Professional Documents
Culture Documents
Chapter
21
SOLVED PAST PAPERS INCOME TAX NUMERICALS OF MOD-
C (2001 TO 2015)
Note: All the following questions have been solved under the Income tax Ordinance, 2001 effective from July 01, 2015.
Q.NO.1 Spring 2015 On 1 July 20X4, Tahir commenced business of manufacturing garments. Income statement of
the business for the year ended 30 June 20X5 is as follows:
Cost of preparation of a feasibility study amounting to Rs. 250,000 which was issued prior to the commencement of business.
Salary of Rs. 50,000 per month was paid to Tahir’s brother who handles the financial matters of the business.
iii. Financial charges include Rs. 80,000 pertaining to a vehicle obtained on lease from a leasing company. The cost of vehicle was Rs.
1,300,000. Depreciation of Rs. 260,000 has been included in administrative and selling expenses. Lease rentals paid during the year
amounted to Rs. 300,000.
iv. Other charges include:
running and maintenance expenses of vehicle amounting to Rs. 295,450. Use of vehicle for personal purposes was
approximately 20%.
provision for bad debts amounting to Rs. 25,000.
Other information:
i. Tahir was working in UAE for the past five years and had come back to Pakistan in April 20X4. He received an amount
equivalent to Rs.150,000 from his ex-employer as differential amount on his final settlement in August 20X4.
ii. He sold a plot for Rs. 3,500,000 which was inherited from his father in 20X1. Fair market value of the plot at the time of
inheritance was Rs. 1,500,000.
iii. 5,000 shares were purchased for Rs. 600,000 from initial public offering of a new listed company.
iv. Premium of Rs. 300,000 was paid on Tahir’s life insurance policy.
Required:
Under the provisions of the Income Tax Ordinance, 2001 compute the taxable income and tax liability of Tahir for the tax
year 20X5. Provide comments in respect of items which do not appear in your computation.
Mr. Tahir
Resident : Individual
Tax Year : 2016
Computation of Taxable income and tax thereon
Income from Business (W-1) 1,939,840
Total Taxable Income 1,939,840
Working - 1
Income from Business
Working - 2
Depreciations WDV Depreciation
Cost of Machinery 1,500,000
Less: 25% Initial allowance (375,000) 375,000
1,125,000
Less: Depreciation (168,750) 168,750
Total 956,250 543,750
Working - 3
Higher of investment in shares OR Life Insurance
Note -1 As the taxpayer is a returning expatriate hence no treatment of foreign source salary has been made as the same
is exempt under section 51 of the Income tax ordinance, 2001.
Note -2 No treatment of gain on disposal of plot has been made as the same is not taxable due to its disposal after two
years from the date of its inheritence.
Q.NO.4(b) Spring 2015 On 1 July 2014, Fahim agreed to rent out a house to Mirza at a monthly rent of
Rs. 180,000 with effect from 1 August 2014 and received one year’s rent in advance. He also received Rs. 800,000 as a
security deposit which was partly used to repay the security deposit amounting to Rs. 400,000 received from the
previous tenant in July 2010 and partly used for renovation of the house.
Fahim also incurred the following expenses in respect of the above house:
(i) property tax of Rs. 15,000.
(ii) payment of interest amounting to Rs. 200,000 to his friend against amount borrowed for renovation of the
house.
(iii) insurance premium of Rs. 110,000.
(iv) Rs. 5,000 per month to Wasif for collection of rent.
Required:
Under the provisions of the Income Tax Ordinance, 2001 compute the taxable income of Fahim for tax year 2015
assuming he has no other income.
Mr. Fahim
Tax Year 2016
Computation of taxable income
Income from Property
Rent (180,000 x 11) 1,980,000
Unadjustable advance (W-1) 64,000
2,044,000
Less: Deductions u/s 15A
1/5th repair allowance 408,800
Property tax 15,000
Profit on debt for renovation of rented house 200,000
Insurance premium 110,000
Lower of actual collection & admin charges or 6% of RCT 55,000 (788,800)
Taxable Income 1,255,200
W-1
Working for Unadjustable advance
[ 800,000 - ( 400,000 / 10 x 4 ) ] / 10 64,000
Q.NO.6 Spring 2015 Aslam is a resident taxpayer who operates his business from Lahore (LHR) and Paris
(PAR). In August 2014, he established a new branch in Berlin (BER).
Following information is available in respect of his business operations for tax year 2015:
Capital loss - 6 -
The following amounts paid by Aslam in respect of BER have been charged to LHR:
(i) salaries for the first three months amounting to Rs. 5 million.
(ii) rent expense for the year amounting to Rs. 7 million.
Required:
Under the provisions of the Income Tax Ordinance, 2001 calculate the tax payable by Aslam in the tax year 2015
and foreign tax losses to be carried forward to next year, if any.
The un-adjusted business loss of PAR of Rs. 15 million and Ber of 27 million shall be carried forward for adjustment
against succeeding years foreign source business income with limitation of maximum upto six tax years.
Less tax credit for foreign source capital gain (Lower of Pakistan (3)
average tax OR Foreign tax paid)
19
Less advance tax paid (10)
Balance tax payable 9
No tax credit on foreign (PAR) source business income has been computed as the tax on such income in Pakistan is nil
as comared to Rs. 3 million in Ber.
Q.1 CAF September 2014 Sultan is working as electronic engineer with Ansari Electrical Company Limited (AECL). He
has provided you with the following information for the tax year ended 30 June 2014:
(b) He was also provided the following benefits in accordance with the terms of his employment:
(i) Leave encashment amounting to Rs. 300,000.
(ii) Hospitalization cost is covered by an insurance policy up to the amount of Rs. 1.5 million. The insurance
premium relating to this benefit amounted to Rs. 55,000.
(iii) He is allowed to use his personal car for office use. Reimbursement of car running and maintenance expenses
amounted to Rs. 550,000. 15% of these expenses pertain to personal use.
(c) Rs. 200,000 were received from a private limited company for attending board meetings.
(d) A lump sum amount of Rs. 1.2 million was received as the author of a literary work.
(e) Sultan took three years to complete this literary work.
(f) Sultan is also a part time singer and owns a studio. He sold the premises in which the studio was situated for Rs. 10
million and shifted his musical instruments to new premises which he purchased for Rs. 15 million. He received Rs. 2.5
million from his father in cash as loan to pay for his new studio. The previous premises was purchased several years ago
for Rs. 1.4 million and had a tax written down value of Rs. 600,000 at the time of disposal.
(g) The net income from the studio for tax year 2014 was Rs. 990,000. The expenses include salaries of two
workers at Rs. 15,000 and Rs. 18,000 per month and utility bills amounting to Rs. 110,000. All expenses were paid in
cash.
(h) He won a car, in a competition held by Star Motor Limited for promotion of its sales. The fair market value of the car
was Rs. 850,000.
(i) He gifted 40 fans having a fair market value of Rs. 100,000 to an approved charitable organisation.
(j) An amount of Rs. 500,000 was paid by him as contribution to an approved pension fund.
Required:
Under the provisions of the Income Tax Ordinance, 2001 compute the taxable income and tax thereon for the tax year
2014.
Mr. Sultan
Resident : Individual
Tax Year 2016
Compitation of taxable income and tax thereon
Rs. Rs.
Income from Salary
Basic Salary 5,760,000
Medical allowance 576,000
Utilities allowance 660,000
Accommodation
Rent free accommodation 900,000
45 % of 5,760,000 2,592,000 2,592,000
Leave encashment 300,000
Conveyance allowance 82,500
9,970,500
Income from Business
Studio Income 990,000
Inadmissible expense 216,000
Gain on sale of studio 800,000 2,006,000
Q. NO. 1 Spring 2014 Qamar is engaged in the business of manufacturing and repair of electric motors. His
accountant has prepared the following tax computation for the tax year 20X4:
Computation of tax
Tax liability 125
Less: Tax deducted by bank on interest income (500,000 x 10%) (50)
Tax payable 75
Following expenses are included in the cost of sales and administrative expenses:
Qamar is not satisfied with the tax return prepared by his accountant and has requested you to review the return.
Required:
(a) Compute the revised taxable income of Qamar and tax payable by or refundable to him for the tax year 20X4.
(b) Briefly comment on treatment of the above items of expenses in your tax computation.
Solution: (a)
MR. QAMAR
Revised taxable income & tax thereon
For the tax year 2016
Rs. in '000'
INCOME FROM BUSINESS U/S 18
Income form other sources (assumed net of allowable expenses and fully
covered under normal tax regime) 850
Total income 500
Less straight deduciton U/C 61 of Part II of 2nd Schedule to the
Income tax Ordinance, 2001. [Rs. 300,000 or 30% of Rs. 500,000] (b - 2) 150
Taxable income 350
As the income is less than Rs. 400, 000 (maximum non taxable limit) hence no tax liability has been
computed under normal tax regime (read with N - 1).
ASSUMPTIONS / BASIS:
(N - 1) In the absence of information no minimum tax under section 113 of the Income Tax Ordinance, 2001 has been
computed.
Less:
Electricity charges - residence 150
Donation to a non-profit Orgnization 300
Unabsorbed depreciation brought forward from previous tax year 500
Fine paid for infringement of environmental laws 200
(1,150)
Revised cost of sales 31,850
Solution: (b)
(1) Un-absorbed depreciation of (current year and brought forward) may be adjusted against any other head of income
chargeable to tax (except income under the head salary or income from property) under section 57(4) read with section
56(1) of the Income Tax Ordinance, 2001.
(2) It has been assumed that the limitations of clause 61 has been met by the AOP in order to claim the same as
straight deduction from total income.
(3) As the personal expenses are not allowable under section 21(h) of the Income tax Ordinance, 2001 hence the
electricity charges of residence has been accordingly deducted from the given cost of sales amount.
(4) As the fine or penalty for voilation of any law, rule or regulation is not allowable under section 21(g) of the Income tax
Ordinance, 2001 hence the fine paid for infirngment of enviornmental laws has been accordingly deducted from the given
cost of sales amount.
Q. NO. 4 Spring 2014 Basher and Jamil jointly own a house in Karachi. Basher has 75% share in the house. On 1
September 20X3, the house was let out at an annual rental of value of Rs. 6,500,000. This amount includes Rs. 186,000
per month for utilities, cleaning and security.
During the tax year 20X4, owners incurred the following expenditures in relation to the house:
Rupees
Utilities, cleaning and security 650,000
Repair and maintenance 810,000
Insurance premium 240,000
Collection charges 25,400
Mark-up on amount borrowed for extension of the house 840,000
Basher and Jameel have no other sources of income. All the above expenses were incurred by them jointly.
Required
Calculate taxable income of Basher and Jameel under appropriate heads of income for the tax year 20X4.
Solution:
Income from utilities, cleaning and securities (Rs. 186,000 x 10) 1,860,000
Tax on Rs. 1,210,000 [Rs. 32,000 + (Rs.1,210,000 - Rs. 750,000) x 15%] 101,000
Divisible income afer tax 1,109,000
(N - 1) Share of both the members in income from other sources of the AOP has been included for rate purposes of
respective member of the AOP.
Mrs. Aslam was employed with Sahal Limited (SL) as a Marketing Manager. On 30 June 2012 she resigned from her
employment with SL. On 1 July 2012, she joined Hassan Pakistan Limited (HPL), a quoted company, as a Marketing
Director. She has provided you the following information in respect of the tax year 2013:
(i) In July 2012, she received following amounts from SL in final settlement:
● Leave encashment amounting to Rs. 95,000.
● Gratuity of Rs. 500,000 from an unrecognized gratuity fund maintained by SL.
● Reimbursement of Rs. 100,000 against a health insurance policy. The insurance claim was lodged by SL on
behalf of Mrs. Aslam in January 2012.
(ii) In accordance with the terms of her employment, income tax related to her salary and benefits is to be borne by HPL.
Her emoluments / benefits during the tax year were as follows:
● Basic salary of Rs.200,000 per month.
● Medical allowance of Rs. 60,000 per month.
● Rent free accommodation with annual letting value of Rs. 480,000.
● Travelling allowance of Rs. 50,000 per month. 60% of the amount was spent in the performance of official
duties.
● Provident fund @ 10% of basic salary. An equal amount was contributed by HPL.
(iii) Under an employee share scheme, Mrs. Aslam was awarded 5,000 share in HPL on 1 January 2013. Under the
scheme she was not allowed to sell the shares up to 31 March 2013. she sold all the shares in HPL on 1 May 2013. Fair
value of the shares on the above dates was as follows:
● Rs. 20 per share on 1 January 2013
● Rs. 28 per share on 31 March 2013
● Rs. 32 per share on 1 May 2013
(iv) On 31 December 2012, she received a loan of Rs. 400,000 from HPL. The loan carries a mark-up of 4% per
annum. The prescribed benchmark rate is 10%.
(v) She won the best executive employee award of HPL and received a laptop having a fair market value of Rs.
100,000
(vi) An amount of Rs. 355,000 was received from her spouse as support payment, under an agreement to live apart.
(vii) She paid Rs. 105,000 as zakat under the Zakat and Ushr Ordinance, 1980.
(viii) Donation of Rs. 70,000 was paid to an approved organization.
Required:
Compute the taxable income, tax liability and tax payable for the tax year 2013.
Note: Show all relevant exemptions, exclusion and disallowances.
Solution
MRS. ASLAM
SALARIED RESIDENT INDIVIDUAL
COMPUTATION OF INCOME & TAX THEREON
FOR THE TAX YEAR 2016
Rupees Rupees Rupees
Exempt /
Total income income not Taxable income
taxable
INCOME FROM SALARY U/S 12
Reimbursement of insurance -
ASSUMPTIONS / BASIS:
N-1 Gratuity
Contribution to un-recognised gratuity fund U/C 13 is exempt upto Rs. 75,000 or 50% of the amount whichever is lower.
N-8 Donation
No comparison with amount worked out at 30% of taxable income has been made as the actual donation amount is
already less than the same.
Gulzar is a Pakistani resident and operates various businesses. He disposed off the following assets during the tax
year 2013:
(i) An immovable property was sold for Rs. 50 million. The cost of the immovable property was Rs. 25 million. Tax
depreciation of Rs.4 million had been allowed on the immovable property up to the tax year 2012.
(ii) A car was disposed of for Rs. 1.2 million. The car was acquired on 1 July 2011. The tax written down value of the car
at the beginning of tax year 2013 was Rs.0.9 million. The car was being used partly (70%) for business purposes. The
rate of depreciation for tax purposes is 20%.
(iii) An antique sculpture was purchased for Rs. 350,000 on 30 August 2000. It was sold for Rs. 1,500,000 an 28
February 2013 through auction. The auctioneer was paid a commission of Rs. 15,000 . Tax was deducted and paid by
Gulzar from the amount of commission within due date.
Required:
Compute the amount of capital gain / loss arising on the above transactions under the provisions of the Income Tax
Ordinance, 2001.
Solution
MR. GULZAR
Rs. Rs.
Immoveable property:
Consideration received from the sale of immovable property 50,000,000
Less: WDV of immovable property
Cost of asset U/S 22(13)(d) 50,000,000
Less: Depreciation charged upto 2013 (4,000,000) 46,000,000
Gain on sale of immovable property taxable under the head 4,000,000
Business income U/S 18
Antique sculpture:
Note: The cost of motor vehicle not plying for hire is well within the
maximum limit of Rs.2.5 million for pessanger transport vehicle &
further no initial allowance has been claimed on the assumption
that the motor vehicles are not for hiring purposes. Although the
normal depreciation rate of 20% on motor vehicles has been given
however 15% applicable rate as per 3rd Schedule has been used
for the solution.
(b) In addition to above, he was also provided the following benefits in accordance with his terms of employment:
(i) Rent-free furnished accommodation in a bungalow situated on a 500 square yard plot of land. Rent for comparable
accomodation facility in the vicinity is Rs 150,000 per month.
(ii) An 1800cc company – maintained car. The car was purchased two years ago at a cost of Rs. 1,600,000 and is used
both for official and personal purposes.
(c) A house owned by Mr. creative had been leased out by him at a monthly rent of Rs 50,000.
The Lease expired on 31 December. Mr. Creative refused to renew the lease in spite of the tenant's offer to renew the
lease offer after increasing the rent by 10%.
He returned the non-adjustable deposit of Rs.300,000 to the tenant, which was received two years ago. The house was
immediately leased to his cousin without any security deposit on a monthly rent of Rs.48,000.
(d) Five years ago, Mr. Creative had purchased 20,000 shares of Rs.10 each, of an unlisted public company at the rate of
Rs.140 per share. After one year of acquisition, he received 8,000 bonus shares from the company. During the latest tax
year, he sold 75% of the bonus shares at a price of Rs. 145 per share.
(f) During the latest tax year, he redeemed 4,000 units of an open-end mutual fund at Rs. 50 per unit and Mr. creative had
claimed a tax credit of Rs.40,000 on this investment.
(g) Donations of Rs.50,000 were paid to charitable institutions listed in the second schedule to the Income Tax
Ordinance, 2001.
Required:
Compute the taxable income, tax liability and tax payable for the latest tax year.
Solution
Rent (Rs. 50,000 × 6 months) + (Fair market rent Rs.55,000 x 6 N-1 630,000
months) (Assumed after allowable deductions)
Open – end mutual fund (No tax credit computed on this N-2 -
investment as the same was made in the latest tax year and further
due to partial encashment within 24 months period the tax credit of
preceeding tax year shall be adjusted in the latest tax year and not
in the current tax year).
600,000
Less tax credit Rs. 1,387,488 / 6,874,500 x 600,000 (121,099)
1,266,389
Less tax deducted at source against salary income (737,000)
Balance tax payable 529,389
Notes
N-1: No treatment of security refunded after two years has been made in the current year as no further security
received by the landlord.
N-2: In the absence of information it has been assumed that all the open end fund units sold during the current tax
year.
Imaginative Enterprise (IE) is an Association of persons and was formed two years ago. During the latest tax year, IE's
Pakistan source income amounted to Rs.2,500,000 and tax payable thereon amounted to Rs. 722,500.
Following are the details of its foreign source incomes, tax paid thereon and foreign losses brought forward for the latest
tax year:
Heads of income Foreign income Foreign tax paid Foreign losses
brought forward
RUPEES RUPEES RUPEES
Speculation business 500,000 125,000 (250,000)
Non- Speculation business (1,000,000) - -
Capital gains 750,000 75,000 (1,500,000)
Other sources 1,250,000 187,500 -
The foreign tax credit relating to Income from other sources which remained unadjusted during the last tax year
amounted to Rs.50,000.
Required:
Calculate total tax payable and foreign tax losses to be carried forward to next year (if any).
Solution
Speculation U/S 18
Current year income 500,000
Brought forward losses (250,000) 250,000
Net foreign source of income 500,000
Add Pakistan source of income 2,500,000
Total taxable income 3,000,000
Notes:
1. Non speculation losses adjusted against firstly income form other sources and balance against specualtion
income.
2. Last year unadjusted foreign tax credit on income from other sources is not allowed to be refunded, carried
forward or carried back.
3. The income tax given in question only on Pakistan source of income has been ignored as credit shall be on total
tax liability basis that is Pakistan source income plus foreign source income.
Beena Sikandar is a lawyer and owns a law firm under the name Beena and Co. She is also Director Legal Affairs at
Ayesha Foods Limited. Details of her income for the tax year 2012 are as follows:
(A) INCOME FROM BEENA and CO.
Income Statement Note Rupees
Revenue (i) 8,500,000
Less: Expenses
Salaries (ii) 2,000,000
Gifts and donations (iii) 400,000
Lease charges (iv) 900,000
Professional fee (v) 400,000
Property expenses (vi) 350,000
Travel expenses 150,000
Other expenses (vii) 600,000
Tax withheld by clients 200,000
5,000,000
Net profit 3,500,000
(ii) Salary expenses include amount of Rs. 50,000 and Rs. 75,000 per month paid to Beena and her brother respectively.
Her brother looks after administration and financial matters of the firm.
(iii) Gifts and donations include gifts to clients, gift to her son and donation to Edhi Foundation amounting to Rs. 100,000,
Rs. 50,000 and Rs. 250,000 respectively.
(iv) A vehicle was obtained solely for official purposes on operating lease, from a bank. The lease commenced on 1 March
(iv) She received a fee of Rs. 150,000 from AFL for attending the meetings of the Board of Directors (BOD).
(v) Details of tax deducted by AFL are as follows:
Rupees
From salaries 390,000
From fee received for attending the meetings of BOD 9,000
Required:
Compute the taxable income, tax liability and tax payable by Beena Sikandar for the tax year 2012. Provide appropriate
comments on the items appearing in the notes which are not considered by you in your computation.
Solution
Beena Sikandar (Resident)
Computation of taxable income and tax liability
For the tax year 2016
Notes Rs.
INCOME FROM BUSINESS U/S 18
Profit before tax as per accounts 3,500,000
Add:
Tax withheld by clients 200,000
Salary paid to Beena 600,000
Gifts to clients and son 1 150,000
Donation to Edhi Foundation 1 250,000
Security deposit on operating lease 2 500,000
Legal charges paid for personal law suit 150,000
Rent related to personal apartment (2/5 x 350,000) 140,000
Club membership fee paid in cash 150,000
2,140,000
5,640,000
INCOME FROM SALARY U/S 12
Monthly remuneration from AFL (Rs. 100,000 x 12) 1,200,000
Bonus received in tax year 2012 3 200,000
Conveyance (2,000,000 x 5%) U/R 5 100,000
Fee as employee for attending meeting of the BOD (N - 4) 150,000
1,650,000
Total taxable income 7,290,000
Salary is less than 50% of taxable income, hence rates of non-salaried individual applied.
Tax on Rs. 7,290,000 [1,319,500 + 35% x (7,290,000 - 6,000,000)] 1,771,000
Less: Proportionate tax on income chargeable to tax under
minimum tax liability (1,771,000 / 7,290,000 x 5,640,000) 1,370,156
400,844
Proportionate tax (as above) (A) 1,370,156
Minimum tax (deductible) (8,500,000 x 10%) (B) 850,000
Notes
1. Gifts and donation
It is assumed that gifts are given in personal capacity, therefore not allowed for tax purposes. Tax credit shall be allowed
on donation to Edhi Foundation.
2. Security deposit on lease
It is assumed that security deposit does not form part of the lease rentals and shall be refunded by bank on repayment of
all lease rentals.
3. Bonus
Salary including bonus is chargeable to tax on receipt basis.
In May 2012, Hameeda sold certain personal assets at the following prices:
Rupees
Plot in DHA Karachi 10,000,000
Paintings 2,000,000
Jewellery 5,000,000
Additional information
(i) Plot in DHA Karachi was inherited by her from her father in May 2006. It was purchased by her father for Rs. 4,000,000
and market value at the time of inheritance was Rs. 5,000,000.
(ii) Paintings were inherited from her mother in July 2011. these paintings were purchased by her mother for Rs.
1,000,000 and market value at the time of inheritance was Rs. 2,350,000.
(iii) Jewellery costing Rs. 3,000,000 was purchased and gifted to her by her husband in March 2009.
Required: Discuss the taxability of Hameeda in respect of the above gains/ losses on sale of assets in the context of
Income Tax Ordinance, 2001.
Solution
Hameeda (Resident)
Computation of taxable income and tax liability
For the tax year 2016
Paintings:
Sale price 2,000,000
FMV at the date of inheritance 2,350,000 (350,000)
As the loss on painting is covered under section 38(5) hence the same
has not been considered for computation of taxable gain.
Jewellery:
Sale price 5,000,000
FMV at the date of inheritance (assumed equal to cost) 3,000,000
2,000,000
As holding period is more than 1 year, therefore 25% is exempt (500,000) 1,500,000
On 1 July 2010, Kashmala and Shumaila formed an Association of Persons (AOP) with the objective of providing
information technology support services to corporate clients. They contributed Rs. 1.2 million and Rs. 0.8 million
respectively in their capital accounts and agreed to share profits and losses in the ratio of their capitals.
For the year ended 30 June 2011, business loss and unabsorbed depreciation of Rs. 0.4 million and Rs. 0.3 million
respectively were assessed and carried forward. The total turnover of the AOP in 2011 was Rs. 40 million.
During the year ended 30 June 2012, the AOP incurred a net loss of Rs. 0.8 million on a turnover of Rs. 50 million. The
cost for the year was arrived after adjustment of the following:
(i) Salaries amounting to Rs. 0.5 million and Rs. 0.3 million were paid to Kashmala and Shumaila respectively.
(ii) Accounting depreciation on office assets amounted to Rs. 0.3 million.
The taxes withheld by the clients, for the year ended 30 June 2012 amounted to Rs. 0.55 million. AOP is entitled to claim
tax depreciation of Rs. 0.25 million in respect of the office assets.
Required: Calculate the taxable income, net tax payable and unabsorbed losses (including unabsorbed depreciation), if
any , to be carried forward by the AOP for the year ended 30 June 2012.
Solution
AOP
Computation of taxable income and tax liability
For the tax year 2016
INCOME FROM BUSINESS U/S 18 Rs.
Accounting loss 800,000
Add:
Salaries paid to partners (500,000 + 300,000) 800,000
Accounting depreciation 300,000
1,100,000
10% minimum tax on gross receipts of Rs.50 million against services 5,000,000
Less tax deduted under section 153 550,000
Balance tax payable 4,450,000
As there is nil income during the tax year after adjustment of brought forward losses, hence business loss of Rs. 100,000
for current year shall be carried forward for the succeeding six tax years whereas the unabsorbed brought forward
depreciation loss shall be carried forward to the extent of Rs. 550,000 without any time limitation.
Rupees
Rent for the year 870,000
Non-adjustable security deposit:
- received from a new tenant 700,000
- paid to old tenant (received three years ago) -500,000
Tax withheld -50,000
Property tax on building -8,000
Net receipts 1,012,000
(iii) The amount was received for writing an article in an international magazine on World Health Day.
(iv) 60% of the motor car expenses were incurred in connection with his personal use.
(v) Donation was given to a Government medical college for upgrading its library.
(vi) Depreciation on motor car and surgical equipment, under the 3rd Schedule of the ITO, 2001 is Rs. 96,000
and Rs. 75,000 respectively.
Required: Compute the taxable income, tax liability and tax payable by Dr. Sona for the latest tax year. Provide
appropriate comments on the items which are not relevant for your computations,
Surgery fee from hospital (assumed net of tax hence grossed up 1,671,111
1,504,000 x 100 / 90)
3,760,000
Less: proportionate expenses:
Depreciation on motor vehicle 38,400 / 8,510,000 x 3,638,710 16,419
Car expenses (Rs.200,000 x 40%) = 80,000 / 8,510,000 x 34,206
3,638,710
Other income
3,709,374 3,709,374
Total taxable income 8,404,332
Mr. Khursheed, a Pakistani national, was employed as the chief financial officer in Zulfiqar Gas Company (ZGC), since
1990. Following information pertains to his income for the tax year 2011:
(1) Income from ZGC
Khursheed was employed with ZGC up to 31 December 2010. During this period he received the
following emoluments:
- Basic salary of Rs. 400,000 per month, medical allowance of Rs. 75,000 per month and utility allowance equivalent
to 10% of basic salary.
- A company-maintained car for official and private use. The car was purchased two years ago at a cost of Rs. 5
million. According to the company’s policy, ZGC deducted Rs. 10,000 per month from his salary, for private use of the car.
On 31 July 2010, Khursheed had undergone a major surgery and incurred an expenditure of Rs. 1,500,000. ZGC
reimbursed the entire amount as a special case as it was not covered under the terms of employment.
Due to poor health, Khursheed opted for early retirement on 31 December 2010 under the company’s voluntary retirement
scheme. He received the following benefits on his retirement:
- Rs. 7,500,000 as a golden handshake under the voluntary retirement scheme.
- Rs. 9,100,000 from an unapproved gratuity fund maintained by ZGC.
- Transfer of company’s car for Rs. 2,600,000. The amount was deducted from his final settlement. The fair market
value of the car as of 31 December 2010 was Rs. 2,800,000.
The tax deducted at source for the tax year 2011 amounted to Rs. 3,750,000.
(2) Other Information
- On 1 January 2011, Khursheed commenced business of marketing of horticultural plants and related items.
However, due to intense competition, he had to wind-up this venture on 31 May 2011. During this period, he had incurred
a loss of Rs. 750,000.
- He purchased 5000 shares for Rs. 500,000 from initial public offering of a new listed company on 1 June 2010. He
claimed a tax credit of Rs. 60,000 on such investment, against the tax payable for the tax year 2010. On 15 June 2011, he
sold these shares for Rs. 700,000.
- He incurred a loss of Rs. 500,000 on the sale of his shareholdings in a private limited company.
- He sold his personal car at a profit of Rs. 300,000.
- On 1 March 2011, he purchased an apartment for Rs. 5,000,000. 60% of this amount was financed by a scheduled
bank. During the tax year 2011, he paid markup amounting to Rs. 127,500. On 1 April 2011, he rented out the flat to Mr.
Abdul Sattar at a monthly rent of Rs. 25,000 and received advance rent for eight months.
- His average tax rate for the preceding three years is 18%.
Required:
(a) Compute the amount of taxable income, tax liability and tax payable / (refundable), if any, for the tax year 2011.
(b) Briefly comment on the items which are not considered by you in the above computation.
1. Rental income
The rent received or receivable by a person for a tax year shall be chargeable to tax in that year under the head “Income
from property”. Therefore, only three months’ rent is included in the taxable income of Mr. Khursheed. Further it has been
assumed that the same is after allowable deducitons under section 15A of the Ordinance.
2. Business loss
No loss (including Loss under the head business income) shall not be set off against income from salary and income from
property. However the loss shall be carried forward to adjust the same against the business income of six subsequent tax
years.
4. Capital loss
Where a person sustains a loss on sale of shares of a private company it is construed as a capital loss and it cannot be
set-off against any other head of income, but shall be carried forward to the next year and set off against the capital gain,
if any.
6. Golden handshake
It is assumed that last three years' average rate of tax for golden handshake is 18% and further it is more beneficial
for the taxpayer to opt for taxation of golden handshake at last three year's average rate as compared to this to
include the same in the current year's income.
The market price of the shares as on 1 June 2010 was €12.5 per share. On 10 April 2011, Mr. Feroz sold all shares at €13
per share. He paid a commission of €50 to the brokerage house.
Required: Compute the amount to be included in the taxable income of Mr. Feroz for tax years 2009, 2010 and 2011 and
specify the head of income under which the income would be classified.
Mr. Feroz
Computation of taxable income
Shares were issued in tax year 2014, however, transferability of the shares is restricted in tax year 2014 hence
nothing is taxable in tax year 2009.
Carrot Ltd (CL) is engaged in the manufacture, import and sale of electronic appliances for the past twenty years. When
reviewing the company's tax provisions, you noticed the following amounts appearing in the tax calculation for the year
ended June 30, 20X2.
1. Profit on debt of Rs. 500,000 paid on a working capital loan obtained from a foreign bank.CL did not deduct
withholding tax while paying profit on debt considering the bank does not have a Permanent Establishment in
Pakistan.
2. Expenditure of Rs. 450,000 on promotion of a product which is expected to generate revenue for twelve years.
3. Bad debt in respect of a staff loan, Rs. 25,000.
4. Reimbursement of expenses of Rs. 300.000 to CL by the parent company- This amount was incurred by CL in
20X1 on marketing a new product imported from Dubai.
5. Initial allowance of Rs. 4,000,000 on a used equipment acquired locally from MSD Limited.
6. Financial charges amounting to Rs. 100,000 and depreciation amounting to Rs. 300,000 on a vehicle acquired
on finance lease from Radish Leasing. Lease rentals paid during the year amounted to Rs. 400,000.
Required:
Under the provisions of CIR, 2001 discuss the admissibility of the above amounts for tax purpose.
1. It is not admissible as the withholding tax @ 20% under section 152(2) of the Income tax Ordinance, 2001 was not
deducted by CL limited.
2. It is an admissible expense as it is incurred for the purpose of business of company.
3. Bad debts in respect of loan to employees shall not be admissible under the Income Tax Ordinance, 2001 because the
same is not against a trading liability already allowed.
4. As the amount is the reimbursement of expenses incurred on behalf of parent company so the same shall be adjusted
against the receivable balance from parent and has no impact on taxable income.
5. Initial allowance on locally purchased equipment shall not be allowed as the asset is already used in Pakistan.
6. Amount of rental payment shall be allowed as deduction, however the amount of depreciation and financial charges
shall not be allowed as deduction.
Mr. Zameer Ansari is working as a Chief Executive Officer in Wimpy (Private) Limited (WPL). Following are the details of
his income / receipts during the tax year 2010:
(b) In addition to the above, he was also provided the following benefits in accordance with his terms of
employment:
(i) Medical insurance for hospitalization and surgery, limited to Rs. 1,500,000 per annum.
(ii) Payment of his children's school fees of Rs. 15,000 per month. The fee is deposited directly into the
school's bank account.
(iii) Rent free furnished accommodation on 1000 square yards. The accommodation is located within the
municipal limits of Karachi.
(iv) Two company-maintained cars. One of the cars was purchased by WPL for Rs. 3,000,000 and is
exclusively for his business use. The second car was obtained on lease on February 1, 2009 and is used
partly for official and partly for personal purposes. The fair market value of the leased vehicle at the time of
lease was Rs. 1,800,000.
(v) Leave encashment amounting to Rs. 100,000 was paid to Mr. Zameer on July 5, 2010.
(vi) An amount equal to one basic salary was paid by WPL to an approved pension fund.
(c) Mr. Zameer had received 15,000 shares of WPL on December 1, 2006 under an employee share scheme. He
had the option to transfer the shares on or after January 1, 2009. However, he sold all the shares on April 1,
2010
(e) He earned profit amounting to Rs. 750,000 on fixed deposit account maintained with a bank. The bank
withheld income tax amounting to Rs. 75,000 and Zakat amounting to Rs. 250,000.
(f) Tax deducted at source from his salary, amounted to Rs. 650,000.
Required: Compute the taxable income, tax liability and tax payable by Mr. Zameer Ansari for the tax year 2010.
On sale of (Pvt.) Ltd. company shares after retention of more than 67,500
12 months therefore gain shall be taxable as capital gain shares
{15,000 x (Rs.48-Rs.42) x 75%}
NOTES
N-1 Leave encashment has been ignored as received after the tax year. Salary and perquisites are charged on the receipt
basis.
Sohail, Khaled and Qazi are members of an AOP and share profit and loss in the ratio of 2:2:1. The principal activity of the
AOP is trading of rice and wheat. Following are the details of the annual income / (loss) of the AOP and its members:
(i) The AOP suffered loss before tax amounting to Rs. 1,500,000. The loss has been arrived at after adjusting
rental income earned by the AOP, the details of which are as follows:
Rupees
Rental income 2,000,000
Related expenses:
Property tax 40,000
Depreciation 457,500
Net rental income 1,502,500
(ii) The expenses debited to profit and loss account include the following amounts paid to the members of the
AOP:
(iii) Sohail earned Rs. 800,000 from another business, of which he is the sole proprietor.
(iv) Khaled received an amount of Rs. 255,000 as share of income after tax, from another AOP where he is
entitled to 40% of the total profit. Tax on annual income of that AOP amounted to Rs. 112,500. He also earned
income of Rs. 900,000 from a sole proprietorship concern owned by him.
(v) Qazi works as a Freelance IT Consultant and provides consultancy services to corporate clients. He received
Rs. 940,000 from his clients after deduction of tax amounting to Rs. 60,000. The total expenses incurred in
providing the consultancy services amounted to Rs. 150,000.
Required: Assuming that the above data pertains to the tax year 2010, compute the taxable income and tax liability of the
AOP and each of its members.
In the absence of information no minimum tax under section 113 has been computed.
Total income of the firm (Property income less business loss) 1,157,500
Total share from AOP included for rate purposes 560,400 515,400 180,200
Total income 1,360,400 1,415,400 1,030,200
Mr. Shahbaz, a resident individual, earned Rs. 700,000 from the sale of assets as shown below:
Discuss the treatment and the implications of each of the above transactions with brief reasons under the Income
Tax Ordinance, 2001.
- Similarly the holding period of jewellery is more than one year, hence 25% of the capital gain shall also be exempt.
- Loss on sale of shares of private company shall be adjusted against gain on sale of unlisted company and
jewellery.
Mr. Zulfiqar, a senior executive of Mirza Petroleum Limited (MPL), retired on March 31, 2009 after completion of nineteen
years of dedicated service. The details of Mr. Zulfiqar’s income for the tax year 2009 are given below:
(ii) As per terms of employment, tax liability of Mr. Zulfiqar to the extent of Rs. 200,000 is to be borne by MPL.
(iii) On his retirement, he received gratuity of Rs. 2,660,000 from an unrecognized gratuity fund maintained by
MPL.
(iv) He is receiving pension amounting to Rs. 50,000 per month from the date of his retirement.
Other Information
(v) He is also receiving pension of Rs. 12,000 p.m. from a multinational company where he worked from 1975 to
1990.
(vi) A plot inherited from his father was sold for Rs. 5,000,000. Fair market value of the plot at the time of
'inheritance was 'Rs. '1,000,000
(vii) On January 1, 2009, he rented out one of his residential bungalows to a private school for Rs. 100,000 per
(viii) Rs. 500,000 were invested in new shares offered by a listed company.
(ix) He paid mark up amounting to Rs. 250,000 on a house loan obtained from a scheduled bank.
Required:
(a) Compute taxable income and tax liability of Mr. Zulfiqar for the tax year 2009.
(b) Briefly comment on the items which are not considered in the above computation.
Pension amounting to Rs. 50,000 per month from the date of his 150,000
retirement (Rs. 50,000 x 3 months) (N-3)
Pension of Rs. 12,000 p.m. from a multinational company where he 144,000 144,000
worked from 1975 to 1990 (Rs. 12,000 x 12 months) (N-3)
Plot inherited from his father was sold for Rs. 5,000,000. N-1 -
Total salary income 7,366,000
NOTES
N-1 Plot inherited from father was sold is not taxable on the assumption that the same is being held for more than two
years.
N-2 Higher of the FMV of rent or 45% of (MTS or Basic Salary)
N-3 Only one pension with the higher amount is exempted so Rs.150,000 is exempted.
N-4 Advance rent received is adjustable against rent therefore it is ignored. Just the rent for 6 months will be taxable.
N-7 Lower of actual investment Rs. 500,000, 20% of Taxable income (Rs. 7,716,000 x 20%) = 1,543,200 or Rs.
1,500,000, hence lower amount of Rs. 500,000 has been taken into consideration.
During the tax year 2009, Ishaq Enterprise disposed off the following assets:
(i) an immovable property was sold for Rs. 200 million. The cost of immovable property was Rs. 100 million. Upto tax
year 2008, tax depreciation of Rs. 10 million had been allowed on the immoveable property.
(ii) a plant was exported to Nepal. The export proceeds amounted to Rs. 28 million. The cost and written down value of
the plant was Rs. 25 million and Rs. 18 million respectively.
(iii) three trucks were disposed off for Rs. 2.5 million. They were acquired in tax year 2008. The tax written down value of
trucks at the begning of tax year 2009 was Rs. 2.4 million. The trucks were being used partly i. .e. 60% for business
purpsoes. The rate of deprciation for tax purposes is 20%.
Required:
Compute the tax gain or loss on disposal of each of the above assets.
Note: There is no limitation on value of motor trucks as they are not passenger transport vehicle & further no initial
allowance has been claimed on the assumption that the motor trucks are not for hiring purposes.
Mr. Abdullah, an employee of a Malaysian based company, has been assigned to work in Karachi, in its subsidiary
company which is registered under the Companies Ordinance, 1984. The initial assignment of two years commenced on
March 1, 2009 and would be extended subject to mutual agreement. Mr. Abdullah’s remuneration will be paid in Malaysia,
details of which are given below:
Required:
(a) Explain the residential status of Mr. Abdullah under the ITO, 2001 for the tax years 2009 and 2010.
(b) Compute taxable income of Mr. Abdullah for the tax years 2009 and 2010 with supporting comments.
a) RESIDENTIAL STATUS
YEAR 2015
Mr. Abdullah is a non-resident person because his stay in Pakistan was for 120 days that is less than 183 days in tax year
2009.
YEAR 2016
Mr. Abdullah is a resident person because he was in Pakistan for 183 days or more in tax year 2010.
Note: Foreign source salary of a resident shall be ignored for tax computation as tax on the same has already been
paid, however if foreign tax on the same is not paid within two years then the same shall be taxed in Pakistan.
Mr. Manto worked as an employee in Berlin Hotel, Germany for a period of five years. During the said period he did not
visit Pakistan for a single day. He returned to Pakistan on July 1, 2008 and immediately joined as a General Manager in a
well-reputed hotel, based in Karachi.
Assume that the details of his income for the tax year 2009 are as follows:
(i) Basic salary (per month) Rs. 100,000 House rent allowance (per month) Rs. 30,000 Medical 'allowance (per
month) 'Rs. '10,000
(ii) Besides medical allowance, he is also entitled to free medical treatment at approved hospitals.
(iii) He has been provided a company maintained 1600cc car which was used partly for official and partly for
personal purposes. The hotel has leased the car from a bank. The gross lease rentals payable over the
period of lease amount to Rs. 2,700,000. The fair market value of the car at the time of lease was
Rs. 1,600,000. The total lease rentals paid by the hotel during the year amounted to Rs. 800,000.
(iv) He is entitled to lunch at the hotel’s restaurants where the usual charges are Rs. 400 per person. He is
entitled to concessional rate of Rs. 40 per day which is deducted from his salary. Assume that there are 300
working days in the year.
(v) He went for a training course to Islamabad where boarding and lodging cost amounting to Rs. 150,000 was
borne by the hotel. He incurred a further expense of Rs. 125,000 which was reimbursed by the hotel.
(vi) Provident fund was deducted @10% of his basic salary. An equal amount was contributed by the hotel.
Interest credited to his provident fund account amounted to Rs. 48,000.
(vii) As per terms of employment agreed with Mr. Manto, tax of Rs. 249,200 on salary will be borne by the hotel.
(viii) During the year, he also received an amount of Rs. 94,000 (net of 6% withholding tax) from a local university
where he gave lectures on hotel management.
(ix) On July 15, 2008, he received a lump sum amount of Rs. 4,000,000 through a normal banking channel as final
settlement from Berlin Hotel.
(x) On August 1, 2008, he inherited 25,000 shares of a private limited company. The estimated fair market value
of the shares, on the date of inheritance, was Rs. 42 per share. He sold all the shares on February 28, 2009
at Rs.62 per share.
(xi) He paid zakat amounting to Rs. 200,000 to an approved organization, through cross cheque.
Required:
(a) Compute Mr. Manto’s taxable income and tax payable for the tax year 2009.
(b) Briefly explain the treatment of items which are not considered in the above computation.
Less: Exempt upto lower of 10% of basic salary or 100,000 (100,000) 20,000
Lessor of (10% x Rs.1,200,000)120,000 or Rs.100,000
Employee contribution (not to be included as already included in salary) -
Interest on provident fund 48,000
Less: Exempt upto higher of 1/3rd of salary or calculated @ 16% (400,000) -
Tax liability paid by hotel 249,200
Amount received as final settlement from Berlin Hotel (not to include in income u/s 51 & 102) -
Total income from salary 2,029,200
Sale of inherited shares in (Pvt.) Ltd. Company Rs.(62-42) x 25,000 shares 500,000
As all the information has been considered while solving the Part (a) of this question hence there is not need any answer
for this part.
Mr. Qasm is in the business of manufacturing of leather products. The financial results of the business for the tax year
2009 are as follows:
Rupees
Sales 12,000,000
Cost of sales 10,000,000
Gross profit 2,000,000
Selling, administrative and other expenses 2,500,000
Net loss (500,000)
He had rented out the ground floor of his house and received Rs. 300,000 as rent thereof. No tax was deducted by his
tenant. Advance tax paid during the year includes the following:
Required:
Compute the tax payable/refundable by Mr. Qasmi for the tax year 2009.
As there is loss under normal law hence 5% minimum tax liability on industrial (A) 18,000
electricity bill is to be paid by the tax payer upto monthly bill of Rs. 30,000 that comes
to Rs. 1,500 p.m. (Rs. 1,500 x 12 months)
Note: Business loss is not allowed to set off against income from property, however the same shall be carried forward and
adjusted against business income only in succeeding six tax years.
Mr. Ali Raza is working as a Senior Executive in DD Pakistan Ltd. The details of his income/receipts during the tax year
2008 are as follows:
Compute his taxable income, total tax payable and tax payable with the return.
Less 1/5th fixed repair allowance irrespective of actual repair expenses (25,720)
Share in rent to HBFC (15,000) 87,880
Taxable income 1,376,480
NOTES:
N-1 Loss on sale of antique shall not be recognized.
Mr. Henry is a UK national and provides independent consultancy services in his individual capacity, to United Autos
Limited, a Pakistani company. Mr. Henry has entered into a contract with the company. The company’s accountant has
treated payment under this contract as being under an employment contract with the company.
Mr. Henry stayed in Pakistan for eight months during the tax year 2008. During the said period, he was only involved in
providing in-house independent consultancy services to different departments of the Company. Mr. Henry is of the view
that:
i) Mr Henry assumption that being as UK National he is a non-reisdent for Pakistan tax purposes is not correct as the
residential status is being decided on number of days stay in Pakistan instead of Nationality base. As his stay in Pakistan
is for 183 days or more hence he is a reisdent for Pakistan tax purposes.
ii) As Mr. Henry is providing independent consultancy services to various departments of local company and the same
shall not be treated under the term employment hence a contract of services shall be treated as service contract and
higher of minimum tax at the rate of 10% or tax under normal tax regime on taxable profit, if any, is to be paid by Mr.
Henry.
iii) Tax paid by the company on behalf of Mr. Henry shall be treated as income and tax on the same is to be paid by Mr.
Henry on the same basis as given in Note 2 above.
iv) The presumption of Mr. Henry is again not correct as the conversion rate to the remuneration in pound sterling shall be
the date at which the amount received by Mr. Henry and not the date of agreement.
Saleem, Rashid and Moin are partners in a partnership concern carrying on the business of manufacturing and sale of
consumer goods. They share profit and loss in the ratio 2:3:5 respectively. The results of operations of the firm are as
follows:
Rs. ‘000’
Sales (including rental income) 76,000
Cost of sales 53,000
23,000
Selling, administrative and other expenses 16,250
Profit before tax 6,750
Other information:
(i) The firm has rented out a vacant portion of its factory to a company at an annual rental of Rs.1 million. Tax
was duly deducted by the lessee.
(ii) Mr. Saleem has earned income of Rs. 325,000 from another business as a sole proprietor. He also sold his
personal car for a loss of Rs. 50,000.
(iii) Mr. Rashid earned a gross income of Rs. 200,000 from another partnership firm where he is entitled to 25%
of the total profit of the firm. He also earned dividend of Rs. 50,000 from a listed company.
(v) Mr. Moin has no other source of income.
Required:
Assuming that the above data pertains to the tax year 2008, compute the tax liability of the firm and each of its partners
and the amount of tax payable by them alongwith the return of income.
In the absence of information it has been assumed that the sale of the AOP is wholly to the persons that have
deducted withholding tax at source. Hence the income of the firm is fully covered under FTR.
Gross receipts of AOP on sale of goods manufactured Rs.1,750,000 x 100 / 4.5 38,888,889
The income of the AOP coverved under FTR shall not be included in the income of the respective partner for rate
purposes.
TAX LIABILITY OF PARTNERS
Saleem
Rashid
Moin
Business Income from AOP -
No tax liability has been computed as there is no taxable income from any head of income hence the share from AOP in
retanl income shall also not included for rate purposes.
Mr. Ayub, after retirement from a multinational company as a senior executive, was rehired on contract for a period of
three years. However, due to certain reasons, the contract was prematurely terminated six months earlier i.e. on
December 31, 2006. The detail of emoluments received by him during the tax year 2007 are given below:
Rupees
Basic salary (per month) 70,500
Rent of furnished accommodation (per month) 30,000
Utilities allowance (per month) 12,000
Medical benefits reimbursed during the year 25,000
House rent was paid by the company directly to the landlord. Medical benefits were reimbursed against bills submitted by
Mr. Ayub.
On his retirement as a permanent employee, he had been paid gratuity from the approved fund. According to the rules of
the fund, he was also entitled to a special gratuity in lieu of his services rendered under the contract. Accordingly, an
amount of Rs. 120,000 was also paid out of the fund, on termination of the contract.
In lieu of premature termination, the following additional benefits were allowed to Mr. Ayub:
(i) A compensation for early termination of Rs. 150,000 was paid.
(ii) Mr. Ayub had obtained an interest free loan of Rs. 200,000 on July 1, 2006 which was payable in lumpsum on
March 31, 2007. 25% of the outstanding balance was waived and remaining amount of loan was deducted
from his final settlement. The benchmark rate according to the ITO, 2001 is 10%.
(iii) He was allowed to retain a 1600cc car which was in his use, at accounting book value of Rs. 650,000. The
fair market value of the car at the time of settlement was Rs. 700,000.
Required: Compute the taxable income and tax liability for the tax year 2007.
NOTES
N-1 Assumed that Gratuity received is approved by Commissioner therefore it is totally exempted.
Mr. Zia inherited certain assets from his father in the year 2004. The fair market values of the assets on the date of
inheritance were as follows:
Mr. Ishaq sold all the assets transferred through gift in the same year. The assets fetched the following amounts:
Required:
(i) Based on the above information, compute the taxable income of Mr. Zia and Mr. Ishaq for the tax year 2007.
(ii) Give brief explanation for the items not included in the taxable income.
Mr. Zia
Gain on disposal of Assets Rs. Rs.
Gain from sale of shares of public listed company is taxable as SBI 1,258,000
@ 7.5% as it is held for more than 24 months (Rs. 1,500,000 -
242,000 FMV of sodl shares at the date of gift)
Mr. Ishaq
No gain or loss shall be recognized on the acquisition of any asset received by way of inheritance or gift.
No gain or loss shall be recognized on the acquisition of any asset received by way of inheritance or gift.
During the tax year 2007, Mr. Yahya, a resident person, derived an income of Rs. 1,500,000 from his business in
Pakistan. He has also earned an amount of US$ 30,000 from his business in a foreign country on which he paid income
tax to tax authorities of that country, amounting to US$ 10,500.
Compute the tax liability of Mr. Yahya for the tax year 2007.
Note: Applicable Tax Rate in Pakistan = 25%; US$ 1 = Pak Rupees 60.
(i) In 1998, Mr. Hamid inherited a rare sculpture of Buddha which had a fair market value of Rs. 200,000 on the
date of inheritance. In February 2007, the sculpture was sold by him at Rs. 500,000.
(ii) In December 2006, Mr. Yahya entered into an agreement for sale of his residential plot to Mr. Moosa, who paid
an advance of Rs. 500,000. According to the agreement, Mr. Moosa was required to pay the balance by
February 28, 2007. However, instead of paying the balance amount, he terminated the sale agreement.
Mr. Yahya forfeited the advance of Rs. 500,000 in accordance with the terms of the agreement.
(iii) In September 2006, Mr. Saleem sold his personal car, Toyota Corolla, to one of his cousins at a price of Rs.
50,000 whereas the fair market value of the car was Rs. 200,000. The car was purchased by him in the year
2000 at a cost of Rs. '300,000
(iv) Mr. Ibrahim was working as a Chief Financial Officer in Dawood Pakistan (Pvt.) Limited, which is a wholly
owned subsidiary of Dawood AG, Germany. According to the Company’s policy, Mr. Ibrahim was sent on
secondment to Germany on January 1, 2007 for a period of five years. During this period, half of his salary
will be credited to his bank account in Pakistan, whereas the remaining portion will be received by him in
Germany.
Mr. Zubair provided consultancy services to a listed company. In consideration for his services, he received a net amount
of Rs. 47,000 after tax deduction of Rs. 3,000.
ii) Any forfeited money as advance against sale agreement of land 500,000
and building is included in the definition of "Rent". So, the amount
of forfeited money shall be chargeable to tax.
iii) As the sale of personal car is neither a business transaction nor a capital asset. There will be no tax treatment on the
disposal of personal asset. So, the cost, FMV or consideration are irrelevant.
iv) Mr. Ibrahim's salary income is taxable in Pakistan in 2007 and foreign source income in next 5 years as his
employment based in Pakistan according to section 101.
v) Any tax deducted at source on consultancy services is treated as minimum tax however the tax under normal law shall
be computed and higher from both is to be paid by Mr. Zubair.
The income of Mr. Yousuf during the tax year 2006 amounted to Rs. 120 million which included capital gains of Rs. 10
million and dividend income of Rs. 12 million. The tax liability for 2006 was Rs. 32 million out of which Rs. 4 million related
to tax on capital gains and dividend income. The following information is available for the quarter ended December 31,
2006:
Rs. in million
Tax deducted at source by the customers 3
Tax paid on import 2
Compute advance tax liability for the quarter ended December 31, 2006.
As the latest tax year income under NTR of Mr. Yousaf is more
than Rs. 500,000 therfore the quarterly advance tax liability on the
basis of latest tax year is as under.
Note-1 In the absence of information it has been assumed that the capital gain is on capital assets covered under section
37 that is under NTR hence the same has also been considered while computing advance tax under section 147 of the
Income tax Ordinance, 2001.
Note-2 As for individual the dividend income is fully covered under SBI hence the same has been ignored for the
computation of advance tax under section 147.
Note-3 In the absence of information it has been assumed that the individual is engaged in trade business hence the tax
deducted at source on sale of goods and commercial import have not been deducted from the advance tax liability as the
same are fully covered under Final tax regime.
Mr. Dollar has been working as a senior engineer in a local company. The detail of his monthly emoluments is as
under:
You are required to compute the amount of tax to be deducted each month, from his salary for tax year 2007.
Ms. Fatima Hasan was working as a Marketing Head with Consumer Products Limited (CPL) at following emoluments:
In May 2005, Fatima was approached by Pharma Industries (Pvt.) Limited (PIL). They offered her employment at a higher
salary and some extra benefits, alongwith a one time payment of Rs. 200,000 as an inducement to accept their offer.
Fatima accepted PIL’s offer by resigning from CPL with effect from June 1, 2005. She joined PIL from July 1, 2005. The
amount of Rs 200,000 was, however, paid to her on June 29, 2005.
During the year, Fatima has also undertaken the following transactions:
(i) Shares in QP (Pvt.) Ltd. were sold for Rs. 500,000. These shares were acquired in the year 1999 at a cost of
200,000
(ii) A residential plot inherited in the year 2000 was sold for Rs. 1,000,000. The fair market value of the plot at the
time of inheritance was Rs. 200,000.
(iii) A painting purchased at a cost of Rs. 100,000 was sold for Rs. 75,000.
(iv) She had won a cash prize of Rs. 250,000 in a quiz show. Tax of Rs. 50,000 was deducted from the prize
money u/s 156.
(v) Dividend of Rs. 50,000 was received on account of shareholding in a listed Company. Tax of Rs. 5,000 was
deducted u/s 150.
(vi) She received a fee of Rs. 100,000 in consideration for preparing a research paper for a foreign University.
Fatima incurred Rs.10,000 on the printing of research paper and courier charges for sending the paper abroad.
(vii) An amount of Rs. 50,000 was donated to an approved charitable institution.
In the light of above information, compute the taxable income of Ms. Fatima for the tax year 2005 by giving brief
explanation for the items not included in the taxable Income.
300,000
Taxable capital gain (holding period more than 1 year) 75% x Rs.300,000 225,000
Loss on sale of painting is not recognized (N - 1)
NOTE: N-1 Gain on the sale of residential plot after two years of retention is not taxable under capital gains.
Particulars Rupees
Loss from ‘income from other source’ after setting off dividend income of Rs. 30,000 (20,000)
Income from speculation business 10,000
Capital gains on disposal of shares of private limited companies 20,000
Loss from business of textiles after considering tax depreciation of Rs. 290,000 410,000
Required:
You are required to work out the following:
(i) taxable income;
(ii) tax liability; and
(iii) amount of loss that can be:
(a) adjusted against any other head of income;
(b) carried forward for maximum 6 years;
(c) carried forward for indefinite period.
Mr. Imran is a citizen of Pakistan. During the first nine months of the tax year 2005, he worked as financial controller of a
Pakistan based subsidiary of a multinational group. After that he was transferred and employed as Head of Finance of the
UAE based subsidiary of the Group. Mr. Imran’s family stayed in Dubai throughout the year. The detail of income earned
by him during the tax year 2005 is given below:
Required:
Compute the taxable income of Mr. Imran for the tax year 2005 based on the data provided above.
Note -1 Grant of an option or right is not taxable whereas exercise of an option to acquire shares is taxable where
the same is without restriction and limitation.
Mr “B” is the Chief Executive of a Multinational Company. Details of his emoluments are as follows:
Rs.
Basic Salary 8,800,000
Bonus 5,000,000
Utility allowance 880,000
Relocation allowance 200,000
According to the terms of employment the tax liability of Mr. “B” on the above benefits and perquisites from (i) to (iv) above
is borne by the employer. Tax liability on other remuneration is borne by himself.
Mr. “B” also owns a property which was let out on rent for a part of the year details of income and expenses incurred are
as follows:
The Bank account of Mr. “B” was credited with profit during the year amounting to Rs.6,300. During the year the
following amounts were withheld at source as Income Tax:
Rupees
From salary income 4,541,250
Tax paid by the employer 446,820
From profit on bank account 630
On receipt of rent 17,500
You are required to compute the taxable income and tax liability of Mr. “B” for the tax year 2004.
Mr. A is the Chief Executive of a multinational company. Details of his emoluments are as follows:
Apart from the above he has received Director’s fee amounting to Rs. 52,000. During the year he has sold shares that
were acquired through exercise of a ‘Stock Option’(being the a share, of a UK company) two years ago. The gain on sale
amounts to Rs.4,206,000.
He also owns a property which has been let out on rent. The details of rent received and expenses incurred are as
follows:
(a) Rent Rs.10,000 per month. The property was let out on rent for the whole year. The annual letting
value of the house is 'Rs.100,000.
(b) He has paid property tax amounting to Rs. 11,500.
(c) During the year he has paid Rs.6,000 for repairs and maintenance.
During the year the following amounts were withheld at source towards income tax.
You are required to compute the taxable income and tax liability of Mr. A for the tax year 2004
NOTES
N-1 In the absence of information, it has been assumed that the shares of the company on which gain is given in
the question is in the definition of Public company hence tax has been levied accordingly u/s 37A of the Ordinance.
N-2 Profit on PLS is covered as SBI under final tax regime.
Mr. A is an employee of a multinational company incorporated in Pakistan. His remuneration during the year was as
follows -
(Rupees)
1 Basic Salary 1,117,245
2 Reward 22,062
3 Bonus 300,000
4 House Rent Allowance 643,514
5 Utility Allowance 111,724
The Company has provided him a car for personal and business use. The cost of the car was Rs.1,100,000. During the
year Mr. A has paid interest on loan borrowed for construction of a house amounting to Rs.115,000. In addition to the
above, Mr. A was granted Stock Option of 2500 shares by the Head Office of the Company at US$ 36 per shares. Out of
the above stock option, 1250 shares vested to him during the year were immediately exercised by him. The price of the
share at the time of exercise was US$ 41 per share. The exchange rate between US$ and Pak Rupee on the date on
which Mr. A exercised his option was US$ 1 = Rs.58.
During the year the company has withheld tax from his salary amounting to Rs. 695,000.
You are required to compute his taxable income and tax thereon for the Tax Year 2003.
Conveyance facility for both official and for business use (5% of 1,100,000) 55,000
Employee stock option (1,250 shares x 58 x (41 - 36)) 362,500
Taxable Income 2,612,045
Mr. A and B are equal partners of a Registered Firm (RF). The profit and loss account of RF shows profit before tax of Rs.
10 million for the year ended June 30, 2003. Assuming no other tax adjustment, the profit shown in the accounts is liable
to tax. You are required to compute the tax, if any, payable by the RF, Mr. A and Mr. B, assuming Mr. A and B have no
other source of income. Also give brief explanation of the treatment made in the computation.
Mr. Bashir Ahmed is an employee who had joined his current employment during the tax year 2003. His details of salary,
allowance and perquisites received from company “A” his previous employer and company “B” his present employer are
as follows:
The details of assessed income and assessed tax in respect of past three years is as follows:
Assessment year Assessed Tax assessed
Income
Rs. Rs.
2000-2001 1,309,570 269,902
2001-2002 1,545,850 371,255
2002-2003 2,264,940 557,633
During the year Company “A” had deducted tax u/s 149 amounting to Rs.270,000 and Company “B” had deducted tax u/s
149 amounting to Rs.800,000 from payments made to Mr. Bashir.
Required:
Compute the taxable income and tax liability of Mr. Bashir based on the data provided above for the tax year 2003.
Tax on golden hand shake: ( tax of last 3 years / Taxable Income 479,553
of last 3 years x 100) x Amount of golden hand shake Rs.
(1,198,790 / 5,120,360 x 2,048,300)
Total tax payable 695,547
Tax liability
As tax under option 1 is lower than from tax payable under option 2 679,416
hence the tax payer shall opt to pay tax under option 1.
Less: Tax deducted at source 1,070,000
Balance tax refundable (390,584)
Compute the projected advance tax liability and net advance tax payable in respect of ABC Limited a public company, for
the quarter ended September 30, 2003. The data of turnover and tax liability assessed in respect of the latest assessed
tax year is as follows:
Rs.
(i) Gross sales (including sale of imported goods and export sales) 20,000,000
Sales of imported goods 2,000,000
Export sales 3,000,000
Agency commission 1,000,000
Sale of fixed assets 200,000
Dividend income 1,000,000
Miscellaneous income 1,500,000
(ii) Gross Tax Liability 1,200,000
Tax on export sales 30,000
Tax on Import of goods 108,000
Tax on dividend income 50,000
The projected turnover and taxes expected to be withheld at source are as follows:-
All figures are for the quarter ended September 30, 2003
(i) Gross sales 5,000,000
Sale of imported goods 500,000
Export sales 1,000,000
Dividend income Nil
Miscellaneous income 500,000
(ii) Tax collection/deduction:
- U/s 148 – on goods imported for sale 24,000
- U/s 153 – on sale of imported goods 95,000
- U/s 154 – on export sale 10,000
Less: tax deducted under section 153 on sale of imported goods 95,000
NOTES
N-1 Latest assessed tax under NTR
Gross Tax Liability 1,200,000
Less: Tax on export 30,000
Tax on import of goods 108,000
Tax on dividend 50,000 188,000
Net tax 1,012,000
N-2 Latest tax year turnover under NTR
Gross sales 20,000,000
Less: Export sales 3,000,000
Sales of imported goods 2,000,000 5,000,000
Net sales 15,000,000
N-3 Actual turnover for the quarter
Gross sales 5,000,000
Less: Export sales 1,000,000
Sales of imported goods 500,000 1,500,000
3,500,000
Required:
You are required to compute the amount available for deduction from the taxable income of Mercury and Co for each
year. Please show proper working.
2nd Year
Business Income -
Add: Inadmissible deductions
Depreciation 74,250
Interest (225,000 - 22,500 - 96,890 + 41,513) x 20.5% 30,160 104,410
104,410
Less:Admissible deductions
Lease rental 96,890 96,890
7,520
3rd Year
Business Income -
Add: Inadmissible deductions
Depreciation 74,250
Interest (225,000 - 22,500 - 96,890 - 96,890 + 30,160 + 16,480 90,730
41,513) x 20.5%
90,730
Less:Admissible deductions
Lease rental 96,890 96,890
(6,160)
Sun and Moon have recently registered as partnership. They have incurred the following expenditure.
Required: You are required to explain the tax treatment by computing the amount allowable as deduction in
accordance with the provisions of Income Tax Ordinance 2001
NOTES
N-1 Precommencement expenditure written off @ 20%
Machinery 1,000,000
Installation cost 50,000
1,050,000
1,050,000 @ 25% 262,500
Mr Amir-ud-din has recently constructed an office complex for the purposes of letting out. The office complex is also
equipped with its own electric generators for which tenants are separately charged on a monthly basis. As per terms and
conditions, Mr Amir-ud-din is also entitled to signing amount, which is nonrefundable.
For the tax year 2003 following information has been provided to you for the computation of his income from property and
tax liability thereon:
Rupees
Rent for the year already received 1,150,000
Rent for the year though due but irrecoverable 50,000
Signing amount (non-adjustable non-refundable) 100,000
Fire and water tax paid to the local authority 20,000
Lawyers fee for suit to recover rent 50,000
Lawyers fee for drafting master rent agreement 10,000
Salary of the caretaker who also collects monthly rent 36,000
Insurance premium being one per cent of market value of the property 200,000
Repair maintenance expenditure 50,000
Mr. Mushtaq has provided you with the following data for the computation of his total income and tax thereon for the tax
year 2003.
Basic salary 225,000 Bonus 50,000 Conveyance allowance 50,000 House rent allowance 101,250 Leave fare assistance
60,000
Cash paid to a non profit organization by way of donation Rs.20,000. Motor vehicle provided by employer and used partly
for personal and partly for business purpose. Running cost borne by employee Rs.30,000. During the year Mr. Mushtaq
was issued 5,000 shares under an employee share option scheme whereby he was offered shares at 25% discount to the
market value. The market value of shares is Rs.11 per share. House loan taken by Mr. Mushtaq Rs.200,000. Interest paid
on such loan during the year amounted to Rs.6,000.
Required:
You are required to compute his taxable income and tax thereon. Show all computations and assumptions, as
necessary.
NOTES
N-1 The value of conveyance facility is not provided so there will be
no treatment. conveyance allowance is fully taxable.
N-2 Benefit from share option
FMV of shares 55,000
Less: Cost of shares (5,000 shares x 11 x 0.75) 41,250 13,750
N-4 Deductible allowance on markup on house loan has not been claimed as the same has been assumed not fall within
section 64A.
ABC Associates owns a building which is 30 percent occupied for its business. The rest 70 percent is on rent.
Rent received includes Rs. 600,000 for three years commencing from July 01 of the current year. ABC Associates follow
accrual basis of accounting and its income year is July-June 2002.
Required:
Please compute the income of ABC Associates under the head ‘income from house property’.
Annual letting value of the property owned being as Fair market (A) 2,000,000
rent
Rent received from tenants 1,800,000
Less advance for next two years (Rs. 600,000 / 3 x 2) (400,000)
Add owners burden paid by tenant in the form of taxes 100,000
Actual rent for the tax year (B) 1,500,000
Higher of actual rent or Fair market rent i.e. higher of (B) & (A) 2,000,000
1/5th of rent chargeable to tax as repair allowance 400,000
Tax depreciation (not an allowable expense) -
Property Tax 100,000
Muncipal / local Govt. taxes against property (70% related to rented portion) 70,000
570,000
Net taxable income from property 1,430,000
Note - 1 It has been assumed that the data given in the question is only related to the rented out portion, unless where
specified.
Note - 2 General and administration expenses are not admissible against property income under section 15A of the
Income Tax Ordinance, 2001.
Note - 3 Taxes paid on behalf of owner by tenant shall be treated as income in the hands of the owner by virtue of section
69 of the Income Tax Ordinance, 2001.
Unique Ltd. has following salary related data for the period July 1, 2001 to June 30, 2002 of its three employees.
S G O
Rupees
(Salary and allowances per month)
Basic salary 37,500 23,000 6,000
House rent allowance 16,875 10,350 2,700
Conveyance allowance - 2,300 300
Utility allowance 4,000 2,500 1,000
Recovery of Provident Fund Loan 2,000 1,500 500
Additional information is as follows:
(i) S is provided a fully maintained car of 1000cc which is used both for private and business purpose.
(ii) G owns his conveyance and also incurs its running and maintenance cost. The conveyance is used partly for
business and private purposes.
(iii) S, G and O all were entitled for annual bonus due in Sept. 2001, the term of bonus is one basic pay.
On the basis of above, compute tax withholding per month under the CIR read with the Income Tax Rules, 1982.
20,700 1,976 -
Mr. Ashraf made the following donations during the income year 2000-2001:
(a) Rs. 200,000 in cash to a relief fund sponsored by the Government.
(b) Personal car to an institution referred to in Clause (61) of the Second Schedule. This car was purchased by
Mr. Ashraf four years ago at the cost of Rs. 80,000.
(c) The fair market value is Rs.60,000
Please advice Mr. Ashraf regarding the allowance for donation which may be claimed by him keeping in view the
requirement of Section 47 of the CIR 1979 if his income for the relevant income year has been assessed at Rs. 800,000.
Explain whether the following are admissible as business expenditure under the ITO 1979:
(a) Repayment of principal amount of lease rentals of plant and machinery. (b)Sales tax paid on the purchase of raw
material to be used in the production of exempt supply. (c) Dividend (d) Provision in respect of doubtful debts.
(b) Penalty levied u/s 108 of the CIR, 1979 for failure to file statement u/s 139.
a) Repayment of principal amount of lease rentals: Lease rentals are admissible where leased asset is acquired for
business purposes. In this case the repayment is principal amount with markup although not given in question.
b) Sales tax paid on the purchase of raw material to be used in the production of exempt supply shall be allowed as
admissible expense.
c) Dividend is not an allowable deduction while calculating the business income because it is profit and loss approprriation
item.
d) Provision in respect of doubtful debt is not allowed. Only actual bad debts are allowed.
e) Penalty levied under Section 108 of the Income Tax Ordinance, 1979 for failure to file statement under Section 139
shall not be admissible under the income tax ordinance.
Mr. Javaid, Managing Director of a multi national Company has submitted the following data for the income year ending 30
Rs.
Basic Salary 130,500 p.m
Bonus 325,500 full year
House rent allowance 43,500 p.m
Utilities 13,050 p.m
- Mr. Javaid has been provided with free use of a Company maintained car of 1,600 C.C.
- In accordance with terms of his employment Mr. Javaid was paid Rs. 60,000 being the cost of air ticket in
connection with a foreign tour. He last undertook a foreign tour three years ago.
- During the year Mr. Javaid sold 180,000 shares of Rs. 10 each purchased at par three years ago of
M/s Azmat (Pvt) Ltd for Rs. 65 per share.
- Zakat paid Rs. 12,000
Required:
You are required to calculate the total income of Mr. Javaid and tax payable thereon.
Notes
N-1: The value of car not provided and further it is assumed that the car was being for office use only.
N-2: Air ticket for foreign trip treated as exempt as it is for the discharge of official duties.
Mr Amir Ali is manager finance in a multinational company. He has received the following salary and other perquisites
during the year ended on June 30, 2000:
The employer provided him a 1300 c.c. car for office/personal use and medical facility worth Rs.25,000 during the
year.
Compute the total income of Mr Amir Ali and tax payable thereon.
T and H Enterprises is a registered firm comprising of two equal partners named Tariq and Hamid. During the year ended
on 30th June 2001 the partners besides their shares in the firm enjoyed income and sustained losses from the sources
given below:
Tariq
Hamid
(a) Speculation loss 25,000
(b) Profit on sale of car 13,000
(c) Income tax refund 5,000
(d) Zakat paid 14,000
The profit and loss account of the registered firm for the year ended on 30th June, 2001, shows the following
position:
Rs. Rs.
Salaries 300,000 Gross profit b/d 480,000
Office maintenance 5,000 Dividend from
Public Co. 250,000
Repairs 38,000
Provision for bad debts 14,000
Super tax paid for last year 5,000
Legal expenses 15,000
Commission to Tariq 16,000
Premium of life policies of
Partners 5,000
Depreciation 34,000
Net profit:
Tariq 149,000
Hamid 149,000 298,000
730,000 730,000
Notes:
(i) Tariq and Hamid are paid Rs.45,000 and Rs.55,000 respectively as salary. This is included in total salary
expense.
ii) Repairs includes Rs.18,000 being cost of a typewriter to be depreciated by 10%.
(iii) Legal expenses include Rs.6,000, on which tax is deductible.
(iv) Tax Depreciation excluding typewriter Rs.14,000.
Compute:
(a) the total income of the firm and taxes payable by it. (b) the total income of each partner and tax thereon.
Tariq
Total income from foreign source 72,000 -
Less: Zakat (26,500) -
Taxable income 45,500 -
Add: Share of profit from AOP 115,100 -
Taxable income for rate purposes 160,600 -
Hamid
He has a speculation loss which is set off only against speculation profit. So nothing shall be included from share
from AOP.
NOTES
N-1 Dividend covered under FTR, so not included in taxable income.