LECTURE 11

26th December 2021

INCOME TAX
ORDINANCE, 2001
 Definition of Income
 According to Black’s Law Dictionary :

The return in money from one’s business, labor, or capital

invested; gain, profit, or private revenue.
 According to Income Tax Ordinance, 2001: 2(29)
 “Income” means any amount chargeable to tax under
this Ordinance,
 any amount subject to collection or deduction of tax
under this Ordinance or
 any amount treated as income under any provision of
this ordinance and loss of Income. 3
 Some Basic Terms
 Taxable Income : The taxable Income of a person shall be
the Total Income of person for the year reduced by any
deductible allowances. (Sec 9)
 Total Income : The total income of; (Sec 10)
a) Person’s income under all heads of income for the year

b) Person’s income exempt from tax under this ordinance

 Tax Year : Period of twelve months (Sec 74)

a. Normal Tax Year : 01.07.2015 to 30.06.2016 (TY. 2016)

b. Special Tax Year : 01.10.2016 to 30.09.2017 (TY. 2017)

c. Transitional Tax Year:01.07.2016 to 30.09.2016 (TY. 2017 )
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 Some Basic Terms Cont. …
 Person: The following shall be treated as person
a) An Individual,
b) A Company or Association of Persons (AOPs)
c) The Federal Government, Foreign Government or
Public International Organisation. (Sec 80)

 Resident and Non Resident Person: (Sec 81)

a. Resident Individual: Present in Pakistan for 183 days
or more in the tax year.
b. Resident Company : Incorporated or formed by or
under any law in Pakistan or Management and control
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of Company is situated wholly in Pakistan.

 Some Basic Terms Cont. …
 Resident and Non Resident Person: (Sec 81)
 Resident AOP : Control and Management of affairs of
AOP is situated wholly or partly in Pakistan.

 Non-Resident Person: The Person Who is not resident

 Taxpayer: It means any person who derives an

amount chargeable to tax under this Ordinance and
includes;
a) Representative of Person,
b) Person required to deduct or collect tax
c) Any person required to furnish a return of income or pay
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tax.
 Two Categories of Sections
 Charging Sections:
 Relate to levy and charge of the tax
 On what matter, goods or income, tax to be levied
 In what manner tax to be charged
 On what rates tax to be charged
 Section 4. Tax on taxable income.- “The tax shall be
imposed for each tax year, at the specified rate(s) on
every person who has taxable income for the year.”
 It creates charge of tax
 Without this section all sections have no use
 Every tax law must have one charging section
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 Conti…..
 Machinery Sections:
 Those sections which provide for the method of
computation and collection of the tax imposed in
charging section. e.g:

• Section 122 Amendment of Assessments

• Section 121 Best Judgment
• Section 120 Assessments
Heads of Income
 Heads of Income
 For the purpose of imposition of tax and computation of
total income, All income shall be classified into
following heads namely;

a) Salary. (Section-12)

b) Income from Property (Section-15)

c) Income from Business (Section-18)

d) Capital Gain and (Section-37)

e) Income from Other Sources.(Section-39)

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 Heads of Income
a) SALARY. (Section-12)
 Salary means any amount received by an employee
from any employment in a tax year, whether of
revenue or capital nature.
b) INCOME FROM PROPERTY (section-15)
 The rent received or receivable by a person for a tax
year shall be chargeable to tax under the head
Income from Property.
 ‘Rent’ means any amount received or receivable by
the owner of land or a building as consideration for the
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use or occupation of land or building
 Heads of Income
c) Income from Business (Section-18)
The following incomes of person for a tax year, other than
exempt from tax, shall be chargeable to under the head
Income from Business.
i. The profit and gains of any business
ii. Any income derived by any trade, professional or from
sale of goods, or provision of services
iii. Any income from hire or lease of tangible moveable
property.
iv. Management fee derived by management company.
v. Any profit on debt derived by person. 12
 Heads of Income
d) CAPITAL GAIN (Section-37)

• A gain arising on the disposal of a capital asset by a

person in a tax year shall be chargeable to tax
under the head Income from “Capital Gains”.

• Capital Assets means property of any kind held by

a person, whether or not connected with business.

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 Heads of Income
e) Income from Other Sources (Section-39)
• Income of every kind received by a person in a tax
year, if it is not included in any other head shall be
chargeable to tax under the head “ Income from
Other Sources’’ including;
i. Dividend,
ii. Royalty,
iii. Any prize bond or lottery,
iv. Amount received as consideration for the provision,
use, or exploitation of property, etc. 14
 Exemption and Tax Concession
A. Agriculture Income (Sec.41)

B. Diplomatic and United Nations Exemptions (Sec.42)

C. Foreign Government Officials (Sec.43)

D. Exemption under International Agreements (Sec.44)

E. President’s Honours(Sec. 45)

F. Scholarships (Sec. 47)

G. Federal Govt: Provincial Govt and Local Govt Income

H. Foreign Source income of short term resident person

and returning expatriates (Sec.50 & 51)
I. Exemption and Tax concessions in second schedule16
Exemption and Tax Concession
in 2nd Schedule
1. Part I Exemption from total income.

2. Part II Reduction in tax rates.

3. Part III Reduction in tax liability.

4. Part IV Exemption from specific provisions

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THANK YOU