Write down all admissible and inadmissible deductions from the total income

of a taxpayer earning his income from business only.

SUBMITTED TO: Sir Javaid Iqbal Banday

SUBMITTED BY: Nadeem Amin-048
SUBJECT: Taxation Laws
CLASS: LLB-9(B)

BAHRIA UNIVERSITY ISLAMABAD

DEPARTMENT OF LAW

1|Taxation Laws
Here's a breakdown of admissible and inadmissible deductions from the total income of a taxpayer
earning income from business according to Pakistan's Income Tax Ordinance, 2001. This
ordinance governs the rules and regulations for income tax in Pakistan.

Admissible Deductions (As Per Income Tax Ordinance, 2001):

1. Cost of Goods Sold (COGS)

• Section 20: Deductible expenses include direct costs attributable to the production
of goods sold by the business, such as raw materials, direct labor, and
manufacturing overhead.

2. Administrative and Operational Expenses

• Rent: Expenses incurred for renting business premises. (Section 20)

• Utilities: Costs for electricity, water, gas, and other utilities used in the business
operations. (Section 20)

• Salaries and Wages: Payments made to employees for their services. (Section 20)

• Employee Benefits: Contributions to approved pension funds, gratuity funds,

provident funds, and employee insurance schemes. (Section 20)

• Office Supplies: Expenditures on office supplies and equipment. (Section 20)

3. Depreciation and Amortization

• Depreciation: Depreciation of fixed assets used in the business as per the rates
specified in Part II of the Third Schedule. (Section 22)

• Amortization: Amortization of intangible assets over their useful life. (Section 24)

4. Business Travel Expenses

• Section 20: Expenses incurred for business-related travel including transportation,

lodging, and subsistence.

5. Interest on Borrowed Capital

• Section 20: Interest paid on borrowed money used for business purposes.

2|Taxation Laws
 6. Professional Fees

• Section 20: Fees paid for professional services such as legal, accounting, and
consultancy services.

7. Insurance Premiums

• Section 20: Premiums paid for insuring business assets and operations.

8. Advertising and Marketing

• Section 20: Expenditures on business promotion, advertisements, and marketing

activities.

9. Repairs and Maintenance

• Section 20: Costs for maintaining and repairing business property and equipment.

10. Taxes and Duties

• Section 20: Local taxes and duties (excluding federal income tax).

11. Charitable Contributions

• Section 61: Donations to approved non-profit organizations and charitable

institutions, subject to limits specified in the ordinance.

12. Bad Debts

• Section 29: Specific bad debts written off during the tax year, provided they meet
the criteria specified in this section.

3|Taxation Laws
Inadmissible Deductions (As Per Income Tax Ordinance, 2001):

1. Personal and Capital Expenditures

• Section 21(a): Any expenses of a personal nature.

• Section 21(b): Capital expenditures on acquiring fixed assets (these are capitalized
and depreciated over time).

2. Fines and Penalties

• Section 21(c): Fines or penalties imposed for legal infractions or non-compliance

with laws.

3. Political Contributions

• Section 21(g): Contributions to political parties or candidates.

4. Federal Income Tax

• Section 21(l): Payments of federal income tax are not deductible.

5. Lobbying and Influence Expenses

• Section 21(d): Expenses incurred to influence legislation or government policies.

6. Entertainment Expenses

• Section 21(e): Entertainment expenses, except those incurred for business

promotion purposes and within the limits specified by law.

7. Illegal Payments

• Section 21(f): Payments related to illegal activities or transactions.

8. Life Insurance Premiums

• Section 21(h): Premiums paid for life insurance policies where the business or its
owners are beneficiaries.

4|Taxation Laws
 9. Commuting Costs

• Section 21(i): Costs of traveling between home and the place of business.

Compliance and Documentation

• Record Keeping: Ensure detailed records and documentation for all expenses claimed as
deductions. These records should be maintained for at least six years. (Section 174).

• Professional Advice: Consult with a tax professional or accountant who is well-versed

with the Income Tax Ordinance, 2001, for specific advice and tax planning strategies.

5|Taxation Laws