RISE SCHOOL OF ACCOUNTANCY

Section: All Batches of Spring 2022

Marks : 50
Subject: Principles of Taxation
Time : 90 Minutes
Teacher: Mr. Zahid Qavi
Term Test 01 Date: 17 December 2021

Name: ___________________________________ Rise ID: ____________________

Question 01
Usman Hassan (UH) is engaged in the business of manufacturing beverages with the name UH beverages.
Following is the extract from the profit and loss account of UH beverages for the period ended June 30, 2009.
Rs. in ‘000’
Sales 5,000,000
Cost of sales (Note 1) (3,000,000)
Gross profit 2,000,000
Administrative and selling expenses (Note 2) (750,000)
Finance cost (250,000)
Other income 500,000
Profit 1,500,000

1. Cost of sales: Rs. in ‘000’

Electricity & gas (incurred in cash) 1,600,000
Salaries, wages and other benefits 800,000
Local freight charges (paid in cash) 100,000
Depreciation 500,000
3,000,000
 10% of the total salaries were paid in cash. Of these, Rs. 20.0 million were paid to daily wage
employees @ Rs. 400 per day, whereas Rs. 60.0 million were paid to contract employees who earn a
monthly salary of Rs. 35,000 each.

2. Administrative & selling expenses

Rs. in ‘000’
Salaries and other benefits 200,000
Advertisement expenses 100,000
Insurance 85,000
Rent, rates and taxes 65,000
Entertainment expenditure 25,000
Contributions to approved retirement funds 100,000
Depreciation 75,000
Amortization 25,000
Penalties paid under Sales Tax Act 25,000
Miscellaneous expenses 50,000
750,000
 Rent, rates & taxes include Rs. 0.5 million paid under a provincial tax law imposed on all beverage
manufacturers having a manufacturing facility in the province of Punjab.
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 Tax amortisation is Rs. 20 million.
 Depreciation computed under the Income Tax Ordinance, 2001 on all depreciable assets is Rs 500.0
million.
In the light of the provisions of Income Tax Ordinance, 2001, compute the taxable income and tax liability of UH
for the tax year 2009. (Ignore minimum tax) (12)

Question 02
The following information is made available to you by Murtaza who is the owner of a house property in
Islamabad.
(i) On 1 July 2002, Murtaza had rented the house to Jack on a monthly rental of Rs.50,000 and had also
received from Jack a deposit of Rs.1,000,000 which is not adjustable against the rent payable. On 1
July 2004, Jack vacated the house and the Rs.1,000,000 was returned to him.
(ii) On I July 2004, Murtaza lets the house to Jill on a monthly rental of Rs.60,000 which includes
Rs.10,000 for the services of a security guard. Murtaza received from Jill a deposit of Rs.1,500,000
which is not adjustable against the rent payable
(iii) In the accounting year ended 30 June 2005, Murtaza incurred expenditure of Rs.79,600 on repairs to
the house and paid rent collection charges of Rs. 120,000.
Required:
Compute the taxable income of Murtaza for the tax year 2005. (06)

Question 03
(i) A company made online payment of Rs. 450,000 on purchase of professional books for its business use.
(ii) On 30 November 2020 Jamila, received a cash gift of Rs. 100,000 and a gold necklace having fair value of
Rs. 30,000 from her friend Mehreen. Mehreen had bought this necklace in 2017 for Rs. 25,000. Jamila sold
the necklace with in two weeks at a jewellery shop for Rs. 33,000.
(iii) Mr. Anjum has purchased a machine for the purpose of his business. He is unsure how he will determine its
cost.
Requirement:
In the light of Income Tax Ordinance, 2001 for the tax year 2021 comment on each of the above independent
scenarios. (06)
Question 04
Mr. Shandar is running a small business of textiles. During the tax year 2015, in order to expand the business, he
has decided to purchase new assets and replace some of the old machines with new ones. He has provided you
with the following information. Discuss the implication of tax laws in each of the given scenario.
1. On 1.1.2015, purchased a new plant from China for USD 25,000 (USD 1 = Rs.100). Government gives a
subsidy of 15% on import of plant and machinery of which only 25% is exempt from tax. Plant was delivered
to Karachi port on 1.2.2015. (03)
2. Mr. Shandar constructed a new textile designing machine and following expenditures were incurred:
Labour 50,000
Instruments 200,000
Payment to experts for installation 100,000
For the construction of machine he took loan in foreign currency of $6,500 (1$=Rs.100) 0n 1st July 2014. First
payment of loan is due on 30.06.15 amounting to $1,000. At the date of payment (1$=Rs.105) (04)
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Question 05
Peterpan started his business of supplying ventilators in Pakistan due to the pandemic of COVID-19. Due to
emergency situations, the government of Pakistan has exempted the income earned on supplying ventilators for a
period of two years i.e. 2021 and 2022. Peterpan purchased a building for his business on 7th December 2020 for a
cost of Rs. 10,000,000. After the invention of vaccine, Peterpan decided to close it business. Consequently, he
sold the building for a consideration of Rs. 12,000,000 on 1st January 2024.
Required:
Calculate gain/loss on disposal of building. (05)

Question 06
Mrs. Ahsan was employed with Sahal Limited (SL) as a Marketing Manager. On 30 June 2021 she resigned from
her employment with SL. On 1 July 2021, 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 2022:
(i) In July 2021, 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. Ahsan in January 2021.
(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. 20,000 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. Ahsan was awarded 5,000 shares in HPL on 1 January 2022.
Under the scheme she was not allowed to sell the shares up to 31 March 2022. She sold all the shares in
HPL on 1 May 2022. Fair value of the shares on the above dates was as follows:
 Rs. 20 per share on 1 January 2022
 Rs. 28 per share on 31 March 2022
 Rs. 32 per share on 1 May 2022
(iv) On 31 December 2021, 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. 150,000.
(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 institute listed in 13th schedule.
Required:
Compute the taxable income, tax liability and tax payable for the tax year 2022. (14)
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THE FIRST SCHEDULE

Rates of Tax for Individuals and

Association of Person
1. Subject to clause (2), the rates of tax imposed on income of every individual and association of
persons except a salaried individual shall be as set out in the following Table, namely:

TABLE

S. No Taxable Income Rate of Tax

1. Where taxable income does not exceed Rs. 400,000 0%

2. Where taxable income exceeds Rs. 400,000 5% of the amount exceeding Rs. 400,000
but does not exceed Rs. 600,000

3. Where taxable income exceeds Rs. 600,000 Rs. 10,000 plus 10% of the amount
but does not exceed Rs. 1,200,000 exceeding Rs. 600,000

4. Where taxable Income exceeds Rs. 70,000 plus 15% of the amount
Rs. 1,200,000 but does not exceed Rs. exceeding Rs. 1,200,000
2,400,000
5 Where taxable Income exceeds Rs. 2,400,000 Rs. 250,000 plus 20% of the amount
but does not exceed Rs. 3,000,000 exceeding Rs. 2,400,000

6 Where taxable Income exceeds Rs. 370,000 plus 25% of the amount
Rs. 3,000,000 but does not exceed Rs. exceeding Rs. 3,000,000
4,000,000
7. Where taxable Income exceeds Rs. 620,000 plus 30% of the amount
Rs. 4,000,000 but does not exceed Rs. exceeding Rs. 4,000,000
6,000,000
8. Where taxable Income exceeds Rs. 6,000,000 Rs. 1,220,000 plus 35% of the amount
exceeding Rs. 6,000,000

(1) Where the income of an individual chargeable under the head “„salary” exceeds seventy-five per cent
of his taxable income, the rates of tax to be applied shall be as set out in the following Table, namely:

S. No Taxable Income Rate of Tax

(1) (2) (3)
Where taxable income does not exceed Rs.600,000
1. 0%

Where taxable income exceeds Rs. 600,000

5% of the amount exceedingRs.
2. but does not exceedRs. 1,200,000
600,000

Where taxable income exceeds Rs. 1,200,000

Rs. 30,000 plus 10% of the amount
3. but does not exceedRs. 1,800,000
exceeding Rs. 1,200,000
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Where taxable income exceeds Rs. 1,800,000
Rs. 90,000 plus 15% of the amount
4. but does not exceedRs. 2,500,000
exceeding Rs. 1,800,000

Where taxable income exceeds Rs. 2,500,000

Rs. 195,000 plus 17.5% of the amount
5. but does not exceedRs. 3,500,000
exceeding Rs. 2,500,000

Where taxable income exceeds Rs. 3,500,000

Rs. 370,000 plus 20% of the amount
6. but does not exceedRs. 5,000,000
exceeding Rs. 3,500,000

Where taxable income exceeds Rs. 5,000,000

Rs. 670,000 plus 22.5% of the amount
7. but does not exceedRs. 8,000,000
exceeding Rs. 5,000,000

Where taxable income exceeds Rs. 8,000,000

Rs. 1,345,000 plus 25% of the amount
8. but does not exceedRs. 12,000,000
exceeding Rs. 8,000,000

Where taxable income exceeds

Rs. 2,345,000 plus 27.5% of the Amountexceeding
9. Rs. 12,000,000 but does not exceed
Rs. 12,000,000
Rs.30,000,000
Where taxable income exceeds
Rs. 7,295,000 plus 30% of the amount
10. Rs. 30,000,000 but does not exceed
exceeding Rs. 30,000,000
Rs.50,000,000
Where taxable income exceeds
Rs. 13,295,000 plus 32.5% of the amountexceeding
11. Rs. 50,000,000 but does not exceed
Rs. 50,000,000
Rs.75,000,000

Rs. 21,420,000 plus 35% of the amount

12. Where taxable income exceeds Rs.75,000,000
exceeding Rs. 75,000,000

Rates of tax for disposal of immoveable

property

(3A) Gain arising on disposal of an immovable property shall be computed in accordance with the formula:

S.No. Holding Period Gain

1. Where holding period of an immovable property does not exceed one year A
2. Where holding period of an immovable property exceeds one year but Ax¾
does not exceed two years
3. Where holding period of an immovable property exceeds two year but does Ax½
not exceed three years
4. Where holding period of an immovable property exceeds three year but Ax¼
does not exceed four years
5. Where holding period of an immovable property exceeds four years 0
Where A is the amount of gain on disposal of an immovable property.

The tax will be calculated on immovable property at the following rates:

S. No. Amount of gain Rate of tax

1. Where the gain does not exceed Rs. 5 million 3.5%
2. Where the gain exceeds Rs. 5 million but does not exceed Rs. 10 million 7.5%
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3. Where the gain exceeds Rs. 10 million but does not exceed Rs. 15 million 10%
4. Where the gain exceeds Rs. 15 million 15%

Rates of tax for securities

TY 2022

Securities Securities
S. No. Period acquired before acquired after
01.07.2016 01.07.2016

1. 15%
Where holding period of a security is less than 12 months
2. Where holding period of a security is 12 months or 12.5% 12.5%
more but less than 24 months
3. Where holding period of a security is 24 months or more 7.5%
but the security was acquired on or after 1.7.2013
4. Where the security was acquired before 1st July, 2013 0% 0%