HEAD OF INCOME # 3:

INCOME FROM BUSINESS

ADMISSIBLE EXPENSES
Section 21. Inadmissible Deductions

(a) Cess/Rates/Taxes – in Pakistan or a foreign country

(b) Tax deductions at source
(c) Any expenditure on which tax deduction was required by law
but deduction was not made. Provided that such disallowances in respect of
purchases of raw materials and finished goods shall not exceed 20% of these purchases.

(ca) Commission exceeding 0.2% on 3rd Schedule of Sales Tax

products unless the recipient of commission is on ATL.
(d) Entertainment expenditure beyond prescribed limits.
Rule 10. Entertainment Expenditure
RELATED TO BUSINESS, WHOLLY AND EXCLUSIVELY

MEALS, REFRESHMENTS, REASONABLE LIESURE FACILITIES (AS PER

BUSINESS TRADITIONS, CUSTOMS, TRADITIONS)

 Expenditure incurred outside Pakistan in connection with business transactions or allocated as head office transactions
 Expenditure incurred within Pakistan for foreign customers/suppliers
 Expenditure incurred at business premises
 Expenditure incurred at meetings of shareholders, agents, directors, employees
 Expenditure incurred at the time of opening branches.
 Section 21. Inadmissible Deductions (continued)

(e) Any contributions made by a person to a fund which is not

a recognised provident fund
an approved pension fund
an approved superannuation fund
an approved gratuity fund
(ea) An amount in excess of 50% of contribution made by a person to
an approved pension fund
an approved superannuation fund
an approved gratuity fund
(f) Any contribution to any employee benefit fund unless tax deduction
arrangements have been made.
 Section 21. Inadmissible Deductions (continued)

(g) any fine or penalty paid or payable by the person for the violation of any law,
rule or regulation
(h) any personal expenditures incurred by the person
(i) any amount carried to a reserve fund or capitalized in any way
(j) any profit on debt, brokerage, commission, salary or other remuneration paid by
an association of persons to a member of the association
 Section 21. Inadmissible Deductions (continued)
(l) any expenditure by a taxpayer not being a company for a transaction, paid or payable under a single
account head which, in aggregate, exceeds Rs. 250,000, made other than by banking channel:

Provided that this clause shall not apply in the case of-
(a) expenditures not exceeding Rs. 25,000
(b) expenditures on account of -
utility bills;
freight charges;
travel fare;
postage; and
payment of taxes, duties, fee, fines or any other statutory obligation
 Section 21. Inadmissible Deductions (continued)
(la) any expenditure by a taxpayer being a company for a transaction, paid or payable under a single
account head which, in aggregate, exceeds Rs. 250,000, made other than by digital means from business
bank account of the taxpayer notified to the Commissioner:
Provided that this clause shall not apply in the case of-
(a) expenditures not exceeding Rs. 25,000;
(b) expenditures on account of -
(i) utility bills;
(ii) freight charges;
(iii) travel fare;
(iv) postage; and
(v) payment of taxes, duties, fee, fines or any other statutory obligation

Provided further that this clause shall be effective from such date as the Board may notify (not notified as yet)
Section 21. Inadmissible Deductions (continued)

(m) any salary paid or payable exceeding Rs. 32,000 per month to an
individual other than by a crossed cheque or direct transfer of
funds to the employee’s bank account or through digital means
 Section 21. Inadmissible Deductions (continued)

(n) any expenditure paid or payable of a capital nature

(o) any expenditure in respect of sales promotion, advertisement and publicity in
excess of 10% of turnover incurred by pharmaceutical manufacturers
(q) any expenditure attributable to sales made to persons required to be registered but
not registered under the Sales Tax Act, 1990 by an industrial undertaking computed
according to the following formula, namely:-
Total Deductions / Turnover x Sales to persons (equal to or exceeding Rs. 100m) required to be
registered but not registered under Sales Tax Act, 1990
Provided that disallowance of expenditure under this clause shall not exceed 10% of
total deductions
Section 21. Inadmissible Deductions (continued)

(r) any expenditure attributable to sales claimed by any person who is required to
integrate but fails to integrate his business with the FBR through approved fiscal
electronic device and software:

Provided that disallowance of expenditure under this clause shall not exceed
8% of the allowable deductions