Q1: Is inter-head setting off allowed for broght forward normal business losses?
Ans. Brought fwd normal business loss is not allowed inter head setting off. Normal business loss for the current year is allowed setting of from income under any other head. Current loss not being able to be set of is carried forward to the next tax year, and is set of only from income under the head Income from Business. [Reference S.57(1)]
Q2: Which of the two following broght fwd loss is set of first: depreciation loss or normal business loss.
Ans. According to Sec. 57(4), depreciation loss is set of first by adding it in the depreciation deductions for the the year, and thereafter b/f normal business loss is set of from net income.
About Me
- Tariq Hussain Tunyo
- Karachi, Pakistan
- This Blog has been developed for online guidance and coaching of CA students.
Friday, February 18, 2011
Meaning of Construction Materials Supplied by Govt
Q: What does this phrase mean: " payment made by the Govt to a contractor for construction material supplied to the contractor by such Govt." [Used in Section 153(5)(ba)]
Ans. In construction contracts given by a Govt to contractors, the Govt sometimes makes part payment in the form of contruction materials. For example a contract amounting to Rs. 30 (m) is awarded by Govt to a private contractor for construction of a road. Out of this amount Rs. 25 (m) are given in cash, whereas construction material worth Rs. 5 (m) is given to the contractor. In such situations tax is not required to be deducted u/s 153 from the contract amount representing the contruction materials [i.e. Rs. 5 (m) in this example]. Thus, tax is be deducted at 6% of Rs. 25 (m) only.
Ans. In construction contracts given by a Govt to contractors, the Govt sometimes makes part payment in the form of contruction materials. For example a contract amounting to Rs. 30 (m) is awarded by Govt to a private contractor for construction of a road. Out of this amount Rs. 25 (m) are given in cash, whereas construction material worth Rs. 5 (m) is given to the contractor. In such situations tax is not required to be deducted u/s 153 from the contract amount representing the contruction materials [i.e. Rs. 5 (m) in this example]. Thus, tax is be deducted at 6% of Rs. 25 (m) only.
Thursday, February 17, 2011
Purchases from and Supplies to Un-registered Person (Sales Tax)
Q: What are the implications of purchases made from and supplies made to unregistered person under the Sales Tax Act, 1990?
Ans. No input tax credit is allowed on purchases made from unregistered person, whereas out put tax is charged on supplies made to unregistered person.
Ans. No input tax credit is allowed on purchases made from unregistered person, whereas out put tax is charged on supplies made to unregistered person.
Wednesday, February 16, 2011
What is Separate Block of Income
Q: What is Separate Block of Income? Explain with examples.
Ans. The method of computation of taxable income and tax thereon is to first compute the income under each head of income by deducting 'deductions allowed', if any, from 'amount chargeable' under the head. Incomes under all five heads are then added up to get 'total income', from which are reduced 'deductible allowances'. The resulting amount is called 'taxable income'. Tax rates given in the first schedule to ITO-2001 are then applied to the whole amount of the taxable income to determine the tax liability of the person for the year.
However, there are few exceptions to this method of computation of tax liability. There are some incomes which are treated separately as a 'separate block of income'. These types of income are given below:
(1) incomes subject to final tax (FTR) are not included in any head and are to be treated separately.
Example: Dividend recieved by an individual amounting to Rs. 200,000 from which tax has been deducted at sources at Rs. 20,000.
(2) certain incomes are subject to lower tax rates than are normally applicable, such as income from property, capital gains, and golden handshake amount etc. Though such incomes are taken into account while computing taxable income but are subtracted from it at the time of application of tax rates.
Example:
Income from Business..................................800,000
Income from Property....................................400,000
Total income................................................1,200,000
L:Deductible Allowance.................................50,000
Taxable Income...........................................1,150,000
L:Income from Property.................................400,000
Taxable Income ( for Normal rates).................750,000
Income from Property ( for Reduced rates)....... 400,000
Ans. The method of computation of taxable income and tax thereon is to first compute the income under each head of income by deducting 'deductions allowed', if any, from 'amount chargeable' under the head. Incomes under all five heads are then added up to get 'total income', from which are reduced 'deductible allowances'. The resulting amount is called 'taxable income'. Tax rates given in the first schedule to ITO-2001 are then applied to the whole amount of the taxable income to determine the tax liability of the person for the year.
However, there are few exceptions to this method of computation of tax liability. There are some incomes which are treated separately as a 'separate block of income'. These types of income are given below:
(1) incomes subject to final tax (FTR) are not included in any head and are to be treated separately.
Example: Dividend recieved by an individual amounting to Rs. 200,000 from which tax has been deducted at sources at Rs. 20,000.
(2) certain incomes are subject to lower tax rates than are normally applicable, such as income from property, capital gains, and golden handshake amount etc. Though such incomes are taken into account while computing taxable income but are subtracted from it at the time of application of tax rates.
Example:
Income from Business..................................800,000
Income from Property....................................400,000
Total income................................................1,200,000
L:Deductible Allowance.................................50,000
Taxable Income...........................................1,150,000
L:Income from Property.................................400,000
Taxable Income ( for Normal rates).................750,000
Income from Property ( for Reduced rates)....... 400,000
Sunday, February 13, 2011
Advance Tax
Q: List down various types of incomes which are not taken into consideration while calculating advance tax?
Ans:
1. Dividends (S.5)
2. Certain payments to non-residents (S.6)
3. Shipping and air transport income of a non-resident person (S.7)
4. Income from Property
5. Salary
6. Income that is subject to deduction/ collection of tax under Division II or Division III, or Chapter XII and which is subject to final taxation.
A taxpayer deriving income exclusively from one or more of these sources is not required to pay advance tax. In case a person derives incomes subject of advance tax and incomes not subject to advance tax, the person is required to pay advance tax only in relation to incomes that are subject to advance tax.
[See Para 22.1.2 of 'Taxation in Pakistan' or Sec. 147(1) of the ITO-2001]
Ans:
1. Dividends (S.5)
2. Certain payments to non-residents (S.6)
3. Shipping and air transport income of a non-resident person (S.7)
4. Income from Property
5. Salary
6. Income that is subject to deduction/ collection of tax under Division II or Division III, or Chapter XII and which is subject to final taxation.
A taxpayer deriving income exclusively from one or more of these sources is not required to pay advance tax. In case a person derives incomes subject of advance tax and incomes not subject to advance tax, the person is required to pay advance tax only in relation to incomes that are subject to advance tax.
[See Para 22.1.2 of 'Taxation in Pakistan' or Sec. 147(1) of the ITO-2001]
Friday, February 11, 2011
Meaning of 'Securitization"
Q: What is the meaning of ''securitization"?
Ans. It means sale of accounts recievables by any person (called 'originator') to Special Purpose Vehicle (SPV) which then collects those recievables from the debtors. Note that only a public limited company, a trust or a company controlled or managed by Fed/Provincial Government can function as SPV after getting registered with the SECP.
(Concept of securitization is relevant for Sec. 28(1)(b) and Sec. 153(5) (d) of the ITO-2001)
Ans. It means sale of accounts recievables by any person (called 'originator') to Special Purpose Vehicle (SPV) which then collects those recievables from the debtors. Note that only a public limited company, a trust or a company controlled or managed by Fed/Provincial Government can function as SPV after getting registered with the SECP.
(Concept of securitization is relevant for Sec. 28(1)(b) and Sec. 153(5) (d) of the ITO-2001)
Saturday, January 9, 2010
Agricultural Income_Tax Definition
Definition of Agricultural Income in Income Tax Ordinance,2001
By: Tariq H. Tunyo
See §.41 of Income Tax Ordinance, 2001.
1 Exemption of Agricultural Income
Agricultural income derived by a person is exempt from tax under the Income Tax Ordinance, 2001.
2 Definition of Agricultural Income
The term agricultural income has been exhaustively defined by the Income Tax Ordinance, 2001.
“Agricultural Income” means:
(a) any rent or revenue derived by a person from land
which is situated in Pakistan and
is used for agricultural purposes;
(b) any income derived by a person from land situated in Pakistan from:
(i) agriculture,
(ii) the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by such person to render the produce raised or received by the person fit to be taken to market,
Explanation: In case of share-cropping, landowner leases the land to a cultivator (i.e. tenant) and receives rent from him in cash or in kind. The cultivator or the landowner who has received the rent-in-kind may have to perform certain processes to make the produce fit to be taken to market.
For example, in case of cultivation of tea or tobacco, the tea or tobacco leaves need to be dried before they can be sold in the market. This process normally adds value to the produce raised or received in kind. Any income that is attributable to the performance process is also brought within the ambit of agricultural income; hence, exempt from tax.
Any income attributable to processes beyond the ones that make produce fit to be taken to market is chargeable to tax. For example, income attributable to grinding and packing of tea leave is taxable.
(iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by such person, in respect of which no process has been performed other than a process of the nature described in sub-clause (ii); or
Explanation: Having performed the natural process to make the produce fit to be taken to market the landowner or cultivator sells the produce in the market. Any income that arises on such sale is treated as agricultural income and is exempt from tax.
(c) any income derived by a person from:
(i) any building owned and occupied by the receiver of the rent or revenue of any land described in clause (a) or (b);
(ii) any building occupied by the cultivator, or the receiver of rent-in-kind, of any land in respect of which, or the produce of which, any operation specified in sub-clauses (ii) or (iii) of clause (b) is carried on, but only where the building is on, or in the immediate vicinity of the land and is a building which the receiver of the rent or revenue, or the cultivator, or the receiver of the rent-in-kind by reason of the person’s connection with the land, requires as a dwelling-house, a store-house, or other out-building.
Explanation: A landowner may allow the tenant to use his agricultural buildings that are situated in the vicinity of land and are used for functions connected with agricultural land. Any income arising from such buildings is also exempted from tax by treated it as agricultural income.
3 Examples of agricultural incomes
Following are some of the examples of agricultural income:
- income from land used for grazing
- income from land used for growing tea, fruits, or flowers
- income from horticultural and fruit nurseries
- incomes from cultivated forest
4 Examples of non-agricultural incomes
Following are some of the examples of non-agricultural income:
- fee charged for cutting down timber
- profit on sale of timber by a middleman who bought it from the cultivator
- Income of sugar, tea, rice factories
- Income from sale of water for irrigation
- Income from dairy-farming, and poultry farming
By: Tariq H. Tunyo
See §.41 of Income Tax Ordinance, 2001.
1 Exemption of Agricultural Income
Agricultural income derived by a person is exempt from tax under the Income Tax Ordinance, 2001.
2 Definition of Agricultural Income
The term agricultural income has been exhaustively defined by the Income Tax Ordinance, 2001.
“Agricultural Income” means:
(a) any rent or revenue derived by a person from land
which is situated in Pakistan and
is used for agricultural purposes;
(b) any income derived by a person from land situated in Pakistan from:
(i) agriculture,
(ii) the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by such person to render the produce raised or received by the person fit to be taken to market,
Explanation: In case of share-cropping, landowner leases the land to a cultivator (i.e. tenant) and receives rent from him in cash or in kind. The cultivator or the landowner who has received the rent-in-kind may have to perform certain processes to make the produce fit to be taken to market.
For example, in case of cultivation of tea or tobacco, the tea or tobacco leaves need to be dried before they can be sold in the market. This process normally adds value to the produce raised or received in kind. Any income that is attributable to the performance process is also brought within the ambit of agricultural income; hence, exempt from tax.
Any income attributable to processes beyond the ones that make produce fit to be taken to market is chargeable to tax. For example, income attributable to grinding and packing of tea leave is taxable.
(iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by such person, in respect of which no process has been performed other than a process of the nature described in sub-clause (ii); or
Explanation: Having performed the natural process to make the produce fit to be taken to market the landowner or cultivator sells the produce in the market. Any income that arises on such sale is treated as agricultural income and is exempt from tax.
(c) any income derived by a person from:
(i) any building owned and occupied by the receiver of the rent or revenue of any land described in clause (a) or (b);
(ii) any building occupied by the cultivator, or the receiver of rent-in-kind, of any land in respect of which, or the produce of which, any operation specified in sub-clauses (ii) or (iii) of clause (b) is carried on, but only where the building is on, or in the immediate vicinity of the land and is a building which the receiver of the rent or revenue, or the cultivator, or the receiver of the rent-in-kind by reason of the person’s connection with the land, requires as a dwelling-house, a store-house, or other out-building.
Explanation: A landowner may allow the tenant to use his agricultural buildings that are situated in the vicinity of land and are used for functions connected with agricultural land. Any income arising from such buildings is also exempted from tax by treated it as agricultural income.
3 Examples of agricultural incomes
Following are some of the examples of agricultural income:
- income from land used for grazing
- income from land used for growing tea, fruits, or flowers
- income from horticultural and fruit nurseries
- incomes from cultivated forest
4 Examples of non-agricultural incomes
Following are some of the examples of non-agricultural income:
- fee charged for cutting down timber
- profit on sale of timber by a middleman who bought it from the cultivator
- Income of sugar, tea, rice factories
- Income from sale of water for irrigation
- Income from dairy-farming, and poultry farming
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