TAXATION MANAGEMENT (FIN623)

ASSIGNMENT NO. 01

Question 1:
Using the following data, determine taxable income of Mr. Alvi, if he is (a) resident; & (b) non-
resident for the tax year 2023 (Show complete calculations)
• Monthly basic salary Rs. 250,000
• Profit on debt received in London issued by resident person Rs. 400,000
• Monthly medical allowance Rs. 30,000
Solution:

Particular Resident Non-resident

Basic Salary (250,000*12) 3,000,000 3,000,000
Profit on debt received in London issued by resident person 400,000 0
Monthly Medical Allowance (30,000*12) 60,000 60,000
Taxable Income 3,460,000 3060000

Solution Notes:
 Profit on debt received in London issued by a resident person is exempt from tax for the
tax year 2023 under section 46 of the ITO 2001.
 Medical allowance is exempt up to 10% of the basic salary. In this case, the basic salary
is Rs. 3,000,000. Calculating 10% of the basic salary gives Rs. 300,000. As the monthly
medical allowance is Rs. 30,000, multiplying it by 12 (months) gives Rs. 360,000.
However, since the exempted amount is limited to 10% of the basic salary (Rs. 300,000),
the excess amount is subtracted. Thus, the taxable amount remains Rs. 60,000.
Therefore, if Mr. Alvi is a resident, his taxable income for the tax year 2023 would be Rs.
3,460,000. If he is a non-resident, his taxable income would be Rs. 3,060,000.

Question 2:
M/S Insurance closes its accounting year on Dec. 31 each year. Determine its tax year for the
income year starting on January 1, 2022, and ending on December 31, 2022.
Solution:
Special Tax Year 2023: 1st January 2022 to 31st December 2022
Question 3:
A GM of a local company remained on a foreign tour to Russia for 100 days during the tax year
2023.
Determine his residential status for the tax year 2023.
Solution:
Based on the duration of the GM's stay in Pakistan during the tax year, it can be determined
whether he is a resident individual or not. According to the tax regulations, an individual is
considered a resident if they are present in Pakistan for a period of, or periods amounting in
aggregate to, one hundred and eighty-three days or more in the tax year.
In this case, since the GM remained on a foreign tour to Russia for only 100 days during the tax
year 2023, his total stay in Pakistan is more than required threshold of 183 days. Therefore, he
would be classified as a Resident Individual for the tax year 2023.

Question 4:
Identify legal status of the following persons considering the Sec. 80 of the ITO 2001 for the tax
year 2023:
Solution:
Legal
Person Status
Operations Manager of a local company Individual
Habib Modaraba – a Modaraba company Company
Punjab Employees Co-operative Society Company