Taxation

Levels of Government

Federal Government

i) Income Tax

ii) Sales Tax

iii) Customs Duty

iv) Federal Excise Duty

v) Capital Value Tax etc.

Sale 100000

S.tax 17% 17000

1,17,000

Indirect Tax: The person upon whom it is imposed, he is not having the burden of it. E.g: Sales Tax

Direct Tax: The person upon whom it is imposed, he is having the burden of it. E.g: Income Tax

Import 1,00,000

CD20% 20,000

1,20,000

Profit Margin30% 30,000

Price for market 1,50,000

Cost 100

FED10% 10

110

Profit margin 20

Price 130

Provincial Government important taxes

1) Agricultural Income Tax

2 Provincial Sales Tax

3) Punjab Urban Immovable Property Tax

4) Professional Tax

5) Token Tax

Total Income = 24,00,000

Less Exempt Income (Agricultural) = 10,00,000

=14,00,000

Less Deductible Allowances

*Zakat 20,000

*WWF 1,000

*WPF 4,000 =25,000

Taxable Income =13,75,000

Normal Tax Year:

Ist July 2017 To 30 June 2018……………………………… Tax Year 2018

Ist July 2020 To 30 June 2021……………………………… Tax Year 2021

12 April 2016………………………………………………..Tax Year 2016

18 October 2007………………………………………………Tax Year 2008

1st July 2007 to 30th June 2008……………….Tax Year 2008

Transitional Tax Year Example:

Special tax year 1 Jan 2018 ………… 31 Dec 2018

Normal Tax Year 1 July 2019………….. 30 June 2020

Transitional Tax Year 1st January 2019 to 30th June 2019

Period generated because of change / Transition which neither falls in Special Tax Year nor in Normal
Tax Year is called as Transitional Tax Year. In our example: 1 Jan 2019…………30 June 2019

Taxable Income

Total Income 80,00,000

Less Exempt Income (Agricultural income) 10,00,000

70,00,000

Less Deductible Allowances

a) Zakat 10,000

b) WWF 0

c) WPF 0 10,000

Taxable Income 69,90,000

I/S = 1,79,00,000

Tax

Initial…………………………………………………………..29,55,000

Add (1,79,00,000-1,20,00,000)@ 35%........... 20,65,000

Total Tax 50,20,000

Less 25% Teacher Rebate 12,55,000

Tax 37,65,000

Less Already Deducted 1,00,000

Payable 36,65,000

I/B= 1,79,00,000

Tax

Initial…………………………………………………….13,30,000

Add (1,79,00,000-60,00,000) @ 35%......41,65,000

54,95,000
I/B= 36,24,000

Tax

Initial…………………………………………………….4,05,000

Add (36,24,000-30,00,000) @ 27.5%.........1,71,600

5,76,600

I/S……………………………………..………25,00,000

I/B………………………………………..… 23,00,000

Total Taxabale Income ………………48,00,000

Salary percentage in Taxable income

25,00,000 x100 = 52% as salary portion in not exceeding 75% of total taxable income hence Other than salary rate will be applied.

48,00,000

Tax:

Intial……………………………………………………..6,80,000

Add: (48,00,000-40,00,000)@32.5%........ 2,60,000

9,40,000

Full time Professor

I/B= 40,00,000

I/S = 40,00,000

Total Taxable Income 80,00,000

Salary proportion
40,00,000/80,00,000x100 =50%

As salary portion is less than 75% so apply non salaried rate

Tax

Initial………………………………………….. 13,30,000

Add (80,00,000-60,00,000) @ 35% 7,00,000

20,30,000

Tax portion related to salary in total tax

(40,00,000/80,00,000 )X 20,30,000 = 10,15,000

Teacher reduction 25% of tax on salary = 10,15,000@25% = 2,53,750

Total Tax ……………..................................... 20,30,000

Less Teacher Exemption………………………….. 2,53,750

17,76,250

Less Already deducted tax at source ……………. 40,000

Tax Payable 17,36,250

Co.

I/B= 25,00,000 @ 29%= 7,25,000

Small Co.

I/B= 25,00,000 @20%= 5,00,000

AOP

I/B = 50,00,000
Tax:

Initial………………………………………………………6,80,000

Add (50,00,000 – 40,00,000) @ 32.5%......3,25,000

10,05,000

AOP

A B

50% 50%

AOP Income= 50,00,000

Tax:

Initial……………………………………………………6,80,000

Add (50,00,000 – 40,00,000) @ 32.5%......3,25,000

10,05,000

Partner A

Income share from AOP= 25,00,000

Tax=0

Partner B

- Income share from AOP….. 25,00,000………………….N………………NS

- I/B…………………………………….10,00,000…………………T…………………NS

- I/S……………………………………..8,00,000………………….T……………………S

43,00,000

Salary income percentage

(8,00,000/43,00,000) x 100 = 18%

18% salary does not exceed 75% hence “other than salary tax rate will be applied

Tax

Initial……………………………………………………………..…………………….6,80,000

Add (43,00,000-40,00,000) @ 32.5%......................................... 97,500

Total tax including tax on share of AOP ……... 7,77,500

Tax on income other than share from AOP

(18,00,000/43,00,000) x 7,77,500 = 3,25,465

Salary Numerical

I/B…………………………………………………………………………………………………………………….30,00,000

I/S

 Basic Salary …………………………………………………..…………12,00,000

 Bonus……………………………………………………………….………..1,00,000

 Pension……….2,90,000…(Exempt)……………………..……….……..0

 Servant Facility
- Driver………10,000/Mx12…………..……..…1,20,000

Less 20% paid by employee himself….. 24,000………....96,000

- Housekeeper..10,000/Mx12………………..1,20,000

Less 40% paid by employee himself…….48,000……….. 72,000

 Utility Facility

- Electricity…………………………………………1,32,000

Less 30%paid by employee himself.....39,600…………..92,400

- Telephone………………………………………………………………...65,000

 Ownership of a Car

Car Value……………………………15,00,000

Less 10% Paid by employee…1,50,000…………………13,50,000

 Rent Free Accomodation

Fair Market Rent (FMR)…….....5,00,000

Or

45% of Basic Salary

(45% of 12,00,000)=………….5,40,000

Whichever is higher………………………………………….….5,4,0000

 Conveyance Facility partial personal usage:

5% of the cost of car (20,00,000)………………………….1,00,000

 Medical Allowance…………….………….1,80,000

Less Exempt 10% of basic salary…….1,20,000……….60,000

Total Taxable Salary Income…………………………………………………………….………….36,75,400

Total Taxable Income…………………………………………………………………………………..66,75,400

Salary portion in Taxable Income

 36,75,400/66,75,400 x 100 = 55%

As salary portion is not more than 75% hence Non Salaried rate is to be applied

Tax Calculations

Intial……………………………………………………….13,30,000

Add (66,75,400-60,00,000)@35%.............2,36,390

Tax Payable 14,56,390

Income from Property

Rent Chargeable to Tax / Gross Rent

Contents of RCT / Gross Rent

i) Actual amount of Rent received or receivable OR Fair Market Rent (FMR),

whichever is higher.

ii) Any forfeited deposit received under a contract for the sale of land or a
building.

iii) Any obligation of the owner (e.g., Repair and maintenance, Collection
charges, property tax, etc.,) paid by the tenant.

iv) Amount received by the owner from his tenant as advance, which is not
adjustable against rent. (one-tenth 1/10th of such advance is charged to tax
every year for the 10 years.)
1 10 60000
2 10
 3 10
4 10
5 10
6 10 120000
7 10
8 10
9 10
10 10
11 10
12 10

Numerical 1

I/P

Actual Rent 1,25,000 per Month

FMR…………………………….15,20,000

Forfieted Amount………….6,00,000

Repair by Owner…………….65,000

Repair by Tenant……………5,000

Property Tax Paid by Owner………………30,000

Property Tax Paid by Tenant…………………4,000

Advance Rent Received…………………………..2,50,000

Security Received………………………………….3,50,000

Insurance ………………………………………….1,35,000

Profit on Debt paid regarding same property …………1,70,000

Collection Charges…………………………………………………88,000

Legal Charges paid regarding same property….70,000

Solution:

I/P

RCT / Gross Rent

- Actual Rent 1,25,000/M x 12……………….15,00,000

Or FMR whichever is higher...............….15,20,000……………………………………..15,20,000

- Forfieted Amount…………………………………………………………………………………………6,00,000

- Repair by Tenant…………………………………………………………………………………………….5,000

- Property Tax Tenant………………………………………………………………………………………….4,000

- 1/10th of the security received…………………………………………………………………………35,000

RCT / Gross Rent……………………………………………………………………………………………….21,64,000

Less Expenses:

 1/5th Repair Allowance= 21,64,000/5……………4,32,800

 Insurance………………………………………………..………1,35,000

 Property Tax by Owner …………………………………….30,000

 Profit on Debt paid regarding same property …1,70,000

 Actual Collection Charges 88,000

Or 4% of Gross rent =86,560 (whichever is less)..86,560

 Legal Charges paid regarding same property…...70,000…………………………9,24,360

Income from Property……………………………………………………………………………12,39,640

Tax
Initial………………………………………………………………..60,000

Add (12,39,640-12,00,000)@17.5%......................6,937

Total Tax on I/P………………………………………………… 66,937

Numerical 2 Individual

Income from Salary…………………………………………………………………………………………………….5,00,000

Income from Business…………………………………………………………………………….………………… 7,00,000

I/P

Actual Rent 1,25,000 per Month

FMR…………………………….15,20,000

Forfieted Amount………….6,00,000

Repair by Owner…………….65,000

Repair by Tenant……………5,000

Property Tax Paid by Owner………………30,000

Property Tax Paid by Tenant…………………4,000

Advance Rent Received…………………………..2,50,000

Security Received………………………………….3,50,000

Insurance ………………………………………….1,35,000

Profit on Debt paid regarding same property …………1,70,000

Collection Charges…………………………………………………88,000

Legal Charges paid regarding same property….70,000

Solution:

I/P

RCT / Gross Rent

- Actual Rent 1,25,000/M x 12……………….15,00,000

Or FMR whichever is higher...............….15,20,000……………………………………..15,20,000

- Forfieted Amount…………………………………………………………………………………………6,00,000

- Repair by Tenant…………………………………………………………………………………………….5,000

- Property Tax Tenant………………………………………………………………………………………….4,000

- 1/10th of the security received…………………………………………………………………………35,000

RCT / Gross Rent……………………………………………………………………………………………….21,64,000

Less Expenses:

 1/5th Repair Allowance= 21,64,000/5……………4,32,800

 Insurance………………………………………………..………1,35,000

 Property Tax by Owner …………………………………….30,000

 Profit on Debt paid regarding same property …1,70,000

 Actual Collection Charges 88,000

Or 4% of Gross rent =86,560 (whichever is less)..86,560

 Legal Charges paid regarding same property…...70,000……………………9,24,360

Income from Property…………………………………………………………………………………………12,39,640

Add Income from Salary………………………………………………………………………………………5,00,000

 Add Income from Business…………………………………………………………………………………7,00,000

Total Taxable Income…………………………………………………………………………………………24,39,640

Tax

Initial………………………………………………………………..2,70,000

Add (24,39,640-24,00,000)@22.5%.........................8,919

Total Tax …………………………………………………………2,78,919

I/P (Company)

Actual Rent 1,25,000 per Month

FMR…………………………….15,20,000

Forfieted Amount………….6,00,000

Repair by Owner…………….65,000

Repair by Tenant……………5,000

Property Tax Paid by Owner………………30,000

Property Tax Paid by Tenant…………………4,000

Advance Rent Received…………………………..2,50,000

Insurance 24,000

Profit on debt 65000

Collection Charges 370000

Legal expense 500000

Solution:

I/P (Company)

RCT / Gross Rent

- Actual Rent 1,25,000/M x 12……………….15,00,000

Or FMR whichever is higher...............….15,20,000……………………………………..15,20,000

- Forfieted Amount…………………………………………………………………………………………6,00,000

- Repair by Tenant…………………………………………………………………………………………….5,000

- Property Tax by Tenant………………………………………..………………………………………….4,000

- 1/10th of the security received…………………………………………………………………………35,000

RCT / Gross Rent……………………………………………………………………………………………….21,64,000

Less Expesnses

- 1/5th of RCT Repair Allowances 432800

- Insurance 24000

- Property Tax 30000

- Profit on debt 65000

- Collection Charges 370000

Or 4% or RCT (whichever is lesser) 86560…………………… 86560

- Legal expenses…………………………………………………………… 500000 1138360

Income from property of company…………………………………………………………… 1025640

Tax

1025640 @29%= 297436

Minimum Tax u/s 113

Company

Sales 50,00,000 @ 1.25% = 62,500

Income 10,000 @29% = 2,900

Payable which ever is higher i.e; 62,500

AOP

Sales 75,00,000

Income 2,00,000 No Tax

AOP

Sales 1,25,00,000 @ 1.25% = 1,56,250

Income 8,00,000 Tax by applying normal tax rate = 30,000

Payable which ever is higher i.e; 1,56,250

Example

Income from Capital Gain

Consideration received 8,00,000

Less Cost 2,00,000

Capital Gain 6,00,000

 Example:

If Selling Expenses and Acquiring Expenses

Consideration received 8,00,000

Less Actual Cost 2,00,000

Acquisition Expenses 10,000

Selling Expenses 12,000 2,22,000

Capital Gain 5,78,000

Example:

If Cost is not there like Gift, Succession, Will, etc.

Consideration received 8,00,000

Less Cost (Market value when asset acquired) 2,00,000

Capital Gain 6,00,000

Mr. Baqir has income from Salary Rs.15,00,000, Income from Business: Rs.22,00,000. He also has

Capital Gain as under:

Consideration received 8,00,000

Less Actual Cost 2,00,000

Acquisition Expenses 10,000

Selling Expenses 12,000 2,22,000

Capital Gain 5,78,000

Taxable Capital Gain ………………………………………………..…………………………………. 5,78,000

I/B …………………………………………………………………………………………………………………. 22,00,000

I/S ………………………………………………………………………………………………………………………15,00,000
 Total Taxable Income………… ………………………………………………………………………… 42,78,000

Normal Tax

Initial……………………………………………………………………………… 6,80,000

(42,78,000-40,00,000)@32.5%............................................. 90,35,0

Tax………………………………….7,70,350

Income from other sources

Income from Business…………………………………………………………8,00,000

Income from Salary………………………………………………………..……9,00,000

Pugree Received…………………………………………………………………..25,00,000

Pugree Given 4 years back……………………………………………………20,00,000

Solution

Income from Business…………………………………………………………8,00,000

Income from Salary………………………………………………………..……9,00,000

Gain on Pugree……(25,00,00-20,00,000)=5,00,000/10………..50,000

Total Income ………………………………………………………………………17,50,000

Tax

Initial………………………………………………………………70,000

(17,50,000-12,00,000) @ 15%.......................... 82,500

Total Tax…….....................................................1,52,500