichever

is lower

Whichever

is lower

Page 12: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 12

EMPLYEES SHARE SCHEME Example :

Persons 2010 2011 2012 Kashif Option sale = Rs.5000

Rameez Acquisition of shares Sale = Rs. 70

Farhan Option sale of 200 shares @ sale price Rs. 3000

Balance(300) Acquisition Sale Rs.60/ share

On march 2010. FMV = Rs. 50/share Offer value = Rs. 30/share No. of share = 500 shares Advance = 2 per share On march 2011 FMV= Rs.40/ share

SOLUTON: Persons 2010 2011 2012

Kashif Salary 4000 X X

Capital Gain X X X

Rameez Salary X 5000 (500 X 10 )

X

Capital Gain X

X

500 X 30 = 15000 SP-FMV=70-40=30

Farhan Salary 2600 {3000-(200 X 2 )

3000 (300 X 10 )

X

Capital Gain X 6000 {300 X (60-40)}

X

60

Salary Rs.10

Capital Gain Rs.20

Benefit given by Market

Benefit given by employer or company

40

30

Here Rs. 10 = FMV – Offer Value

Page 13: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 13

CAPITAL GAINS

Definition : The Gain from Disposal of Capital Assets. Explanation:

a) Gain

b) Disposal

c) Capital Assets

Sale price/FMV --- cost of disposal

I. Sale with in one year ,100%

add in taxable income II. Disposal after one year ,75%

add in salary

Disposal Means

Sale

Transfer

Destroyed

Gift

Relinquished

Capital Assets :

These are not capital assets o Immovable o Intangible o Depreciable o Stock-in-trade o Other movables ( cars )

These are Capital Assets o Shares o Debentures o Shares of Private company o Shares of AOP o Membership cards of stock

exchange

Capital Gains

A B C

37 37 A

Gain/Loss Gain

Taxable income in case of Gain

I. Disposal within year, 100% add

in taxable income. II. Disposal after one year , 75%

add in taxable income.

Shares of public limited company

Redeemable debentures

Modaraba certificates

PTC vouchers

Derivatives

If these assets sold

With in 6 months = 10% of gain is taxable

With in one year = 7.5% of gain is taxable

After one year = No tax

So, After one year 25% of gain is Exempt. & 75% of gain is

taxable

Page 14: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 14

Non recognition rule: under the following conditions income is not taxed.

1) Inheritance 2) Gift 3) To transfer to a spouse 4) In case of dissolution of a company

1) Jewelry 2) Coins 3) Medallions 4) Postage stamp 5) Sculpture etc

ASSETS whose Gain is Taxable But no treatment of loss

Page 15: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 15

Final Tax Regimes

Regime: Traditions 1. NTR ( normal Tax Regime ) 2. FTR ( Final Tax Regime )

1. NTR : Just add the income on the basis of persons and applied tax.

PERSONS

I. Individual

Salaried

Non Salaried

II. AOP 25%

III. Company 35%

Incomes should be under there related head of incomes

Revenue – Expense = Income

Sale price – purchase price = income

Return file in case of NTR.

2. FTR : No expenses are allowed

e.g. Revenue = income

No heads of incomes

Tax rates are independents for persons

No loss

Income is Tax on gross basis

Statement file in case of FTR.

i. Dividend for o Individual o AOP

Shall be considered under FTR

ii. Dividend for o Company Shall be considered under NTR. So for companies the dividend shall be recorded under the head of “Income from business “ in case of banking business.

Note

Page 16: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 16

Dividend Income : Dividend income shall be deducted @10% of gross dividend which shall be considered full and final tax for the other than a corporate shareholder . e.g. Net dividend after deducting Tax and Zakat is Rs. 875 Calculate gross dividend . Solution : Formula : 875 . 87.5

X 100 = 1000

Page 17: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 17

Deduction Of Tax Collection Of Tax Advance Tax Final Tax

1. Deduction Of Tax: Deduct from Income Payer will deduct the Tax in case of deducting authority Income over which Deduction of Tax Applied Supply of Goods , Dividend , Services , Price winning , Salary , Export

2. Collection Of Tax : Collect from expense Services provider will collect the tax Expenses over which Collection of tax applied Cell phone payment , imports

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

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

Aisa tax jo kisi bhi source say collect ya deduct hova hoo.

Important Terms

D = Deduction from I = Income C = Collection from

E = Expense

Formula to Remember

Withholding TAX

Page 18: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 18

Table For understanding

Persons Individual/ AOP Unlisted companies listed companies

Supply Trading FTR FTR NTR

Manufacturing FTR NTR NTR

Contracts FTR FTR NTR

Retailers ( sale goods for final consumptions )

Condition Rate of Tax

Turnover > 5 m but < 10 m Rs.25000 + 0.5% of Turnover > 5 m

Turnover > 10 m Rs.25000 + 0.75% of Turnover > 10 m

Individual / AOP

Turnover < 5 million Turnover > 5 millions

Option to pay tax @ 1% of Sale

as Final Tax.

Compulsory to pay as

final tax

Page 19: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 19

TAX CREDIT Rs. Tax liability XXXX Less: Senior citizen allowance (xxx) Less: Full time teacher allowance (xxx) Less: Foreign Tax Credit (xxx) . A . Less: Investment in shares (xxx) Less: Pension fund (xxx) Less: Donation (xxx) Less: Profit on debt (xxx) XXXX Less: Advance Tax (xxx) Tax Payable XXXX or Tax Refundable (f negative figure) (XXXX)

Invest. In shares Pension Fund Donation Profit on debt

Actual Amount Actual Amount Actual Amount Actual Amount

15 % 20 % 30 % 50 %

500,000 ------ ------ 750,000

FORMULA : . A . Taxable Income

Note( Related to Tax Credit )

Lower

% of taxable income

X Lower = Tax credit

Page 20: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 20

Rules Of Tax Credit : Conditions Eligibility amount

Senior citizen allowance Age 60 years or more

Taxable income does not exceed Rs. 10,00,000

Then his tax liability shall be reduced by 50%.

Full time teacher allowance A full time teacher ; or

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

Then his tax payable shall be reduce by 75%.

Foreign tax credit If the foreign source income of a resident person is taxable in Pakistan

then the taxpayer shall be allowed tax credit in respect of foreign income tax paid by him as lower of:

Foreign income tax paid; and

Pakistan tax payable in respect of foreign source income at average rate of tax.

Investment in shares o Shares must be of listed Comp.

o Must be original allottee o Did not dispose in one year

o actual o 15 % of T.I o Rs.500,000

Contribution to pension fund

Approves Institution

Govt. hospital

Not trough CASH

May be direct or by cheque.

actual

20% of T.I

Donation Eligible person (u/s 19A )

PF must be approved

Actual

30% of T.I

Profit on debt Loan for house build.

Loan from bank or financial institution

Actual

50% of T.I

Rs.750,000

Lower

Lower

Lower

Lower

See illustration no. 2.9 & 2.10 of K.petiwala

Page 21: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 21

Full Time Teacher Allowance : Formula : Taxable salary(as F.T.T) Taxable Income Where : F.T.T means = Full time Teacher

Foreign Tax Credit :

Formula : Tax payable(Note 1) xxxx Taxable Income Tax paid in foreign Country = xxxx

Note 1 : Tax Payable xxxxx Less: Senior citizen allowance (xxxxx) Less: Full time Teacher allowance (xxxxx) Tax Payable ( Note 1 ) xxxxxx

X Tax payable

After deducting senior citizen allowance

X 75% = XXX

X Foreign source income =

Lower will be deducted

from tax payable

Page 22: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 22

INCOME FROM BUSINESS

Income ( 5 % discussion) Deduction ( 95 % Discussion ) Taxable

Exempt

Non speculative Speculative

WE discuss about it: 1: Definition

2: Losses

(Income – Deduction = T.Income)

Special (Separate Calculation)

Amortization Depreciation

Allowed (20% discussion)

Or ( Admissible )

Pre-commencement Research & Development

Dis-Allowed (80% discussion)

Or ( inadmissible )

Conditionally e.g. * salary in certain condition paid through cash * Tax is deducted

Without any condition e.g. * Tax

* Personal expenditure

Page 23: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 23

Example : ( of allowed and disallowed expenses ) !!!!!!!! Income statement according to IAS !!!!!!

!! Income statement according to Income Tax Ordinance 2001 !!

Solution : Computation OF Taxable Income :

Particulars Rs. Particulars Rs. Purchase Opening Stock Factory Salary (10) Depreciation (70) Income Tax Admin salary Profit

300 100 50 50 40 30 500

Sales Closing Stock Dividend

1000 50 20

1070 1070

Particulars Rs. Particulars Rs. Purchase Opening Stock Factory Salary Depreciation Admin salary Profit

300 100 40 70 30 510

Sales Closing Stock

1000 50

1050 1050

Rs. Rs. Accounting Profit Add: Disallowed Expenses Salary Depreciation Income tax Less: Allowed Expenses: Dividend Income Depreciation

10 50 40 20 70

500 100 (90)

Taxable Income 510

Page 24: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 24

SECTION. 20. ALLOWED EXPENSES All expenses incurred for business. Apportionment of Expenses : e.g. Common Expenses Income under FTR ( no expenses allowed ) = Rs. 500,000 Income under NTR ( expenses are allowed ) = Rs. 337,778 Formula for calculate Expense: Sale(under NTR) Total Turnover

500,000 400,000

FTR NTR

=900,000 (turnover) Expenses 600,000 purchases 50,000 salary

30,000 depreciation

Expenses Expenses

266667 22222 13333

333333 27778

16667

X Expense = xxxx

Page 25: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 25

Section . 21:

In-Admissible Expenses

Not Allowed Expenses: Following expenses are not allowed

TAX :

Income Tax

Sales Tax

Advance Tax

Violation Of Law ( Penalty )

AOP Salary or other benefit by AOP to its members are not allowed.

Salary Paid Notes :

o Salary , commission o Deducting the authority but did not deduct tax o Then the tax expense not allowed.

Those liabilities which effect the P & L A/C e.g.

a. Cash XXX To Loan XXX ( Capital Liability ) . b. Salary XXX To Salary Payable XXX ( Trading Liability ) . c. Purchases XXX To Mr. Z XXX ( Trading Liability ) .

Allowed (For Business)

Disallowed (Against Law)

TRADING LIABILITY

Page 26: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 26

DONATION

INCOME TAX

U/S 61 of 2nd Schedule Less: ( as Zakat ) Rate: 30 % Conditions:

o Pay in cash o By cheque o In any kind

Donation to approved institution. e.g. Govt. hospital ( Chapter #2) Rate: 30 % Conditions:

o Do not pay in cash o By cheque o In any kind

Preliminary Expenses: are disallowed upto commercial production ( pre-commencement expense )

Trading Liability: Not paid with in 3 years.

Page 27: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 27

Chapter # 12

DEPRECIATION

The Rules and Regulation For Depreciation Rules:

Depreciation shall be charged on depreciable assets.

Depreciation shall be charged after deducting initial allowance .

FORMULA : ( cost – initial allowance ) X Rate of depreciation e.g. ( 100 – 50 ) X 10% = 5

( Rate 50% ) All depreciable assets are also eligible depreciable assets except the following :

1. Furniture and Fixture 2. Transport vehicle not plying(use) for hire e.g. business or rent a car 3. Second time used plant and machinery

Note: In Pakistan one asset is :

Depreciable + eligible depreciable asset

Only for 1st user . For all other users that asset will be only a depreciable asset.

INITIAL ALLOWANCE ON VEHICLE CASES

INITIAL ALLOWANCE

Rent a car + Daewoo ( eligible depreciable asset )

Director’s car + company car

( not plying for hire )

Page 28: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 28

Eligible depreciable Assets:

Life more than one year Subject to wear and tear For business use

Initial allowance @ 50% shall be charged on the eligible depreciable assets in the 1st year only.

Depreciation shall be charged on reducing balance method.

Depreciation rates are as follows.

Rates Assets

10 % 30 % 15 %

Building Computer and related equipment All other assets

IMPORTANT NOTES

Depreciation Rates

HINT

Try to compute depreciation in the examination / prepare the depreciation schedule on written down

value bases.

Page 29: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 29

Assets use partially for Business: If an asset , use partially for business and partially for other objectives , we will charge

deprecation proportionally BUT initial allowance fully

Example: Business use ( 60 % ) & for other objectives ( 40 % )

Full yearly 60 % Cost Initial allowance Depreciation

10,00,000 (5,00,000) 5,00,000 (50,000) 4,50,000

5,00,000 50,000 (60%)

5,00,000 . 30,000. 5,30,000

Full year depreciation charge in the year of purchase.

No depreciation is charged in the year of disposal.

NOTE

Page 30: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 30

GAIN or LOSS in disposal of Depreciable Asset: The gain or loss on disposal of depreciable assets charged to income from business.

Gain or Loss = Sale price/FMV ( higher) –- Tax WDV

WHERE: Tax written down value = Cost – Tax depreciation WHERE: Tax Depreciation = Depreciation + Initial allowance

Full year depreciation charge in the year of purchase.

No depreciation is charged in the year of disposal.

COMPUTATION OF GAIN or LOSS

NOTE

Page 31: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 31

Examples :

a(I)

Computation of Depreciation e.g. numerical example

Year Furniture & Fixture

Plant Tax allowance

2007 cost 500,000 10,00,000

Initial allowance(50%)

(500,000)

500,000

500,000 500,000

Depreciation(15%) (75000) (75000) 150,000

425,000 425,000 650,000

2008 Depreciation(15%) (63750) (63750) 127500

361250 361250

2009 Depreciation(15%) (54188) (54188) 108376

307062 307062

b(II)

Computation of Gain or Loss

Assume the plant sold for Rs.500,000 in 2009. now compute the gain or loss. = sale price – tax WDV = 500,000 – 361250 Gain = 138750

it’s the income from business in 2009. now less depreciation Rs. 54188 of this year from

this income .

Page 32: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 32

a(II)

Asset Partially Used For Business (assume 60% for business use )

Year Plant Tax Allowance/ dep. allowance

2007 Cost 10,00,000

Initial allowance (500,000) 500,000

500,000

Depreciation(15%) (75000) 45000

425,000 545,000

2008 Depreciation(15%) (63750) 38250

361,250 583,250

2009 Depreciation(15%) (54188)

307,062

NOTE: the depreciation column must be draw and calculate depreciation.

b(II)

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

= Sale price – [ cost – ( initial allowance + depreciation)] = 500,000 – [ 10,00,000 – 583250 ] = 83250 income from business

Page 33: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 33

Cases for Gain or Loss ( three cases )

Exceptions:

Building ( Case 1 )

Export of use asset ( Case 2 )

= sale price – Tax WDV = Sale Price – ( cost – tax Depreciation )

NOTE: If sale price is above the cost price then the cost shall be consider as sale price So, =Sale Price – ( sale price – tax Depreciation ) =Sale Price - sale price + tax Depreciation = Tax depreciation “”It means that the INCOME will be equal to the TAX DEPRECIATION “”. e.g. Tax depreciation = Gain 500,000 = 500,000

= sale price – Tax WDV = Sale Price – ( cost – tax Depreciation )

NOTE: If a used asset sold, out of Pakistan , sale price will be consider as cost. So, = cost – ( cost – tax Depreciation ) = cost – cost + tax Depreciation = Tax depreciation

NOTE: It is assume that the asset , sold at price , at which that was purchased.

Case 3: “” CAR “” its not about vehicle . because all cars are vehicle but all vehicles are not cars. Even it is purchased above the Rs. 1500,000 , we will consider Rs. 1500,000 and the depreciation will be calculated on this amount. e.g.

Year “ X “ car “ Y “ car 2010 Cost 20,00,000 1200,000

Depreciation ( 15 % ) ( 225,000 ) 1500,000 X 15 %

( 180,000 ) 1200,000 X 15 %

Written Down Value *1275,000 1020,000

*Where 1500,000 – 225,000 = 1275,000

Maximum cost of car is Rs. 1500,000

NOTE

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INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 34

Both cars were sold for Rs. 1500,000 each NOTE: sale price ki amount utni laini hai , jitni cost ki %age allow ki gai thi FORMULA : 1500,000 cost So, = sale price – Tax WDV and , sale price = 1500,000 X 75% = 1125,000 1500,000 . 20,00,000

“ X “ car “ Y “ car = ( sale price x n ) – Tax WDV = 1125,000 – 1275,000 Loss = ( 150,000 )

= sale price – Tax WDV = 1500,000 – 10,20,000 Gain = 480,000

ASSUME

n = X 100

only for those assets whose cost id above Rs.1500,000

X 100

Page 35: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 35

AMORTIZATION

amortization is allowed on intangible assets. intangible asset--------definition . amortization shall be charged on per day used method. no amortization in the year of disposal the maximum life of a intangible asset is 10 years.

e.g.

NOTE: use full life in days

Year Copy Right Patent

2011 2012

Purchase price= Rs. 200,000 Life = 7 years Date of purchase . 1-1-2011 Year end = 30 June, 2011 Solution, = = = 14168 = = 28571

Purchase price= Rs. 300,000 Life = 15 years Date of purchase . 1-1-2011 Year end = 30 June, 2011 Solution, = = = 14876 = = 30,000

NOTE if life exceeds 10 years or unknown , in this case, 10 years will be consider as the life of intangible

asset.

cost .

useful life x days used

200,000 .

7 X 365 x 181

x days used

200,000 .

7 X 365

300,000 .

10 X 365 x 181

x 365 x 365 300,000 .

10 X 365

cost .

useful life

Page 36: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 36

BAD DEBTS Sale to Mr. A for Rs. 100,000 on credit in 2009. it will the income for 2009 under NTR. 2010 : Mr. A didn’t pay back. we claim Rs. 100,000 in Tax` Department for allowing us expense.( bad debts ). but tax department allow expense to us Rs. 50,000.

2011: No. Situations. (Receipts) Actual Bad Debts Tax Treatment

A 100,000 nil 50,000 ---Income

B 50,000 50,000 No treatment

C Nothing 100,000 50,000 --- expense allowed

D 80,0000 20,000 30,000 ---income

Ways of asking question about Bad Debts in exam.

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

2) Recovery of Bad Debts : Tax treatment .

Formula : Allowed – Actual = + or –

NOTE

If answer is + then = add in income from business If answer is - then = less from income from business

Page 37: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 37

!!!!!!! Perquisites for claiming Bad Debts !!!!

The amount must be declared as income before.(pahly)

Entry of bad debts has been passed in the books of accounts.

NOTE : it is not necessary that the department will allow the whole amount as expanse which we claimed in the department.

!!!!!!! ACCOUNTING TREATMENT OF LEASE !!!!

amount paid for lease. Amount of Lease ( Rs.50,000 ) Expense claim in accounting :

depreciation 10,000 Interest 1,000 Insurance 500 11,500 Expense claim in Tax : The amount which paid against lease that amount will be allowed. ( Rs. 50,000 )

Depreciation ( 10,000 )

Insurance

( 500 ) Capital Interest

( 1000 )

Page 38: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 38

!!!!!!!!! PROFIT ON DEBT !!!!!!!!

( Interest )

We borrow the amount . So interest is our expense ALLOWED EXPENSE debt is utilized for business .its not the part of cost.

SPV Special purpose vehicle A person or Organization which used for special purpose. e.g. SPV: Originator SPV

single company = loan 5 million Group = loan 20 million

SALE OF DEBTOR

loan from subsidiary is not allowed .

.5 interest

.5 interest

5 m loan

BANK

Itefaq ( IT )

Investment

Itefaq

(Sugar)

NOTE

Loan & lease are both allowed to SPV.

NOTE

NOTE If any Income earned by SPV . That income will be exempt

because income earning is not its objective.

Originator

6 million

SPV 1 m --income(exempt) 5 m – loan return Bank

Page 39: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 39

METHODS OF ACCOUNTING

Closing Stock Valuation

e.g.

Factor of Production

Absorptional Costing

Factor of Production

Marginal Costing

Material 50 Material 50

Labour 10 Labour 10

FOH Variable Fixed

20 10

FOH Variable

20

90 80

Define Small company . Rate : 25 %

Accrual Basis ( Absorptional Costing ) Cash basis ( Marginal Costing )

Company Individual / AOP Option

Absorptional Costing

( Add all kinds of Costs )

Marginal Costing

( Fixed FOH will be excluded )

Page 40: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 40

MINIMUM TAX Rate :

1 % of Turnover Or Actual Tax Liability

income is exempt .

Who will pay Tax :

Resident Company Individual having Turnover 50 million or Above. AOP having 50 million or Above.

Turnover : means,

Sale Excludes sales tax , excise duty Services Share from AOP

Provisions : Excess of actual Tax Liability shall be carry forward for subsequent 3 years.

Higher

Advance Tax = Actual Tax Liability – 1 % of Turn Over

1st Year

Advance Tax =Remaining Actual Tax Liability – 1 % of Turn Over

2nd Year

HINT

Excess of 1 % of T.O from Actual Tax Liability will be advance tax and that excess amount will be deduct in the next year from actual tax liability. And then the remaining of actual tax liability will be compare with 1 % of turn over. Higher of :

Actual Tax liability &

1 % of Turnover will be payable.

Page 41: Notes on Income Tax

INCOME TAX (Tax Year 2012)

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EXCEPTIONS: Minimum tax not apply , if business entity declare

gross loss before depreciation and other inadmissible expenses.

Commissioner has the power to re-asses the income.

Minimum tax not apply on certain cases. e.g. Modaraba , non-profit organization.

Employee Training and Facilities :

allowed expenditures other than capital expenditures .

o Hospital or educational institution for the benefit of employees.

o For the training of industrial workers run by federal or Provincial Government

o Training of citizen of Pakistan . e.g. PHD

TAX paid on import Stage : Tax collected by collector of custom on import of,

edible oil &

packing material

TAX deduct from services as minimum Tax :

6 % at source from gross income.

no adjustment or refund shall be allowed.

NOTE : Services provided to a person , who is not Tax deducting authority then the said services income is not subject to minimum Tax.

This provision of minimum tax is not applicable for a company , receiving income

from services.

HINT

Page 42: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 42

Advance Tax on Electricity Bill As minimum Tax : advance tax is payable on

1. Commercial &

2. Industrial Bills RANGE :

TAX Amount From Rs.80 to Rs. 1500 Monthly bill exceeds Rs.400 but does not exceeds Rs.

2000

If monthly bill exceeds Rs. 20,000

Electricity bill for person other than Company :

Bill upto Rs. 30,000 per month shall be treated as minimum tax.

No refund or adjustment shall be allowed.

Scientific Research Expenditure :

Deduction allowed , if expenditure incurred in Pakistan

For business purpose

!!!!!! Scientific Research !!!!! Any activity in the field of natural (mining, oil refinery) or Applied Science (new technology) for the development of human knowledge.

Users Rate Commercial 10 %

Industrial 5 %

Page 43: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 43

CH # 15 : LOSSES General concepts : in urdu

Categories of tickets :

A type ticket

B type ticket

C type ticket

Usage of tickets : explanation in Urdu.

A type ticket: A type ticket say ap train k box 1 & 2 main baith sakty hain. ager in boxes main jaga na hoo tu ap next any wali 6 ( six ) trains main bhe ap un k box no. 1 & 2 main baith sakty hain. laiken in boxes k elawa ap kisi bhi aor box main nai baith sakty.

B type ticket: B type ticket say ap mojoda train k kisi bhi box main baith sakty hain. aor ager is train main jaga nai hai tu ap any wali kisi bhi train main nai baith sakty.

ENGINE 1 2 3 4

Page 44: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 44

C type ticket: C type ticket ki madad say ap mojoda train k to kisi bhi box main baith sakty hain laiken ager mojoda train main jaga na hoo to ap next any wali 6 ( six ) trains main un k box no. 3 main hii baith sakain gay.

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

HINT

for understanding

Page 45: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 45

Ch # 15.

LOSSES

under NTR. because under FTR losses and expenses are not allowed. HEADS OF INCOMES UNDER NTR

salary NO Loss

income from property

separate block of income No Loss

income from business non-speculative C type speculative A type

capital gain 37 A type 37-A

other losses. B type

EXPLANATION: A type: can be carry forward but they can by set off only against the incomes of their heads. B type: can be set off only C type: can be carry forward and set off. but they can be set off only in 1st year.

Set off : adjustment of one income or loss in other head .

Inter head adjustment: adjustment in the same head.

Carry forward: Transfer to next year.

Losses can be set off only against the incomes from other items U/S 37 A.

Page 46: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 46

Example : 1

Case 1 Rs.(000)

Case 2 Rs.(000)

Salary Non-speculative business Speculative Capital gain Other Losses

500 (800) (400) 700 (300)

500 (900) (400) 700 (300)

Total Income 1200 1200

Requirement : I. Compute taxable income II. amount of loss to be carry forward

Solution: I.

Case 1 Rs.(000)

Case 2 Rs.(000)

Total Income Other losses Non-speculative business

1200 (300) 900 (800)

1200 (300) 900 (900)

Total Income 100 ------

II. Losses to be c/f. non-speculative ( 400 ) ( 400 )

Page 47: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 47

Example : 2

Case 1 Rs.(000)

Case 2 Rs.(000)

Salary Non-speculative business Speculative Capital gain Other Losses or Gain

500 (1000) (400) 700 (300)

500 (1000) (400) 700 300

Total Income 1200 1500

Requirement : III. Compute taxable income IV. amount of loss to be carry forward

Solution: I.

Case 1 Rs.(000)

Case 2 Rs.(000)

Total Income Other losses Non-speculative business

1200 (300) 900 (900)

1500 (1000)

Total Income ------- 500 .

II. Losses to be c/f. non-speculative (1000-900) ( 100 ) ------- Speculative ( 400 ) ( 400 )

Page 48: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 48

A: In case set off losses. 1st set off other losses 2nd set off non-speculative business losses.

B: In case of carry forward losses. year wise.

2009 ( 100 ) 2010 ( 200 ) 2011 ( 500 )

If there is gain in 2012 , then use FIFO method of adjustment of losses.

2012 10000 2009 ( 100 ) 2010 ( 200 ) 2011 ( 500 ) 200 .

HINT

Page 49: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 49

GROUP TAXATION as a single fiscal unit. Features of group taxation:

100% owned group of companies locally incorporated under companies ordinance 1984.

Loss of any group will be set-off against income of any other group.

consolidated group accounts as required under companies ordinance , 1984 will form.

I. Basis of computation of income II. tax payable by the person

GT relief will not be available to losses prior to the formation of the group.

Inter corporate dividend income with in the group companies entitled to group taxation shall be exempt .

GROUP RELIEF { surrender of tax loss by a subsidiary company } a subsidiary company may surrender its assessed loss

( excluding b/f loss and capital loss ) for the tax year in favor of its holding company or any subsidiary of the holding company.

The holding company shall directly hold , share capital of the subsidiary company as under,

55% or more in case of listed companies.

75% or more in case of non-listed companies.

Note

Note

The loss surrender by 1 subsidiary company may be adjusted by the holding company or subsidiary company against its business income in the tax year and the following

two tax year.

NOTE

Any un-adjusted loss shall be revert back to the subsidiary company and shall be carry forward in the normal manner.

Page 50: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 50

Example : S stands for subsidiary company H stands for holding company Assume : loss incurred in 2006 (adjusted in next 6 tax years) 2012. the losses were surrender for two years.

So, 2007----- 2008 2009, 2010, 2011, 2012 S-2 S-1 losses = 30+40= 70 Remaining 30 were adjusted by original subsidiary company.

S-1

S-2

H

Listed Company

LOSS = 100 (surrender)

1st year = 30 2nd year = 40

Page 51: Notes on Income Tax

INCOME TAX (Tax Year 2012)

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Conditions of Group Relief

1. Ownership of share capital shall be continued for 5 years to the extent of 75% or 55%.

2. Trading company with in the group shall be entitled to avail group relief.

3. If the holding company is a private company, it is required to be listed with in 3 years from the year in which loss is claimed.

4. group companies are locally incorporated companies under companies ordinance 1984.

5. board of directors approval of both the companies is required. 6. Subsidiary company , continuous the same business during the

said period of 3 years. 7. all the companies in the group shall comply with specific

corporate governance requirement. 8. Inter corporate dividend with in the group companies entitled

to group taxation shall be exempt. 9. The subsidiary company cannot surrender its assessed losses for

more than the 3 tax years. 10. The tax relief availed would be reversed if holding company’s

equity interest falls below 75% or 55%. As a consequences of disposal of shares during the stipulated period of 5 years .

11. Loss claiming company , may , with the approval of Board of directors , transfer cash to loss surrendering company , equal to the amount of tax saving in this respect.

This transfer shall would not be allowed tax expense for the loss claiming company or taxable income for the loss surrendering company.

Page 52: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 52

S stands for subsidiary company H stands for holding company This Cash of RS.10 received by Loss surrendering company will be not treated as income of this company.

Transfer of shares between the companies and the shareholder , in one direction , would not be taxable capital gain provided the transfer is , to acquire share capital for the formation of the SECP or STATE BANK has been obtained in this effect.

S-1

S-2

H

LOSS = 100 (surrender)

Some Important Concepts

1st year = 30 2nd year = 40 Benefit = Rs15

Cash Rs.10

Page 53: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 53

CH # 6

ASSOCIATION OF PERSONS ( AOP )

1. In Case of Loss ( Loss of AOP ): Loss shall not be distributed among the partners .

2. In case of income: Income shall be distributed among the partners .

3. If any partner have no income other than the share from AOP ( income from AOP ) then his , this income ( share from AOP ) shall be exempt.

4. if any partner have income other than the share from AOP ( income from AOP ) then his , this income ( share from AOP ) shall be included only for tax purpose.

5. For checking individual status “ share from AOP “ shall be excluded.

6. For calculating full time teacher allowance “share from AOP” shall be excluded.

7. For average relief “share from AOP “ shall be included.

1. Investment in shares 2. Donations 3. Contribution in

pension fund 4. profit on debt

Assume for “ Investment in shares “ : 10% of Taxable income 300,0000 Lower Actual And : Tax liability . Taxable income (Including share from AOP )

Important Notes

Rules For

Excluding Share from AOP

X Lower

Page 54: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 54

Example : Total taxable business income = Rs. 10,00,000 Tax ( 25% ) = Rs ( 2,50,000 ) Distributable Income 7,50,000 . Assume there are 3 partners of AOP.

Partners Rate of share Share from AOP Business Income

A ( Individual ) 20% 150,000 500,000

B ( Individual ) 30% 225,000 -------------

C ( Ltd Company ) 50% 375,000 500,000

Requirement : compute taxable income of AOP and its members. Also compute tax payable .

Solution : (i) Mr. A

Rs.

business income 500,000 Add: share from AOP 150,000 Total Taxable Income 650,000 Tax Liability Tax on Rs. 650,000 @ 10% 65000 Less: Tax ( individual) . Taxable Income ( individual ) 65000 . 650,000 ( 15000 ) Tax Payable 50,000 .

Not Distributable Income

Income After Tax

X share form AOP

X 150,000

Page 55: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 55

(ii) Mr. B; Mr. B’s income shall be exempt because he has no income other than share from AOP.

(iii) C ltd Company : Rs. Business income 500,000 Add: share from AOP 375,000 Total Taxable Income 875,000 Tax Liability Tax on Rs. 875,000@ 35% 306250 Less: Tax ( of AOP) . Taxable Income ( AOP ) 250,000 . 10,00,000 ( 93750) Tax payable 212500 .

X share form AOP

X 375,000

Page 56: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 56

General Format of ( Income tax numerical ): Compute Taxable Income RS Salary Income XXXX Capital Gain XXXX Business Income XXXX Other source income XXXX XXXX Zakat ( XXX )

Donation ( XXX ) XXXXX Add : share from AOP ( XXXX )

Taxable Income XXXX .

Computation of tax liability . RS

Tax liability XXXXX Property XXXXX 37-A XXXXX Tax Liability XXXXX

Less : Senior citizen Allowance (XXXX) Less : Full time Teacher Allowance (XXXX) Less : Foreign Tax Credit (XXXX) XXXXX Less : Investment in shares (XXXX) Less : Donation (XXXX) Less : Contribution (XXXX) Less : Profit on debt (XXXX) XXXXX

Less : Advance Tax (XXXX) Tax Payable XXXXX

Page 57: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 57

TAX ON TAX Tax of employee paid by the employer.

Impacts:

1. Income Tax in Salary.

2. Advance Tax Less from tax liability.

How to Compute:

Mostly in exam this amount will be given.

Compute: Cases

1. Fully paid by employer

2. Partially paid by employer and partially paid by employee

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

Tax Born by Employer

Page 58: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 58

The Tax calculation will be same as we calculte in other questions. Means :

Tax on Rs. XXX @XXX % is = XXX

Marginal Relief Rs. XXXX @ XXX % = XXX Marginal amount {difference between total taxable income and Marginal relief @ XXX% } = XXX = XXX

Lower of 1 & 2 will be Tax liability = XXXX

the same calculation should be repeated for minimum 3 times Maximum 5 times

After the repeated calculations now the individual will calculate tax as below. The following figures are assumed figures. Taxable Income = 500,000 Tax paid by employer = 13050 Total taxable Income 513050 Tax on Rs. 513050 @ 2.544% 13050 Advance Tax ( paid by employer ) 13050 ------

NOTE

1

2

NOTE

Page 59: Notes on Income Tax

INCOME TAX (Tax Year 2012)

By : Kashif Nawaz Jakhar Page 59

SHARE FROM AOP

Computation of taxable income Taxation of members

Computation of taxable income : Assume share fro AOP is equally distributed among the members of AOP. EXAPMLE :

Mr. X ( 50% ) Mr. Y ( 50% ) Total

Salary 50 10 60

Electricity Bills ------- 40 40

Share from AOP 200 200 400

250 250 500

Calculation of distributable income taxable Income ( AOP ) 1200 Less: Tax liability (700) Distributable income 500

THE END

Rs.400 is balancing figure

Distributable Income This amount will be added in the income from other sources of the Mr. X only for

Rate purpose

If we assume that Mr. Y have no any source of income other than share from AOP. So in this condition the share from AOP for Mr. Y will be

exempt