Topic-5-Computation of Taxable Income

Computation of Taxable Income
Prof. Javed Anwar

• Income (Sec-2(29))
– The definition of term “income” uses the word
“includes” therefore, it is inclusive definition and
not exhaustive. An inclusive definition is that
which not only extends to those things which are
included in it, but also covers all such things which
the term signifies according to its general and
natural meaning.
• Heads of income (Sec-11)
• For the purposes of the imposition of tax and
the computation of total income, all incomes
shall be classified under the following heads,
namely:
– Salary;
– Income from property;
– Income from business;
– Capital gains; and
– Income from other sources.
• The income of a person under a head of income for a
tax year shall be the total of the amounts derived by
the person in that tax year that are chargeable to tax
under the head as reduced by the total deductions, if
any, allowed under the Ordinance to the person for
that year under that head.
• If the total deductions allowed to a person for
a tax year under a head of income exceed the
total amounts derived by the person in that tax
year chargeable under that head, the person
shall be treated as sustaining a loss under that
head for that tax year of an amount equal to
the excess.
• A loss for a head of income for a tax year shall
be dealt with in accordance with Part VIII of
Chapter III of the Income Tax Ordinance,2001
(Chapter 11 of this study text).
• The income of a resident person is computed by
taking into account amounts that are his Pakistan-
source income and amounts that are his foreign-
source income.
• On the other hand, income of a non-resident
person is computed by taking into account only
the amounts that are his Pakistan-source income.
• In view of aforesaid provisions of law, the
equation to determine the taxable income is a
under:
• Total income (Sec-10)
The total income of a person for a tax year shall
be the sum of the
– Person’s income under all heads of income for that
tax year; and
– Person’s income exempt from tax for that tax year
under any of the provisions of Income Tax
Ordinance, 2001.
• Taxable income (Sec-9 )
– The taxable income of a person for a tax year shall
be the total income other than exempt income of
the person for the year reduced (but not below
zero) by the sum of any deductible allowances of
the person for that tax year.
• Deductible allowances (Sec-60-60B)
– Zakat (Sec-60)
– Worker’s welfare fund (Sec-60A)
– Worker’s participation fund (Sec-60B)
Person (Sec-2(42) read with Sec-80)
• Definition: Person
– an individual;
– a company or association of persons incorporated,
formed, organised or established in Pakistan or
elsewhere;
– The Federal Government, a foreign government, a
political subdivision of a foreign government, or
public international organisation.
• Definition: Association of Persons

– “Association of persons” includes a firm, a Hindu
undivided family, any artificial juridical person
and anybody of persons formed under a foreign
law, but does not include a company;
– “Firm” means the relation between persons who
have agreed to share the profits of a business
carried on by all or any of them acting for all.
• Definition: Company
• “Company” means:
– a company as defined in the Companies Ordinance, 1984
– a small company as defined in section 2 of the Income Tax Ordinance,2001
– a body corporate formed by or under any law in force in Pakistan;
– a modaraba;
– a body incorporated by or under the law of a country outside Pakistan relating to
incorporation of companies;
– a foreign association, whether incorporated or not, which the Board has, by general
or special order, declared to be a company for the purposes of this Ordinance;
– a Provincial Government; or
– a local Government in Pakistan; or
– a co-operative society, a Finance society or any other society
– a non-profit organisation
– a trust, an equity or a body of persons established or constituted by or under any
law for the time being in force
• “Local Government” shall have the same meaning
as in the Punjab Local Government Ordinance,2001,
the Sindh Local Government Ordinance,2001, the
NWFP Local Government Ordinance,2001 and the
Balochistan Local Government Ordinance,2001.
• “trust” means an obligation annexed to the
ownership of property and arising out of the
confidence reposed in and accepted by the owner, or
declared and accepted by the owner for the benefit of
another, or of another and the owner, and includes a
unit trust;
• Sec 2(47) “Public company” means —
– a company in which not less than fifty per cent of the
shares are held by the Federal Government or Provincial
Government;
– a company in which not less than fifty per cent of the
shares are held by a foreign Government, or a foreign
company owned by a foreign Government;
– a company whose shares were traded on a registered stock
exchange in Pakistan at any time in the tax year and which
remained listed on that exchange at the end of that year; or
– a unit trust whose units are widely available to the public
and any other trust as defined in the Trusts Act, 1882 (II of
1882);
• “Unit trust” means any trust under which beneficial interests are divided
into units such that the entitlements of the beneficiaries to income or
capital are determined by the number of units held.
• Sec 2(45) “Private company” means a company that is not a public
company
• Sec 2(7) “Banking company” means a banking company as defined in
the Banking Companies Ordinance, 1962 (LVII of 1962) and includes
anybody corporate which transacts the business of banking in Pakistan;
• Sec 2(14) “Cooperative society” means a co-operative society
registered under the Co-operative Societies Act, 1925 (VII of 1925) or
under any other law for the time being in force in Pakistan for the
registration of co-operative societies;
• Sec 2(25) “Finance society” includes a co-operative society which
accepts money on deposit or otherwise for the purposes of advancing
loans or making investments in the ordinary course of business;
• Sec 2(36) “Non-profit organization” means any person other than
an individual which is
– (i) established for religious, educational, charitable, welfare or
development purposes, or for the promotion of an amateur
sport;
– (ii) formed and registered under any law as a non- profit
organization;
– (iii) approved by the Commissioner for specified period, on an
application made by such person in the prescribed form and
manner, accompanied by the prescribed documents and, on
requisition, such other documents as may be required by the
Commissioner;
• Assets of such organization are not available for private
benefit to any other person.
• Sec 2(59A) "Small Company" means a company
registered on or after the first day of July, 2005, under the
Companies Ordinance, 1984 which,-
– (i) has paid up capital plus undistributed reserves not
exceeding twenty five million rupees;
– (ii) has employees not exceeding two hundred and
fifty any time during the year;
– (iii) has annual turnover not exceeding two hundred
and fifty million rupees; and
– (iv) is not formed by the splitting up or the
reconstitution of a company already in existence;

Topic-5-Computation of Taxable Income

Uploaded by

Copyright:

Available Formats

Topic-5-Computation of Taxable Income

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Topic-5-Computation of Taxable Income

Uploaded by

Copyright:

Available Formats

Computation of Taxable Income

Prof. Javed Anwar

• Definition: Association of Persons

You might also like