INCOME TAX RULES IN PAKISTAN
INCOME TAX BASICS
Before Registration and Filing of your Income Tax Return, it
is recommended that one should establish basic understanding regarding these
processes. Knowledge of basic concepts would not only ensure that the tasks are
performed easily but also in the prescribed manner.
TAXABLE INCOME
Taxable Income means Total Income reduced by donations
qualifying straight for deductions and certain deductible allowances.
TOTAL INCOME
Total Income is the aggregate of Income chargeable to Tax
under each head of Income.
HEAD OF INCOME
Under the Income Tax Ordinance, 2001, all Income are broadly
divided into following five heads of Income:
Salary
Income from property
Income from business
Capital gains
Income from Other Sources
RESIDENT
An Association of Persons is Resident for a Tax Year if the
control and management of its affairs is situated wholly or partly in Pakistan
at any time in that year;
A Company is Resident for a Tax Year if :
It is incorporated or formed by or under any law in force in
Pakistan;
The control and management of its affairs is situated wholly
in Pakistan at any time in the year; or
It is a Provincial Government or a local Government in
Pakistan.
An individual is Resident for a Tax Year if he/she:
Is present in Pakistan for a period of, or periods amounting
in aggregate to, 183 days or more in the Tax Year;
Is an employee or official of the Federal Government or a
Provincial Government posted abroad in the Tax Year.
NON-RESIDENT
An Association of Persons, a Company and an Individual are
Non-Resident for a Tax Year if they are not Resident for that year.
PAKISTAN SOURCE INCOME
Is defined in section 101 of the Income Tax Ordinance, 2001,
which caters for Incomes under different heads and situations. Some of the
common Pakistan source Incomes are as under: –
Salary received or receivable from any employment exercised
in Pakistan wherever paid;
Salary paid by, or on behalf of, the Federal Government, a
Provincial Government, or a local Government in Pakistan, wherever the
employment is exercised;
Dividend paid by Resident Company;
Profit on debt paid by a Resident Person;
Property or rental Income from the lease of immovable
property in Pakistan;
Pension or annuity paid or payable by a Resident or
permanent establishment of a Non-Resident;.
FOREIGN SOURCE INCOME
Is any Income, which is not a Pakistan source Income.
PERSON
An Individual;
A Company or Association of Persons incorporated, formed,
organized or established in Pakistan or elsewhere;
The Federal Government, a foreign government, a political
subdivision of a foreign government, or public international organization
COMPANY
A Company as defined in the Companies Ordinance, 1984 (XLVII
of 1984);
A body corporate formed by or under any law in force in
Pakistan;
A modaraba;
A body incorporated by or under the law of a country outside
Pakistan relating to incorporation of Companies;
An amendment has been made through Finance Act, 2013 to
enlarge the scope of definition of a Company. Now as per Income Tax Ordinance,
2001 a company includes:
A co-operative society, a finance society or any other
society;
A non-profit organization;
A trust, an entity or a body of persons established or
constituted by or under any law for the time being in force.
A foreign association, whether incorporated or not, which
the Board has, by general or special order, declared to be a company for the
purposes of this Ordinance;
A Provincial Government;
A Local Government in Pakistan;
A Small Company
ASSOCIATION OF PERSONS
Includes a firm (the relation between persons who have
agreed to share the profits of a business carried on by all or any of them
acting for all), a Hindu undivided family, any artificial juridical person and
any body of persons formed under a foreign law, but does not include a Company.
TAX YEAR
Is a period of twelve months ending on 30th day of June i.e.
the financial year and is denoted by the calendar year in which the said date
falls. For example, tax year for the period of twelve months from July 01, 2017
to June 30, 2018 shall be denoted by calendar year 2018 and the period of
twelve months from July 01, 2018 to June 30, 2019 shall be denoted by calendar
year 2019. It is called Normal Tax Year.
SPECIAL TAX YEAR
Means any period of twelve months and is denoted by the
calendar year relevant to the Normal Tax Year in which closing date of the
Special Tax Year falls. For example, Tax Year for the period of twelve months
from January 01, 2017 to December 31, 2017 shall be denoted by calendar year
2018 and the period of twelve months from October 01, 2017 to September 30,
2018 shall be denoted by calendar year 2019.
Basic
concepts on Income Tax would help answer a lot of fundamental
questions, avoiding unnecessary mistakes or errors that normally arise during
Registration and Filing of Income Tax Return
ORDINANCE
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