Key Concepts under Income Tax Ordinance, 2001

Compiled by: Murtaza Quaid

Charging Section [Section 4]

Tax shall be imposed on every person having income for the year

What is “Income” What is “Tax”

Income includes Tax

 any amount chargeable to tax under ITO-2001;  means any tax imposed under Chapter II (Charge of
 any amount subject to collection or deduction of tax under the Tax), and
provision of ITO-2001;  includes any penalty, fee or other charge or any
 any amount treated as income under any provision of ITO- sum or amount leviable or payable under ITO-2001.
2001; and
 any loss of income.
What is “Tax Year”

What is “Person” As defined in Section 74 of the Income Tax Ordinance,

2001, there are three kinds of tax years as follow:
Following shall be treated as persons for the purposes of ITO-2001:  Normal tax year;
 Individual;  Special tax year; and
 Company;  Transitional tax year.
 Association of persons However, there are two additional tax year, that are
 Federal Government; treated as tax year under the provisions of ITO-2001.
 Foreign Government;  Tax year of persons about to leave Pakistan [Section
 Political sub-Division of a Foreign Government; 145]
 Public international organization.  Tax year of discontinued business [Section 117]

Chargeability of Tax under Income Tax Ordinance, 2001

Based on Residential Status of a Person

Resident Person Non-Resident Person

 Pakistan Source Income; and  Pakistan Source Income Based on Geographical Source of Income
 Foreign Source Income

Residential Status of a Person

Person When resident

 Presence in Pakistan for 183 days or more in aggregate in a tax year; or

 Employee/Official of Federal/Provincial Government posted abroad.
Individual  being a citizen of Pakistan
- is not present in any other country for more than 182 days during the tax year; or
- is not a resident taxpayer of any other country.

AOP  Control and management situated wholly or partly in Pakistan at any time in the year.

 Incorporated/formed under or by Pakistani Law; or

Company  control and management situated wholly in Pakistan at any time in the year; or
 Provincial Government or Local Government in Pakistan.

Federal Government  Always resident person.

Foreign Government  Always non-resident person

Political subdivision of a Foreign Government  Always non-resident person

Public International Organization  Always non-resident person

For your valuable feedback, any update, error or

query, kindly let me know at [email protected]
 Key Concepts under Income Tax Ordinance, 2001 - Person
Compiled by: Murtaza Quaid
What is “Person” Association of Person

(i) Individual; Association of Person includes

(ii) Association of persons i. a firm;
(iii) Company;
ii. a Hindu undivided family;
(iv) Federal Government;
(v) Foreign Government; iii. any artificial juridical person; and
(vi) Political sub-Division of a Foreign Government; iv. any body of persons formed under a foreign law but does
(vii) Public international organization. not include a company.

Company Public Company

Company means Public Company means

i. company as defined in the Companies Act, 2017; i. a company in which not less than 50% of the shares are
held by Federal Government or Provincial Government;
ii. a body corporate formed by or under any law in force in Pak;
ii. a company in which not less than 50% of the shares are
iii. a modaraba;
held by Foreign Government or Foreign company owned
iv. a body incorporated by or under the law of a country outside by a foreign Government;
Pakistan, relating to incorporation of companies;
iii. a company whose shares were traded on a registered
v. a co-operative society, a finance society or any other society; stock exchange in Pakistan at any time in the tax year and
vi. a non-profit organization; which remained listed on that exchange at the end of
vii. a trust, an entity or a body of persons established or that year; or
constituted by or under any law for the time being in force; iv. a unit trust whose units are widely available to the public
viii. a foreign association, whether incorporated or not, which the and any other trust as defined in the Trusts Act, 1882.
FBR has, by general or special order, declared to be a
company for the purposes of ITO-2001;
ix. a Provincial Government; Private Company
x. a Local Government in Pakistan; or Private Company means a company that is not a public
xi. a Small Company company.

Small Company Small and Medium Enterprise

Small Company means a company registered on or after the first “Small and Medium Enterprise (SME)” means
day of July, 2005, under the Companies Act, 2017, which  a person who is engaged in manufacturing; and
i. has paid up capital plus undistributed reserves not exceeding  his business turnover in a tax year does not exceed Rs. 250
50 million rupees; million.
ii. has employees not exceeding 250 at any time during the year; However, if annual business turnover of a SME exceeds Rs. 250
iii. has annual turnover not exceeding 250 million rupees; million, it shall not qualify as SME in the tax year in which annual
iv. is not formed by the splitting up or the reconstitution of turnover exceeds that turnover or any subsequent tax year.
company already in existence; and
v. is not a small and medium enterprise. For your valuable feedback, any update, error or
query, kindly let me know at [email protected]

Small Company v/s Small and Medium Enterprise

Company Individual / AOPs

Manufacturing Other than Manufacturing Manufacturing Other than

Manufacturing
Annual Turnover ≤ Rs. 250M Annual Turnover ≤ Rs. 250M Annual Turnover ≤ Rs. 250M

 Small & Medium Enterprise  Small Company (if other  Small & Medium Enterprise Not SME
conditions are also met)
Annual Turnover > Rs. 250M Annual Turnover > Rs. 250M
Annual Turnover > Rs. 250M
 Not SME  Not SME
 Not Small Company  Not SME
 Not Small Company
 Key Concepts under Income Tax Ordinance, 2001 – Tax Year
Compiled by: Murtaza Quaid
What is “Tax Year” Due date for filling of Return of Income

As defined in Section 74 of the Income Tax Ordinance, 2001,

For individual / AOP For Company
there are three kinds of tax years as follow:
 Normal tax year;
 Special tax year; and On or before 30th
September next With a tax year with a tax year
 Transitional tax year.
following the end of ending between ending between 1st
However, there are two additional tax year, that are treated
the tax year 1st Jan and 30th Jun Jul and 31st Dec
as tax year under the provisions of ITO-2001.
 Tax year of persons about to leave Pakistan [Section 145]
 Tax year of discontinued business [Section 117] On or before 31st On or before 30th
Dec next following Sep next following
the end of tax year the end of tax year

Normal Tax Year Special Tax Year Transitional Tax Year

Normal tax year is a period of 12 months Special tax year is a period of 12 In case of change in tax year, the period between
ending on the 30th day of June. months different from normal tax  the end of the last tax year prior to change and
year.  the date on which the changed tax year
Normal tax year is denoted by the commences,
calendar year in which the said date falls. Special tax year is denoted by the shall be treated as transitional tax year.
calendar year relevant to normal
tax year in which the closing date Transitional tax year is denoted by the calendar
Short cut to denote Tax Year of the special tax year falls. year relevant to normal tax year in which the
Tax year ending Tax year denoted by closing date of the Transitional tax year falls.

Jan to Jun Same calendar year For your valuable feedback, any update, error or
query, kindly let me know at [email protected]
Jul to Dec Next calendar year
Assessment of persons about to leave Pakistan [Section 145]
Procedure for change in tax year 1. Where any person is likely to leave Pakistan with no intention of returning to
Pakistan, he shall give to the CIR a notice to that effect at least 15 days before the
 A person may apply in writing to the CIR for
probable date of his departure.
the change of the tax year.
2. Above notice shall be accompanied by a return or returns of taxable income in
 The CIR shall, by an order, grant permission
respect of the period
only if the person has shown a compelling
 commencing from the end of the latest tax year for which an assessment has
need to use special tax year or normal tax
been made and
year, as the case may be; and subject to any
 ending on the probable date of his departure,
conditions that may be imposed by the CIR.
and such period shall be deemed to be a tax year (distinct and separate from any
 An order by CIR shall be made after other tax year) in which the said date falls.
providing an opportunity of being heard to
3. The CIR may serve a notice on any person who, in his opinion, is likely to leave
the applicant and where his application is
Pakistan & has no intention of returning to Pakistan, to furnish a return or returns
rejected, the CIR shall record the reason for
of taxable income for the tax year or tax years for which the taxpayer is required to
rejection in the order.
furnish such return or returns.
 The order by CIR (i.e. the change of tax
4. The taxable income shall be charged to tax at the rates applicable to the relevant
year) shall take effect from the first day of
tax year and all the provisions of ITO-2001 shall apply accordingly.
the STY or NTY, as the case may be, as may
be specified in the order.
 The CIR may, after providing an opportunity Notice of discontinued business [Section 117]
of being heard to the person, withdraw the 1. Any person discontinuing a business shall give the CIR a notice in writing to that
permission granted to use special tax year effect within 15 days of the discontinuance.
or normal tax year, as the case may be. 2. The person discontinuing a business shall furnish a return of income for the period
 A person dissatisfied with the order of CIR,  commencing on the first day of the tax year in which the discontinuance
- Rejecting the application for the change occurred and
of tax year; or  ending on the date of discontinuance
- Withdrawing permission granted to use and this period shall be treated as a separate tax year.
special tax year or normal tax year, 3. Where no notice has been given by the person discontinuing a business but the
may file a review application to the FBR, CIR has reasonable grounds to believe that a business has discontinued or is likely
and the decision by the FBR on such to discontinue, the CIR may serve a notice on the person to furnish a return of
application shall be final. income for the period specified, to the CIR within the time specified in the notice.
 COMPUTATION OF TOTAL AND TAXABLE INCOME
Compiled by: Murtaza Quaid

(A) Salary XXXX

(B) Income from property XXXX
(C) Capital gain XXXX
(D) Income from business XXXX
(E) Income from other sources XXXX
Sum of five heads of income XXXX
Add. Exempt income XXXX
Total income XXXX
Less. Exempt income (XXX)
Less. Deduction under Part 1 of 2nd Schedule (XXX)
Less. Deductible allowance (XXX)
Taxable income XXXX
Less. Separate block of income (XXX)
Other taxable income XXXX

COMPUTATION OF TAX LIABILTY

(A) Tax on separate block of income XXXX
(B) Tax on other taxable income (Except MTR Income)
XXXX

Tax Liability under NTR - Gross XXXX

Less. Reduction under Part III of 2nd Sch. (XXX)
Less. Tax Credits
(a) Foreign tax credit (Sec. 103) (XXX)
(b) Group of Tax Credit (XXX)
Tax Liability under NTR – Net XXXX
Add. Tax Liability under MTR XXXX
Add. Tax Liability under FTR XXXX
Total tax liability XXXX
Less. WHT tax / Advance tax (XXX)
Tax payable / (refundable) XXXX
For your valuable feedback, any update, error or
query, kindly let me know at [email protected]
 Tax Regime under Income Tax Ordinance, 2001
Compiled by: Murtaza Quaid
Final Tax Regime (FTR)
Minimum Tax Regime
Normal Tax Regime (NTR) Presumptive Tax Regime Separate Tax Regime
(MTR)
[FTR by Withholding] [FTR by Imposition]

 Income which is not  Collectability / deductibility  Collectability / deductibility

Incomes that are specifically
provided as taxable under of withholding tax is of withholding tax is
provided in ITO-2001 as
FTR or MTR; established under the lTO- established under the ITO-
taxable under FTR.
2001; 2001;
OR
For example:
AND AND
 Income which is provided as • Dividend
taxable under FTR (PTR) or  The withholding tax  The withholding tax • Return on investment in
Introduction

MTR but cannot be collectible / deductible is collectible / deductible is Sukuks

established as FTR or MTR provided as minimum tax. provided as final tax. • Certain PSI of non-resident
due to the reason that not having permanent
[Transaction subject to [Transaction subject to
collectability / deductibility establishment in Pakistan
collectability / deductibility of collectability / deductibility of
of WHT tax is not • Shipping and air transport
withholding tax under ITO- withholding tax under ITO-
established under ITO-2001. income of a non-resident
2001, but withholding tax is 2001, but withholding tax is
• Shipping income of a
This may be due to: not collected / deducted by not collected / deducted by
resident person
 Cross border transaction; whatsoever reason, such whatsoever reason, such
• Profit on debt
 Transaction with non- income will still be taxable income will still be taxable
• Tax on Deemed Income
withholding agent. under MTR.] under FTR.]

Income taxable under NTR/ MTR shall be classified under any of

the following heads of income:
Classification of

 Salary;
income

Income taxable under FTR shall not be classified under any head
 Income from property;
of income.
 Income from business;
 Capital gains; and
 Income from other sources.
Deduction
Allowable

Income under each head shall be reduced by allowable Income taxable under FTR cannot reduced by allowable
deductions (if any) provided under the ITO-2001. deductions.

Income of any head can be reduced by set off of:

Set off of

 losses of other heads; and

losses

Income taxable under FTR cannot reduced by set off of losses.

 brought forward losses,
as per the criteria defined in ITO-2001.

Total income (i.e. aggregate of income of all head and exempt

income) can be reduced by following deductible allowances:
Deductible
allowance

1. Zakat (S.60); Income taxable under FTR cannot reduced by deductible

2. WWF (S.60A); allowances.
3. WPPF (S.60B); and
4. Education expense (S.60D)

Tax liability on income taxable Minimum tax liability on

Tax Credits

under NTR can be reduced by income taxable under MTR Final Tax liability on income taxable under FTR cannot be
tax credits, as provided under cannot be reduced by any tax reduced by any tax credits. (with few exceptions)
ITO-2001. credits. (with few exceptions)

For your valuable feedback, any update, error or

query, kindly let me know at [email protected]
 MAVEN MINDS
Assurance | Tax | Advisory | Outsourcing
Income Tax Ordinance, 2001
[Applicable in Pakistan]

SALARY TAXATION
SALARY

AMOUNT CHARGEABLE UNDER THE HEAD “SALARY”

Employee
Employee means any individual engaged in employment.
Any salary, received by an employee in a
tax year, other than salary that is exempt Employer
from tax, shall be chargeable to tax in that Employer means any person who engages and
year under the head “Salary” remunerates an employee.

Employment
Employment includes:
What is Salary? i. a directorship or any other office involved in the
management of a company;
Salary means any amount received by an ii. a position entitling the holder to a fixed or
employee from any employment, (whether ascertainable remuneration; or
of a revenue or capital nature.) iii. the holding or acting in any public office;

BASIS OF CHARGEBILITY / TAXABILITY UNDER THE HEAD “SALARY”

Salary is charged to tax on “receipt basis” i.e. cash basis. An amount/perquisite shall be treated
as received by an employee from any
employment whether paid or provided:
EXCEPTION By
Employee’s employer
Associate of employer,
Salary paid in arrears 3rd party under an arrangement with
employer or its associate;
Where salary is paid to an employee in arrears; and Past or prospective employer; or
as a result the employee is chargeable at higher To
rates of tax than would have been applicable if the Employee or
amount had been paid to the employee in the tax Associate of the employee or
year in which the services were rendered, the 3rd party under an agreement with
employee may, by notice in writing to the CIR, elect employee or its associate.
for the amount to be taxed at the tax rates that
would have been applicable if the salary had been RECEIPT OF INCOME
paid in the tax year in which the services were
A person shall be treated as having
rendered. received an amount, benefit, or
Above option shall be exercised by the due date for perquisite if it is
furnishing the employee‘s return of income or i. actually received by the person
employer certificate, as the case may be, for the tax ii. applied on behalf of the person, at the
year in which the amount was received or by such instruction of person or under any law
later date as the Commissioner may allow. iii. made available to the person

Deferred payment of salary

Where salary is paid by a private company to an employee in any tax year for services rendered by
the employee in an earlier tax year; and
The salary has not been included in the employee‘s salary chargeable to tax in that earlier year,
the Commissioner may, if there are reasonable grounds to believe that payment of salary was
deferred, include the amount in the employee‘s salary income in that earlier year.

For further info, please contact:

[email protected]
 MAVEN MINDS
Assurance | Tax | Advisory | Outsourcing
Income Tax Ordinance, 2001
[Applicable in Pakistan]

SALARY TAXATION

ALLOWABLE DEDUCTION
No deduction are allowed in computing income under the head “Salary”
UNDER “SALARY”

Loss can not arise in salary

TREATMENT OF LOSS
Salary shall not be reduced by losses of other heads.

Salary shall be Pakistan Source Income to the extent to which the salary is
GEOGRAPHICAL SOURCE received from any employment exercised in Pakistan, wherever paid; or
OF INCOME paid by or on behalf of Federal, Provincial, or Local Govt in Pakistan,
wherever the employment is exercised.

WITHHOLDING TAX IMPLICATION

Withholding agent Withholding tax

Person responsible for paying salary Average rate of tax x Estimated salary

Person responsible for paying

Directorship fee or 20% of the gross amount payable
Fee for attending board meeting

TAXATION OF ALLOWANCES

Whether the allowance is solely expended in the performance of employee’s duties of employment?

YES NO

Fully taxable except medical allowance

If Allowance is paid in
monthly salary on fixed
basis or as percentage
of salary; or Taxation of Medical Allowance
Taxable
If Allowance is not wholly, Whether any free medical treatment or
exclusively, necessarily or hospitalization or reimbursement of medical or
actually spent on behalf hospitalization charges is provided to employee
of the employer in accordance with the terms of employment?

Otherwise
(Allowance is paid on
YES NO
Not
case to case basis for Taxable
actual expenses)
Medical Allowance is Medical Allowance is
fully taxable exempt up to 10% of
basic salary

For further info, please contact:

[email protected]
 MAVEN MINDS
Assurance | Tax | Advisory | Outsourcing
Income Tax Ordinance, 2001
[Applicable in Pakistan]

SALARY

TAXATION OF SPECIAL AMOUNTS

01. EMPLOYEE SHARE SCHEME

Event Taxability Amount Charged to tax

Receipt of right or option Not a taxable

to acquire shares event

Disposal of right or option Under the Consideration received on disposal of option/right as

to acquire shares head “Salary” reduced by employee’s cost of the option/right (if any)

Receipt of shares (Without Under the FMV of the shares on the date of issue as reduced by
restriction on transfer) head “Salary” employee’s cost of shares and option/right (if any)

FMV of the shares on earlier of

Expiry of restriction / locking period or
Receipt of shares (With Under the
Actual disposal of shares by employee
restriction on transfer) head “Salary”
as reduced by employee’s cost of shares and option/
right (if any)

Consideration received on disposal of shares as

Under the reduced by employee cost in respect of
Disposal of shares
head “Capital Shares;
gain” Option/right
Amount chargeable under salary under 3 or 4 above.

02. TAX FREE SALARY (TAX ON TAX)

If employer agrees to pay the tax on employee‘s salary, then the tax paid by the employer shall be
treated as an additional benefit to the employee.
Salary income of the employee shall be grossed up by the amount of tax payable by the employer.

03. AMOUNT RECEIVED ON TERMINATION OF EMPLOYMENT

Amount received on termination of employment (paid voluntarily or under an agreement) including

compensation for redundancy or loss of employment and golden handshake payments can be taxed
at following rate:
Total tax paid or payable for three preceding tax years x 100

Total taxable income for three preceding tax years

Above option shall be exercised (by notice in writing to CIR)

by due date for furnishing the employee‘s return of income or employer certificate; or
by such later date as CIR may allow.

For further info, please contact:

[email protected]
 MAVEN MINDS
Assurance | Tax | Advisory | Outsourcing
Income Tax Ordinance, 2001
[Applicable in Pakistan]

SALARY

TAXATION OF BENEFITS AND PERQUISITES

01. ACCOMODATION / HOUSING 02. MOTOR VEHICLE

Motor vehicle provided by an employer to an

Accommodation / housing provided employee is taxable as follow:
by an employer to an employee is
Situation Taxable
taxable at higher of:
Fair market rent / alternate amount; or 5% of:
cost of motor vehicle to the
45% of minimum of time scale (MTS) Partly for
employer; or
of the basic salary or basic salary if personal &
FMV of the motor vehicle at the
there is no time scale partly for
commencement of the lease,
official use
if the motor vehicle is taken on
Where House Rent Allowance is lease by the employer.
admissible @ 30%, amount taxable
would be higher of 10% of:
Fair market rent / alternate amount; or cost of motor vehicle to the
employer; or
30% of minimum of time scale (MTS) For personal
FMV of the motor vehicle at the
of the basic salary or basic salary if use only
commencement of the lease, if
there is no time scale the motor vehicle is taken on
lease by the employer.

03. TAXATION OF MEDICAL ALLOWANCE & MEDICAL FACILITY

Medical allowance along with medical Medical treatment /

Medical allowance is
treatment / hospitalization / hospitalization / reimbursement
provided only
reimbursement thereof are provided thereof is provided only

Medical allowance is Whether such medical treatment / Medical facility / hospitalization

exempt upto 10% of hospitalization / reimbursement thereof / reimbursement thereof is
basic salary is provided in accordance with terms fully exempt**
of employment?

Yes No
Medical allowance is exempt up to
Medical allowance is fully taxable; &
10% of basic salary; and
Medical facility / hospitalization / its
Medical facility / hospitalization /
reimbursement is fully exempt**
reimbursement thereof is fully taxable

**Subject to the condition that:

National Tax Number of the hospital or clinic is given; and
employer also certifies and attests the medical/hospital bills
For further info, please contact:
[email protected]
 MAVEN MINDS
Assurance | Tax | Advisory | Outsourcing
Income Tax Ordinance, 2001
[Applicable in Pakistan]

SALARY

TAXATION OF BENEFITS AND PERQUISITES

INTEREST FREE / CONCESSIONAL LOAN

Interest free / concessional loan provided by the employer to an employee is taxable as follow:

Interest Free Loan Profit on loan @ 10%

Interest rate is less than 10% Profit on loan @ (10% - Interest Charged)
Concessional
Loan Interest rate is more than 10% No Taxability

No Taxability if: Point to remember: Where above loan is used wholly or

partly for acquisition of any asset or property producing
Loan amount ≤ Rs. 1,000,000; or
income chargeable to tax, the employee shall be treated as
Employee has waived interest on
having paid an interest equal to benchmark rate on loan or
his account with the employer
part of loan used to acquire asset or property.

OTHER PERQUISITES PROVIDED BY EMPLOYER TO EMPLOYEE

Provision of services of a housekeeper, driver, gardener, or other domestic assistance

Total salary paid to the domestic assistant for service rendered to employee xxxx
Payment made by employee for such services (xxxx)
Amount chargeable to tax xxxx

Transfer of property by employer to employee Waiver or payment of obligation of

employee by employer
FMV of property at the time it is transferred xxxx
Payment made by employee for the property (xxxx) Amount waived or paid by the employer
Amount chargeable to tax xxxx
EXEMPTION FOR FOOD, EDUCATION,
Provision of services by employer to employee MEDICAL TREATMENT ETC.

FMV of service at the time it is provided xxxx Following perquisites are exempt:
Payment made by employee for the services (xxxx) i. Free / subsidized food provided by
Amount chargeable to tax xxxx hotels and restaurants to its employees
during duty hours;
Provision of utilities by employer to employee ii. Free / subsidized education provided
by an educational institution to the
FMV of utilities provided xxxx children of its employees;
Payment made by employee for the utilities (xxxx) iii. Free / subsidized medical treatment
Amount chargeable to tax xxxx provided by a hospital or a clinic to
its employees; and
iv. Any other perquisite or benefit for
Residual perquisites
which the employer does not have to
FMV of perquisite at the time it is provided xxxx bear any marginal cost, as notified by
Payment made by employee for the perquisite (xxxx) FBR.
Amount chargeable to tax xxxx
For further info, please contact:
[email protected]
 MAVEN MINDS
Assurance | Tax | Advisory | Outsourcing
Income Tax Ordinance, 2001
[Applicable in Pakistan]

SALARY – TAXATION OF RETIREMENT BENEFITS

TAXATION OF RETIREMENT BENEFITS

PROVIDENT FUND

PF Act, 1925 Recognized Provident Fund Unrecognized

Event
(Govt. PF) (Part I of 6th Sch.) Provident Fund

Employee’s Taxable Taxable

contribution (in the year of Taxable (in the year of deduction) (in the year of
deduction) deduction)

Amount in excess of lower of:

Rs. 150,000; or
Employer’s No taxability – No taxability –
1/10th of (Basis salary + dearness
contribution not yet received not yet received
allowance)is treated received, hence
taxable

Amount in excess of higher of:

Interest 16% interest rate on accumulated
No taxability – balance; or No taxability –
credited
not yet received 1/3rd of (Basis salary + dearness not yet received
during the year
allowance)is treated received, hence
taxable

Payment of Employer’s
Exempt u/c 22, Exempt under clause 23, Part 1,
accumulated contribution &
P-1, 2nd Sch. 2nd Schedule
balances interest is taxable

COMMUTATION OF PENSION PENSION

COMMUTATION OF PENSION Taxability Pension received by citizen

of Pakistan is exempt except
Received by an employee of where the person continues
Federal Government, to work for the same
Provincial Government, employer or associate of the
Local Government, Fully exempt
employer.
Statutory body or corporation established
by any law for the time being in force. Where more than one
pension is received,
Received from Government or under any exemption shall apply to
pension scheme approved by the FBR under higher of such pensions.
Fully exempt
Clause 12, P-1 of 2th Schedule
Pension received by a
Received from pension scheme person over 60 years of age,
approved by FBR under clause 13(iii), Exempt up to is exempt
P-1 of 2nd Schedule and Rs. 300,000
applicable to all employees of the employer

Received from unapproved pension

Exempt up to
scheme/fund except
lower of
i. Any payment not received in Pakistan
- Rs. 75,000 or
ii. Any payment received by a director of a
- 50% of the
company who is not a regular employee
amount
of such company.
receivable
iii. Any payment received by a non-resident.

For further info, please contact:

[email protected]
 MAVEN MINDS
Assurance | Tax | Advisory | Outsourcing
Income Tax Ordinance, 2001
[Applicable in Pakistan]

SALARY – TAXATION OF RETIREMENT BENEFITS

TAXATION OF RETIREMENT BENEFITS

GRATUITY

GRATUITY Taxability

Received by an employee of
Federal Government,
Provincial Government,
Fully exempt
Local Government,
Statutory body or corporation established by any law for the time
being in force.

Gratuity fund approved by the Commissioner under P-3 of 6th Schedule Fully exempt

Received from gratuity scheme

approved by FBR under clause 13(iii), P-1 of 2nd Schedule and Exempt up to
applicable to all employees of the employer Rs. 300,000

Received from unapproved scheme scheme/fund except

Exempt up to lower
i. Any payment not received in Pakistan
of;
ii. Any payment received by a director of a company who is not a
- 75,000 or
regular employee of such company.
- 50% of
iii. Any payment received by a non-resident.
amount
iv. Any gratuity received by an employee who has already received any
receivable
gratuity from the same or other employer.

BENEVOLENT FUND

Benevolent grant paid from a Benevolent Fund to employees or members of their families
in accordance with the provisions of the Central Employee Benevolent Fund and Group
Insurance Act, 1969 is exempt from tax.

SUPERANNUATION FUND

Approved Superannuation Fund Unapproved

Event
[Under P-II, 6nd Sch.] Superannuation Fund

Employee’s contribution in the

Taxable (in year of deduction) Taxable (in year of deduction)
Fund

Employer’s contribution in the

No taxability – not yet received No taxability – not yet received
Fund

Interest earned by the fund No taxability – not yet received No taxability – not yet received

Payment from superannuation fund (Annuity, commutation of any annuity or refund of contribution)

Employer’s contribution and

- On death of beneficiary Exempt
interest is taxable

Employer’s contribution and Employer’s contribution and

- During the lifetime of beneficiary
interest is taxable interest is taxable

For further info, please contact:

[email protected]
 MAVEN MINDS
Assurance | Tax | Advisory | Outsourcing
Income Tax Ordinance, 2001
[Applicable in Pakistan]

INCOME FROM PROPERTY

AMOUNT CHARGEABLE UNDER THE HEAD “INCOME FROM PROPERTY”

RENT Rent taxable would higher of;

Actual Rent; or

Means Fair Market Rent or

However, this principle shall not apply where fair
Any amount received or receivable market rent is already included in the income of the
by the owner of land or a building lessee, chargeable to tax under the head “Salary”.
as consideration for
- use or occupation of, or Exclusion from Income from Property
- right to use or occupy, the land or
Following income would be taxable under the head
building
Income from other sources
Rent of building together with plant and machinery.
Includes Amount included in rent for amenities, utilities and
any other service connected with renting of the
1. Any forfeited deposit paid under a contract building.
for the sale of land or a building
Rent from sub-lease of land or a building.
2. An amount treated as rent u/s 16 (i.e. non- Consideration for vacating the possession of a
adjustable amount received in relation to building or part thereof, reduced by any amount
building) paid by the person to acquire possession of such
building or part thereof.

Lump sum amount received in relation to rent agreement of land or building

In relation to “building” In relation to “Land”

Not adjustable against Adjustable against Not adjustable against

future rent future rent future rent

No separate tax No taxability, as capital

Non-refundable Refundable implications, as rent receipt of this nature in
is chargeable to relation to “Land” is not
tax on accrual specifically made
basis taxable
Chargeable to tax Chargeable to tax
in the year of receipt in the year of
& following 9 years receipt & following Refunded after No further taxation
in equal proportion 9 years in expiry of 10 years after 10 years
equal proportion
unless refunded
Refunded before No taxation in the year
earlier expiry of 10 years of refund & thereafter

Receipt of similar amount from subsequent tenant

(Succeeding amount – portion of earlier amount already charged to tax) will be
chargeable to tax in the year of receipt and following 9 tax years in equal proportion.
For further info, please contact:
[email protected]
 MAVEN MINDS
Assurance | Tax | Advisory | Outsourcing
Income Tax Ordinance, 2001
[Applicable in Pakistan]

INCOME FROM PROPERTY

BASIS OF TAXABILITY UNDER THE HEAD “INCOME FROM PROPERTY”

Rent is chargeable to tax on accrual basis i.e. Deduction for an expenditure is allowed on accrual basis
when rent is received or receivable for a tax year. i.e. when expenditure is paid or payable for a tax year.

ALLOWABLE DEDUCTION UNDER THE HEAD “INCOME FROM PROPERTY”

In computing income chargeable to tax under the head “Income from Property” for a tax year, a deduction shall be
allowed for following expenditures or allowances to

Repair Allowance
In respect of repairs to a building, an allowance equal to 1/5th of the rent

Insurance Premium
Any premium to insure the building against the risk of damage or destruction
TAX

Government Dues & Taxes

Any local rate, tax, charge or cess in respect of property or rent to any local authority or government in the year,
not being income tax.

Ground Rent FO
RR
EN
T

In respect of repairs to a building, an allowance equal to 1/5th of the rent

INTEREST

Profit or Markup on Money Borrowed

Any profit or mark-up on any money borrowed, (including mortgage) to acquire, construct, renovate, extend or
reconstruct the property.

Share in Rent & Share in Appreciation in Value of Property

Any share in rent & share in appreciation in the value of property (excluding return of capital), where property has
been acquired, constructed, renovated, extended, or reconstructed with capital contributed by HBFC or scheduled
bank under a scheme of investment in property

Profit or Interest on Mortgage or Charge

Where the property is subject to a mortgage or other capital charge, any profit or interest paid on such mortgage
or charge.

Administration & Rent Collection Charges

Any expenditure, wholly & exclusively for deriving rent (including administration & collection charges) not
exceeding 4% of the rent

Legal Services
Any expenditures for legal services acquired to defend the person’s title to the property or any suit connected with
the property in a court.

Unrecoverable Rent
Unrecoverable rent subject to following conditions:
Tenancy was bonafide
Defaulting tenant has vacated the property or steps have been taken to compel the tenant to vacate the property;
Defaulting tenant is not in occupation of any other property of the person;
The person has taken all reasonable steps to institute legal proceedings for recovery of unpaid rent or has
reasonable grounds to believe that legal proceedings would be useless; and
Unpaid rent was previously charged to tax & tax has been duly paid on such income.
If the unpaid rent allowed as deduction, is wholly or partly recovered, the amount recovered shall be chargeable to
tax in the tax year in which it is recovered.
For further info, please contact:
[email protected]
 MAVEN MINDS
Assurance | Tax | Advisory | Outsourcing
Income Tax Ordinance, 2001
[Applicable in Pakistan]

INCOME FROM PROPERTY

ALLOWABLE DEDUCTION TREATMENT OF LOSS UNDER THE “IFP”

Loss under the head IFP can be setoff against

General points relating to deductions under income of other heads except salary
“Income from property” Loss under the head IFP cannot be carried forward
IFP can adjust losses of other heads of income
Payment for an expenditure deductions shall be
made within 3 years from the end of the tax year in
which the deduction was allowed. GEOGRAPHICAL SOURCE

If the expenditure is not paid as above, the unpaid Rental income shall be PSI if it is derived
expenditure shall be chargeable to tax in the 4th year. from lease of immovable property in Pakistan
whether improved or not, or
However, if the said expenditure is subsequently
from any other interest in or over immovable
paid, it shall be allowed as deduction in the tax
property, including a right to explore for, or exploit,
year in which it is paid.
natural resources in Pakistan.

Section 21 (Deductions not allowed) shall also apply

in determining the deductions allowed under EXEMPTIONS OF HEAD
“Income from property”, in the same manner as Any rent or revenue derived from agricultural land
they apply to “Income from business” situated in Pakistan; or
Any rent or revenue of building which is on or in the
Any expenditure allowed as deduction under immediate vicinity of the agricultural land and which
“Income from property” shall not be allowed as is used as dwelling-house, a store-house, or other
deduction under any other head of income. out-building.

WITHHOLDING TAX IMPLICATIONS

Section 155 Prescribed Person i.e. Withholding Agent

Every prescribed person making a payment in full or in 01. Federal Government;

part (including advance) on account of rent of immovable
02. Provincial Government;
property (including rent of furniture & fixtures or amounts
03. Local Government;
for services relating to such property) shall deduct tax
from the gross amount of rent paid 04. Company;

Above provision shall apply when a payment is made on 05. Non-profit organization or a charitable institution;
account of rent of immoveable property irrespective of 06. Diplomatic mission of a foreign state;
head of income 07. Private educational institution:
Gross rent includes treated rent u/s 16. 08. Boutique;
09. Beauty parlor;
Taxpayer Withholding Tax Rates 10. Hospital, clinic or a maternity home;
If recipient of rent is Division V of Part III of 11. Individuals or AOP paying gross rent of Rs. 1.5M
individual / AOP 1st Schedule and above in a year; or
If recipient of rent is 15% of the gross amount 12. Any other person notified by the FBR.
company of rent

INCOME OF JOINT OWNERS

Joint ownership of property

Respective share of owners are definite & ascertainable Respective share of owners are not definite & ascertainable

Share of income from such property will be taxed in the SIncome from such property will be taxed in the hands of
hands of owners separately and not as AO owners as an AOP

This provision shall not apply in case of “Income from Business” For further info, please contact:
[email protected]
 CAPITAL GAIN
Compiled by: Murtaza Quaid

Amount Gain arising on disposal of CAPITAL ASSET CAPITAL ASSET

chargeable [Capital gain = consideration received – cost of capital asset]
means property of any kind, held by a person, whether or
Basis of not connected with a business,
Accrual basis i.e. year of disposal
chargeability
But does not include,
 Loss of other heads can be set off against “Capital gain”.
 Capital loss cannot be set-off against income of other  any stock-in-trade, consumable stores or raw
head. materials held for the purpose of business
 Un adjusted capital loss shall be carried forward for 6  any property with respect to which the person is
tax years. In subsequent years, this loss can only be set- entitled to a depreciation deduction or amortization
off against capital gain. deduction
Treatment of
 Loss on disposal of securities shall be set off only against  any movable property held for personal use by the
loss
the capital gain on the disposal of any other securities.. person or any member of the person‘s family
 Unadjusted loss on disposal of securities can be carried to dependent on the person [excluding capital assets
subsequent 3 tax year and set-off only against capital gain specified in section 38(5)]
of other securities.

 Loss on disposal of capital asset of Sec. 38(5) shall not

be recognized Capital asset specified in section 38(5)
Following gain are PSI: Following movable properties are specified in section 38(5),
 Gain from alienation of any property or right to explore which when held for personal
for, or exploit, natural resources in Pakistan. use are treated as capital assets:
 Gain from alienation of any share in a company the i. a painting, sculpture, drawing or other work of art;
Geographical assets of which consist wholly or principally, directly or
source ii. jewelry;
indirectly, of property or rights to explore for, or exploit, iii. a rare manuscript, folio or book;
natural resources in Pakistan iv. a postage stamp or first day cover;
 Gain arising on disposal of shares in a resident company. v. a coin or medallion; or
 Gain on disposal of assets outside Pakistan (Sec 101A). vi. an antique.

DISPOSAL OF CAPITAL ASSET

CAPITAL ASSET SPECIFIED IN

OTHER CAPITAL ASSETS IMMOVABLE PROPERTY SECURITY
SECTION 38(5)

GAIN GAIN GAIN GAIN

Fully taxable as a part of Fully taxable as a part of

Fully taxable as a separate Fully taxable as a separate
taxable income at tax rates taxable income at tax rates
block of income block of income
applicable to the person applicable to the person

LOSS LOSS LOSS LOSS

 Recognized in full, and

 Adjustable against  Adjustable against adjustable against gain on
capital gain only capital gain only disposal of other securities
Not recognized
 Carry forward for 6 tax  Carry forward for 6 tax only
years years  Carry forward for 3 tax
years

For your valuable feedback, any update, error or

query, kindly let me know at [email protected]
 CAPITAL GAIN Compiled by: Murtaza Quaid
CAPITAL GAIN ON SALE OF SECURITIES
Except banking company and insurance company, capital gain arising from disposal of securities is taxable as separate block of income at following rates:

Rate of Tax on disposal of securities acquired

Rate of Tax on disposal of securities acquired on or after 1
Holding period between 1 Jul 2022 & 30 Jun 2024
Jul 2024
(both dates inclusive)

Where holding period < 1 year 15% For persons appearing on the Active Taxpayers’ List (ATL)
Where 1 year < holding period < 2 years 12.5% on date of acquisition and disposal of securities, at the rate
of 15%.
Where 2 years < holding period < 3 years 10% For persons not appearing on the ATL on the date of
Where 3 years < holding period < 4 years 7.5% acquisition and disposal of securities,
 Corporate Tax Rate for Companies; and
Where 4 years < holding period < 5 years 5%
 Slab Rate of Tax for Individuals / AOPs
Where 5 years < holding period < 6 years 2.5% However, tax rate for individuals and AOPs not appearing
Where holding period > 6 years 0% on the ATL, the tax rate shall not be less than 15%

Future commodity contracts entered by

5% 5%
the members of PMEX

 For companies, capital gain on disposal of debt securities shall be taxable at corporate rate of tax.
 For securities acquired on or after 1 Jul 2013 but on or before 30 Jun 2022, Capital gain tax shall be 12.5%.
 Capital gain arising on disposal of shares
- of a listed company made otherwise than through registered stock exchange and which are not settled through NCCPL; or
- through initial public offer during listing process except where the detail of such disposal is furnished to NCCPL for computation of capital gains and
tax thereon u/s 37A,
shall NOT be taxable at special tax rates and shall be taxable u/s 37 as a part of other taxable income at tax rates applicable to the taxpayer.

SECURITIES DERIVATIVE PRODUCTS

Security means, Derivative products means
i. Share of a public company,
 a financial product which derives its value from the
ii. Voucher of Pakistan Telecommunication Corporation,
underlying security or other asset,
iii. Modaraba Certificate,
iv. Instrument of redeemable capital,  may be traded on stock exchange of Pakistan and
v. Derivative products  includes
vi. Unit of exchange traded fund and - Deliverable future contracts,
vii. Debt securities. - Cash settled future contracts,
For the purpose of Sec 37A, “shares of a public company” shall be considered as security - Contracts of rights and options, and
if such company is a public company at the time of disposal of such shares. - Future commodity contracts traded at PMEX.

INCOME TAX RULES, 2002 – CAPITAL GAIN ON SECURITIES LOSS ON SALE OF SEUCRITIES

 Capital gain/(loss) on disposal of any security is computed on FIFO basis However,  Loss on disposal of securities shall be set off only against
FIFO method shall not apply in respect of sale of shares purchased on same trading capital gain on disposal of any other securities..
day. In that average method shall be used.
 In respect of market-based transaction of listed securities, Cost shall be increased by  Unadjusted loss on disposal of securities can be carried to
0.5% and consideration received shall be reduced by 0.5% in lieu of transaction cost. subsequent 3 tax year.

1) Securities are:  Collection of tax on clearing basis by NCCPL for onward

 Listed securities; or deposit to Federal Govt. on behalf of tax payer
 Units of open-ended mutual funds; or
 No tax liability is required to be discharged along with tax
 Future commodity contracts traded on PMEX
Procedure for return; and
and
discharge of  Certificate issued by NCCPL shall be attached with tax return.
2) Person is subject to 8th Schedule
Capital Gain Tax
on Sale of
Securities 1) Securities are other than:
 Listed securities; or
 Units of open-ended mutual funds; or  Quarterly advance tax u/s 147(5B) @ 1.5% / 2%
 Future commodity contracts traded on PMEX  Remaining liability will be discharged along with tax return
or
2) Person is not subject to 8th Schedule
 CAPITAL GAIN Compiled by: Murtaza Quaid

CAPITAL GAIN ON SALE OF IMMOVABLE PROPERTIES

Capital gain arising on disposal of immovable properties is taxable as separate block of income at following rates:

Rate of Tax on properties acquired on or before

Holding Period 30 June 2024 Rate of Tax on properties acquired on or after 1 July 2024
Open Plots Constructed Property Flats

If HP ≤ 1 year 15% 15% 15%

For persons appearing on the Active Taxpayers’ List (ATL) on date of
If 1 year < HP < 2 years 12.5% 10% 7.5% disposal of property, at the rate of 15%.
If 2 years < HP < 3 years 10% 7.5% - For persons not appearing on the ATL on the date of disposal of property,

If 3 years < HP < 4 years 7.5% 5% -  Corporate Tax Rate for Companies; and

If 4 years < HP < 5 years 5% - -  Slab Rate of Tax for Individuals / AOPs

If 5 years < HP < 6 years 2.5% - - However, tax rate for individuals and AOPs not appearing on the ATL on
the date of disposal, the tax rate shall not be less than 15% of the gain.
If HP > 6 years 0% - -

Where FMV of the Higher of:

CONSIDERATION RECEIVED FOR IMMOVABLE PROPERTY property has been  Actual sale proceed / auction price; or
notified by FBR  FMV determined by FBR.
 FBR is empowered to determine the FMV of immovable property,
by notification in the official Gazette. Higher of:
Where FMV of the  Actual sale proceed / auction price; or
 In case of disposal of immovable property, consideration received property has not  Value fixed by District Officer (Revenue)
for calculation of capital gain and withholding tax purpose shall be been notified by FBR or provincial or other authorized
authority for stamp duty purpose

Advance Tax on Purchase and Sale of Immovable Property

 Person responsible for registering, recording or attesting transfer of any immovable property. Time of Withholding
Withholding  It includes person responsible for registering, recording or attesting transfer for local
authority, housing authority, housing society, co-operative society, public and private real At the time of registering,
Agent
estate projects registered/governed under any law, joint ventures, private commercial recording or attesting the transfer
concerns and registrar of properties. of any immovable property

Advance Tax on Sale / Transfer of Immovable Property [Section 236C]

For Active Taxpayers For Active Taxpayers For persons not

Amount of consideration received who have filed the who have not filed the appearing on Active Nature of Withholding Tax
return by the due date return by the due date Taxpayers' list

Consideration ≤ Rs. 50M 3% 6%  If property is acquired and

disposed of in same tax year
Rs. 50M > Consideration ≤ Rs. 100M 3.5% 7% 10% WHT Tax is minimum tax
 In all other cases, WHT Tax is
Consideration > Rs. 100M 4% 8% adjustable tax

Advance Tax on Purchase / Transfer of Immovable Property [Section 236K]

For Active Taxpayers For Active Taxpayers For persons not

Fair Market Value of property who have filed the who have not filed the appearing on Active Nature of Withholding Tax
return by the due date return by the due date Taxpayers' list

FMV ≤ Rs. 50M 3% 6% 12%

Rs. 50M > FMV ≤ Rs. 100M 3.5% 7% 16% Adjustable Tax

FMV > Rs. 100M 4% 8% 20%

For your valuable feedback, any update, error or

query, kindly let me know at [email protected]
 INCOME FROM BUSINESS
Compiled by: Murtaza Quaid
 Profits and gains of any business carried on by a person at any time in the year.
 Any income derived by any trade, professional or similar association from the sale of goods or provision of services to its
members.
 Any income from the hire or lease of tangible movable property.
 Fair market value of any benefit or perquisite, whether convertible into money or not, derived by a person in the course of,
or by virtue of, a past, present, or prospective business relationship.
AMOUNT  Any management fee derived by a management company (including a Modaraba management company).
CHARGEABLE  Any amount received or receivable by a scheduled bank or an investment bank or a development finance institution or a
Modaraba or a leasing company from leasing out an asset, whether owned by it or not.
 Any amount received by a banking company or a non-banking finance company, as distribution by a mutual fund or a Private
Equity and Venture Capital Fund out of its income from profit on debt.
 Profit on debt where the person’s business is to derive such income (e.g. banks and financial institutions). Otherwise, it is
taxable under “Income from other sources”.
 Unexplained income or assets [Section 111]

BASIS OF  Company  Accrual basis

CHARGEABILITY  Individual / AOP  Accrual basis or cash basis (Regularly employed)

ALLOWABLE
Various (Covered in this summary)
DEDUCTION

 Loss of other heads of income can be set off against “Income from business”.
 Loss under “IFB” can be set-off against income of other heads except “Salary”.
 If a person sustains loss under “IFB” and under other head, loss under “IFB” shall be set-off last.
 In computing taxable income of a person, depreciation, initial depreciation, accelerated depreciation and amortization shall
be taken into account last.
TREATMENT OF
 Un adjusted business loss shall be carried forward for 6 tax years. In subsequent years, this loss can only be set-off against IFB.
LOSS
 Brought forward loss attributable to depreciation and amortization under respective sections, shall be set off against 50% of
the person’s balance income taxable under “Income from business” after setting off brought forward business loss (excluding
depreciation and amortization) in the following tax year and so on until completely set off. However, such loss shall be set off
against 100% of the said balance income if the taxable income for the year is less than Rs. 10 million.
 Treatment of speculation business loss is covered in the section of “Speculation Business”

1) Business income of a resident person shall be PSI to the extent to which income is derived from any business carried on in
Pakistan.
2) Business income of a non-resident person shall be PSI to the extent to which it is directly or indirectly attributable to:
a) PE of non-resident person in Pakistan;
b) Sales in Pakistan of goods merchandise of the same or similar kind as those sold by the person through a PE in
Pakistan;
c) other business activities carried on in Pakistan of the same or similar kind as those effected by the non-resident
through a PE in Pakistan; or
d) any business connection in Pakistan.
e) import of goods, whether or not the title to the goods passes outside Pakistan, if the import is part of an overall
arrangement for the supply of goods, installation, construction, assembly, commission, guarantees or supervisory
activities and all or principal activities are undertaken or performed either by the associates of the person supplying
the goods or its permanent establishment, whether or not the goods are imported in the name of the person,
associate of the person or any other person.
For clause (d), business connection in Pakistan shall include significant economic presence in Pakistan of a non-resident.
Significant economic presence in Pakistan shall mean,
GEOGRAPHICAL
a) transaction in respect of any goods, services or property carried out by a non-resident with any person in Pakistan
SOURCE
including provision of download of data or software in Pakistan, if the aggregate of payments arising from such
transaction or transactions during the tax year exceeds such amount as may be prescribed; and
b) systematic and continuous soliciting of business activities or engaging in interaction through digital means with such
number of users in Pakistan as may be prescribed, irrespective of whether or not,
(i) the agreement for such transactions or activities is signed in Pakistan;
(ii) the non-resident has a residence or place of business in Pakistan; or
(iii) the non-resident renders services in Pakistan:
Provided that only so much of income as is attributable to the transactions or activities referred to in clause (a) or
clause (b) shall be deemed to accrue or arise from a business connection in Pakistan.
3) Where business of a non-resident person comprises the rendering of independent services (including professional services
& services of entertainers and sports persons), the Pakistan-source business income of the person shall include (in addition
to amounts treated as PSI under point 2 above) any remuneration derived by the person where the remuneration is
 paid by a resident person or
 borne by a permanent establishment in Pakistan of a non-resident person.
4) Any gain from the disposal of any asset or property used in deriving any business income referred above shall be PSI.
5) Amount shall be FSI to the extent to which it is not PSI.

For your valuable feedback, any update, error or

query, kindly let me know at [email protected]
 INCOME FROM BUSINESS
Compiled by: Murtaza Quaid
DEDUCTIONS

INADMISSIBLE DEDUCTIONS ADMISSIBLE DEDUCTIONS

In computing “Income from Business”, a deduction is not allowed for:

1. Any cess, rate or tax paid or payable by the person in Pakistan or General Provision
foreign country that is levied on the profits or gains of the business or
In computing “Income from Business”, a deduction is allowed
assessed as a percentage or otherwise on the basis of such profits or
for any expenditure incurred by the person in the year wholly
gains.
and exclusively for the purposes of business.
2. Amount of tax deducted at source under the provisions of the ITO-2001
from an amount derived by the person.
3. Any commission paid or payable in respect of supply of 3rd Sch. Item of Expenditure on animal
STA-1990 which is in excess of 0.2% of the gross amount of supplies to a
person who is not appearing in the ATL under ITO-2001. Where animals
- which have been used for the purposes of the business or
4. Any contribution made by the person to a fund that is not profession otherwise than as stock-in-trade, and
- recognized provident fund, - approved pension fund, - have died or become permanently useless for such purposes,
- approved superannuation fund - approved gratuity fund. a deduction is allowed as follow:

IQ School of Finance
5. An amount in excess of 50% of contribution made by a person to an Actual cost of animal xxxx
approved gratuity fund, an approved pension fund or an approved Less. Amount realized in respect of carcasses or animals (xxxx)
superannuation fund. Deduction allowed xxxx
6. Any contribution made by the person to any provident or other fund
established for the benefit of employees of the person, unless the
person has made effective arrangements to secure that tax is deducted Expenditure on amalgamation
under section 149 from any payments made by the fund in respect of Deduction is allowed to an amalgamated company for
which the recipient is chargeable to tax under the head "Salary". - any expenditure incurred
7. Any fine or penalty paid or payable for the violation of any law, rule or - by such amalgamated company
regulation. - on legal and financial advisory services and other
8. Profit on debt, brokerage, commission, salary or other remuneration administrative cost relating to planning and
paid by an AOP to its member. implementation of amalgamation.
9. Personal expenditures.
10. Any amount carried to a reserve fund or capitalized in any way
Special Provisions
11. Expenditure on sales promotion, advertisement and publicity in excess
of 10% of turnover incurred by pharmaceutical manufacturers. Specific provisions for allowability of expenditure incurred for
12. Capital expenditure except as provided under ITO-2001. the purpose of business are as follow:
13. Any expenditure attributable to sales made to persons required to be  Depreciation
registered but not registered under the Sales Tax Act, 1990 by an  Initial allowance
industrial undertaking computed according to the following formula:  Accelerated depreciation to alternate energy projects
 Amortization of intangible
Deduction claimed x Total sales exclusive of sales tax & FED to persons  Pre-commencement expenditure
Turnover for the required to be registered but not registered under  Scientific research expenditure
tax year Sales Tax Act, 1990 where sales equal or exceed  Employee training and facilities
Rs. 100 million per person  Profit on debt, financial costs and lease payments
Provided that:  Bad debts
 Disallowance of expenditure under this clause shall not exceed 10%  Provision regarding consumer loans
of total deductions claimed;  Profit on non-performing debts
 FBR may, by notification in the official Gazette, exempt persons or  Transfer to participatory reserve
classes of persons from this clause subject to such conditions and
limitations as may be specified therein; and
 This clause shall come into force with effect from 1st Oct, 2020.
Rule 10 of ITR-2002 – Entertainment expenditure
14. Entertainment expenditure
 in excess of prescribed limits or Entertainment expenditure shall be incurred:
 in violation of prescribed conditions i. Outside Pakistan on entertainment in connection with business
15. Any expenditure on account of utility bill in excess of such limits and in transactions or allocated as head office expenditure;
violation of such conditions as may be prescribed. ii. In Pakistan on entertainment of foreign customers & suppliers:
iii. On entertainment of customer & clients at business premises;
16. Any expenditure attributable to sales claimed by any person who is iv. On entertainment at the meeting of shareholders, agents,
required to integrate but fails to integrate his business with the FBR directors or employees; or
through approved fiscal electronic device and software. v. On entertainment at the opening of branches.
However, disallowance of expenditure under this clause shall not Deduction is allowed only for expenditure incurred on
exceed 8% of the allowable deduction. entertainment of persons related directly to the person’s business.
“Entertainment” means provision of meals, refreshments, and
To be continued
reasonable leisure facilities in accordance with tradition of business
and subject to overall norms and customs of business in Pakistan.
For your valuable feedback, any update, error or
query, kindly let me know at [email protected]
 INCOME FROM BUSINESS
Compiled by: Murtaza Quaid
INADMISSIBLE DEDUCTIONS (Continued)

17. Requirement to make payment of expenditure through banking channel / digital means

Salary  Utility bills, Purchase of asset (Sec. 75A) Other expenditure

 Freight charges,
 Travel fare,
Salary per month per  Immovable property Expenditure under a single
 Postage; and
employee ≤ Rs. 32,000 having FMV ≤ Rs. 5M account head which, in aggregate
 Payment of taxes,
duties, fee, fines or  Any other asset having does not exceed Rs. 250,00
No requirement to pay
any other statutory FMV ≤ Rs. 1 Million
through banking channel / No requirement to pay through
digital means, can be paid obligation. No requirement to pay banking channel / digital means,
in cash through banking channel, can can be paid in cash
No requirement to pay
through banking channel / be paid in cash
Salary per month per digital means, can be paid Expenditure under a single
employee > Rs. 32,000 in cash  Immovable property account head which, in aggregate
Requirement to pay having FMV > Rs. 5M exceeds Rs. 250,000
through crossed cheque  Any other asset having
or direct transfer to FMV > Rs. 1 Million
Expenditure ≤ Rs. 25,000
employee‘s bank account
Requirement to pay through
or through digital mode, No requirement to pay through
crossed banking channel
otherwise inadmissible banking channel / digital
showing transfer of amount
deduction. means, can be paid in cash
from one bank account to
another bank account
DIGITAL MEANS otherwise Expenditure > Rs. 25,000
 No depreciation /
“Digital Means” means digital payments and financial services Requirement to pay through
amortization deduction
including but not limited to— cross banking channel / digital
for such asset; and
 online portals or platforms for digital payments/receipts; means showing transfer of
 Such amount shall not be
 online interbank fund transfer services; amount from the business
treated as cost for
 online bill or invoice presentment and payment services; bank account of the taxpayer,
computation of gain /
 over the Counter digital payment services or facilities; otherwise inadmissible
(loss) on disposal.
 card payments using Point of Sale terminals, OR codes, mobile deduction.
devices, ATMs, Kiosk or any other digital payments enabled
devices; or For your valuable feedback, any update, error or
 any other digital or online payment modes query, kindly let me know at [email protected]

Applicable where:
18. Requirement to collect/deduct income
 The payer is withholding agent; and
tax on payment of expenditure
 The payment of expenditure requires withholding of income tax under ITO-2001.

Income tax is collected / deducted Income tax is not collected / deducted

The related expense will be allowed CIR recovers such tax from: Otherwise
 Withholding agent u/s 161; or
The related expense will not be
 Taxpayer u/s 162
allowed as deduction
Default Surcharge would be worked out at
higher of: 1) The related expense will be allowed
Further, disallowance in respect of
 12% per annum; or 2) CIR can also recover default surcharge on income
purchases of raw materials and
 KIBOR plus 3% per annum tax required to be collected / deducted, from the
finished goods under this clause shall
withholding agent
not exceed 20% of purchases of raw
KIBOR means Karachi Inter Bank Offered Rate - from the date he failed to withheld tax
materials and finished goods.
prevalent on the first day of each quarter of - to the date tax is actually paid
the financial year.
IQ School of Finance
 INCOME FROM BUSINESS Compiled by: Murtaza Quaid
DEPRECIATION DEDUCTION

DEPRECIABLE ASSET Depreciation deduction = Rate of Depreciation x WDV

 Means any tangible movable property,

immovable property (other than WRITTEN DOWN VALUE (WDV)
unimproved land), or structural
In the year of acquisition  WDV = Cost – Initial Allowance (IA)
improvement to immovable property,
owned by a person that In subsequent tax years  WDV = Cost – Depreciation deduction (including IA)
- has normal useful life exceeding 1
year;
- likely to lose value as a result of POINT TO CONSIDER
normal wear and tear, or
obsolescence; and  Total depreciation deduction shall not exceed the cost of asset.
- is used wholly or partly by the person  Cost of immovable property or structural improvement to immovable property shall not include
in deriving income from business the cost of land.
chargeable to tax,  No depreciation deduction shall be allowed in a tax year in which depreciable asset is disposed by
 but shall not include any tangible the person.
movable property, immovable property,  For purpose of depreciation deduction, cost of a passenger transport vehicle not plying for hire
or structural improvement to immovable shall not exceed Rs. 7.5 million.
property in relation to which a deduction  During exemption period, depreciation admissible is treated to have been allowed and after expiry
has been allowed under another section of exemption period, WDV of the assets is determined after reducing total depreciation
of ITO-2001 for the entire cost of the deductions (including any initial allowance).
property or improvement in the tax year
in which the property is acquired or
improvement made by the person.
Depreciation of leased assets Partial business use of a depreciable
asset
 Depreciation on leased assets is allowed to Leasing
STRUCTURAL IMPROVEMENT
company, Investment bank, Modaraba, Scheduled  In case of partial business use of
Structural improvement in relation to bank; or Development finance institution depreciable asset, depreciation
immovable property, includes any building,  Depreciation on leased assets is deductible only deduction shall be restricted to fair
road, driveway, car park, railway line, against lease rental income derived by the lessor in proportional part of depreciation
pipeline, bridge, tunnel, airport runway, respect of such assets. that would be allowed if asset was
canal, dock, wharf, retaining wall, fence,  In case of joint ownership of depreciable asset by a wholly used for business purpose.
power lines, water or sewerage pipes, tax payer and Islamic Financial Institution, pursuant  WDV of such depreciable asset is
drainage, landscaping or dam. to Musharika financing or diminishing Musharika computed as if the asset has been
financing, depreciable asset shall be treated to be solely used to derive income from
wholly owned by the taxpayer. business.
For your valuable feedback, any
update, error or query, kindly let me
know at [email protected]

DISPOSAL OF DEPRECIABLE ASSET Tax gain / (loss) = Consideration received – WDV

SPECIAL TREATMENTS

Disposal of passenger transport vehicle not plying for hire (having Disposal of depreciable asset that was partly used to derive IFB
cost exceeding Rs. 7,500,000
WDV of the asset shall be increased by the amount of
Consideration received shall be computed as follow: depreciation disallowed on account of its partial another use.
𝐑𝐑𝐑𝐑.𝟕𝟕,𝟓𝟓𝟓𝟓𝟓𝟓,𝟎𝟎𝟎𝟎𝟎𝟎
𝐀𝐀𝐀𝐀𝐀𝐀𝐀𝐀𝐀𝐀𝐀𝐀 𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫𝐫 𝐨𝐨𝐨𝐨 𝐝𝐝𝐝𝐝𝐝𝐝𝐝𝐝𝐝𝐝𝐝𝐝𝐝𝐝𝐝𝐝 𝐨𝐨𝐨𝐨 𝐯𝐯𝐯𝐯𝐯𝐯𝐯𝐯𝐯𝐯𝐯𝐯𝐯𝐯 x
𝐀𝐀𝐀𝐀𝐀𝐀𝐀𝐀𝐀𝐀𝐀𝐀 𝐜𝐜𝐜𝐜𝐜𝐜𝐜𝐜 𝐨𝐨𝐨𝐨 𝐯𝐯𝐯𝐯𝐯𝐯𝐯𝐯𝐯𝐯𝐯𝐯𝐯𝐯
Export / Transfer outside Pakistan of a depreciable asset
Disposal of immovable property Where a depreciable asset that has been used by a person in
Pakistan is
IF consideration received on disposal of immovable property - exported or
exceeds cost of the property, consideration received shall be - transferred out of Pakistan,
treated as cost of the property. (i.e. Gain on disposal shall be equal the person shall be treated as having disposed of the asset at the
to the depreciation previously allowed). time of the export or transfer for a consideration received equal
to the cost of the asset (i.e. Gain on disposal shall be equal to the
IQ School of Finance depreciation allowed).
 INCOME FROM BUSINESS
Compiled by: Murtaza Quaid
INITIAL ALLOWANCE (IA)

ELIGIBLE DEPRECIABLE ASSET (EDA)

Initial allowance = Cost of EDA x Rate of Initial allowance Plant & machinery 25%
EDA means a depreciable asset other than:
 Any road transport vehicle not plying
for hire;
 Any furniture, including fittings; ELIGIBILITY FOR INITIAL ALLOWANCE Initial allowance on leased assets
 Any plant or machinery that has been
A person who places  IA on leased assets is allowed to
used previously in Pakistan;
 an EDA into service in Pakistan - Leasing company;
 Any plant or machinery in relation to
 for the first time in a tax year - Investment bank;
which a deduction has been allowed
shall be allowed a deduction as “initial allowance” - Modaraba or
under another section of ITO-2001 for
 Provided the asset is used by the person for the - Scheduled bank; or
the entire cost of the asset in the tax
purposes of his business - Development finance institution.
year in which the asset is acquired; or
- for the first time or  IA on leased assets is deductible
 Immovable property or structural
- tax year in which commercial production is only against lease rental income
improvement to the immovable
commenced, derived by the lessor in respect of
property.
whichever is later. such assets.

For your valuable feedback, any update, error or query, kindly let me know at [email protected]

ACCELERATED DEPRECIATION TO ALTERNATE ENERGY PROJECTS

Accelerated depreciation = 90% x Cost of Eligible Depreciation Assets Accelerated depreciation on leased assets

 Accelerated depreciation on leased assets is

ELIGIBILITY FOR ACCELERATED DEPRECIATION allowed to
- Leasing company;
Status of industrial
Any plant, machinery and equipment - Investment bank;
undertaking:
- Modaraba or
 installed for generation of alternate energy Industrial undertaking is
- Scheduled bank; or
 by an industrial undertaking  set up anywhere in
- Development finance institution.
Pakistan and
shall be allowed “Accelerated Depreciation” in lieu of initial  Accelerated depreciation on leased assets is
 owned and managed
allowance at the rate of 90% against the cost of the eligible deductible only against lease rental income
by company
depreciation assets put to use after first day of July, 2009. derived by the lessor in respect of such assets.

IQ School of Finance

AMORTIZATION OF PRE-COMMENCEMENT EXPENDITURE

Amortization deduction is allowed for any pre-commencement Amortization deduction = Pre-commencement expenditure x 20%
expenditure on straight line basis @ 20% every year starting from the
first tax year after commencement of person’s business. PRE-COMMENCEMENT EXPEDITURE

Pre-commencement expenditure
POINT TO CONSIDER  means any expenditure incurred
- before the commencement of a business
 No deduction is allowed for pre-commencement expenditure if a - wholly and exclusively to derive income chargeable to tax,
deduction has been allowed under another section of ITO-2001 for the  including cost of feasibility studies, construction of prototypes,
entire amount of such expenditure in the tax year in which it is incurred. & trial production activities,
 Total deductions allowed in respect of pre-commencement expenditure  but shall not include any expenditure which is incurred in
shall not exceed the amount of pre-commencement expenditure. acquiring land, or which is depreciated or amortized.
 INCOME FROM BUSINESS
Compiled by: Murtaza Quaid
AMORIZATION DEDUCTION

Amortization deduction is allowed for cost of Amortization deduction = Cost of intangible ÷ Normal useful life of intangible in whole years
intangibles that:
 are wholly or partly used by the person in
the tax year in deriving income from Intangible that does not have an
business chargeable to tax; and Cost in relation to an intangible,
 means any expenditure incurred in ascertainable useful life, shall be
 have a normal useful life exceeding 1 year. treated as if it had a normal useful
acquiring or creating intangible,
 including any expenditure incurred life of 25 years.
INTANGIBLES in improving or renewing
intangible.
 Means any patent, invention, design or model,
secret formula or process, copyright, trade mark,
scientific or technical knowledge, computer
software, motion picture film, export quotas, POINT TO CONSIDER
franchise, license, intellectual property, or other
 No amortization deduction is allowed if deduction has been allowed under another
like property or right, contractual rights and
section of ITO-2001 for the entire cost of intangible in the tax year in which the
 any expenditure that provides an advantage or
intangible is acquired.
benefit for more than 1 year (other than
 Total amortization deductions shall not exceed the cost of intangible.
expenditure incurred to acquire a depreciable
 If intangible is not used for whole of tax year in deriving IFB, amortization deduction
asset or unimproved land) but shall not include
shall be
self-generated goodwill or any adjustment arising No. of days in tax year the intangible is used
on account of accounting treatment in the manner Amortization deduction =
Number of days in tax year
as may be prescribed  Intangible that is available for use on a day (including a non-working day) is treated as
used on that day.
DISPOSAL OF INTANGIBLE  No amortization deduction is allowed in the year of disposal of intangible.

Tax gain / (loss) = Consideration received – WDV Partial business use of intangible

 In case of partial business use of intangible, amortization deduction shall be restricted

WDV AT THE TIME OF DISPOSAL ON INTANGIBLE to fair proportional part of amortization that would be allowed if asset was wholly used
for business purpose.
In case of full business use of the intangible
 WDV of such depreciable asset is computed as if the asset has been solely used to
WDV = Cost – Total amortization deductions allowed
derive income from business.
In case of partial business use of intangible
WDV = Cost – Total amortization deductions that For your valuable feedback, any update, error or
would have been allowed if intangible query, kindly let me know at [email protected]
was fully used in business.

BAD DEBT
A deduction is allowed for a bad debt in a tax year if the following 3 conditions are met:

Amount of debt was - Debt or part of the debt is written off in the There are reasonable grounds for believing
• previously included in person‘s IFB accounts of the person in the tax year. that the debt is irrecoverable.
chargeable to tax; or
• in respect of money lent by financial
institution in deriving IFB chargeable to tax. For your valuable feedback, any update, error or
query, kindly let me know at [email protected]

PARTIAL RECOVER OF BAD DEBT

If a deduction is allowed for bad debt and subsequently the person receives in cash or kind any amount in respect of that debt, following rules shall apply.

Subsequent recovery > (Amount of debt – bad debt deduction allowed) Subsequent recovery < (Amount of debt – bad debt deduction allowed)

In the year of partial recovery, the excess as calculated below is included In the year of partial recovery, the shortfall as calculated below is
in IFB. Excess = allowed as deduction. Shortfall =
Subsequent recovery – (Amount of debt – bad debt deduction allowed) (Amount of debt – bad debt deduction allowed) – subsequent recovery
 INCOME FROM BUSINESS
Compiled by: Murtaza Quaid

SCIENTIFIC RESEARCH EXPENDITURE EMPLOYEE TRAINING AND FACILITIES

Deduction is allowed for any expenditure (other than capital expenditure)
incurred in a tax year in respect of:
A deduction is allowed for
 Any educational institution or hospital in Pakistan established for the benefit
 scientific research expenditure
of person‘s employees and their dependents;
 incurred in Pakistan in a tax year
 Any institute in Pakistan established for training of industrial workers
 wholly and exclusively for deriving IFB chargeable to tax.
recognized, aided, or run by Federal or Provincial or Local Government; or
 Training of any person, being a citizen of Pakistan, in connection with a
scheme approved by the FBR for the purposes of this section
SCIENTIFIC RESEARCH EXPENDITURE

Scientific research expenditure

 means any expenditure incurred by a person on scientific PROVISION REGARDING CONSUMER LOANS
research undertaken in Pakistan for the purposes of
developing the person‘s business,  NFBC or HBFC is allowed a deduction
 including any contribution to a scientific research - for creation of a reserve to off-set bad debts arising out of consumer
institution to undertake scientific research for the loans,
purposes of the person‘s business, - not exceeding 3% of the income for tax year arising out of consumer loans.
 other than expenditure incurred:  If bad debt arising out of consumer loan cannot be wholly set off against the
- in the acquisition of any depreciable asset or reserve, then bad debt exceeding the reserves shall be carried forward for
intangible; adjustment against the reserve for following years.
- in the acquisition of immovable property; or
- for the purpose of ascertaining the existence, location, CONSUMER LOANS
extent or quality of a natural deposit. Consumer loan
 means
- a loan of money or its equivalent
SCIENTIFIC RESEARCH
- made by NBFC or HBFC
Scientific research means any activity undertaken in Pakistan - to a debtor (consumer) and
in the fields of natural or applied science for the - loan is entered primarily for personal, family or household purposes
development of human knowledge.  includes debts created by the use of a lender credit card or similar
arrangement as well as insurance premium financing.

SCIENTFIC RESEARCH INSTITUTION

Scientific research institution means any institution certified

by FBR as conducting scientific research in Pakistan. TRANSFER TO PARTICIPATORY RESERVE

 A company shall be allowed a deduction for

For your valuable feedback, any update, error or - any amount transferred to a participatory reserve created u/s 120 of
query, kindly let me know at [email protected] Companies Act, 2017
- in a/c with agreement relating to participatory redeemable capital
entered into between the company and banking company as defined in
PROFIT ON NON-PERFORMING DEBTS Financial Institutions (Recovery of Finances) Ordinance, 2001.
 Deduction allowed for a tax year shall be limited to 5% of company‘s
 Deduction is allowed for any profit accruing on a non- participatory redeemable capital.
performing debt, to  Deduction shall not be allowed for any amount transferred to a participatory
- Banking company or reserve if tax exempted accumulation in the participatory reserve exceeds
- Development finance institution or 10% of the participatory redeemable capital.
- Non-Banking Finance Company (NBFC) or
- Modaraba  Where any amount accumulated in participatory reserve allowed as a
Only if the profit is credited to suspense account in a/c deduction, is applied by the company for
with Prudential Regulations for Banks or NBFC or - any purpose other than payment of share of profit on the participatory
modaraba issued by SBP or SECP. redeemable capital or
- any purpose not allowable for deduction or exemption under ITO-2001,
 Subsequent recovery of such profit shall be included in the amount so applied shall be included in the income from
“Income from Business” for the tax year in which it is business of the company in the tax year in which it is so applied.
recovered.

IQ School of Finance
 INCOME FROM BUSINESS
Compiled by: Murtaza Quaid
PROFIT ON DEBT, FINANCIAL COSTS AND LEASE PAYMENTS APPORTIONMENT OF DEDUCTIONS
A deduction shall be allowed for a tax year for:  Where an expenditures, deductions and allowances relates to:
 Profit on debt to the extent that debt is used for business purpose; - Derivation of more than one head of income; or
- Derivation of taxable income and FTR income; or
 Lease rental for an asset used for business purpose to scheduled - Derivation of income chargeable to tax under a head of income
bank, financial institution, approved Modaraba, approved leasing and to some other purpose,
company or special Purpose Vehicle on behalf of the Originator;  Such expenditures, deductions and allowances shall be apportioned
However, for the purpose of determining the deduction on account on any reasonable basis taking account of the relative nature and
of lease rentals, the cost of a passenger transport vehicle not plying size of the activities to which the amount relates.
for hire to the extent of principal amount shall not exceed Rs. 2.5  Expenditure, deductions and allowances incurred for a particular
million. class / classes of income shall be allocated to that class or classes.
 Profit on debt on funds borrowed from Modaraba certificate holder  Common expenditure (including financial expenses) shall be
or participation term certificate holder and used for business allocated to each class of income as per following formula -
purpose; Gross receipts for the class of income
 Profit on debt incurred by scheduled bank to a person maintaining Common expenditure x
Total gross receipts for all classes of income
P/L sharing account or deposit with the bank;  Net gain, brokerage, commission and other income shall be
 State Bank of Pakistan’s share in profit incurred by House Building compared with gross profit from business for apportionment of
Finance Corporation , National Development Leasing Corporation common expenditure as per above formula.
Limited, Small and Medium Enterprises Bank for investment or  Gross receipt means receipts / turnover net off Sales Tax or FED.
credit line provided by SBP on P/L sharing basis;
 Basis of allocation of expenditure shall be certified by CA or CMA
 Banking company’s share of profit of the musharika, incurred by a and such certificate shall be accepted by CIR unless significant
person under a scheme of musharika; variations (i.e. beyond the limit of ±10%) are found by the CIR.
 Certificate holder’s share of profits of the musharika, incurred by a  "Common expenditure" means expenditure, deductions and
person under a musharika scheme approved by SECP and Religious allowances that is not clearly allocable to any particular class or
Board under Modaraba Ordinance; classes of income, such as general administrative and other such
 Financial cost of securitization of receivables incurred by Originator allocable expenditures, deductions and allowances.
towards Special Purpose Vehicle (Financial cost = Receivable
securitized – Amount received by Originator). Securitization of
receivable is treated as financing transaction irrespective of method
of accounting adopted by the Originator. For your valuable feedback, any update, error or
query, kindly let me know at [email protected]

SPECULATION BUSINESS
DEFINITION TAX IMPLICATIONS

“Speculation business” means  Speculation business is treated as distinct and

 any business in which a contract for the purchase and sale of any commodity (including separate from any other business carried on by a
stocks and shares) is periodically or ultimately settled otherwise than by the actual person.
delivery or transfer of the commodity,  Apportionment of deductions (Sec. 67) shall apply
but does not include a business in which — as if speculation business is a separate head of
a) a contract in respect of raw materials or merchandise is entered into by a person in the income.
course of a manufacturing or mercantile business to guard against loss through future  Income from speculation business shall be
price fluctuations for the purpose of fulfilling the person‘s other contracts for the included in “Income from Business”. Whereas,
actual delivery of the goods to be manufactured or merchandise to be sold; speculation business loss shall be set off only
b) a contract in respect of stocks and shares is entered into by a dealer or investor to against income from any other speculation
guard against loss in the person‘s holding of stocks and shares through price business;
fluctuations; or  If speculation loss for a tax year is not wholly set
c) a contract is entered into by a member of a forward market or stock exchange in the off, then unadjusted loss shall be carried forward
course of any transaction in the nature of jobbing arbitrage to guard against any loss for following 6 tax years and adjusted against
which may arise in the ordinary course of the person‘s business as such member. speculation business income only.

IQ School of Finance
 INCOME FROM OTHER SOURCES
Compiled by: Murtaza Quaid
AMOUNT CHARGEABLE UNDER “IFOS” BASIS OF CHARGEABILITY

It is a residuary head of income. Income of every kind, if it is not included in Cash / receipt basis
any other head, is taxable under “IFOS’. Amount chargeable under IFOS - Income is chargeable to tax when received in a tax year
includes: - Deduction for expenditure is allowed when paid in a tax year
 Dividend
 Royalty
EXCEPT
 Profit on debt
 Ground rent; Where
 Additional payment on delayed refund under any tax law - Profit on debt derived from investment in National
 Rent from the sub-lease of land or a building Savings Deposit Certificates including Defence
Savings Certificate is paid in arrears or
 Income from lease of building together with plant or machinery;

IQ School of Finance
- Profit on debt is taxable in the tax year preceding the
 Income from provision of amenities, utilities or other service connected tax year in which it is received; and
with renting of building; As a result the person is taxable at higher tax rate than
 Annuity or pension; would have been applicable if profit had been paid in the
 Prize bond, or winnings from a raffle, lottery, prize on winning a quiz, tax year when earned, the person may, by notice in
prize offered by companies for promotion of sale or cross-word puzzle; writing to CIR, elect for the profit to be taxed at tax rate
that would have been applicable if the profit had been
 Consideration for provision, use or exploitation of property, including
paid in the tax year when earned.
from grant of a right to explore for, or exploit, natural resources;
Above election shall be made by the due date for
 FMV of any benefit, whether convertible to money or not, received in
furnishing the person‘s return of income for the tax year
connection with the provision, use or exploitation of property
in which profit on debt was received or by such later date
 Amount received by a person from Approved Income Payment Plan or as the CIR may allow by an order in writing.
Approved Annuity Plan under Voluntary Pension System Rules, 2005
 Consideration received by a person for vacating the possession of a
This amount is taxable in the tax year in which it is
building or part thereof, reduced by any amount paid by the person to
received and following nine tax year in equal proportion.
acquire possession of such building or part thereof
 Deemed income u/s 111 (i.e. unexplained assets or income)
GEOGRAPHICAL SOURCE
 Any loan, advance (except advance payment for sale of goods or supply
of services), deposit for issuance of shares or gift from any person (other Dividend shall be PSI if it is:
than a banking company or financial institution) otherwise than - paid by resident company; or
- by a crossed cheque drawn on a bank or through a banking channel - remittance of after tax profit of branch of foreign company
- from a person holding a NTN operating in Pakistan;
 Subject to above clause, any amount or FMV of any property received Profit on debt shall be PSI if it is:
without consideration or received as gift, other than gift received from - paid by resident person, except where debt is used for business
relative. carried on by resident outside Pakistan through PE; or
- borne by PE in Pakistan of a non-resident person.
Royalty shall be PSI if it is:
INCOME OF AUTHORS - paid by resident person, except where royalty is payable for
any right, property or information used, or services utilized for
If time taken by an author of literary or artistic work to complete the work
business carried on by resident outside Pakistan through PE; or
exceeds 24 months, the author may elect to treat any royalty (for such work)
- borne by PE in Pakistan of a non-resident person.
received in a tax year as having been received in that tax year and preceding
Pension or Annuity shall be PSI if it is
2 tax years in equal proportions.
- paid by a resident or
- borne by PE in Pakistan of a non-resident person.
ADMISSIBLE DEDUCTIONS Technical fee / Fee for offshore digital services shall be PSI if it is;
- paid by a resident person, except where the fee is payable for
 In computing IFOS, a deduction shall be allowed for any expenditure paid
services utilized in a business carried on by the resident outside
by the person in the year to derive IFOS.
Pakistan through PE; or
 Deduction for capital expenditure (having normal useful life of more - borne by PE in Pakistan of a non-resident person.
than 1 year) is not allowed except in case of income from lease of Rental income shall be PSI if it is derived from
building together with plant or machinery, a deduction is allowed for: - lease of immovable property in Pakistan whether improved or
- Depreciation of plant, machinery or building used to derive IFOS; & not; or
- Initial allowance of plant or machinery used to derive IFOS. - any other interest in or over immovable property, including a
 Incase of profit on debt taxable under IFOS, a deduction is allowed for right to explore for, or exploit, natural resources in Pakistan.
any Zakat paid at the time the profit is paid to the person under Zakat
and Ushr Ordinance, 1980 TREATMENT OF LOSSES
 Deduction under IFOS is not allowed to the extent such expenditure is
deductible under another head of income.  Loss under any head of income can be set off against IFOS.
 Section 21 (Deductions not allowed in computing IFB) shall also apply in  Loss under IFOS can be set-off against income of any other
determining the deductions allowed under IFOS. head except salary.
 Loss under IFOS cannot be carried forward.
For your valuable feedback, any update, error or query, kindly let
me know at [email protected]
 Compiled by: Murtaza Quaid

EXEMPT FOREIGN SOURCE INCOME

EXEMPTION IN RESPECT OF “FOREIGN SOURCE INCOME”

Section
Exemption Eligibility Conditions
Ref.

 Foreign income tax in respect of such salary is paid.

 A resident individual shall be treated as having paid foreign income tax in respect of
Resident foreign-source salary if
102 Foreign source salary
individuals - tax has been withheld from the salary by the individual‘s employer and
- paid to the revenue authority of the foreign country in which the employment
was exercised.

 Person is a resident individual solely by reason of the individual‘s employment.

Short-term  Person is present in Pakistan for a period or periods not exceeding 3 years.
50 Foreign-source income resident  Such foreign-source income is not brought into or received in Pakistan by the person.
individuals  Exemption shall not apply to any income derived from a business of the person
established in Pakistan.

Foreign-source income
Returning
 in the tax year in which  Foreign source income is derived by a citizen of Pakistan in a tax year.
51(1) expatriates
the individual became a  Such person was not a resident individual in any of the four tax years preceding the
(Citizen of
resident individual and tax year in which the individual became a resident
Pakistan)
 in the following tax year.

 Citizen of Pakistan
Foreign source salary (Salary Citizen of
51(2) - leaves Pakistan during a tax year and
earned outside Pakistan) Pakistan
- remains abroad during that tax year.

DEDUCTIBLE ALLOWANCE
DEDUCTIBLE ALLOWANCE

Deductible allowance Eligibility Conditions

Amount of Zakat paid by the person in a tax year Any person Zakat is paid by the person in a tax year under the Zakat and Ushr Ordinance, 1980.

Amount of Workers‘ Welfare Fund paid by the Any person Workers‘ Welfare Fund is paid by the person in tax year under Workers‘ Welfare
person in a tax year Fund Ordinance, 1971 or any law relating to the Workers’ Welfare Fund enacted by
Provinces after the 18th Constitutional Amendment Act, 2010.
However, No deductible allowance in respect of WWF paid to the Provinces by a
trans-provincial establishment.

Amount of Workers‘ Participation Fund paid by Any person Workers‘ Participation Fund paid by the person in a tax year under Companies
the person in a tax year Profit (Workers‘ Participation) Act, 1968 or under any law relating to the Workers’
Profit Participation Fund enacted by Provinces after the 18th Constitutional
Amendment Act, 2010.
However, No deductible allowance in respect of WPPF paid to the province by a
trans-provincial establishment.

Deductible allowance for education expense Individual  Tuition fee is paid by the individual in a tax year.
shall be allowed at lower of:  Taxable income of the individual is less than Rs. 1.5 million.
 5% of the total tuition fee paid by the  Deductible allowance for education expenses shall be allowed against the tax
individual in the year; liability of either of the parents making payment of the fee on furnishing
 25% of taxable income for the year; and - national tax number (NTN) or
 an amount computed by multiplying 60,000 - name of the educational institution.
with number of children of the individual.  Unutilized allowance shall not be carried forward to a subsequent tax year.

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 REDUCTION IN TAX LAIBILITY AND TAX CREDITS
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1. REDUCTION IN TAX LIABILITY – PART III OF 2nd SCHEDULE
Title Reduction Additional Condition

1. Full time teacher or a researcher, is employed in

 a non-profit education or research institution duly recognized by HEC,
 a Board of Education or
Full time teacher or 25% of tax payable on income  a University recognized by the Higher Education Commission,
researcher from salary  including government research institution
2. This clause shall not apply to teachers of medical profession
 who derive income from private medical practice or
 who receive share of consideration received from patients.

Tax payable on yield or profit on investment in

Profit on investment in - Bahbood Savings Certificate or
Excess of 5% of tax payable on
Bahbood Savings - Pensioners Benefit Account or
such yield or profit
Certificate etc. - Shuhada Family Welfare Account
shall not exceed 5% of such profit.

Tax payable by women  This benefit is not available to a business that is formed by the transfer or
enterprises on profit and gains reconstitution or reconstruction or splitting up of an existing business.
Women Enterprises of business taxable under the  Women enterprise means a startup established on or after 1st July 2021 as sole
head “Income from Business” proprietorship concern owned by a woman or an AOP all of whose members are
shall be reduced by 25%. women or a company whose 100% shareholding is held or owned by women.

2. FOREIGN TAX CREDIT (FTC) – SEC. 103

Calculation  FTC is available to resident person having FSI chargeable to tax on which FIT is paid.
FTC is lower of:  Where taxpayer has FSI under more than one head, FTC shall apply separately to each head.
 Foreign income tax paid; or  Unutilized FTC shall not be refunded, carried back to the preceding tax year, or carried forward to
 Tax liability x Net foreign source the following year.
Taxable income income (FSI)  FTC shall be allowed only if the FIT is paid within 2 years after the end of the tax year in which the
FSI to which the tax relates was derived by the resident taxpayer.

FOREIGN INCOME TAX (FIT)

A foreign levy is a foreign income tax if the following conditions are satisfied, namely:
 the levy is a tax;
 the tax is substantially equivalent to the income tax imposed by ITO-2001;
 the levy is a compulsory payment pursuant to the authority of the foreign country to levy taxes;
 the levy is not penalty, fine, interest or similar obligation;
 the levy is not a tax to the extent that a person subject to the levy receives or is entitled to receive,
directly or indirectly, a specific economic benefit from the foreign country in exchange for the payment pursuant to the levy.

3. TAX CREDITS – SECTION 61 to 65G (Continued)

Title Tax credit Eligibility Additional Condition

Tax credit shall be allowed at average rate of Donation through crossed cheque or any property given to:
tax on lower of:  any board of education or any university in Pakistan established by,
 Actual donation or FMV of property or under, a Federal or Provincial law;
Charitable Every
 For Ind. & AOP, 30% of taxable income  any educational institution, hospital or relief fund established or run
Donation person
(15% where donor & donee are associate) in Pakistan by Federal / Provincial / Local Government; or
 For Company, 20% of taxable income  any NPO or any person eligible for tax credit u/s 100C; or
(10% where donor & donee are associate)  entities, organizations and funds mentioned in the 13th Sch.

 Contribution or premium is paid approved pension fund under the

Tax credit shall be allowed at average rate of Voluntary Pension System Rules, 2005.
Contribution tax on lower of:  The transfer by the members of approved employment pension or
Eligible
to approved annuity scheme or approved occupational saving scheme of their
 Contribution/premium person
pension fund existing balance to their individual pension accounts maintained
 20% of taxable income of current year with one or more pension fund managers shall not qualify for this
tax credit.

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 Compiled by: Murtaza Quaid

REDUCTION IN TAX LAIBILITY AND TAX CREDITS

3. TAX CREDITS – SECTION 61 to 65G (Continued)

Title Tax credit Eligibility Additional Condition

 Company is incorporated and manufacturing unit is setup

between 1st July 2015 and 30th June 2019 both days inclusive.
 Company employs more than 50 employees in a tax year
Tax credit (for 10 years) registered with EOBI and Employees Social Security Institutions
shall be allowed at lower of: of Provincial Governments
 2% of tax payable for  Manufacturing unit is managed by a company formed for
Employment every 50 employees operating such manufacturing unit and registered under
generation by registered with EOBI Company Companies Ordinance 1984 with registered office in Pakistan.
manufacturers and Employees Social  Manufacturing unit is not established by splitting up or
Security Institutions of reconstruction/ reconstitution of an undertaking already in
Provincial Governments existence or by transfer of machinery / plant from undertaking
 10% of tax payable. established in Pakistan at any time before 1st July 2015.
 Manufacturing unit shall be treated to have been setup on the
date on which manufacturing unit is ready to go into
production, whether trial production or commercial production

Tax credit shall be allowed

for a tax year in which point
of sale machine is installed,
integrated and configured Any person who is required
with the FBR’s computerized  Point of sale machine means a machine meant for processing
to integrate with FBR’s
Point of Sale system at lower of: and recording the sale transactions for goods or services, either
computerized system for
(POS) Machine in cash or through credit and debit cards or online payments in
 Amount actually real time reporting of sale or
an internet enabled environment.
invested in purchase of receipt
POS machine; or
 Rs. 150,000 per
machine.

Tax credit shall be available subject to following conditions (where

applicable):
 Return has been filed;
100% Tax credit against tax
Persons engaged in coal  Withholding tax statements for the relevant tax year have been
Coal mining payable including minimum
mining projects in Sindh filed in respect of those provisions of ITO-2001, where the
projects in tax, alternate corporate tax
supplying coal exclusively to person is a withholding agent; and
Sindh and final taxes for the
power generation projects;  Sales tax returns for the tax periods corresponding to relevant
period
tax year have been filed if the person is required to file Sales
Tax Return under any of the Federal or Provincial sales tax
laws.

Tax credit shall be available subject to following conditions (where

100% Tax credit against tax applicable):
Startup payable including minimum  Return has been filed;
certified by the tax, alternate corporate tax  Withholding tax statements for the relevant tax year have been
and final taxes for the tax Startup certified by the
Pakistan filed in respect of those provisions of ITO-2001, where the
year in which startup is Pakistan Software Export
Software person is a withholding agent; and
certified by PSEB and in next Board (PSEB)
Export Board  Sales tax returns for the tax periods corresponding to relevant
(PSEB) following 2 tax years tax year have been filed if the person is required to file Sales
Tax Return under any of the Federal or Provincial sales tax
laws.

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 TAX CREDITS UNDER SECTION 65B, 65D & 65E Compiled by: Murtaza Quaid

SECTION 65G – TAX CREDIT FOR DEFINITIONS

Relevant aspects SECTION 65E - TAX CREDIT FOR INDUSTRIAL UNDERTAKINGS
SECTION 65B – TAX CREDIT FOR INVESTMENT SPECIFIED INDUSTRIAL
of tax credits ESTABLISHED BEFORE 1ST JULY, 2011 NEW EQUITY
UNDERTAKINGS

Investment by company in the Investment by company setup in “New equity” means equity raised through fresh issue of
purchase of plant and machinery for Pakistan before 1st July 2011, in the shares against cash by the company and shall not include
Investment by company in the purchase and installation of plant loans obtained from shareholders or directors.
extension, expansion, balancing, purchase of plant and machinery for
Type of and machinery for an industrial undertaking for, Investment by an eligible taxpayers However, short term loans and finances obtained from
modernization and replacement of balancing, modernization and
Investment i. expansion of plant and machinery already installed therein; or in the eligible investment amount. banking companies or non-banking financial institutions for
plant and machinery, already replacement of plant and machinery,
ii. undertaking a new project. the purposes of meeting working capital requirements shall
installed therein, in an industrial already installed therein, in an
undertaking. industrial undertaking. not disqualify the taxpayer from claiming tax credit.

i. Investment is made through SETTING UP OF INDUSTRIAL UNDERTAKING

i. Investment in purchase of plant 100% new equity. Industrial undertaking shall be treated to have been setup
and machinery for extension, ii. Investment in purchase of plant on the date on which the industrial undertaking is ready to
expansion, balancing, and machinery for, balancing, go into production, whether trial production or commercial
i. Company is setup in Pakistan before 1st July 2011
modernization and replacement modernization and replacement production.
of the plant and machinery, of the plant and machinery, ii. Investment is made with at least 70% new equity raised
i. The taxpayer must be an
already installed therein, in an already installed therein, in an through issuance of new shares for cash consideration ELIGIBLE PERSON
“Eligible person”.
Conditions industrial undertaking. industrial undertaking. iii. Plant and machinery is installed at any time between 1st July
iii. Industrial undertaking is set up in ii. The investment must be an Eligible person means
ii. Industrial undertaking is set up in 2011 and 30th June 2021.
Pakistan and owned by company. “Eligible Investment” a) Green field industrial undertaking engaged in,
Pakistan and owned by company. iv. Business must be continued in subsequent 5 years after the
iv. The company is setup in Pakistan i. the manufacture of goods or materials or the
iii. Plant and machinery is credit has been allowed.
before 1st July 2011. subjection of goods or materials to any process
purchased and installed between v. Plant and machinery is which substantially changes their original
1st July 2010 and 30th June 2019. purchased and installed between condition; or
1st July 2011 and 30th June 2016. ii. ship building.
The person is incorporated between 30th Jun 2019 and
Tax credit shall be allowed against Tax credit shall be allowed against Tax credit shall be allowed against 30th June 2024 and the person is not formed by the
5 year tax credit of the tax payable by such industrial undertaking
Tax credit tax payable, including minimum tax tax payable, including minimum tax tax payable, including minimum splitting up or reconstitution of an undertaking already
(including on account of minimum tax and final tax payable)
and final taxes payable. and final taxes payable tax and final taxes payable in existence or by transfer of machinery, plant or
Separate accounts of expansion or new project is maintained building from an undertaking established in Pakistan
prior to commencement of the new business and is not
Tax payable by Equity raised through issuance
10% of the amount invested in the Industrial x of new shares for cash consideration part of an expansion project; and
20% of the amount invested in the
Amount of Tax year in which plant and machinery is undertaking Total investment in setting up new 25% of the eligible investment b) Industrial undertaking set up by 30 Jun 2023 & engaged
year in which plant and machinery is
credit installed. industrial undertaking amount. in the manufacture of plant, machinery, equipment and
installed.
(5% for tax year 2019) Separate accounts of expansion or new project is not maintained items with dedicated use (no multiple uses) for generation
Tax payable x New equity . of renewable energy from sources like solar and wind, for a
Total equity including new equity period of 5 years beginning from the date such industrial
undertaking is set up.
Tax credit shall be allowed in the Tax credit shall be allowed in the From the date of
Start of tax
credit
year in which the plant and year in which the plant and  Setting up; or whichever In the year of investment ELIGIBLE INVESTMENT
machinery is installed. machinery is installed.  Commencement of commercial production is later
“Eligible investment” means investment made in purchase
C/f of unutilized and installation of new machinery, buildings, equipment,
For following 2 tax years For following 5 tax years N/A For following 2 tax years
tax credit hardware and software, except self-created software and
used capital goods.
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 FINAL TAX REGIME – SEPARATE TAX REGIME
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DIVIDEND

Dividend includes:
a) any distribution by a company of accumulated profits to its shareholders, whether capitalized or not, if such
distribution entails the release by the company to its shareholders of all or any part of the assets including money of
the company;
b) any distribution by a company, to its shareholders of debentures, debenture-stock or deposit certificate in any form,
whether with or without profit, to the extent to which the company possesses accumulated profits whether
capitalized or not;
c) any distribution made to the shareholders of a company on its liquidation, to the extent to which the distribution is
attributable to the accumulated profits of the company immediately before its liquidation, whether capitalized or not
d) any distribution by a company to its shareholders on the reduction of its capital, to the extent to which the company
possesses accumulated profits, whether such accumulated profits have been capitalized or not;
e) any payment by a private company as defined in the Companies Ordinance, 1984 or trust of any sum (whether as
representing a part of the assets of the company or trust, or otherwise) by way of advance or loan to a shareholder
or any payment by any such company or trust on behalf, or for the individual benefit, of any such shareholder, to the
Definition
extent to which the company or trust, in either case, possesses accumulated profits; or
[Section 2(19)]
[Sec. 170(1A) - Where any advance or loan, to which section 2(19)(e) applies, is repaid by a taxpayer, he shall be
entitled to a refund of tax, if any, paid by him as a result of such advance or loan having been treated as dividend]
f) remittance of after tax profit of a branch of a foreign company operating in Pakistan;
but does not include —
(i) a distribution made in accordance with sub-clause (c) or (d) in respect of any share for full cash consideration, or
redemption of debentures or debenture stock, where the holder of the share or debenture is not entitled in the
event of liquidation to participate in the surplus assets;
(ii) any advance or loan made to a shareholder by a company in the ordinary course of its business, where the lending
of money is a substantial part of the business of the company;
(iii) any dividend paid by a company which is set off by the company against the whole or any part of any sum
previously paid by it and treated as a dividend within the meaning of sub-clause (e) to the extent to which it is so
set off; and
(iv) remittance of after tax profit by a branch of Petroleum Exploration and Production (E&P) foreign company,
operating in Pakistan.

Chargeability [Sec. 5] Final Tax = Gross amount of dividend x tax rates specified in Division III, P-I of 1st Sch. (General rate = 15%)

A dividend shall be Pakistan-source income if it is:

PSI v/s FSI Criteria
a) paid by a resident company; or
[Sec. 101(6)]
b) remittance of after tax profit of a branch of a foreign company operating in Pakistan.

WHT agent Every person making payment of dividend

WHT tax on cash and
specie dividend WHT Tax rates Division I, P-III of 1st Sch.
[Sec. 150]
Base amount Gross amount of dividend

(103A) Any income derived from inter-corporate dividend within the group companies entitled to group taxation u/s 59AA
subject to the condition that return of the group has been filed for the tax year.
Exempt Dividend WHT on dividend u/s 150 shall not apply on inter-corporate dividend within the group companies entitled to group
P-1 of 2nd Sch. taxation u/s 59AA [Clause (11B) of P-IV of 2nd Sch.]

(105B) Any dividend from a corporate agricultural enterprise, distributed out of its income from agriculture.

RETURN ON INVESTMENTS IN SUKUK (from a Special Purpose Vehicle or a company)

Chargeability [Sec. 5AA] Final Tax = Gross amount of return investment in Sukuk X Tax rates specified in Division IIIB, P-I of 1st Sch.

WHT agent Special Purpose Vehicle or Company

WHT on return on
investment in Sukuk WHT Tax rates Division IB, P-III of 1st Sch.
[Sec. 151(1A)]
Base amount Gross amount of return on investment in Sukuk

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 FINAL TAX REGIME – SEPARATE TAX REGIME
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PROFIT ON DEBT

“Profit on a debt” whether payable or receivable, means

Definition (a) any profit, yield, interest, discount, premium or other amount , owing under a debt, other than a return of capital; or
[Section 2(46)] (b) any service fee or other charge in respect of a debt, including any fee or charge incurred in respect of a credit facility which has
not been utilized.

Profit on debt

Tax Payer is resident person Tax Payer is non-resident person

Taxable under NTR

PoD is not subject PoD is subject to WHT u/s 151
to WHT u/s 151

Taxable under NTR

Taxpayer is Ind / AOP Taxpayer is
Company
Chargeability
PoD ≤ Rs. 5M Taxable under
[Section 7,
Section 151 & NTR
Taxable as FTR (STR) @ 15%
Section 152] (Gross PoD x tax rate as per
Div. IIIA, P-1 of 1st Sch.)

PoD > Rs. 5M

Taxable under MTR

Profit on Debt – FTR (STR) - [Section 7] Profit on Debt – MTR - [Section 151]

Applicable where; Applicable where;

 Payment of PoD is subject to withholding tax u/s 151;  Payment of PoD is subject to withholding tax u/s 151;
 Taxpayer is resident Ind / AOPs; &  Taxpayer is resident Ind / AOPs; &
 Profit on debt ≤ Rs. 5,000,000  Profit on debt > Rs. 5,000,000

Profit on debt shall be Pakistan-source income if it is:

PSI v/s FSI
a) paid by a resident person, except where the profit is payable in respect of any debt used for business carried on by the resident
Criteria
outside Pakistan through a PE; or
[Sec. 101(7)]
b) borne by a PE in Pakistan of a non-resident person.

Recipient of PoD
Payer of PoD (WHT Agent) Nature of debt WHT rate Tax
(Taxpayer)

Person paying yield on Any resident Account, deposit or a certificate under the
account, deposit or a person National Savings Scheme or Post Office Savings
certificate under the Account
National Savings Scheme or
WHT on Profit on Post Office Savings Account
debt paid to
Banking company or Any resident Debt, being an account or deposit maintained 15% of
resident person
financial institution person with the company or institution Profit on Debt
[Sec .151]
Federal, Provincial or Local Any resident Any security (Except 1 above) issued by such (Net of Zakat)
Government person Government or authority

Banking company, financial Any resident Any bond, certificate, debenture, security or
institution, company as person other than instrument of any kind (other than a loan
defined in CO-1983, body financial agreement between a borrower and a banking
corporate, or finance society institution company or a development finance institution)

WHT on Profit on Non-resident

Every person Any debt 20% of gross amount
debt paid to non- having PE in Pak
resident person Non-resident not
[Sec. 152] Every person Any debt 10% of gross amount
having PE in Pak

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 FINAL TAX REGIME – SEPARATE TAX REGIME
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PROFIT ON DEBT (Continued)

Any profit received by a non-resident person on a security issued by a resident person shall be exempt from tax where
(a) the persons are not associates;
Exempt profit on
(b) the security was widely issued by the resident person outside Pakistan for the purposes of raising a loan outside Pakistan for
debt
use in a business carried on by the person in Pakistan;
[Sec. 46]
(c) the profit was paid outside Pakistan; and
(d) the security is approved by the FBR for the purposes of this section.

(75) Any profit on debt and capital gains derived by any agency of foreign Government or any non-resident person approved by the
Federal Government for the purpose of this clause from debt and debt instruments approved by the Federal Government.

(78) Any profit on debt derived from foreign currency accounts held with authorised banks in Pakistan, or certificate of investment
issued by investment banks in accordance with Foreign Currency Accounts Scheme introduced by the State Bank of Pakistan, by
Exempt profit on
non-resident individuals, non-resident association of persons and non-resident companies. [No WHT tax u/c 5AC of Part II of 2nd
debt
Schedule]
[P-1 of 2nd Sch.]
(79) Any profit on debt derived from a rupee account held with a scheduled bank in Pakistan by a non-resident individual holding a
Pakistan Origin Card (POC) or National ID Card for Overseas Pakistanis (NICOP) or Computerized National ID Card (CNIC), where
the deposits in the said account are made exclusively from foreign exchange remitted into the said account. [No WHT tax u/c 5AC
of Part II of 2nd Schedule]

(5A) The rate of tax to be deducted u/s 152 in respect of payments from profit on debt payable to a non-resident person having no
permanent establishment in Pakistan, shall be 10% of the gross amount paid.
However, tax deducted on profit on debt from debt instruments, Government securities including treasury bills and Pakistan
Investment Bonds shall be final tax on profit on debt payable to a non-resident person having no permanent establishment in
Pakistan & the investments are exclusively made through a Special Rupee Convertible Account maintained with a Bank in Pak.

(5AA) The rate of tax to be deducted u/s 152 in respect of payments to a non-resident individual, on account of profit on debt
earned from a debt instrument, whether conventional or shariah compliant, issued by the Federal Govt under the Public Debt Act,
1944 and purchased exclusively through a bank account maintained abroad, a non-resident Rupee account repatriable (NRAR) or a
Reduction in tax foreign currency account maintained with a banking company in Pakistan shall be 10% of the gross amount paid.
rates for profit
on debt Provided that tax deducted on such profit on debt shall be final tax.
[P-2, 2nd Sch.]
(5AB) The rate of tax to be deducted u/s 151 shall be 10% from the profit on debt from a debt instrument, whether conventional or
Shariah compliant, issued by the Federal Govt under the Public Debt Act, 1944 or its wholly owned special purpose company,
purchased by a resident citizen of Pakistan who has already declared foreign assets to the FBR through a Foreign Currency Value
Account (FCVA) maintained with authorized banks in Pakistan under the foreign exchange regulation issued by the SBP.
Provided that the tax so deducted shall be the final tax.

(5AC) The rate of tax to be deducted shall be 0% of the gross amount of profit on debt paid, covered under clauses (78) and (79) of
Part I of the Second Schedule.

Reduction in tax
liability for profit (6) The tax payable under IFOS, in respect of any amount paid as yield or profit on investment in Bahbood Savings Certificate or
on debt Pensioners Benefit Account and Shuhada Family Welfare Account shall not exceed 5% of such profit.
[P-3, 2nd Sch.]

Exemption from (11C) Tax u/s 151 shall not be deducted on payment of intercorporate profit on debt within the group companies entitled to group
withholding tax taxation under section 59AA subject to the condition that the return of the group has been filed for the latest completed tax year.
for profit on debt
[P-4, 2nd Sch.] (36A) Tax u/s 151 shall not be deducted in respect of any amount paid as yield or profit on investment in Bahbood Savings
Certificate or Pensioner’s Benefit Account and Shuhada Family Welfare Account.

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 FINAL TAX REGIME – SEPARATE TAX REGIME
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PAKISTAN SOURCE ROYALTY OF NON-RESIDENT PERSON NOT HAVING PERMANENT ESTABLISHMENT IN PAKISTAN

“Royalty” means any amount paid or payable, however described or computed, whether periodical or a lump sum, as
consideration for:
(a) the use of, or right to use any patent, invention, design or model, secret formula or process, trademark or other like
property or right;
(b) the use of, or right to use any copyright of a literary, artistic or scientific work, including films or video tapes for use in
connection with television or tapes in connection with radio broadcasting, but shall not include consideration for the
Definition sale, distribution or exhibition of cinematograph films;
[Section 2(54)] (c) the receipt of, or right to receive, any visual images or sounds, or both, transmitted by satellite, cable, optic fiber or
similar technology in connection with television, radio or internet broadcasting;
(d) the supply of any technical, industrial, commercial or scientific knowledge, experience or skill;
(e) the use of or right to use any industrial, commercial or scientific equipment;
(f) the supply of any assistance that is ancillary and subsidiary to, and is furnished as a means of enabling the
application or enjoyment of, any such property or right as mentioned in sub-clauses (a) through (e); and
(g) the disposal of any property or right referred to in sub-clauses (a) through (e);

Chargeability [Sec. 6] Final Tax = Gross amount of Royalty x 15% (Division IV, P-I of 1st Sch.)

A royalty shall be Pakistan-source income if it is:

PSI v/s FSI Criteria a) paid by a resident person, except where the royalty is payable in respect of any right, property, or information used,
[Sec. 101(8)] or services utilized for the purposes of a business carried on by the resident outside Pakistan through a PE; or
b) borne by a PE in Pakistan of a non-resident person.

WHT on dividend WHT agent Every person paying royalty to non-resident person not having PE in Pakistan
[Sec. 152(1)] WHT Tax Gross amount of royalty x 15% [Division IV, P-I of 1st Sch.]

PAKISTAN SOURCE FEE FOR TECHNICAL SERVICES (FTS) OF NON-RESIDENT PERSON NOT HAVING PERMANENT ESTABLISHMENT IN PAKISTAN

“Fee for technical services” means any consideration, whether periodical or lump sum, for the rendering of any
managerial, technical or consultancy services including the services of technical or other personnel, but does not include
Definition
(a) consideration for services rendered in relation to a construction, assembly or like project undertaken by the
[Section 2(23)]
recipient; or
(b) consideration which would be income of the recipient chargeable under the head “Salary”.

Chargeability [Sec. 6] Final Tax = Gross amount of FTS x 15% (Division IV, P-I of 1st Sch.)

A technical fee shall be Pakistan-source income if it is

PSI v/s FSI Criteria (a) paid by a resident person, except where the fee is payable in respect of services utilized in a business carried on by
[Sec. 101(12)] the resident outside Pakistan through a PE; or
(b) borne by a PE in Pakistan of a non-resident person.

WHT on dividend WHT agent Every person paying FTS to non-resident person not having PE in Pakistan
[Sec. 152(1)] WHT Tax Gross amount of FTS x 15% [Division IV, P-I of 1st Sch.]

PAKISTAN SOURCE FEE FOR OFFSHORE DIGITAL SERVICES OF NON-RESIDENT PERSON NOT HAVING PERMANENT ESTABLISHMENT IN PAKISTAN

“Fee for offshore digital services” means any consideration for providing or rendering services by a non-resident person
for online advertising including digital advertising space, designing, creating, hosting or maintenance of websites, digital or
Definition cyber space for websites, advertising, e-mails, online computing, blogs, online content and online data, providing any
[Section 2(22B)] facility or service for uploading, storing or distribution of digital content including digital text, digital audio or digital video,
online collection or processing of data related to users in Pakistan, any facility for online sale of goods or services or any
other online facility.

Chargeability [Sec. 6] Final Tax = Gross amount of fee for offshore digital services X 10% (Division IV, P-I of 1st Sch.)

A fee for offshore digital services shall be Pakistan- source income, if it is –

PSI v/s FSI Criteria (a) paid by a resident person, except where the fee is payable in respect of services utilised in a business carried on by
[Sec. 101(12A)] the resident outside Pakistan through a PE; or
(b) borne by a PE in Pakistan of a non-resident person.

Every banking company or financial institution remitting fee for offshore digital
WHT on dividend WHT agent services outside Pakistan to a non-resident person not having PE in Pakistan, on behalf
[Sec. 152(1C)] of any resident or a PE of a non-resident in Pakistan

WHT Tax Gross amount of fee for offshore digital services x 10% (Division IV, P-I of 1st Sch.)

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 FINAL TAX REGIME – SEPARATE TAX REGIME
Compiled by: Murtaza Quaid
TAX ON SHIPPING INCOME OF RESIDENT PERSON [Section 7A]

Tax payer Resident person

Income Business of shipping

Situation Tax

In case of ship and all floating crafts including tugs, dredgers, survey
Tonnage tax = 1 US $ per gross registered tonnage per
vessels and other specialized craft purchased or bare-boat
annum
chartered and flying Pakistan flag

Chargeability In case of ships, vessels and all floating crafts including tugs, Tonnage tax = Lower of:
[FTR] dredgers, survey vessels and other specialized craft not registered - 15 US cents per ton of gross registered tonnage per
in Pakistan and hired under any charter other than bare-boat chartered voyage; or
charter - 1 US $ per ton of gross registered tonnage per annum

In case of Pakistan resident ship owning company,

Tonnage tax of an amount equivalent to 75 US cents per
 registered with SECP after 15th Nov 2019; and
ton of gross registered tonnage per annum
 having its own sea worthy vessel registered under Pakistan Flag

 Equivalent amount means the rupee equivalent of a US dollar according to the exchange rate prevalent on the
- 1st December in the case of a company and
- 1st September in other cases in the relevant assessment year.
 This section shall not apply after 30th June, 2030.

TAX ON SHIPPING INCOME OF A NON-RESIDENT PERSON [Section 7]

Tax payer Non-resident person as owner or charter of ship

Income Business of operating ships

 8% x Gross amount received or receivable (whether in or out of Pak) for the carriage of passengers, livestock, mail or goods
Chargeability embarked in Pak; and
[FTR]
 8% x Gross amount received or receivable in Pak for the carriage of passengers, livestock, mail or goods embarked outside Pak.

Section 143: Procedure to discharge tax u/s 7

 Master of the ship shall furnish to the Commissioner (CIR) a return showing the gross amount before the departure of a ship owned or chartered by a
non-resident person from any port in Pakistan.
 The CIR shall after calling for such particulars, accounts or documents as he may require, determine the amount of tax due in respect of the ship and
notify the master, in writing, of the amount payable. Master of a ship shall be liable to pay the tax notified.
 Where CIR is satisfied that master of a ship or non-resident owner or charterer of the ship is unable to furnish the return before departure of the
ship, then he may allow the return to be furnished within 30 days of departure of the ship provided the non-resident owner or charterer has made
satisfactory arrangements for the payment of tax due in respect of the ship.
 Collector of Customs or other authorised officer shall not grant a port clearance for a ship owned or chartered by a non-resident person until he is
satisfied that the tax due in respect of the ship has been paid or that arrangements for its payment have been made to the satisfaction of the CIR.

TAX ON AIR TRANSPORT INCOME OF A NON-RESIDENT PERSON [Section 7]

Tax payer Non-resident person as owner or charter of aircrafts

Income Business of operating aircrafts

 3% x Gross amount received or receivable (whether in or out of Pak) for the carriage of passengers, livestock, mail or goods
Chargeability embarked in Pak; and
[FTR]
 3% x Gross amount received or receivable in Pak for the carriage of passengers, livestock, mail or goods embarked outside Pak.

Section 144: Procedure to discharge tax u/s 7

 Non-resident owner / charterer of an aircraft or its authorized agent shall furnish a quarterly return to the CIR within 45 days of the end of each
quarter of the financial year.
 The CIR shall after calling for such particulars, accounts or documents as he may require, determine the amount of tax due for the quarter and notify
the non-resident person, in writing, of the amount payable.
 The non-resident person shall be liable to pay the tax notified within the time specified in the notice.
 Where the tax is not paid within 3 months of service of the notice, then clearance of the said aircraft may be refused from any airport in Pakistan.

IQ School of Finance For your valuable feedback, any update, error or

query, kindly let me know at [email protected]
 FINAL TAX REGIME – SEPARATE TAX REGIME
Compiled by: Murtaza Quaid
TAX ON DEEMED INCOME [Section 7E]

Tax payer Resident person

Income Deemed Income  5% of the Fair Market Value of the Capital Assets

Final Tax 20% of the Deemed Income

“Capital Asset” means property of any kind held by a person, whether or not connected with a business, but does not include:
 any stock-in-trade, consumable stores or raw materials held for the purpose of business;
Capital Asset  any shares, stocks or securities;
 any property with respect to which the person is entitled to a depreciation or amortization deduction; or
 any movable asset not mentioned in clauses (i), (ii) or (iii).

a) One capital asset owned by the resident person;

b) Self-owned business premises from where the business is carried out by the persons appearing on the active taxpayers’ list at
any time during the year;
c) Self-owned agriculture land where agriculture activity is carried out by person excluding farmhouse and land annexed
thereto;
d) Capital asset allotted to –
- a Shaheed or dependants of a shaheed belonging to Pakistan Armed Forces;
- a person or dependants of the person who dies while in the service of Pakistan armed forces or Federal or provincial
government;
Following asset
- a war wounded person while in service of Pakistan armed forces or Federal or provincial government; and
will not be
- an ex-serviceman and serving personal of armed forces or ex-employees or serving personnel of Federal and provincial
considered for
governments, being original allottees of the capital asset duly certified by the allotment authority;
the purpose of
e) Any property from which income is chargeable to tax and tax leviable is paid thereon;
deemed income
f) Capital asset in the first tax year of acquisition where tax under section 236K has been paid;
g) Where the fair market value of the capital assets in aggregate excluding the capital assets mentioned in clauses (a), (b), (c), (d),
(e) and (f) does not exceed Rs. 25 million;
h) Capital assets owned by a provincial government or a local government; or
i) Capital assets owned by a local authority, a development authority, builders and developers for land development and
construction, subject to the condition that such persons are registered with Directorate General of Designated Non-Financial
Businesses and Professions.
However, exclusions mentioned at clauses (a), (e), (f) and (g) shall not apply in case of a person not appearing in the active
taxpayers’ list, other than persons covered in Rule 2 of 10th Schedule.

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query, kindly let me know at [email protected]
 FINAL TAX REGIME – PRESUMPTIVE TAX REGIME
Compiled by: Murtaza Quaid

EXPORTS OF SERVICES - SECTION 154A

WHT Agent & Time of
Transaction WHT Tax Tax Regime
Withholding

Exports of computer software or IT services or IT enabled services where the 0.25% of

exporter is registered with and duly certified by the Pakistan Software Export Board proceeds
FINAL TAX REGIME**
Services or technical services rendered outside Pakistan or exported from Pakistan
Opt out of FTR
Every authorized Royalty, commission or fees derived by a resident company from a foreign However, FTR shall not
dealer in foreign enterprise in consideration for the use outside Pakistan of any patent, invention, apply to a person who
exchange, at the time model, design, secret process or formula or similar property right, or information opts not to be subject
of realization of concerning industrial, commercial or scientific knowledge, experience or skill made 1% of to final taxation.
foreign exchange available or provided to such enterprise proceeds Provided that option
proceeds
Construction contracts executed outside Pakistan shall be exercised every
year at the time of filing
Foreign commission due to an indenting commission agent of return

Other services rendered outside Pakistan as notified by the FBR from time to time

**The tax deductible shall be a final tax on

Definitions the income arising from above transactions,
upon fulfilment of the following conditions:
 Information Technology (IT) services include but not limited to software development, a) Return has been filed;
software maintenance, system integration, web design, web development, web hosting b) Withholding tax statements for the
and network design. [Section 2(30AD)] relevant tax year have been filed;
 IT enabled services include but not limited to inbound or outbound call centres, medical c) Sales tax returns under Federal or
transcription, remote monitoring, graphics design, accounting services, Human Resource Provincial laws have been filed, if
(HR) services, telemedicine centers, data entry operations, cloud computing services, data required under the law; and
storage services, locally produced television programs and insurance claims processing. d) No credit for foreign taxes paid shall be
[Section 2(30AE)] allowed.

TAXATION OF BONUS [Section 236Z]

Tax Implications for Company issuing Bonus Shares Tax Implications for Shareholder receiving Bonus Shares

 Company shall withhold 10% of the bonus shares to be issued.  Issuance of bonus shares shall be deemed to be the
 Company shall collects from the shareholder, tax equal to 10% of the value of the bonus income of the shareholder
shares, determined on the basis of day-end price on the first day of closure of books.  Tax paid shall be final tax on the income of the
 Company shall deposit tax at the rate of 10% of the value of bonus shares within 15 days shareholder of the company arising from issuing of
of closure of books, whether or not tax has been collected from the shareholder bonus shares
 Company shall be entitled to collect and recover the tax deposited from the shareholder  Cost of old share shall remain unchangesd
 Company may also proceed to dispose of bonus shares withheld to the extent it has paid  Cost of bonus shares shall be the day-end price on
tax on behalf of shareholder. the first day of closure of books.

PRIZES AND WINNINGS – SECTION 156 PETROLEUM PRODUCTS - SECTION 156A

WHT Tax
WHT agent Transaction Tax Regime
rate

 Prize on a prize bond

15% Every person selling petroleum products to a petrol
 Cross-word puzzle 
pump operator shall deduct tax from the amount of
 Winnings from a raffle Final Tax commission / discount allowed to the operator @ 12%.
Every person  Lottery Regime
 Prize on winning a quiz 20%  Tax deductible shall be final tax on the income arising
 Prize offered by companies for from the sale of petroleum products.
promotion of sale

Where a prize is not in cash, the person while giving the prize shall collect tax on the fair
market value of the prize.

For your valuable feedback, any update, error or

query, kindly let me know at [email protected]
 MINIMUM TAX REGIME
Compiled by: Murtaza Quaid
EXPORT OF GOODS – SECTION 154
WHT AGENT TRANSACTION AND TIME OF WITHHOLDING WHT TAX TAX REGIME

Authorized dealer At the time of realization of foreign exchange proceeds on account of the export of 1% of export
in foreign exchange goods by an exporter proceeds

At the time of realization of the proceeds for sale of goods to exporter under
 Inland back-to-back letter of credit; or 1% of export
 Other arrangement prescribed by FBR (Circular 24 of 1999) proceeds
Banking company - SBP has allowed direct exporter an option to issue Standard Purchase Order realized by
in favor of indirect exporter under copy to his bank. indirect
- Direct exporter makes payment to indirect exporter through crossed exporter
cheque and bank deducts tax @ 1% while encashing such cheque.
MINIMUM TAX
1% of export
EPZ Authority At the time of export of goods by industrial undertaking located in EPZ REGIME
proceeds

Direct exporter and At the time of making payment for a firm contract to an indirect exporter.
Export house [Indirect exporter means a person who has a firm contract or export purchase order
1% of payment
registered under from a direct exporter for the manufacture and supply of goods to such exporter –
DTRE Rules, 2001 Rule 296(1)(h) of Custom Rules, 2001]

At the time of clearing of goods exported

1% of gross
Collector of [Circular 3 of 2009 – In case of export of goods to Afghanistan whereby goods are
value of such
Customs exported without Form-E, export proceeds are received in cash instead of inward
goods
remittance through authorized dealer in foreign exchange]

Advance tax to be paid by exporters [Section 147 (6C)] Other Relevant SRO and Circulars

The persons who required to collect or deduct withholding tax under section 154 i.e.  Circular 14 of 1993 - Advance payment received
 Every authorized dealer in foreign exchange, against future exports shall be deemed to be
 Every banking company, “export proceeds” realized and subject to tax
 Export Processing Zones Authority, deduction u/s 154.
 Every direct exporter and an export house registered under DTRE Rules and  Circular dated 4.7.1992 - Supply of goods against
 Collector of Customs international tenders are considered as export.
 will also be required to collect or deduct advance income tax at the rate of 1% of foreign  Circular dated 9.7.1992 - Tax shall be deducted at
exchange proceeds, or export proceeds, or exports or payments, as the case may be, the time of discounting of export bills, if any, by the
 in addition to withholding tax collectable or deductible under section 154, banks.
 at the time of realization of foreign exchange proceeds, or realization of proceeds on  Circular 20 of 1992 - Section 154 will not apply in
account of sale of goods, or export of goods, or at the time of making payment to an respect of exports made by those manufacturer
indirect exporter, or clearing of goods exported respectively. whose income is already exempt from tax.

PAYMENT FOR CERTAIN SERVICES – SECTION 153(2)

WHT AGENT TRANSACTION & TIME OF WHT WHT TAX SERVICE PROVIDER TAX REGIME

 Exporter At the time of making a payment in full or part including advance 1% of gross Resident person MTR
 Export payment for rendering or providing of services of stitching, dying, amount
house printing, embroidery, washing, sizing & weaving payable PE of non-resident in Pak NTR

BROKERAGE & COMMISSION – SECTION 233

PRINCIPAL (WHT AGENT) AGENT (TAXPAYER) WHT TAX RATE TAX REGIME

 Federal Govt. *Advertising agent 10%

 Provincial Govt.
 Local Govt. Life Insurance Agents where commission received is less Rs. 0.5 M per annum 8%
Min Tax
 Company
 Individual / AOP having Other cases 12%
turnover Rs. 100 M or more

If agent retains commission / brokerage from any amount remitted by him to the principal, he shall be deemed to have been paid the commission /
brokerage by the principal & the principal shall collect advance tax from the agent.

 In case *advertising agent, the principal shall deduct tax on commission amount equal to:
Amount paid to electronic or print media x 15
for advertising services excluding commission 85
 MINIMUM TAX REGIME Compiled by: Murtaza Quaid

IMPORTS – SECTION 148

WITHHOLDING TAX RATES VALUE OF GOODS means

Collector of Customs shall collect advance tax in respect of import of a) in case of goods chargeable to tax at retail price under 3rd
goods from every importer of goods on value of goods at following rates Schedule of the Sales Tax Act, 1990, the retail price of such goods
increased by sales tax payable in respect of the import and taxable
PERSON WHT Rate supply of the goods; and
b) in case of goods other than those specified in clauses (a) and (c);
Persons importing goods classified in Part I of 12th Sch 1% the value of the goods as determined under the Custom Act, 1969,
Commercial importer importing goods in Part II, 12th Sch 3.5% as if the goods were subject to ad valorem duty increased by the
custom-duty, FED and sales tax, if any, payable in respect of the
Other person importing goods in Part II, 12th Sch 2% import of the goods.
c) minimum value as notified by the FBR as if such goods were
Commercial Importer importing goods in Part III, 12th Sch 6% subject to ad valorem duty as increased by the custom-duty, FED
and sales tax, payable in respect of the import of the goods
Other person importing goods in Part III, 12th Sch 5.5%
INDUSTRIAL UNDERTAKING means
Manufacturer covered under SRO 1125(I)/2011 1%
a) an undertaking which is set up in Pakistan and which employs,
Persons importing finished pharmaceutical products that i. 10 or more persons in Pakistan and involves the use of
are not manufactured otherwise in Pakistan, as certified 4% electrical energy or any other form of energy which is
by the Drug Regulatory Authority of Pakistan mechanically transmitted and is not generated by human or
Importers of CKD kits of electric vehicles for small cars or animal energy; or
SUVs with 50 kwh battery or below and LCVs with 150 1% ii. 20 or more persons in Pakistan and does not involve the use
kwh battery or below of electrical energy or any other form of energy which is
mechanically transmitted and is not generated by human or
animal energy:
and which is engaged in,
OTHER RELEVANT SROS, CIRCULARS & PROVISIONS OF ITO-2001  the manufacture of goods or materials or the subjection of
Circular 14 of 1997 - Tax at import stage is not be collected on re-import goods or materials to any process which substantially changes
of those goods which were exported but rejected by foreign buyer or their original condition; or
unsold consignments sold abroad for display / sale were bought back.  ship-building; or
 generation, conversion, transmission or distribution of
Also refer Clause 56, Part IV of 2nd Schedule electrical energy, or the supply of hydraulic power; or
 the working of any mine, oil-well or any other source of
mineral deposits; and
TAX REGIMES b) From 1st May 2020, a person directly involved in the construction
of buildings, roads, bridges and other such structures or the
In case of goods imported by industrial undertaking for its Adjustable
development of land, to the extent and for the purpose of import
own use NTR
of plant and machinery to be utilized in such activity, subject to
Income from imports of edible oil, paper and paper board, Minimum such conditions as may be notified by the FBR;
packaging material, and plastics Tax c) From 1st July 2020, a resident company engaged in the hotel
business in Pakistan; and
In all other cases Min Tax d) Telecommunication companies operating under the license of
Pakistan Telecommunication Authority (PTA).
For your valuable feedback, any update, error or query,
kindly let me know at [email protected]
 MINIMUM TAX REGIME Compiled by: Murtaza Quaid
(A) SALE OF GOODS (including toll manufacturing)
PAYMENTS FOR GOODS, SERVICES &
CONTRACTS – SECTION 153 WITHHOLDING TAX RATE

Every prescribed person making payment in full or part Payment for Supplier = Company Supplier = Ind./AOP
including advance payment to a resident person shall
at the time of making the payment, deduct tax from Sale of rice, cotton seed, edible oils 1.5% 1.5%
the gross amount payable (including sales tax, if any).
Toll manufacturing 9% 11%

Sale of other goods 5% 5.5%

RELATED DEFINITIONS

“Prescribed person” means SELLER OF GOODS REGIME

 Federal Government;
Manufacturing Company (Being manufacturer of such goods) NTR
 Company;
 AOP constituted by, or under law; Public company listed on stock exchange in Pakistan NTR
 Non-profit organization;
 Foreign contractor or consultant; Others i.e. Individual, AOP & Unlisted Trading Company MTR
 Consortium or joint venture;
 Exporter or an export house u/s for the purpose of
(B) PROVISION OR RENDERING OF SERVICES
section 153(2);
 Individual / AOP, having turnover of Rs. 100M or
above in any of the preceding tax years; WHT TAX RATE
 Person registered under STA-1990 having turnover
Payment for Service provider REGIME
of Rs. 100M or more in any preceding tax years
 Person deriving income from the business of Co. Ind. / AOP
construction & sale of residential, commercial or
other buildings (builder); or Electronic & print media for advertising services 1.5% 1.5%
 Person deriving income from the business of
development & sale of residential, commercial or • Transport services • Warehousing services
other plots (developer). • Air cargo services • Tracking services
• Courier services • Engineering services
 “Sale of goods” includes a sale of goods for cash or • Hotel services • Car rental services
on credit, whether under written contract or not; • Security guard services • Travel & tour services
 “Services” includes the services of accountants, • Share registrar services • Oilfield services
architects, dentists, doctors, engineers, interior
decorators & lawyers, otherwise than as an • Freight forwarding services
employee; • Manpower outsourcing services
 “Contract” includes all type of contracts including • Software development services
civil, mechanical, & electric works, labor & carriage • IT services & IT enabled services
contracts etc. but does not include contract for the • Services rendered by asset management Company 4% 4% MTR
supply of goods & services (Circular 11 of 1991). • Advertising services (other than by print or
electronic media)
“Manufacturer” means a person engaged in • Collateral management services
production or manufacturing of goods, which includes • Building maintenance services
a) any process in which an article singly or in • Services rendered by PSX & PMEX
combination with other articles, material, • Inspection, certification, testing & training services
components, is either converted into another • Data services provided under license issued by PTA
distinct article or product is so changed, • Telecommunication infrastructure (tower) services
transferred, or reshaped that it becomes capable • Telecommunication services
of being put to use differently or distinctly; or • REIT Management Services
b) a process of assembling, mixing, cutting or • Services rendered by NCCPL
preparation of goods in any other manner; &
Other services 9% 11%
“Turnover” means
a) Gross sales or gross receipts, inclusive of sales tax
& FED or any trade discounts shown on invoices, (C) EXECUTION OF CONTRACT (Not contract for sale of goods or rendering of services)
or bills, derived from the sale of goods;
b) Gross fees for the rendering of services for giving WITHHOLDING TAX RATE
benefits including commissions;
Payment for Contractor = Company Contractor = Ind./AOP
c) Gross receipts from the execution of contracts; &
d) Company‘s share of the amounts stated above of Sportspersons N/A 10%
any AOPs of which the company is a member.
Other Contracts 7.5% 8%

For your valuable feedback, any update, error or CONTRACTOR REGIME

query, kindly let me know at [email protected]
Public company listed on stock exchange in Pakistan NTR

Others i.e. Individual, AOP & Unlisted Company MTR

 MINIMUM TAX REGIME
Compiled by: Murtaza Quaid
EXEMPTIONS & CONCESSIONS IN RESPECT OF WITHHOLDING OF TAX UNDER SECTION 153

EXEMPTION UNDER SECTION 153 EXEMPTION UNDER CLAUSE 46AA OF PART IV, 2ND SCHEDULE

WHT Tax u/s 153 shall not be deducted on:

Sec 153 shall not apply to following persons as recipients of payment:
 Payment in a financial year if it is less than Rs. 75,000 in case of
supply of goods, Rs. 30,000 in case of services & Rs. 10,000 in case of  Provincial Government;
execution of contracts.  Local authority;
Where total payments in a financial year exceed the limits  Persons who are residents of Azad Kashmir & execute contracts in
prescribed, the payer shall deduct tax from the payments Azad Kashmir only & produce a certificate to this effect from the
including the tax on payments made earlier without deduction concerned Income tax authority;
of tax during the same financial year.
 Subject to furnishing of certificate required u/c 12, Part IV of 2nd
 Sale of goods by importer of goods Sch, persons receiving payments exclusively for the supply of
- who has paid tax u/s 148 in respect of such goods & agriculture produce including following –
- goods are sold in the same condition as they were when imported i. fresh milk;
ii. fish by any person engaged in fish farming;
Cir 5 of 2002 of 11th April 2002 iii. live chicken, birds and eggs by any person engaged in poultry
 WHT tax exemption certificate is not required by commercial farming;
importer. However, it may give a written undertaking that iv. live animals by any person engaged in cattle farming;
above condition have been fulfilled. v. unpackaged meat; and
 Payer may require furnishing of import document such as Bill vi. raw hides:
of Entry to ensure no addition to the value of goods supplied. However, this exemption shall not apply to the payments for
agriculture produce which has been subjected to any process other
 Refund of any security deposit. than that which is ordinarily performed to render such produce to
 Payment made by Federal, Provincial or Local Government to a be fit to be taken to the market;
contractor for construction materials supplied to the contractor by  Companies receiving payments for the supply of electricity & gas
the said Government or the authority. including payments for transmission of electricity & gas;
 Purchase of asset under lease & buy back agreement by modaraba,  Companies receiving payments for the supply of crude oil;
leasing company, banking company or financial institution.
 Hotels & restaurants receiving payments in cash for providing
 Payment for securitization of receivables by a Special Purpose accommodation or food or both, as the case may be;
Vehicle to the Originator. Where any tax is deducted by a person
making a payment for a Special Purpose Vehicle, on behalf of the  Shipping companies & air carriers receiving payments for the supply
Originator, the tax is credited to the Originator. of passenger tickets & for the cargo charges of goods transported;
 Individuals who are not registered with FBR u/s 181 of ITO-2001, &
receiving payments for the supply of s&, bricks, grit, gravel, crushed
EXEMPTION U/C 57, P-IV, 2ND SCH. – EXEMPTION FROM SECT 113 & 153
stone, soft mud or clay; &
Tax u/s 153 shall not be deducted on payment made to companies  Artisans, plumbers, electricians, surface finishers, carpenters,
operating Trading Houses which painters or daily wagers, receiving payments in respect of services
 have paid up capital of exceeding Rs. 250M; provided or rendered to the construction sector including
 own fixed assets exceeding Rs. 300M at the close of the Tax Year; construction of buildings, roads, bridges & other such structures or
the development of l&, subject to the following conditions:
 maintain computerized records of imports & sales of goods; a) Services are provided or rendered by an individual who is not
 maintain a system for issuance of 100% cash receipts on sales; registered with FBR u/s 181 of ITO-2001;
 present accounts for tax audit every year; & b) Name, CNIC Number & address of such individual is recorded by
the recipient of such service; &
 is registered under the Sales Tax Act, 1990
c) Payment for such services is made directly to such individual.
Further, minimum tax u/s 113 shall be 1% for companies operating
trading houses.
CONCESSION UNDER CLAUSE (45A) OF PART IV OF 2ND SCHEDULE
Explanation
 Above exemption shall only be available to companies operating The rate of deduction of tax shall be 1% on local sales, supplies &
trading house as a recipient & not as withholding agent. services provided/rendered to the tax payers of following categories:
1. Textile & articles thereof; 2. Carpets
 In-house preparation & processing of food & allied items for sale to
3. Surgical goods; 4. Sport goods
customers shall not disqualify a company from being treated as a
5. Leather & articles thereof including artificial leather footwear;
Trading House, provided that all the above conditions are fulfilled &
sale of such items does not exceed 2% of the total sales. Further, rate of deduction of tax on sale of goods & provision of services
u/s 153 shall be 0.5% on local sales, supplies & services made by traders
For your valuable feedback, any update, error or query, kindly of yarn to the above mentioned categories of taxpayers.
let me know at [email protected]
 MINIMUM TAX REGIME
Compiled by: Murtaza Quaid
EXEMPTIONS & CONCESSIONS IN RESPECT OF WITHHOLDING OF TAX UNDER SECTION 153

OTHER EXEMPTIONS OTHER EXEMPTIONS

 The provisions of section 153 shall not apply on payment made to  The provisions of section 153 shall not apply on the purchase of
Federal, Provincial or Local Government [Section 49(3)]. used motor vehicles from general public. [Clause 45B, Part IV of 2nd
 The provisions of section 153 shall not apply on payment subject to Schedule].
withholding u/s 153 made by manufacturer-cum-exporter.  No withholding of tax on sale of goods u/s 153, in case of any
However, manufacturer-cum-exporter shall deduct tax from payment received by an oil distribution company or an oil refinery
payments made in respect of goods sold in Pakistan. for supply of its petroleum products. [Clause 46, Part IV of 2nd
If tax has not been deducted from payments on supply of goods in Schedule].
respect of goods sold in Pakistan, the tax shall be paid by the  With effect from 1st Jul 2020, the provisions of section 153 in
manufacture-cum-exporter, if the sales in Pakistan are in excess of respect of sale of goods shall not apply to distributors, dealers,
5% of export sales. [Clause 45 of Part IV of 2nd Schedule]. wholesalers and retailers of locally manufactured mobile phone
 No withholding of tax on sale of goods u/s 153, for ship breakers as devices as withholding agent. [Clause 119, Part IV of 2nd Schedule].
recipient of payment. However, this exemption shall only apply for
ships imported after the 1st July 2014. [Clause 9AA, Part IV, 2nd Sch]  The provisions of section 153 shall not apply to traders being
individuals having turnover up to Rs. 100 million as a prescribed
 The provisions in respect of payment through banking channel u/s person. [Clause 115 of Part 1 of 2nd Schedule]
21 and withholding of tax on sale of goods u/s 153 shall not apply
where agricultural produce is purchased directly from the grower of ‘Trader’ shall mean an individual engaged in business of buying and
such produce subject to provision of a certificate specified in Clause selling of goods in the same state including a retailer and a
12(a) of Part IV of 2nd Schedule, by the grower to the withholding wholesaler but shall not include a distributor.
agent [Clause 12(a) of Part IV of 2nd Schedule].
 No withholding of tax on sale of goods u/s 153, in case of cash
payments made for meeting the incidental expenses of a business OTHER CONCESSIONS
trip to the crew of oil tanker. This exemption shall not apply in case
 The rate of withholding tax on sale of goods u/s 153 in the case of
of any other payments made by owners of oil tankers. [Clause 12(b)
distributors, dealers, sub-dealers, wholesalers and retailers of fast
of Part IV of 2nd Schedule].
moving consumer goods, fertilizer, electronics excluding mobile
 No withholding of tax on sale of goods u/s 153, in case of payments phones, sugar, cement, and edible oil as recipient of payment shall
received by a person on account of supply of petroleum product be 0.25% of gross amount of payments
imported by the same person under the Government of Pakistan’s
 subject to the condition that beneficiaries of reduced rate are
deregulation policy of POL products. [Clause 43A, Part IV, 2nd Sch]
appearing on the Active Taxpayers’ Lists issued under STA-1990
 No withholding of tax on sale of goods u/s 153, in case of payments and ITO-2001:
received on sale of air tickets by travelling agents, who have paid
However, the benefit under this clause shall only be available to
withholding tax on their commission income. [Clause 43B, Part IV of
those Tier-1 retailers as defined under STA-1990 who are integrated
2nd Schedule].
and configured with FBR or its computerized system for real time
 No withholding of tax on sale of goods u/s 153, in case of any reporting of sales or receipts. [Clause 24C, Part II of 2nd Schedule]
payment received by a petroleum agent or distributor who is
registered under STA-1990 on account of supply of petroleum  The rate of withholding tax on provision of services u/s 153 in case
products. [Clause 43C, Part IV of 2nd Schedule]. of oil tanker contractor services shall be 2% of the gross amount of
the payments. [Clause 28F, Part II of 2nd Schedule]
 The provisions of section 153 shall not apply in the case of a start-up
as defined in section 2(62A), being recipient of payment. [Clause  The rate of withholding tax on sale of goods shall be 1% on payment
43F, Part IV of 2nd Schedule]. for sale of gold and silver and articles thereof and the tax so
 The provisions of withholding of tax on provision of services shall deducted shall be adjustable. [Clause 31, Part II of 2nd Schedule]
not apply to an exhibitor or a distributor of a feature film, as a payer,  The rate of withholding tax on sale of goods from distributors of
on payment made to a distributor, producer or importer of a feature - Cigarette, shall be 2.5% of the gross amount; and
film. [Clause 43H, Part IV of 2nd Schedule]. - Pharmaceutical products, shall be 1% of the gross amount
[Clause 24A, Part II of 2nd Schedule]
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TV PLAYS AND ADVERTISEMENTS – SECTION 236CA
WHT TAX
TRANSACTION WHT TAX RATE
AGENT REGIME

Certifying any foreign TV drama serial or a play dubbed in  Foreign-produced TV drama serial or play  Rs.1,000,000
Urdu or any other language, for screening and viewing on any per episode
Licensing landing rights channel  Foreign-produced TV play (single episode)  Rs.3,000,000
Min Tax
authority
Certifying any commercial for advertisement starring foreign
 Rs. 500,000 per second
actor, for screening and viewing on any landing rights channel