chapter-28 (solved past papers of icma stage iv tax - for...chapter 25 solved past papers income tax...

Chapter 25 Solved Past Papers Income Tax Numericals of ICMAP Stage IV - (2003 to 2015)

Note: All the following questions have been solved under the Income tax Ordinance, 2001 effective from July 01,2015

Q.NO.4 March 2015 Mr. Hassan has been working as an Accounts Executive in Prime Limited which is a public limitedcompany. In addition to his salary, other perks and allowances are also provided to him by his employer. He has variousother sources of income as well. Assume you are income tax consultant and Mr. Hassan has submitted the following

SOLVED PAST PAPERS INCOME TAX NUMERICALS OF ICMAP STAGE IV - (2003 TO 2015)

28

Chapter

Conceptual Approach to Taxes _________________________________489

Rupees Basic salary per annum 500,000Perquisites and allowances paid by the employer:House rent allowance 110,000Utilities 25,700Entertainment allowance 13,000Reimbursement of medical expenses 7,750

Income from other sources:

Other information:

Required:

information for the tax year ended on June 30, 2015 for calculation of is taxable income and tax liability:

Two cars have been provided to Mr. Hassan and maintained by the company. One car is used wholly for the company’s

business purposes having cost of Rs. 300,000 and the other one is used for his family exclusively costing to Rs. 350,000.

· Mr. Hassan has been maintaining a profit and loss sharing account in ITC bank. The bank has credited a profit of Rs.11,300 in his account during tax year.· He is also a non-professional writer and has received Rs. 20,000 on account of his literary work which was starter andcompleted during the year.

· Mr. Hassan paid annual premium of Rs. 12,000 for life insurance policy and Rs. 4,000 for health insurance policy.

· He also paid donation of Rs, 15,000 to an approved charity organization.· He also paid Zakat of Rs. 10,000 under the Zakat and Usher Ordinance, 1980.

Required:

Solution

Name of Tax Payer : Mr. Hassan

Calculate the taxable income and tax liability of Mr. Hassan for the tax year 2015. Provide all necessary notes to supportyour calculations.



Income year ended : 30th June 2016Tax year : 2016Personal Status : IndividualResidential Status : ResidentComputation of taxable income and tax thereon

Rs. Rs.Income from SalaryBasic Salary 500,000 House rent allowance 110,000 Utilities 25,700 Entertainment allowance 13,000 Reimbursement of medical expenses 7,750 - Conveyance for personal use (350,000 x 10 % ) 35,000

683,700 Income from Other SourcesNon-professional writer fee 20,000

20,000 Total income 703,700 Less: Zakat (10,000)

490_______________________________ Conceptual Approach to Taxes

Less: Zakat (10,000) Taxable Income 693,700

Computation of tax liabilityTax on Rs. 693,700 [ Rs.2,000 + (693,700 - 500,000) x 5% ] 11,685

Less: Rebate only on life insurance premium ( 11,685 / 693,700 x 12,000 ) 202 Less: Rebate on donation ( 11,685 / 693,700 x 15,000 ) 253 (455) Tax payable under NTR 11,230 Add tax FTR on PLS account on Rs. 11,300 @ 10% 1,130 Tax payable with return 12,360

Notes - 1Car provided by the employer which was wholly used for business purpose will not be addedin the income of Mr. Hassan as the same was used for the discharge of offical duties.

Note Amount (Rs. )1 60,000,0002 -40,000,000

Q.NO. 4 August 2014 Prime Leather Works (Pvt.) Limited has provided following information for the tax year 2014 to calculate its taxable income and tax liability:

DescriptionSales Less: Cost of sales 2 -40,000,000

20,000,0003 -12,000,0004 -3,000,0005 1,000,000

6,000,000

1 Total sales include sales of Rs. 20 million which are subject to final taxation.

Less: Cost of sales Gross Profit Less: General and admin expenses Less: Selling expenses Add: Other Income Net Profit



2 Cost of sales includes accounting depreciation of Rs. 4 million.3 The following expenses are also included in the general and administrative expenses:

a. Accounting depreciation of Rs. 2 million.b. Bonus paid to the employees Rs. 3 million.c. Provision for doubtful receivables Rs. 1.5 million.d. Provision for the post employment benefits Rs. 2 million.e. Fines and penalties paid to Federal Board of Revenue (FBR) Rs. 0.7 million.

4

5 Other income includes the following items:a. Accounting gain on disposal of fixed assets Rs. 0.2 million.b. Interest income Rs. 0.3 million.c. Dividend income from listed securities Rs. 0.5 million.

Additional Information:6 Tax depreciation is Rs. 10 million.7 Bad debts of Rs. 0.5 million.8 Gratuity paid amounting Rs. 1.7 million.9 Taxable gain on disposal of fixed asset is Rs. 0.15 million.

10 Breakup of advance tax is as follows:

Selling expenses include commission expense of Rs. 1.5 million. However, tax has not been withheldwhile making the payment of the commission.


10 Breakup of advance tax is as follows:a. On supplies u/s 153 Rs. 0.7 million.b. Tax on utilities Rs. 0.3 million.c. Tax on cash withdrawals Rs. 0.05 million.d. Tax on dividend income Rs. 0.05 million.e. Tax on interest income Rs. 0.03 million.

Required:

Solution

Prime Leather Works (Pvt.) LimitedResident : Private CompanyTax Year: 2016Computation of taxable income and tax thereon

Rupees RupeesIncome from BusinessNet Profit before tax 6,000,000

Add: Inadmissible itemsAccounting Depreciation in cost of sales 4,000,000 Accounting Depreciation in admin exp. 2,000,000 Provision for doubtful receivable 1,500,000 Provision for post employment benefits 2,000,000

Calculate taxable income and net tax liability of Prime Leather Works (Pvt .) Limited for tax year 2014.

Provision for post employment benefits 2,000,000 Fines and penalties 700,000 Commission expense 1,500,000 Taxable gain on disposal 150,000 11,850,000

17,850,000 Less: Admissible items

Accounting gain on disposal 200,000 Tax depreciation 10,000,000



Bad Debts 500,000 (10,700,000) 7,150,000

Less: Dividend income cover under SBI (500,000) 6,650,000

Less: Apportionment of sales subject to final taxation(6,650,000 x 20 / 60 ) (2,216,667)

Total Taxable Income 4,433,333

Computation of tax liability:

Tax on Rs. 4,433,333 @ 32 % A 1,418,667 Alternate Coporate tax u/s 113 CTax on Rs. 6,000,000 x 17% B 1,020,000 Minimum Tax u/s 113Tax on Rs. 60,000,000 @ 1 % C 600,000 Tax liability higher of A , B or C 1,418,667 Tax on Rs. 20,000,000 @ 4% 800,000

2,218,667 Tax on dividend income Rs. 500,000 @ 10 % 50,000


Tax on dividend income Rs. 500,000 @ 10 % 50,000 2,268,667

Less: advance tax (800,000 + 300,000 + 50,000 + 50,000 + 30,000) (1,230,000) Balance tax payable 1,038,667

Q. NO.4 Spring 2014

Rupees

A. i) Basic salary per annum 500,000

ii) Perquisites and al allowances paid by the employer:

Bonus 80,000 Entertainment allowance 10,000 Dearness allowance 180,000 House rent allowance 225,000 Gratuity (scheme approved by FBR) 625,000 Encashment of leave preparatory to retirement 120,000

Mr. Samiullah has been working as Assistant Manager-Marketing for last 15 years in M/s. Moonlight Limited, a public limitedcompany. In addition to salary, perks and allowances given to him by the company, he has various other sources of income.Assume that Mr. Samiullah is 62 years and has been retired from the company services on June 30, 2014. You are his TaxConsultant. He has submitted the following information for the tax year ended June 30, 2014 in order to seek your advice inrespect of the calculation of his taxable income and tax liability.

B. Property Income:

Rupees Rupees

Mr. Samiullah rented his house @ Rs. 12,000 per month w.e.f 1st Jul y, 2013. He received a deposit ofRs.150,000 not adjustable against rent, out of which he refunded Rs.75,000 to previous tenant, who vacated thehouse after 3 years' occupancy. Tenant also paid property tax of Rs. 6,000 as per lease agreement. Assume that

Mr. Samiullah claimed the following expenditure for the year ended 30th June, 2014:-



Interest on borrowed capital 7,000 Insurance premium paid to cover the risk for property damage 10,000 Repair and maintenance expenses 25,000

C. Other information Share from unregistered firm (AOP) 20,000

D. Zakat deducted at source 8,000

Required:

(a) Calculate the taxable income and tax liability of Mr. Samiullah for the year ended June 30, 2014.

(b)

Solution: (a)

Mr. Samiullah (Resident)Computation of taxable income and tax liabilityFor the Tax year 2016

INCOME FROM SALARY U/S 12 (Rupees) (Rupees)

Mr. Samiullah is 62 years. Can he claim a tax rebate @ 50% available to senior citizens? Why or why not? State the reasons in support of your answer.


Basic salary 500,000 Bonus 80,000 Entertainment allowance 10,000 Dearness allowance 180,000 House rent allowance 225,000 Encashment of leave preparatory to retirement 120,000 Gratuity (scheme approved by FBR) 625,000 Exempt U/C 13(iii) of Part I of 2nd Schedule (200,000) 425,000 Total taxable salary (A) 1,540,000

INCOME FROM PROPERTY U/S 15

Rent received (Rs. 12,000 x 12 months) (Note 1) 144,000 Property tax paid by tanent 6,000 Advance not adjustable against rent [150,000 - (75,000 x 3/10)] / 10 = 12,750

162,750 Less admissible deductions U/S 15A

1/5th repair allowance (Rent chargeable to tax Rs. 162,750 x 1/5) = (32,550) Interest on borrowed capital (7,000) Insurance premium paid to cover the risk for property damage (10,000) 113,200

(B)

INCOME FROM OTHER SOURCES U/S 39

Share from unregistered firm (AOP) (Assumed under NTR and after tax) (C) 20,000 (Included for rate purposes)(Included for rate purposes)Total income (A + B +C) 1,673,200

Less: Zakat (8,000) Taxable income under NTR 1,665,200

As taxable salary is more than 50% of the total taxable income, hence the taxpayer is a salaried person and accordingly histax liability is computed as under.



COMPUTATION OF TAX LIABILITY:

Total income taxable under NTR (including share from AOP) 1,665,200

Tax on Rs. 1,665,200 [92,000 + 15% x (1,665,200 - 1,500,000)] 116,780 Less Tax on share from a unregistered firm (AOP) [Rs. 116,780 / 1,665,200 x 20,000] = 1,403 Balance tax on taxable income (excluding share from AOP) 115,377

Solution: (b)

Spring 2013 Q. 4

Rs. '000' Rs. '000'Sundry expenses 2,240 Gross Profit 235,200

M/s. Golden Gate Limited (GGL) is a private limited company. The company manufactures and supplies consumer goods.GGL sells its product through various distributors in Karachi, Lahore and Islamabad. The following is the profit and lossaccount of GGL for the year ended on June 30, 2013:

Although Mr. Samiullah has met one condition of age of 60 years or more on the first day of the tax year however becausehis taxable income exceeds Rs.1(M) therefore 50% reduction in tax liability under clause 1A of Part III of 2nd Schedule to theIncome Tax Ordinance, 2001 as senior citizen shall not be allowed.


Sundry expenses 2,240 Gross Profit 235,200Office salaries 29,120 Interest on bank deposit 300Rent, rates & taxes 8,960 Recovered bad debts Legal charges 2,016 (allowed in the past) 448Finance charges on leased assets 350 Dividend 672Advertisement 5,600Auditor's fees 6,720Cost of issue of debentures 5,600Loss on sales of furniture 2,240Provident fund contribution 7,840Bad debts 4,480Vehicle expenses 8,960Fire insurance premium 7,840Preliminary expenses 1,008Provision for taxes 10,080Provision for bad debts 4,480Liquidated damages 3,360Depreciation 44,800Net Profit 80,926

236,620 236,620Additional Information:

The following information is available:(i) Sundry expenses include donation of Rs. 502,000 paid to an unrecognized charitable institution.(i) Sundry expenses include donation of Rs. 502,000 paid to an unrecognized charitable institution.(ii) Office salaries include Rs.6,000,000 paid to one of the directors.(iii) Provident Fund is recognized by the Income Tax Department.(iv) Vehicle expenses are not vouched and verifiable to the extent of Rs.1,881,000.(v) Actual depreciation works out to Rs.32,650,000 only.(vi) Lease rental for the year are Rs.1,750,000.

Required:



Solution

M/S GOLDEN GATE LIMITED (GGL)COMPUTATION OF TAXABLE INCOME & TAX THEREONFOR THE TAX YEAR 2016

INCOME FROM BUSINESS U/S 18 Note Rs. Rs.

Profit as per accounts 80,926,000

Add: Inadmissible items U/S 21 & 174

Provision for taxes 10,080,000 Provision for bad debts 4,480,000 Unvouched vehicle expenses 1,881,000 Donation to un-recognised institution 502,000 Accounting depreciation 44,800,000 Finance charges on lease asset 350,000 62,093,000

143,019,000

Calculate the taxable income and tax liability of the company for the tax year 2013 from the above data.


143,019,000 Less: Admissible items U/S 20

Lease rental 1,750,000 Tax depreciation 32,650,000 Dividend (To be taxed under FTR) 672,000 35,072,000

Taxble income under NTR 107,947,000


Alternative Corporate tax U/S 113C [Accounting profit under NTR x 17%] (A) 13,757,420 [Rs. 80,926,000 x 17%]

Tax liability under corporate tax under NTR @ 32% (B) 34,543,040

Actual tax payable under NTR: higher of (A) or (B) 34,543,040 Add: Tax liability under FTR on dividend income (Rs. 672,000 x 10%) 67,200 Total tax liabiltiy 34,610,240 Add: Tax on gross dividend receipts 67,200 Total tax liabiltiy 34,677,440 Less: Tax deducted on dividend 1 67,200 Balance tax payable 34,610,240

Assumptions and basis

1.

2.

It is assumed that tax on dividend income has duly been deducted and deposited, hence credit of the same hasbeen claimed against tax liability under final tax regime (FTR).

It is assumed that loss on sale of furniture and bad debts are in accordance with the provisions of sections 22and 29 of the Income Tax Ordinance, 2001.

3.

4. It is assumed that the preliminary expenses are in accordance with the provisions of section 25 of the IncomeTax Ordinance, 2001.

It is assumed that company is resident and although minimum tax under section 113 is applicable, however thesame has not been computed in the absence of turnover and accordingly no comparison with tax under normaltax regime (NTR) has been made.

and 29 of the Income Tax Ordinance, 2001.



Q.5 August 2012

Rupees

Sales 55,300,000 Cost of sales 22,120,000 Gross profit 33,180,000 Add: Dividend received 300,000 Less Director's sal aries 7,500,000 Staff salaries 12,150,000 Contribution to employees provident fund (a) 1,320,000 Administrat ive and selling expenses 2,550,000 Depreciation (b) 1,100,000 Entertainment expenses (c) 950,000 Insurance (d) 900,000 Fees (e) 650,000 Total expenses 27,120,000 Net income 6,360,000

Global International Limited engaged in the manufacturing and trading of FMCG in the country . The shares of thecompany are listed on all the stock exchanges of Pakistan. Following information has been extracted from the profit andloss account of the company for the year ended 30th June, 2012.


Net income 6,360,000

Note:

(d) Insurance includes prepaid expenses amounting to Rs.320,000.

Required:

Solution Q.5 August 2012

Global International LimitedComputation of taxable income and tax thereonFor the tax year 2016

(a) Employees' Provident Fund Trust is revocable at the option of Managing Director of the company and an application forapproval has been filed with the relevant tax authority.

(b) Depreciation includes Rs .300,000 for plant & machinery. Depreciation on all assets is charged on rates for normaldepreciation given in the Third Schedule to the Income Tax Ordinance, 2001. Written down value of plant & machinery forthe purpose of calculating tax depreciation is Rs.1,350,000 which includes addition during the year of new machinery of thevalue Rs.650,000.

(c) Entertainment expenses include Rs.200,000 reimbursed to a director of the company for which no support is available.

(e) The company has paid fees to the tax consultant for defending taxpayer's appeal in Income Tax Appellate Tribunal.

Compute the taxable income and the tax liability of the Global International Limited. Give proper comments where any giveninformation has not been utilized in the computation.

For the tax year 2016Rs. Rs.

INCOME FROM BUSINESS U/S 18

Profit before tax as per accounts 6,360,000

Add: Inadmissible items U/S 21

(a) Employee's provident fund (unapproved) 1,320,000



(b) Accounting depreciation on plant and machinery 300,000 (c) Entertainment expenses without supporting evidence 200,000 (d) Prepaid insurance 320,000

2,140,000

Less: (b) Tax depreciation on plant and machinery (N-1) 340,625 Dividend (taxable under the head income from other sources) 300,000

640,625 7,859,375


Dividend income (covered under FTR) 300,000

Total taxable income 7,859,375


Alternative Corporate tax U/S 113C (A) 1,081,200 [[Accounting profit under NTR Rs. 6,360,000 x 17%]

Corporate Tax Tax on Rs. 7,859,375 x 32% (B) 2,515,000


Tax on Rs. 7,859,375 x 32% (B) 2,515,000

Minimum tax u/s 113 (55,300,000 x 1%) (C) 553,000

Tax liability under NTR: Higher of (A), (B) or (C) 2,515,000

Tax liability under FTR:Tax on gross dividend @ 10% 30,000

2,545,000 Less: Tax deducted on gross dividend (N-2) (30,000) Balance tax payable 2,515,000

(N-1) Tax depreciation on plant and machinery:Normal Initial Total

W.D.V. depreciation allowance depreciation15% 25%

Rs. Rs. Rs. Rs.U/S 22 U/S 23

Opening WDV 1,350,000 Less addition during the year (650,000)

700,000 105,000 - 105,000

Addition during the year 650,000 Less 25% initial allowance 162,500

487,500 Less: Initial allowance (650,000 x 25%) - 162,500 162,500

Normal depreciation on addition during the year(WDV Rs.487,500 x 15%) 73,125 - 73,125 (WDV Rs.487,500 x 15%) 73,125 - 73,125

178,125 162,500 340,625

N-2: In the abscence of information it has been assumed that tax on dividend has duly been deducted & deposited.

N-3: As the legal fee for defending taxpayer's appeal in Income tax Appellate Tribunal is admissble expense hence thesame has no effect on the taxable income.



February - 2013 Q. 4

Salary Income Rupees

Basic salary 840,000 Bonus 100,000 Dearness allowance 84,000 House rent allowance 420,000 Medical allowance (actual expenses Rs.30,000) 80,000 Contribution by Mr, Noor towards recognized provident fund (including 168,000 equal conribution by the company)Interest credited during the year (provident fund) 300,000 Other Income Remuneration for literary work. (Mr. Noor is a non-professional writer) 120,000 Profit on profit and loss sharing bank account (net of 10 % tax withheld) 9,000 Capital loss on sale of shares of public listed company 35,000

Mr. Noor has been working as a senior Manager in Karachi Terminal Limited, Assume he has proivded followinginformation about his income pertainig to year ended June 30, 2013:


Rent from house let out 192,000 Expenditure claimed against property income :Property tax 15,000 Repair & maintenance 5% of rent

Other Information :Zakat paid 10,000

Note: It is assumed that literary work was started and completed during the tax year.

Required:Being a tax consultant you are required to calculate Mr. Noor's taxable income and his income tax liabilityfor the tax year 2013.

Solution

Name of Taxpayer Mr.NoorNation Tax Number xxxTax year 2016Personal status Individual - salariedResidential status ResidentComputation of income & tax thereon

Rs. Rs.INCOME FROM SALARY U/S 12

Basic salary 840,000 Bonus 100,000 Dearness allowance 84,000 House rent allowance (N-1) 420,000 Medical allowance (N-2) - Employer contribution towards recognized provident fund (N-3) - Interest on provident fund (N-4) -



1,444,000 CAPITAL (LOSS) U/S 37 (N-5) -


Remuneration for literary work 120,000


Rental income 192,000

Less property tax (15,000) 1/5th repair allowance rent chargeable to tax (Rs. 192,000 x 1/5) (38,400) 138,600 Total Income 1,702,600 Less zakat paid (assumed under Zakat & Ushar Ordinance) (10,000) Taxable Income 1,692,600


Tax on income under NTR:


Tax on Rs.1500,000 92,000 Tax @ 15% on [1,692,600 - 1,500,000] 28,890 120,890

Add tax on profit on PLS account (Rs.10,000 x 10%)= 1,000 Total tax liability 121,890

Less tax already paid / deducted at sourceTax deducted on profit on PLS account U/S 151 (1,000) Balance tax payable 120,890

NOTES:

(N - 1) House rent allowance is totally taxable.

(N - 2) Medical Allowance: Rs.

Medical Allowance 80,000 Less exempt upto 10% of basic salary U/C 139 (840,000 x 10%) 84,000

- (N - 3) Contribution towards recognized provident Fund:

Employer's contribution to provident fund (Rs. 168, 000/2) 84,000 (Equal contributiion by the employer company)Less: Exempt upto lower of 10% of salary (924,000 x 10%) 92,400 OR Rs. 100,000. 100,000 92,400 OR Rs. 100,000. 100,000 92,400

-

Nothing will be included in total income of the tax payer as the contribution is within the exemption limit.Salary for provident fund purposes mean basic salary plus dearness allowance (i.e. Rs. 840,000 + 84,000).No treatment of employee contribution as the same is already included in taxable salary of theemployee.



(N - 4) Rs.

Amount of interest credited 300,000 Less exempt higher of 1/3rd of salary (Rs. 924, 000/3) or interest @ 16% p.a. 308,000 Taxable amount -

(N - 5)

(N - 6)

APRIL - 2012 Q. 5 Mr. Abdul Rehman is Chief Accountant in a multinational company. He is assumed to have received the following

Interest credited to a provident fund is exempt upto the higher of one-third of salary or amount oninterest calculated @ 16% p. a. As the rate of interest is not given hence 1/3rd of salary has been takenas exempt.

Capital gain on sale of shares of listed companies is taxable as a separate block of income. Loss on suchshares may be set- off by a person against gain on securities chargeable to tax. There is no treatment ofthe said loss as there is no gain on sale of securities.

Profit on PLS bank account received are taxable under Final Tax Regime hence are not included in totalincome. Tax deducted is treated as fina discharge of tax liability for such income.


Mr. Abdul Rehman is Chief Accountant in a multinational company. He is assumed to have received the followingperks during the tax year 2012: Income from Salary: Rs.

Basic salary 412,500 House rent allowance 182,800 Utilities 40,600 Employer's contribution to recognized provident fund 31,950 Medical allowance 37,300 Leave encashment 50,600 T.A / D.A for official duty 33,300 Bonus 82,500 During the year, tax has been deducted on salary at Rs.26,500. Further he has paid Zakat at Rs.35,000 underthe Zakat and Ushar Ordinance and Rs.56,000 as donation to an approved institution.

Mr. Abdul Rehman has been provided with a 1300cc car which cost Rs.1,250,000 to the company. The car is used for both personal and official purposes.

Capital Gain: Rs. Capital gain on buying and selling of shares of an unlisted company(shares were held for eight months). 52,000 Income from Property:

Four years ago he rented out his house for a monthly rent of Rs.24,000. At that time he also received Rs.120,000from the tenant as deposit which is not adjustable against monthly rent. During the current tax year he receivedRs.288,000 as rent.

Required: Required: Compute taxable income and tax liability of Mr. Abdul Rehman for the tax year 2012. Solution:

Mr. Abdul Rehman (Resident)Computation of taxable income and tax liabilityFor the Tax year 2016



INCOME FROM SALARY U/S 12 (Rupees) (Rupees)

Basic salary 412,500 House rent allowance 182,800 Utilities 40,600 Employer's contribution to recognized provident fund 31,950 Exempt upto lower of: - Rs. 100,000 OR - 10% of Basic salary i.e 41,250 41,250 -

Medical allowance 37,300 Exempt upto lower of 10% of basic salary U/C 139 41,250 - Leave encashment 50,600 T.A / D.A for official duty (Exempt) - Conveyance (1,250,000 x 5%) U/R 5 62,500 Bonus 82,500 Total taxable salary (A) 831,500

CAPITAL GAIN U/S 37

Capital gain on buying and selling of shares of an unlisted company (shares were held for eight months). (B) 52,000



Rent received (Note 1) 288,000 Advance not adjustable against rent (120,000 / 10) 12,000 Rent chargeable to tax 300,000 Less 1/5th repair allowance of rent chargeable to tax (Rs. 300,000 x 1/5) (60,000) Net rent chargeable to tax (C) 240,000

(A + B + C) 1,123,500 Less: Zakat 35,000 Taxable income under NTR 1,088,500

As taxable salary is more than 50% of the total taxable income, hence the taxpayer is salaried person


Total income taxable under NTR 1,088,500

Tax on Rs. 1,088,500 [14,500 + 10% x (1,088,500 - 750,000)] 48,350

Less: Tax credit on donation U/S 61: Tax credit shall be allowed on lower of the following: - Actual amount of donation i.e. 56,000 - 30% of taxable income i.e. 1,088,500 x 30% = 326,550

Tax credit = 56,000 x 48,350 / 1,088,500 2,487 Total tax liability 45,863

Less: Tax deducted at source 26,500 Balance tax payable 19,363

Note 1 In the absence of information only 1/5th repair allowance has been claimed against income from property.

Summer - 2011 Q. 2 (c) (i)

Rupees

Rent of the property 50,000 (per month)

From the following compute the amount of "Income from Property" chargeable to tax for the year ending June 30, 2010



Forfeited amount under a contract for the sale 100,000 Refundable security deposit 500,000 Annual maintenance charges paid by the owner of the property 25,000

Solution:

Name of taxpayer Computation of taxable income and tax liabilityFor the Tax year 2016

Rs.INCOME FROM PROPERTY U/S 15

Rent of property (Rs. 50,000 x 12 months) 600,000 Add: Forfeited amount under a contract for the sale 100,000 Rent chargeable to tax 700,000

Less 1/5th repair allowance of rent chargeable to tax before any deduction (140,000) (Ignore maintenance expenses that may be less or more than 1/5th allowance)Rent chargeable to tax for taxability purposes 560,000

(N - 1) No treatment of refundable security has been made as the same shall autocatically transferred to rental incomeon expiry against which advance rent has been given.


Summer - 2011 Q. 5

Mr. Hussain Ahmad is an officer in a public listed company. He derived the following salary income during the taxyear ended June 30, 2010:

Rs. Basic salary 50,000 (per month) House rent allowance 22,500 (per month) Utility allowance 5,000 (per month) Medical allowance 6,000 (per month) Leave encashment 50,000

(i)

(ii) He has paid Zakat of Rs. 25,000 to an approved institution.

(iii) He paid a donation of Rs. 20,000 to a charitable institution for which a tax credit is allowed u/s 61.

(iv)

(v) He received a pension amounting to Rs. 7,000 p.m from his past employment in the government.

Required: Compute the amount of taxable income and tax liability of Mr. Hussain for the tax year 2010.

Solution:

Mr. Hussain Ahmad (Resident)Computation of taxable income and tax liabilityFor the Tax year 2016

Rs. Rs.

Company also provide him with a 800CC car valuing Rs. 600,000 as per books of accounts. The car is used forofficial and personal purposes.

He paid donation of Rs.10,000 to an approved institution specified u/c (61) of part 1 of second Schedule.

on expiry against which advance rent has been given.


Basic salary (Rs. 50,000 x 12 months) (Note - 1) 600,000 House rent allowance (Rs. 22,500 x 12 months) (Note - 1) 270,000 Utility allowance (Rs. 5,000 x 12 months) (Note - 1) 60,000 Medical allowance (Rs. 6,000 x 12 months) 72,000 Less: Exempt upto 10% of basic salary U/C 139 60,000 12,000 Leave encashment (Note - 1) 50,000



Conveyance (Rs. 600,000 x 5% of cost of asset to employer) U/R 5 30,000 Pension as Govt. employee (exempt u/c 9 of Part I of second schedule) - Total income 1,022,000

Less: Zakat paid (maximum upto total income) (25,000)

Donation to institution specified in u/c 61 of Part 1 of 2nd Schedule: Lower of following two amounts shall be deducted from income (as exempt income)

- 30% of taxable income (30 / 130 on Rs. 997,000) however here is 997,000 less 10,000 donation allowable = 987,000 x 30% = 296,100 or - Actual amount of donation i.e. Rs. 10,000 (10,000) Taxable income 987,000


As the person is having only salary income hence tax liability for a salaried person is computed as under:

Tax on Rs. 987,000 [14,500 + 10% x (987,000 - 750,000)] 38,200

Less: Tax credit on donation u/s 61Tax credit shall be allowed on lower of following

- 30% of taxable income i.e Rs. 296,100 - Actual amount of donation i.e. Rs. 20,000


- Actual amount of donation i.e. Rs. 20,000

Tax credit = (20,000 x 38,200 / 987,000) (774) Balance tax payable 37,426

(Note 1) Basic salary, utility allowance, house rent allowance and leave encashment are totally taxable.

Summer - 2010 Q. 5

The Trading & Profit and Loss Account of M/s. Arshad Limited for the year ended on 30th June, 2009 is as under;

Rs. "000" Rs. "000"

Sales 2,300,000 Less: Cost of sales 1,571,000 Gross profit 729,000 Less: expenses

Salaries and wages 170,000 Office rent 55,000 Telephone expenses 39,500 Travelling and conveyance 41,500 Forwarding 61,000 Entertainment 2,500 Miscellaneous 9,000 Office stationery 9,000 Depreciation 58,000 Income tax for last year 54,000 Bad debts 9,000 Doubtful debts 5,000 Donations 900 Donations 900 Liquidated damages 500 Insurance 6,000 Provision for taxation 79,000 (599,900)

Net Profit 129,100

Notes and additional information:

(i) A sum of Rs. 900,000 written off last year and allowed by the Income Tax Department, has been recovered and credited to bad debt reserve.



(ii) Un-vouched and un-detailed expenses included in the entertainment amounted to Rs. 350,000.

(iii) Depreciation allowable as per the Income Tax Law is Rs. 66,000,000.

(iv) Salaries and wages include payment of Rs. 250,000 without deducting tax at source.

(v) Salary paid amounting to Rs. 240,000 in cash.

(vi) Donation Rs. 500,000 paid to an approved institution specified in Clause (61) of part I of second schedule.

(vii) Donation Rs. 400,000 paid to an approved institution but not specified u/c (61) of part I of second schedule.

(viii) Pre-paid insurance Rs. 250,000.

Required: Compute the taxable income and tax liability of the Company for the tax year 2009.

Solution:

M/s Arshad LimitedComputation of taxable income and tax liabiltiy:For the Tax year 2016

Rs. Rs.INCOME FROM BUSINESS U/S 18 (000) (000)

Profit as per accounts 129,100

Add: Inadmissible items

Accounting depreciation 58,000


Accounting depreciation 58,000 Income tax for last year 54,000 Doubtful debts 5,000 Donation to approved institution (credit shall be allowed) 400 Donation to approved institution (under clause 61) 500 Provision for taxation 79,000 Bad debts recovered from allowed portion (assumed credited to liability 900 otherwises the same shall be ignored for taxable income comuptation as already included in given accounting profit)Unvouched and un-detailed expenses 350 Payment of salaries without tax deduction & cash payment (Rs.250,000 + 240,000) 490 Pre-paid insurance 250

198,890 Less: Admissible items 327,990

Tax depreciation (66,000) Total income 261,990 Less: Donation to approved institution (under clause 61) (Straight deduction shall be allowed up to lower of actual amount of donation or 20% of taxable income)

- Actual amount of donation i.e. Rs. 500,000 (500) - 20% of taxable income i.e. Rs. 43,665,000

Comparison shall be made in separately 20% x (Rs. 261,990,000 x 100 / 120)Taxable income 261,490


Alternative Corporate tax U/S 113C (A) 21,947 Alternative Corporate tax U/S 113C (A) 21,947 [[Accounting profit under NTR Rs. 129,100 x 17%]

Tax on taxable income @ 32% (B) 83,677

Turnover tax u/s 113 @ 1% of Rs.2,300,000,000 (C) 23,000

Tax liability higher of (A), (B) or (C) 83,677



Less: Tax credit on donation Tax credit shall be allowed on lower of:

- 20% of taxable income i.e Rs. 52,298 - Rs.400

Hence tax credit (400 x 83,677 / 261,490) 128 Balance tax payable 83,549

Winter - 2009 Q. 4

Following is the Profit and Loss account of M/s Fast Track Company (Pvt.) Ltd for the year ended on 30-06-2009

Rs. Rs.Sundry expenses 8,000 Gross Profit 840,000Office salaries 104,000 Casual income 2,000Rent, rates and taxes 32,000 Premium on issue of debentures 40,000Income tax 10,400 Recovered bad debtsLegal charges 7,200 (allowed in the past) 1,600Advertisement 20,000 Dividend 8,000Auditor's fees 24,000Cost of issue of debentures 20,000Loss on sales of furniture 8,000


Loss on sales of furniture 8,000P. F. contribution 28,000Bad debts 16,000Vehicle expenses 32,000Fire insurance premium 28,000Communication 3,600Provision for taxes 36,000Provision for bad debts 16,000Liquidated damages 12,000Depreciation 160,000Net Profit 326,400

891,600 891,600

Required:Compute the net taxable income of the company for the tax year 2010 from the above data after keeping in viewthe following notes:

(i) Sundry expenses include Rs.1,600 paid to an institution not recognized u/s 61.(ii) Office salaries include Rs.20,000 paid to one of the directors.(iii) Provident Fund is recognized by the Income Tax Department.(iv) Vehicle expenses are not vouched and verifiable to the extent of Rs.6,000.(v) Actual depreciation works out to Rs.136,000 only.

Solution:

M/s Fast Track Company (Pvt) LimitedComputation of taxable incomeFor the tax year 2016 Rs. Rs.


Profit as per accounts 326,400 Profit as per accounts 326,400

Add: Income tax 10,400 Provision for taxes 36,000 Provision for bad debts 16,000 Unvouched vehicle expenses 6,000 Donation to unapproved institution 1,600 Accounting depreciation 160,000 230,000



Less: Tax depreciation 136,000 Dividend (excluded to calculate income from business) 8,000 144,000

412,400 INCOME FROM OTHER SOURCES U/S 39

Dividend income (Not to include in taxable income as fully covered under final tax regime) - Taxable income 412,400

Notes:

1.

2.

Summer - 2009 Q. 3(b)

Mr. Ali Hassan a professor and Irani citizen entered into an employment contract with a government university in Pakistan for

Cost on issue of debenture and premium on issue of debenture expenses alongwith casual income, preimum onissue of debentures and recovery from already allowed bad debts have no impact on taxable income hence thesame has been ignored.

In the abscence of sales no turnover tax has been computed, however where the turnover tax is higher than thetax as compared to the tax under normal tax regime and alternative corporate tax U/S 113C of the Ordinancethen the same is to be paid by the Company.


Required:(i)

(ii)

Solution:

(i)

(a)

(b)

(i) a public holiday;(ii) a day of leave, including sick leave;

Mr. Ali Hassan a professor and Irani citizen entered into an employment contract with a government university in Pakistan forteaching and research work. The university is incorporated u/s 42 of the Companies Ordinance, 1984 as a non-profitorganization.

The employment contract was effective from November 01, 2007. However, Mr. Ali Hassan arrived in Pakistan on November02, 2007. Since November 03, 2007 was Sunday therefore he could not join his office. On Monday November 04, 2007 hebecame ill and had to be hospitalized for the next five days and joined office on November 09, 2007. Due to his continuousillness he took sick leave and went back to Iran on November 10, 2007.

A part of a day that an individual is present in Pakistan (including the day of arrival in, and the day of departure from, Pakistan) counts as a whole day of such presence;

the following days in which an individual is wholly or partly present in Pakistan count as a whole day of such presence:

The following rules apply in computing the number of days an individual is present in Pakistan in a tax year:

Mr. Ali Hassan came back to Pakistan on January 03, 2008 and remained in Pakistan for the purpose of his employment tillJune 30, 2008.

State the provisions applicable to .Resident Individual. under Rule 14 of the Income Tax Rules, 2002, to determine the number of days an individual is present in Pakistan.

Determine the residential status of Mr. Ali Hassan with reasons in accordance with Rule 14 of the Income Tax Rules, 2002.

(ii) a day of leave, including sick leave;(iii)

(iv)

(c)

(ii)Days

a day that the individual's activity in Pakistan is interrupted because of a strike, lock-out or delay in receipt of supplies; ora holiday spent by the individual in Pakistan before, during or after any activity in Pakistan;

a day or part of a day where an individual is in Pakistan solely by reason of being in transit between two differentplaces outside Pakistan does not count as a day present in Pakistan.



- Day of arrival in Pakistan on November 2, 1 - Public holiday (Sunday) on November 3, 1 - Sick leave from November 4, to November 9 6 - Day of departure from Pakistan on November 10, 1 - From January 3rd (day of arrival) to 30-06-2016 180

189

Summer - 2009 Q. 4

Mr. Jamshaid is an executive in a group of companies. He derived following incomes during tax year 30-06-2008.

Particulars(i) Salary Income (per month):

Rs.· Basic Salary 20,000 · House rent allowance 8,000 · Utility allowance 1,000 · Medical allowance 1,000 · Expenses on children books 400

As his stay in Pakistan has met the condition of minimum 183 days, therefore he is resident individual under Rule 14 of theIncome Tax Rules, 2002.


· Expenses on children books 400

Tax deducted at source from salary amounted to Rs.15,000.

(ii) Property Income:Rs.

· Rent from a house let out per month 10,000 · He incurred following expenses on this property during the year: - Repairs 30,000 - Collection charges 7% of rent - Ground rent 10,000 - Property tax 15,000 - Rent-sharing with housing finance company 3,000 per month

Rs.(iii) Other Income:

· Profit on PLS bank account (net of 10% tax withheld) 9,000 · Commission from insurance company and from sale of plots 18,000 (net of 10% taxes withheld)· Lecturing and examination services fees from professional institutes 18,800

He received a deposit of Rs.200,000, not adjustable against rent, out of which he refunded Rs.100,000 to previous tenant who vacated the house after 3 years tenancy.

He is also provided with a 1000cc car, which is partly used for company business. As per books of accounts, the cost of the car is Rs.650,000. He has also been granted with a housing loan of Rs.500,000 on which no profit/ interest has been charged.

In addition to above, he also received gratuity of Rs.70,000 from his previous employer during the year. The gratuity fund isnot approved by the Commissioner Income Tax or Federal Board of Revenue.

· Lecturing and examination services fees from professional institutes 18,800 (net of 6% tax withheld) · Birthday present cash bonds 50,000

(iv) Gain on sale of shares of KayToo Ltd., a public listed company 55,000

Required: As a tax consultant you are required to compute Mr. Jamshaid’s total income and his income tax liability for the tax year 2008.



Solution

Mr. JamshaidComputation of taxable income and tax liability:For the tax year 2016


Basic salary (Rs. 20,000 x 12 months) 240,000 House rent allowance (Rs. 8,000 x 12 months) 96,000 Utility allowance (Rs. 1,000 x 12 months) 12,000 Medical allowance (Rs. 1,000 x 12 months) 12,000 Less: Exempt upto 10% of basic salary U/C 139 of Part 1 of 2nd schedule 24,000 - Expenses on children books (reimbursed by employer) 4,800 Conveyance (650,000 x 5%) U/R 5 of Income tax Rules, 2002 32,500 Interest free loan (not included in taxable income as loan does notexceed Rs. 500,000) - Gratuity received 70,000 Less: Exempt under clause 22 of Part I of 2nd Schedule lower of:

- Rs. 75,000- 50% of amount receivable i.e. 35,000 35,000 35,000

420,300 INCOME FROM PROPERTY U/S 15



Rent from house (Rs. 10,000 x 12 months) 120,000 Add: unadjustable advance [(200,000 - (100,000 x 3) /10)] /10 17,000 Rent chargeable to tax 137,000

Less: allowable expenses U/S 15A - Repairs (Actual restricted to 1/5th of rent chargeable to tax) (27,400) - Collection & admin. Exp (Maximum 6% of rent chargeable to tax) (8,220) - Ground rent (10,000) - Property tax (15,000) - Rent-sharing with housing finance company 3,000 per month

Less: Rent sharing with housing finance company (36,000) 40,380


Lecturing and examination services fee (18,000 / 90%) 20,000 Birthday present cash bonds (Not taxable as a sort of liability) - Taxable income 480,680


Tax liability under NTR

Tax on Rs. 480,680 [0 + 2% x (480,680 - 400,000)] (A) 1,614

Less tax under NTR on services income (assumed same amount

As the taxable salary income of the indiviual constitute more than 50% of the total taxable income hence tax under salaryslab is computed as under.

Less tax under NTR on services income (assumed same amountas profit on services) Rs.20,000 x 1,614 / 480,680 (B) 67 Net tax under NTR (A - B) (C) 1,546

Minimum tax on services (Rs. 20,000 x 10%) = (D) 2,000 2,000

Tax liability (C) plus higher of (B) and (D) 3,546

Tax liability under FTR / SBITax on profit on PLS account (9,000 x 10% / 90%) 1,000 Tax on commission (18,000 x 10% / 90%) 2,000



Tax on gain on shares of public listed company (assumed that holding period is more than 4 years) - Total tax liability 6,546

Less: Tax deducted at sourceOn salary 15,000 Profit on PLS account 1,000 On commission income 2,000 On sevices 1,200

19,200 Balance tax refundable (12,654)

Winter - 2008 Q. NO. 3 (b)

Required: 1- State the Set off and Carry forward of losses of AOP’s. 2- Compute the amount of loss to be carried forward by the firm.

Solution

1- State the Set off and Carry forward of losses of AOP’s.

An AOP, being taxable independent of its members, is entitled to set-off and carry forward its losses as other persons are

Four partners firm comprising Mr. JS, KK, TT, RR are sharing profit and losses equally. The unadjusted loss of “AOP” standsat Rs. 444,000. Mr. RR submits resignation and retires from business.


2- Compute the amount of loss to be carried forward by the firm.Rs.

Total unadjusted loss 440,000 Less: share of Mr. RR ( 440,000 / 4) 110,000 Loss to be carried forward 330,000

Winter - 2008 Q. 4

Rs.Salary 210,000Bonus 10,000Reward on passing an examination required by the terms of his employment 35,000House allowance (per month) 10,000Conveyance allowance (per month) 1,500Medical allowance (Actual expenses Rs. 17,000) 20,000Entertainment allowance 12,000Flying allowance 60,000Property income (including Rs. 2,000 per month for rent of furniture and fittings) 120,000

Expenditures claimed:· Legal expenses 7,500· Property tax 5,000· Insurance premium 3,000· Water charges paid (current Rs.10,000 + arrears Rs. 2,000) 12,000

entitled. As the share received by a member out of the incomes of an AOP is exempt from tax, the member is not allowed toset-off and carry forward his respective share in losses of the AOP. Only AOP can set-off and carry forward its losses in

accordance with the rules specified in sections 56 to 59 of the Income Tax Ordinance, 2001

Mr. Shahbaz is an officer in a Pakistani Airline. He provided the following particulars of his sources of income pertaining tothe tax year 2009:

· Water charges paid (current Rs.10,000 + arrears Rs. 2,000) 12,000Dividend (Zakat deduction Rs. 250 and tax deduction Rs. 1,000) 10,000Leave encashment 25,000Birthday present 10,000Insurance money received on maturity of policy 100,000Capital gain on sale of shares of a private ltd., co.(Shares were retained for 18 months) 25,000Expenses on children education (receipts are available) 40,000Professional books purchased (receipts are available) 5,000



Zakat paid 10,000Tax deducted at source 10,000

Required:Compute total income and tax liability of Mr. Shahbaz for the tax year 2009.

Solution

Mr. ShahbazComputation of taxable income tax liabilityFor the tax year 2016


Salary 210,000 Bonus 10,000 Reward on passing an examination required by the terms of his employment 35,000 House allowance (totally taxable) (Rs. 10,000 x 12 months) 120,000 Conveyance allowance (assumed not for discharge of official performance) (Rs. 1,500 x 12) 18,000 Medical allowance (Actual expenses shall be ignored) 20,000 Less: Exempt upto 10% of basic salary U/C 139 21,000 - Entertainment allowance (assumed not for discharge of official performance) 12,000 Leave encashment 25,000 Flying allowance (Note 2) 60,000 -

430,000


430,000


Income from property (including furniture & fixtures) 120,000 Less: rent of furniture and fittings (Rs. 2,000 x 12 months) 24,000 Rent chargeable to tax 96,000

Less: allowable expenses

1/5th repair allowance of rent chargeable to tax 19,200 Legal expenses 7,500 Property tax 5,000 Insurance premium 3,000 Water charges paid (current Rs.10,000 + arrears Rs. 2,000) 12,000

46,700 49,300

CAPITAL GAINS U/S 37

Gain on sale of shares of private company (25,000 x 75%) 18,750 (Holding period is more than 1 year hence 25% is exempt)


Rent of furniture and fittings (accrual basis 2,000 x 12) 24,000 Total income 522,050 Less: Zakat (including zakat paid on shares) 10,250 Taxable income including SBI income 511,800

COMPUTATION OF TAX LIABILITY;

As the salary income of the individual constitute more than 50% of the total income hence tax under salary slab is computed as under.


Tax on Rs. 511,800 [2% x (511,800 - 400,000)] 2,236 Flying allowance (Rs. 60,000 x 2.5%) 1,500 (Taxable as separate Block of income @ 2.5% upto one annual Basic Pay)Tax on dividend (SBI under FTR) 1,000 Total tax liability 3,236

Less: Tax deducted at source



Tax on dividend 1,000 Other tax deducted at source 10,000


(Note 1)

(Note 2)

Summer - 2008 Q. 2(b)

Flying allowance received as Officers other than as Pilot shall not be included in taxable income as the same istaxable as a SBI @ 2.5% upto basic pay u/c (1) of Part III of 2nd Schedule to the Income Tax Ordinance, 2001. Ifthe flying allowance is more than the basic pay then the balance shall be included in the taxable income underNTR of the individual.

If the flying allowance and other allowances shall be received as Pilot of any Pakistani Airline the same shall beincluded in the taxable income under NTR upto basic pay. If the flying and other allowances are more than thebasic pay then the balance shall be taxable as a SBI @ 7.5% u/c (1AA) of Part III of 2nd Schedule to the ITO,2001.

Mr. Naseer is an employee of M/s. ABC (Pvt) Limited, the terms of employment provide that the tax will be paid by the company. The company paid a total of Rs. 1,535,000/= to Mr. Naseer and the Income Tax Department. The rate of tax is 14%.

Birthday present, insurance policy on maturity, expenses on childern education and professional bookspurchased have no impact on computation of taxable income and tax thereon.


Required:

Solution

Salary ?Tax @ 14% ? x 14%Total amount paid 1,535,000

? + (? x 14%) = 1,535,000

1.14? = 1,535,000

? = 1,535,000 / 1.14

? = 1,346,491

Salary paid (as calculated above) = 1,346,491Tax paid (1,535,000-1,346,491) = 188,509

Summer - 2008 Q. 4

Rs.

Paid-up capital 21,000,000 Losses carried forward (taxable loss) (155,000) General reserves -

20,845,000

During the financial year ended 30-06-2007, its books of accounts show the following balances:

14%.

Company Zaighm Chemicals (Pvt) Ltd . was incorporated on 1st January, 2006 and started its production and servicesactivities from 15th January 2006. Company has total 150 employees. Its paid-up capital and reserves as on 30-06- 2006were as under:-

Calculate the amount of tax paid by ABC (Pvt) Limited u/s 149 of the Income Tax Ordinance, 2001 on account of salary on account of salary and the amount of salary paid to Mr. Naseer.

i) Raw Material a Imported value (before custom duty and taxes) 55,000,000a Local purchases 4,500,000

ii) Other manufacturing / trading expenses 6,500,000iii) Selling and admin expenses 12,600,000

78,600,000

Additional information:1) To sell its products, the company's value addition is 30% of the cost of goods sold.



2) Both the raw material and finished goods are subject to following levies:i) Sales Tax @15 %.ii) Additional Sales Tax @ 2 % on imports.iii) Special Federal Excise Duty @ 1 % on imports and goods sold.iv) Customs duty on import value @ 25%.v) Income Tax @ 6% on import value plus customs duty and Sales Tax.

6) No opening and closing stocks.

Required:a) Under what category this company falls for Income Tax purposes? b) Workout company's sales. c) Workout its net profit chargeable to income tax for the tax year 2007 (ignore initial depreciation).

5) Utilites bills amounting to Rs.760,000 charged to profit and loss expense include Rs. 86,000 of withholding income tax and Rs. 134,000 sales tax.

7) Applicable tax depreciation: @15% on machinery and @ 30% on computer and laptop respectively (ignore initial tax depreciation)

3) Manufacturing expense includes Rs. 5,000,000 on account of depreciation charged on plant and machinery and Rs. 80,000 charged on computers in selling and administration expenses. The rate of depreciation charged by company on both types of assets is 25%.

4) A laptop purchased for Rs. 80,000 for use by the Chief Executive was charged to profit and loss expenses.


c) Workout its net profit chargeable to income tax for the tax year 2007 (ignore initial depreciation).d) What are company's tax and duties liabilities under the:

i) Customs Act, 1969. ii) Sales Tax Act, 1990 iii) Federal Excise Act, 2005 iv) Income Tax Ordinance, 2001

Solutiona) Under what category this company falls for Income Tax purposes?

b) Workout company's salesSales = Cost of goods sold + (Cost of goods sold x 30%)Sales = 79,750,000 + (79,750,000 x 30%)Sales = 79,750,000 + 23,925,000Sales = 103,675,000Cost of goods soldImported value (before custom duty and taxes) 55,000,000Custom duty @ 25% 13,750,000Local purchases 4,500,000Other manufacturing / trading expenses 6,500,000

79,750,000 c) Workout profit chargeable to income tax

Rs. Rs.Sales 103,675,000 Cost of sales 79,750,000 Gross profit 23,925,000 Selling and admin expenses 12,600,000

Being as manufacturer the income of the company is fully covered under Normal Tax Regime u/s 153 of the Income taxOrdinance, 2001 and being as small company the rate of tax shall be 25%.

Selling and admin expenses 12,600,000 Profit before tax as per accounts 11,325,000

Add: Accounting depreciation ( 5,000,000 + 80,000 ) 5,080,000 Purchase of Laptop charged to profit and loss account 80,000 Income tax and sales tax paid with electricity bills (86,000 + 134,000) 220,000

5,380,000 Less: Tax depreciation:

On plant and machinery [ (5,000,000 / 25%) x 15%] 3,000,000



On computers [ (80,000 / 25%) x 30%] (Assumed for business use) 96,000 On laptop (assumed used) (Rs. 80,000 x 30%) 24,000

3,120,000 13,585,000

Less: Losses b/f 155,000 Taxable income 13,430,000

d) (iv)COMPUTATION OF TAX LIABILITY:

Alternative Corporate tax U/S 113C (A) 1,925,250 [[Accounting profit under NTR Rs. 11,325,000 x 17%]

Tax on Rs. 13,430,000 @ 25% (B) 3,357,500

Minimum tax u/s 113Tax on Rs. 103,675,000 x 1% (C) 1,036,750

Tax liability: Higher of (A), (B) or (C) 3,357,500

Less: Tax required to be on imports


Tax required to be on imports[ { (55,000,000 + 13,750,000) x 1.17 } x 5% ] 4,021,875 Advance tax paid with electricity bill 86,000

4,107,875 Balance tax refundable (750,375) d) (i)Duty payable under Custom Act, 1969.Imported value (before custom duty and taxes) 55,000,000

Custom duty @ 25% 13,750,000

d) (ii)Tax payable under Sales Tax Act, 1990.3% additional sales tax is not applicable on imports to be used for own use.Output tax:

Sales tax on sales (103,675,000 x 17%) 17,624,750 Input tax:

Sales tax on purchases [ (55,000,000 + 13,750,000) x 17%] 11,687,500 Sales tax payable 5,937,250 d) (iii)Tax payable under Federal Excise Act.No amount is payable under this Act in tax year 2016 as SED is no more applicable.

Winter - 2007 Q. 2(b)“X” Limited has granted an option to all of its employees for purchase of its 1,000 shares at a price of Rs. 25/- per share.Habib, one of the employees has exercised the option available to him. The market value of the shares at the time ofexercise of option was Rs. 45/- per share.

Required: Compute the income, if any, chargeable under the following heads of income:(i) Salary income; and (ii) Capital gain

Solution

Mr. HabibComputation of taxable income

exercise of option was Rs. 45/- per share.



INCOME FROM SALARY U/S 12

FMV of shares under employee shares scheme (1,000 x 45) Note 1 45,000 Less: cost of shares (1,000 x 25) 25,000

20,000

CAPITAL GAIN U/S 37 Note 2 - Taxable income 20,000

Note 1: It is assumed that shares were issued to employees without any restriction on their sale or transfer.

Note 2: As shares have not been sold by Mr. Habib, hence nothing shall be taxable under head capital gain.

Winter - 2007 Q. 4

Mr. Arif, Baqar and Umer are member of an Association of Persons (AOP) "FRIENDSCO" and share the profit &loss in the ratio of 1:2:3 respectively. They wanted to know their tax liability for the tax year, 2008. Accountant ofM/s FRIENDSCO., has prepared the following profit and loss account:

(Rupees)Sales 6,400,000 Cost of sales 3,200,000


Cost of sales 3,200,000 Gross profit 3,200,000 Selling and admin expenses 2,400,000 Net profit before tax 800,000

Additional Information:

1. It is a wholesale business and sales include supplies of Rs. 800,000 to government departments subject to withholding tax.

2. Expenses include:

(i) Accounting depreciation of Rs. 75,000 on vehicle with W.D.V., of Rs. 500,000

(ii) Provision for bad debts of Rs. 50,000 has been made, whereas actual bad debts are Rs. 80,000.

(iii) Commission of Rs. 120,000 has been paid to Mr. Arif for promotion of sales

(iv) Utility bills amounting to Rs. 80,000 charged to expenses include Rs. 15,000 income tax withheld onthese bills.

3. Mr. Baqar is a sleeping partner. He is working as full time teacher in a university and receives monthly pay and allowances as under:

(i) Pay Rs. 60,000

(ii) House rent allowance Rs. 30,000

4. Mr. Umer is in reciept of income from property of Rs. 50,000 per month.

5. The accounting depreciation on vehicle is also charged @ 15% of W.D.V., which coincides with the statutory rate of depreciation.

Solution

M/s FRIENDSCOAOPComputation of taxable income and tax liabilityFor the tax year 2015

Rs. Rs. Rs.Total NTR FTR



Allocation percentage (on basis of sales) 100% 87.50 12.50 (Rs. 5,600,000 / 6,400,000 x 100) = 87.5%

Sales 6,400,000 5,600,000 800,000 Cost of sales 3,200,000 2,800,000 400,000 Gross profit 3,200,000 2,800,000 400,000 Selling and admin exp. (assumed including bad debts) 2,400,000 2,100,000 300,000 Net profit before tax 800,000 700,000 100,000

Add:Accounting depreciation 75,000 65,625 9,375 Provision for bad debts 50,000 43,750 6,250 Commission paid to partner (Mr. Arif) 120,000 105,000 15,000 Income tax withheld on utility bills 15,000 13,125 1,875

260,000 227,500 32,500 Less:Tax depreciation (Rs. 500,000 x 15%) = 75,000 65,625 9,375 Taxable income of AOP 985,000 861,875 123,125


Tax liability under NTR:


Tax liability under NTR:Tax on Rs. 861,875 [32,000 + 15% x (861,875 - 750,000)] (A) 48,781

Minimum tax u/s 235(4)Tax paid with electricity bill (B) 15,000

Higher of (A) or (B) 48,781

Tax liability under FTR:Tax on Government Supplies (Rs. 800,000 x 4.5%) = 36,000 Total tax liability 84,781 Less: Tax paid / deducted at source

Tax on supplies ( Rs.800,000 x 4.5%) 36,000 Tax on electricity bills 15,000

51,000 Balance tax payable 33,781

Divisible Income of AOP:

Taxable income under NTR 861,875 Tax on income under NTR 48,781 Divisible income 813,094

AOP income from FTR has been ignored for divisiable income among the partners.

Calculation of share of profit from AOPTOTAL Mr. Arif Mr. Baqar Mr. Umer

Share 6 1 2 3

Commission 120,000 120,000 - - Commission 120,000 120,000 - - Balance divided (in sharing ratio) 693,094 115,516 231,031 346,547

813,094 235,516 231,031 346,547

COMPUTATION OF TAXABLE INCOME and TAX LIABILITY OF MEMBERSMr. Arif Mr. Baqar Mr. Umer

INCOME FROM SALARY U/S 12



Pay (Rs. 60,000 x 12 months) 720,000 House rent allowance (Rs. 30,000 x 12 months) 360,000 Taxable income 1,080,000 Income from property - - 600,000 Share from AOP (for rate purpose) - 231,031 346,547 Taxable income for rate purpose 1,311,031 946,547

Note: Share from AOP has not been included in income of Arif and Umer as they have no other income chargeable to tax under NTR.

Computation of tax liability: Mr. Arif Mr. Baqar Mr. Umer

As the salary income of Mr. Baqar constitute more than 50% of the total income hence tax under salary slab iscomputed as under.

Tax liability under NTR:

Tax on Rs. 1,311,031 [14,500 + 10% x (1,311,031 - 750,000)] - 70,603 - Tax on Rs. 946,547 [32,000 + 15% x (946,547 - 750,000)] - - 61,482

Less: 40% reduction to full time teacher - 28,241 - - 42,362 61,482

Less: Tax on share profit from AOP


Less: Tax on share profit from AOP(42,362 / 1,311,031 x 231,031) - 7,465 - (61,482 / 946,547 x 346,547) - - 22,510 Balance tax payable - 34,897 38,972

Note: In the absence of information it has been assumed that the property income is after allowable expenses.

Summer - 2007 Q. 4

Salary income:

1. Basic salary Rs. 1,800,000 per year

2. Dearness allowance 10% of basic salary

3. Medical allowance Rs. 25,000 per month

Managing Director is not entitled for any reimbursement of actual expenses of hospitalization or medicaltreatment.

4. The company disbursed on July 1, 2006 to Colonel Ahmed Ali, Rs. 3 million interest free loan to be recovered from the final dues on retirement. The bench mark rate for the year 2007 is 7% as notified by Federal Government

5. Company has paid Rs. 850,000 as annual rent for the accommodation provided to Managing Director.

6. He has been provided with a company maintained car for business and personal use. The purchase price of car is 1.2 million. Company also pays salary to driver @ Rs. 8,000 per month

Colonel (Retired) Ahmed Ali is the Managing Director of a listed public company and has provided the following details of his expected income and expenses for the year ending June 30, 2007:

7. Colonel Ahmed Ali is receiving pension from Army @ Rs. 10,000 per month

Property income:

Colonel Ahmed Ali owns a flat, which has been let out @ Rs. 45,000 per month. He has incurred followingexpenses to date on flat during the year.

a) Repair and maintenance Rs. 30,000 / -b) Property tax Rs. 20,000 / -



c) Insurance of flat Rs. 15,000 / -

Other Income:

1. Colonel Ahmed Ali has also received Rs. 500,000 as his share u/s 92(1) of Income Tax Ordinance, 2001 being the member of an AOP, where the AOP has paid the tax.

2. Colonel Ahmed Ali has won a cash prize of Rs. 200,000 from a company which offered the prize for promotion of sales u/s 156 of Income Tax Ordinance.

Required: Compute the expected total income, taxable income and income tax thereon for the tax year 2007.

Solution

Colonel (Retired) Ahmed AliComputation of taxable income and tax liabiltiyFor the tax year 2016


Basic salary 1,800,000 Dearness allowance (Rs. 1,800,000 x 10%) 180,000 Medical allowance (Rs. 25,000 x 12 months) 300,000 Less: Exempt upto 10% of basic salary U/C 139 180,000 120,000


Less: Exempt upto 10% of basic salary U/C 139 180,000 120,000 Interest free loan (3,000,000 x 10% p.a. for the whole year) 300,000 Accommodation provided

Higher of: Actual Rs. 850,000; or

45% of basic salary i.e. 810,000 850,000 Conveyance ( 1,200,000 x 5%) U/R 5 60,000 Salary to driver (Rs.96,000 x 50% for personal use) 48,000 Pension from Army (exempt) - Taxable salary income 3,358,000


Rent (Rs. 45,000 x 12 months) 540,000 1/5th fixed repair allowance irrespective of actual repair and maintenance (108,000) Property tax (20,000) Insurance of flat (15,000)

397,000 Taxable income 3,755,000 Share of profit from AOP included for rate purposes 500,000 Taxable income for rate purposes 4,255,000


As the salary income of the indiviual constitute more than 50% of the total income hence tax under salary slab iscomputed as under.


Tax on Rs. 4,255,000 [597,000 + 27.5% x (4,255,000 - 4,000,000)] 667,125

Tax on income excluding share from AOP(667,125 x 3,755,000 / 4,255,000) 588,732

Tax liability under SBI as FTRCash prize under section 156 (Rs. 200,000 x 20%) 40,000 Total tax liability 628,732

Note: Although no information has been provided however the aforesaid liability shall be reduced by Rs. 40,000 tax



Winter - 2006 Q. 5

Salary Income (per month)

Basic salary Rs. 22,500/- (in pay scale of Rs. 15,000 - 750 - 26,250)

Dearness allowance Rs. 1,500/-

Special relief allowance @ Rs. 15% of basic salary.

Flying allowance Rs. 15,000/-

Entertainment allowance Rs. 500/-

A 800cc vehicle is provided by the employer partly for official and partly for private use. The cost of the vehicle to the

You are engaged in the Income Tax Consultancy services. One of your clients Mr. A.B Malik, an employee of M/s. ExcellentAirlines, Peshawar, asks you to determine his total income, taxable inocme and income tax payable by him for tax year, 2007on the basis of the following information:

Medical allowance @ 5,000/- No free medical facility of hospitalization or re-imbursement of medical charges is provided by the employer.

Accommodation is provided by the employer. Mr. A. B. Malik is entitled to house rent allowance @ 60% of the minimum of pay scale, had the accommodation not been provided.

deducted at source on cash prize.


Property Income

Mr. A. B. Malik owns a house which is on rent @ Rs. 16,000 per month.

Investment / contribution during the year.

Investment in shares Rs. 50,000.Contribution to an approved pension fund Rs. 100,000.

SolutionMr. A.B. MalikComputation of taxable income and tax liabilityFor the tax year 2016

INCOME FROM SALARY U/S 12: Rs. Rs.

Basic salary (Rs. 22,500 x 12 months) 270,000 Dearness allowance (Rs. 1,500 x 12 months) 18,000 Special relief allowance (Rs. 270,000 x 15%) 40,500 Entertainment allowance 6,000 Medical allowance (Rs. 5,000 x 12 months) 60,000 Less: Exempt upto 10% of basic salary U/C 139 27,000 33,000 Accommodation:

A 800cc vehicle is provided by the employer partly for official and partly for private use. The cost of the vehicle to the employer is Rs. 450,000/-

Mr. A. B. Malik also obtained the concessional loan amounting to Rs. 1,500,000/- from the employer, mark-up rate of which is 4% per annum (Assume that the benchmark rate for the tax year, 2007 is 9% per annum).

Accommodation:Higher of 60% or 45% of MTS [(Rs. 15,000 x 12) x15%] 108,000

Conveyance (450,000 x 5%) U/R 5 22,500 Concessional loan from employer

Interest at benchmark rate of 10% 150,000 Less actual interest at 4% 60,000 90,000

588,000

Flying allowance (Note 1) 180,000 -



INCOME FROM PROPERTY U/S 15:Rent (16,000 x 12) (assumed after deductions) 192,000 Taxable income 780,000

COMPUTATION OF TAX LIABILITY:As the salary income of the individual constitute more than 50% of the total income hence tax under salary slab is computed as under.

Tax liability under NTRTax on Rs. 780,000 [14,500 + 10% x (780,000 - 750,000)] (A) 17,500 Less: Tax credit on investment in shares and insuranceTax credit shall be allowed on lower of:

- Actual amount of investment i.e. Rs. 50,000 - 20% of taxable income i.e. Rs. 156,000- Rs. 500,000

Tax credit = (50,000 x 17,500 / 780,000) 1,122

Less: Tax credit on contribution to approved pension fundTax credit shall be allowed on lower of:

- Actual amount of contribution i.e. Rs. 100,000 - 20% of taxable income under NTR including SBI income i.e. Rs.156,000


- 20% of taxable income under NTR including SBI income i.e. Rs.156,000

Tax credit = (100,000 x 17,500 / 780,000) 2,244 (B) 3,365

Add: Tax on Flying allowance (Rs.180,000 x 2.5% upt One annual basic pay) (C) 4,500 Balance tax payable D = A - B + C 18,635

(Note 1)

Summer - 2006 Q. 4

Salary Income (per month) Rs.Basic salary 18,000 House rent allowance 10,000 Utility allowance 6,000 Medical allowance 3,000 Conveyance allowance 5,000

Flying allowance received as Officers other than as Pilot shall not be included in taxable income as the same is taxable as a

SBI @ 2.5% upto one basic pay u/c (1) of Part III of 2nd Schedule to the Income Tax Ordinance, 2001. If the flying allowance

is more than the basic pay then the balance shall be included in the taxable income under NTR of the individual.

If the flying allowance and other allowances will be received as Pilot of any Pakistani Airline the same shall be included in the

taxable income under NTR upto basic pay. If the flying & other allowances are more than basic pay then the balance shall be

taxable as a SBI @ 7.5% u/c (1AA) of Part III of 2nd Schedule to the Income Tax Ordiannce, 2001.

Mr. Asghar Abbas is assistant manager in an engineering organization. He has engaged you as his tax consultant and

provided you with the following information of his estimated incomes and expenses for the year ending 30th June, 2006:-

Conveyance allowance 5,000

Property Income (per month)He owns 5 shops, which are rented out. His income and expenses in this behalf are as under:

Rs.Annual rent of 4 shops 96,000

Mr. Asghar owns and maintains a car, which he uses partly for his personal and partly for business use of his employer. InJanuary, 2006 he remained admitted in the hospital for 10 days and the employer reimbursed hospitalization charges of Rs.25,000.



Shop No. 5 remained occupied for 7 months at a rent of Rs. 1,200 per month.It was vacated through court order for which Mr. Asghar incurred Rs. 6,000 aslegal expenses

Ground rent 2,000

Collection charges paid 6,000

Property tax (This amount includes Rs. 5,000 of last year's tax not paid 10,000 2005.)

Agricultural Income 60,000

Dividend received on investment in shares of a public limited company (gross) 20,000

The employer has deducted tax at source from salary amounting to Rs. 12,000.

Required: You being a tax consultant of Mr. Asghar Abbas, calculate his taxable income and tax payable alongwith this payable along with his tax return.

SolutionMr Asghar AbbasComputation of taxable income and tax liabilityFor the tax year 2016

INCOME FROM SALARY U/S 12 Rs. Rs.


Basic salary (Rs. 18,000 x 12 months) 216,000 House rent allowance (Rs. 10,000 x 12 months) 120,000 Utility allowance (Rs. 6,000 x 12 months) 72,000 Medical allowance (Rs. 3,000 x 12 months) 36,000 Less: Exempt upto 10% of basic salary U/C 139 (Note - 1) 21,600 14,400 Conveyance allowance (Rs. 5,000 x 12 months) 60,000 Hospitalization charges reimbursed (Note- 1) 25,000 (Assumed that it is not in accordance with the terms of employment) 507,400


Rent of 4 shops 96,000 Rent of shop No. 5 (1,200 x 7) 8,400

104,400 Less: Admissible deductions U/S 15A

Legal expenses (6,000) 1/5th fixed repair allowance (20,880) Ground rent (2,000) Collection charges paid (6,000) Property tax (Excluding Rs. 5,000 of last year's tax not paid) (5,000)

(39,880) Net income from property chargeable to tax 64,520


Agricultural income (exempt u/s 41 & assumed tax paid under provincial law) 60,000 - Taxable income 571,920



Tax liability under NTR:Tax on Rs. 571,920 [2,000 + 2% x (571,920 - 500,000)] 5,596

Tax liability under SBI as FTR



Tax on dividend income 2,000 Total tax liability 7,596 Less: Tax paid / deducted at source:

On salary 12,000 On dividend income (although not given in question) 2,000

Balance tax refundable (6,404)

Winter - 2005 Q. 5

Salary IncomeRs. per month

Pay 90,000 House rent allowance 40,500

(Note-1) If the medical reimbursement of medical expeses to employee are provided alongwith medical allowance as per

terms of employment then the 10% exemption for medical allowance shall not be allowed however the medical re-

imbursement shall be totally exempt from tax provided the hospital / clinic NTN and bills are provided by the employee.

Following are the details of Mr. Shakeel for the financial year ended June 30, 2005 who is employed with the Institute ofComputer Sciences as Professor. He joined the Institute on July 1, 2004. Previously he worked with Institute of computerstudies. He was required to give 3 months' notice to his previous employer to terminate his employment. He served noticeperiod for 1 month and his current employer paid the notice pay equivalent to 2 months' salary to the previous employeramounting to Rs. 150,000. Other details for the year are as follows:


House rent allowance 40,500 Utilities 9,000

No company maintained car was provided to him. However, 175 litres petrol per month was given to him @ Rs. 50per litre.

Investments

Investment in shares of listed companies 175,000

House loan

Payment of interest to Commercial Bank on house loan 250,000

Charitable Donation: He paid Rs. 50,000 to non-profit organization.

Required: Compute taxable income and tax liability of Mr. Shakeel for tax year 2005. Prepare and present allnecessary workings.

Solution

Mr. Shakeel - ResidentComputation of taxable income and tax liabilityFor the tax year 2016


Pay (Rs. 90,000 x 12 months) 1,080,000 House rent allowance (Rs. 40,500 x 12 months) 486,000 Utilities (Rs. 9,000 x 12 months) 108,000 Petrol from employer (175 x 50 x 12) (assumed not for offical performance) 105,000 Employee's obligation paid by employer 150,000 Taxable salary income 1,929,000 Taxable salary income 1,929,000


As there is only salary income hence tax liability for salaried individual in computed as under.

Tax on Rs. 1,929,000 [137,000 + 17.5% x (1,929,000 - 1,800,000)] 159,575

Tax credit on investment in shares and insurance U/S 62Tax credit shall be allowed on lower of:



- Actual amount of investment i.e. Rs. 175,000- 20% of taxable income i.e. Rs. 385,800- Rs. 1,000,000

Tax credit = (175,000 x 159,575 / 1,929,000) 14,477

Tax credit on mark up on house loan U/S 64 (No more available) -

Tax credit on donation U/S 61Tax credit shall be allowed on lower of:

- Actual amount of donation i.e. Rs. 50,000- 30% of taxable income i.e. Rs. 578,700

Tax credit = (50,000 x 159,575 / 1,929,000) 4,136 18,613

Balance tax payable 140,962

Summer - 2005 Q. 5

Salary income:

Pay Rs. 60,000 per month

Following are the details of income of Mr. A. Rehman for the financial year ended June 30, 2004, who is employed with a company as Senior Manager.


Pay Rs. 60,000 per monthHouse rent allowance Rs. 27,000 per monthUtilities Rs. 8,000 per month

Rental income:Rs.

Annual letting value of property 372,000 (including Rs. 120,000 for furniture and fixtures).

During the year property remained vacant for 4 months 8,000 Ground rent paid 200,000

Business income 200,000

Capital gains:Cost of shares of unlisted companies (bought in 1986) 500,000 Sale proceeds of shares 600,000

Investments:Investment in shares of listed companies 180,000 Premium paid for life annuity eligible u/s 63 45,000

Required:Compute taxable income & tax liability of Mr. A. Rehman for the year. Prepare & present all necessary workings.

SolutionMr. A. Rehman - ResidentComputation of taxable income and tax liabilityTax year 2016

Rs. Rs.

He was provided with a company maintained car of 800 cc, partly for business and partly for his personal use. The cost of the car to the company was Rs. 500,000.

Rs. Rs.INCOME FROM SALARY U/S 12Pay (Rs. 60,000 x 12 months) 720,000 House rent allowance (Rs. 27,000 x 12 months) 324,000 Utilities (Rs. 8,000 x 12 months) 96,000 Conveyance (500,000 x 5%) U/R 5 25,000

1,165,000

INCOME FROM BUSINESS (asumed under NTR) U/S 18 200,000




8 months letting value of property [ (372,000 - 120,000) x 8/12] 168,000 Less: 1/5th of rent as repair allowance (33,600) Less: Ground rent (200,000) (65,600)


Rent of furniture and fixture (assumed for 8 months) 120,000

CAPITAL GAINS U/S 37Sale proceeds of shares 600,000 Less: cost of shares 500,000

100,000 Less: 25% exempt as sold after one year from the date of purchase u/s 37 25,000 75,000 Taxable income 1,494,400




computed as under.

Tax liability under NTRTax on Rs. 1,494,400 [79,500 + 12.5% x (1,494,400 - 1,400,000)] 91,300

Tax credit on investment in shares and insurance U/S 62Tax credit shall be allowed on lower of:

- Actual amount of investment i.e. Rs. 180,000- 20% of taxable income i.e. Rs. 298,880- Rs. 1,000,000

Tax credit = (180,000 x 91,300 / 1,494,400) 10,997

Tax credit on contribution to approved pension fund U/S 63Tax credit shall be allowed on lower of:

- Actual amount of contribution i.e. Rs. 45,000- 20% of taxable income i.e. Rs. 298,880

Tax credit = (45,000 x 91,300 / 1,494,400) 2,749 13,746

Balance tax payable 77,554

Winter - 2004 Q. 5

Rs.Sales 4,500,000 Gross profit 1,800,000

Mr. Baqar, Mr. Hadi, and Mr. Mikdad are members of an Association of Persons, (AOP) which is doing business under thename of M/s BHM Associates. As per their agreement, Mr. Baqar is entitled to receive 5% interest on his capital employed,besides his share from profit. Mr. Hadi is entitled to receive commission of 1% in recognition of his efforts to promote sales.The profit is to be distributed equally amongst the members. During the year ended June 30, 2004, the books of accounts ofM/s BHM Associates showed following results:

Gross profit 1,800,000 Selling and admin expenses 1,520,000

Further Notes are as under:

1. An asset, which has a written down value of Rs. 100,000 on July 1, 2003 was disposed of for Rs. 150,000 on May 30, 2004. Neither depreciation nor gain on its disposal was recorded in the books of accounts (Assets are depreciated at rates given in the third schedule to the Income Tax Ordinance, 2001).

2. Interest on capital employed and commission on sales were properly recorded in the books of accounts and paid to Mr.



4. Capital employed by each member of AOP is as under:Rs.

Mr. Baqar 1,000,000 Mr. Hadi 200,000 Mr. Mikdad 300,000

5. Other incomes of members were as under

Required:Work out the following:

3. Provision for bad debts charged to profit and loss account was 6% of sales. During the year actual bad debts written off amounted to Rs. 150,000.

(A) Mr. Baqar received salary of Rs. 300,000 (inclusive of house rent allowance of Rs. 120,000) from another company during the year. The employer deducted Rs. 21,000 tax at source from salary. He also earned profit of Rs. 20,000 on his bank deposits on which 10% tax was withheld by the bank.

(B) Mr. Hadi in addition to his commission and share of AOP income has also received agricultural income of Rs. 120,000 during the year. His income from his own buniness for the year ended June 30, 2004 was Rs. 100,000.

(C) Mr. Mikdad during the year supplied goods to government departments worth Rs. 1,500,000 on which Income Tax @ 3.5% was withheld by those departments

Baqar and Mr. Hadi.


Work out the following:(i) Taxable income of M/s BHM Associates (AOP), for the year, 2004.(ii) Taxable income of each of its members and their tax liabilities for the tax year, 2004.

Solution

M/s BHM Associates - Resident AOPComputation of taxable income and tax liabilityFor the tax year 2016 Rs.


Sales 4,500,000 Cost of sales 2,700,000 Gross profit 1,800,000 Selling and admin expenses 1,520,000 Net profit before tax 280,000

Add:Interest on capital to Mr. Baqar ( Rs. 1,000,000 x 5% ) 50,000 Commission to Mr. Hadi ( Rs. 4,500,000 x 1% ) 45,000 Gain on sale of fixed assets ( 150,000 - 100,000 ) 50,000 ( no depreciation shall be charged in the year of disposal)Provision for bad debts (6% of sales) 270,000

415,000 Taxable income of AOP 695,000


Tax liability under NTR:Tax liability under NTR:Tax on Rs. 695,000 [7,000 + 10% x (695,000 - 500,000)] 26,500

Divisible Income of AOP:

Taxable income under NTR 695,000 Tax on income under NTR 26,500 Divisible income 668,500

Calculation of share of profit from AOPTOTAL Mr. Baqar Mr. Hadi Mr. Mikdad



Share 3 1 1 1

Commission 45,000 45,000 Interest on capital employed 50,000 50,000 Balance (divided in partners) 573,500 191,167 191,167 191,167

668,500 241,167 236,167 191,167

Computation Of Taxable Income and Tax Liability Of MembersMr. Baqar Mr. Hadi Mr. Mikdad

INCOME FROM SALARY U/S 12Salary 300,000 - -

INCOME FROM BUSINESS U/S 18 - 100,000 -


Agricultural income (exempt under section 41) - Taxable income 300,000 100,000 - Share from AOP 241,167 236,167 - Taxable income for rate purpose 541,167 336,167 -

Note: Share from AOP shall not be included in the income of Mr. Mikdad as he has no source of income chargeable to tax under NTR.

Note: Tax rates for salaried individuals shall be applied on taxable income of Mr. Baqar, Tax rates for


Note: Tax rates for salaried individuals shall be applied on taxable income of Mr. Baqar, Tax rates for non-salaried individual shall be applied on taxable income of Mr. Hadi.

Computation of tax liability: Mr. Baqar Mr. Hadi Mr. Mikdad

Tax liability under NTR:[2,000 + 5% x (540,167 - 500,000)] 4,008 - -

Tax on income excluding share from AOP 2,222 - -

Tax liability under FTR:

Tax on profit on debt U/S 151 (Rs. 20,000 x 10%) 2,000 - - Tax on sale of goods U/S 153 (Rs. 1,500,000 x 4.5%) - - 67,500

2,000 - 67,500 Total tax liability 4,222 - 67,500

Less: tax deducted at source On salary U/S 149 21,000 - - Profit on debt U/S 151 2,000 - - on supply of goods U/S 153 - - 67,500

23,000 - 67,500 Balance tax refundable (18,778) - -

Summer - 2004 Q. 5

Mr. Qais Mansoor is Director-cum-Company Secretary of M/s Badar Salam and Co. Ltd., since the year 1990.

His monthly remunerations are as follows:Rs.

Basic salary 20,000 House rent allowance 8,333 Utility allowance 2,000 Utility allowance 2,000 Medical allowance 2,000

32,333

He was provided maintenacne cost of his private car used wholly for the company business on actual basis aggregating Rs. 20,000. He received bonuses equivalent to three basic salaries, plus two basic salaries as special merit rewards during the year.

The company disbursed funeral expenses of his parents in the amount of Rs. 20,000 and also medical costs on birth of his twin sons in the sum of Rs. 100,000 latter being as per employment terms.



He was decorated with the President's Award, in August 2002 and March 2003 worth Rs. 500,000.

He earned capital gains on sale of listed shares (Rs. 20,000) and on sale of land (Rs. 100,000).

Tax deducted from salary Rs. 40,000

He paid following amounts evidenced by receipts bearing payees N.T.Ns, wherever, applicable:

1. School fees @ Rs. 3,000 per month, for each of his two daughters.2. Fee to personal silicitor and tax adviser Rs. 20,000.3. Prior year income and penalties Rs. 50,000.4. Donation to approved institutions Rs. 500,000.5. Purchase of second car for Rs. 1,000,000 for family use.

SolutionMr. Qais Mansoor - ResidentComputation of taxable income and tax liabilityFor the tax year 2016


The company has also provided him with free furnished accommodation costing Rs. 200,000 per annum. The company also paid his tax liability of Rs. 20,000.

Required: As a tax consultant you are required to calculate total income, and tax liability of Mr. Qais Mansoor for tax year 2003.


INCOME FROM SALARY U/S 12Basic salary (Rs. 20,000 x 12 months) 240,000 Bonus (20,000 x 3) 60,000 House rent allowance (Rs. 8,333 x 12 months) 99,996 Utility allowance (Rs. 2,000 x 12 months) 24,000 Medical allowance (taxable as medical re-imbursment separately provided) (Rs. 2,000 x 12) 24,000 Reimbursement of official expenses (exempt) - Special merit reward (20,000 x 2) 40,000 Personal expenses paid by company (Funeral expenses) 20,000 Accommodation:

Higher of Rs. 200,000, or45% of B.S i.e. Rs.108,000 200,000

Tax liability paid by employer 20,000 727,996

CAPITAL GAINS U/S 37

Capital gain on sale of shares of listed company (SBI)(0% rate on the assumtion of holding period of shares is more than four years)

Gain on sale of land (not taxable on assumption of holding period is more than two years) -


President's award (exempt under 2nd schedule) -

Taxable income 727,996


As the salary income of the indiviual constitute more than 50% of the total income hence tax under salary slab iscomputed as under.computed as under.

Tax on Rs. 727,996 [2,000 + 5% x (727,996 - 500,000)] 13,400

Tax credit on donation U/S 61Tax credit shall be allowed on lower of:

- Actual amount of donation i.e. Rs. 500,000- 30% of taxable income i.e. Rs. 218,399

Tax credit = (218,399 x 13,400 / 727,996) 4,020



Total tax liability 9,380 Less: Tax deducted from salary 40,000 Tax paid by employer 20,000


Summer - 2003 Q. 5

Particulars Rs.Per month

(i) Salary incomeBasic salary 20,000 House rent allowance 8,000 Utility allowance 1,000 Medical allowance 1,000

Note: There is no treatment of school fee of children, fee to solicitor and tax adviser, prior year income and penalties and purchase of car.

Mr. Musaddiqe Noor is a consultant in a group of companies. He derived following income during the income year July 1, 2002 to June 30, 2003:

He is also provided with a 1,000 cc Car, which is partly used for company's business. He has also been granted with ahousing loan of Rs. 500,000 on which no profit/interest has been charged.


Tax deducted at source from salary amounted to Rs. 15,000.

(ii) Property income Rs.Rent from a house letout (per month) 10,000 He incurred following expenses on this property during the year:Repairs 30,000 Collection charges: 7% of rentGround rent 10,000 Property tax 15,000 Rent-sharing with housing finance company (per month) 3,000

(iii) Other income Rs.Profit on PLS Bank account (net of 10% tax withheld) 9,000 Commission from insurance Company and from sale of plots(net of 5% taxes withheld) 19,000 Lecturing and examination services fees from professionalinstitutes (net of 5% tax withheld) 19,000

Required:

housing loan of Rs. 500,000 on which no profit/interest has been charged.

In addition to above, he also received gratuity of Rs. 75,000 from his previous employers during the year. The gratuity fund is not approved by the Commissioner of Income Tax or CBR.

He received a deposit of Rs. 200,000, not adjustable against rent, out of which he refunded Rs. 100,000 to previous tenant, who vacated the house after 3 years' tenancy.

As a tax consultant you are required to compute Mr. Musaddique's total income and his income tax liability for the tax year 2003.

Solution

Mr. Musaddiqe Noor - ResidentComputation of tax liabilityFor the tax year 2016


Basic salary (Rs. 20,000 x 12 months) 240,000

2003.



House rent allowance (Rs. 8,000 x 12 months) 96,000 Utility allowance (Rs. 1,000 x 12 months) 12,000 Medical allowance (Rs. 1,000 x 12 months) 12,000 Less: Exempt upto 10% of basic salary U/C 139 24,000 -

Conveyance (Value no given hence 5% of Rs.1,000,000 assumed) U/R 5 50,000 Interest free loan from employer (As the amount of loan is Rs. 500,000 hencenothing shall be added as benefit in the salary income of employee U/S 13(7) - Un-approved gratuity 75,000 Less: Exempt upto lower of:

Rs. 75,000, OR50% of the amount receivable i.e. 37,500 37,500 37,500

435,500 INCOME FROM PROPERTY U/S 15

Rent (with share of HBFC) 120,000 Un-adjustable advance [ 200,000 - (100,000 / 3) / 10] / 10 17,000 Total rent 137,000

Less admissible expensesRepairs (restricted to 1/5th of rent chargeable to tax) 27,400 Collection & admin. charges (restricted to 6% of rent chargeable to tax) 8,220 Ground rent 10,000


Ground rent 10,000 Property tax 15,000 Rent-sharing with housing finance company (per month) 36,000

Balance amount chargeable to tax 96,620 40,380


Lecturing and examination services fees (18,000 x 100 / 90) 20,000 Taxable income 495,880


As the salary income of the individual constitute more than 50% of the total income hence tax under salary slab is computed as under.

Tax liability under NTRTax on Rs. 495,880 [0 + 2% x (495,880 - 400,000)] 1,918

Less proportionate tax on consultancy services(1,918 / 495,880 x 20,430) 77 Balance tax under NTR 1,840

Proportionate tax on consultacny services as above (D) 77

Minimum tax on servicesRs. 20,000 @ 10% (E) 2,000

Add: Higher of (D) and (E) shall be included in tax under NTR 2,000 Total tax liability under NTR 3,840

Tax liability under FTRTax liability under FTRProfit on PLS account (9,000 x 10 / 90 ) 1,000 Tax on commission @ 10% ( 18,000 x 10 / 90) 2,000

3,000 Total tax liability under NTR and FTR 6,840

Less: Tax paid / deducted at sourceOn salary 15,000 On profit on PLS account 1,000 On commission ( 20,000 x 10% already deducted on gross receipts) 2,000



On services ( 20,000 x 10% as per given rate on gross receipts) 2,000 20,000

Balance tax refdundable (13,160)

Winter - 2003 Q. 6

Akeel HospitalRevenue AccountYear 2003

Rs. Rs.

Salaries 1,200,000 Gross In-patient receiptsHospital supplies 300,000 (before tax deductions) 2,500,000 Electricity 200,000 Communication 100,000 O.P.D collectionsInsurance 60,000 (before tax deductions) 500,000 Water 20,000 Repair and maintenance 20,000 Sale of scrap 100,000 Depreciation on Fixedassets (excluding burnt

Akeel Hospital is an unregistered partnership firm owned by Dr. Raees and Lady Doctor Mrs. Ramis. You being a tax practitioner have been approached to prepare the Income Tax Return of the firm from following revenue account and other relevant data as provided to you for the tax year 2003:


assets (excluding burntout equipment) 100,000 Property taxes 50,000 Radiology/Lab Expenses 100,000 Professional fees paid 50,000 Expenses on free weeklyclinic for community 100,000 Unsupported payments 50,000 Penalties for non-observanceof good environmental regulations. 50,000

Net profit 700,000 3,100,000 3,100,000

Other informaton / data:

(i) Depreciation includes Rs. 20,000 on a car completely in personal use of partners.

(ii) Salaries include drawings of Rs. 100,000 made by each of the partners.

(iii) A Philanthropist donated Rs. 1.0 million through cheque for construction of special cancer ward.

(iv) Taxes withheld by corporate clients aggregated Rs. 200,000.

(v) Mr. Waqar, a friend, extended an interest-free loan of Rs. 100,000 to the hospital during the year.

(vii) A surgical equipment costing Rs. 100,000 was accidentally burnt out, while dacoits took away Rs. 50,000 from the safe-lockers. Both items are fully insured and the claim has been fully admitted by the insurance Company.

(viii) The Hospital has added 10 renowned companies to the panel with expected increase of Rs. 2,000,000 in future

(vi) A foreign patient, being satisfied with Hospital's best quality care gave a cash gift of Rs. 150,000 for further improving the Hospital's services. This amount has not been accounted for so far.

(ix) Salaries include excess perquisites of Rs. 80,000.

Required: Work out Hospital's total income and tax liability for tax year 2003.

Solution

Akeel Hospital - Resident AOPComputation of taxable income and tax liability

(viii) The Hospital has added 10 renowned companies to the panel with expected increase of Rs. 2,000,000 in future revenue.



For the tax year 2016Rs.


Net profit before tax 700,000

Add: Depreciation on personal car 20,000 Partners drawings (Rs. 100,000 x 2) 200,000 Cash gift not accounted for as deemed income u/s 39 150,000 Unsupported payments 50,000 Penalties for non-observance of good environmental regulations 50,000

470,000 Taxable income 1,170,000


The tax liability shall be higher of tax on taxable income or Minimum tax under 153.

Tax on Rs. 1,170,000 [32,000 + 15% x (1,170,000 - 750,000)] (A) 95,000 Less proportionate tax on receipts covered under minimum tax liability Rs. 95,000 / 1,170,000 x 1,070,000 (Related to (B) (86,880) 8,120 income from services) (Balance tax related to sale of scrap)


OR

Minimum tax liability u/s 153

Gross receipts 3,000,000

10% of gross receipts (C) 300,000

Hence higher of (B) or (C) is to be added under NTR, hence 300,000 308,120

Less: Tax withheld by corporate clients 300,000 Balance tax payable 8,120

Notes

1. It is assumed that tax depreciation and accounting depreciation are same.

2. Interest on loan and donation have not been accounted for as the same are liability for the hospital to construct Special Cancer Ward and return the loan from friend. Assumed both were being received through cross cheques otherwise the same shall be treated as income u/s 39.

3. As loss incurred by burning of surgical equipments and by theft was fully insured, hence no gain or loss has been considered for the purpose of computation of taxable income.

4. There is no treatment of excess perquisites included in salaries, as this concept is no more applicable.

5. There is no impact of reveune to be increased in future due to new clients induction.

6. Sale of scrap has not been shown as income from other sources as already included in the net profit.

7. No trunover tax has been computed as the revenue of the AOP's turnover does not exceeds Rs.50 million.

Summer - 2003 Q. 4

Rs.

Being a tax consultant you have been provided with the following information in respect of Mr. A.D Chughtai, a seniormanager of a local company for the period 1st July, 2002 to 30th April, 2003 (Tax year, 2004):

Rs.

Basic pay / wages 210,000 Houes rent 115,500 Medical allowance 4,800 Cost of living allowance 7,860 Utilities 31,500 Orderly / Servant allowance 30,000 Bonus / ex-gratia 70,000



Company car 1300 cc(Partly used for company's business)Leave fare assistance 17,500 Employer's contribution to provident fund 21,786 Employer's contribution to pension fund 27,300

Income tax deducted u/s 149. 60,000

In addition to the above you have been provided with the following data:

i) Dividend income 17,500 (Withholding tax deducted Rs. 1,750, Zakat deducted Rs. 250)ii) Profit on PLS Account 20,000 (Withholding tax deducted Rs. 2,000, Zakat deducted Rs. 1,520)iii) Professional fee received 10,000 (Withholding tax deducted Rs. 500)iv) School fee paid for two children 25,000 (Receipts show National Tax Number)Legal expenses (consultant fee) 12,500 (Receipts show National Tax Number)vi) There is no time scale for this position

Required: Work out the taxable income and tax liability of Mr. A. D. Chughtai for the Tax year, 2004


Solution

Mr. A.D. ChughtaiComputation of taxable income and tax liabilityTax year 2016


Basic pay / wages 210,000 House rent 115,500 Medical allowance 4,800 Less: exempt upto 10% of basic salary U/C 139 21,000 - Cost of living allowance 7,860 Utilities 31,500 Orderly / Servant allowance 30,000 Bonus / ex-gratia 70,000 Company car 1300 cc (5% of assumed value of Rs. 1,200,000) U/R 5 60,000 Leave fare assitance 17,500 Employer contribution provident fund 21,786 Less: exempt upto lower of:

Rs. 100,000, OR10% of (basic salary + dearness allowance) i.e 21,000 21,000 786

Employer's contribution to pension fund (assumed not maintained by employer) 27,300 570,446


Professional fee 10,000

Total income 580,446

Less Zakat paid on profit on PLS account and dividend receipts (Rs. 250 + 520) 1,770 Taxable income 578,676


As the salary income of the individual constitute more than 50% of the total income hence tax under salary slabis computed as under.




Tax on Rs. 578,676 [2,000 + 5% x (578,676 - 500,000)] (A) 5,934

Less proportionate tax on professional services (B) 103 Rs.5,934 / 578,676 x 10,000 5,831

Mimimum tax u/s 153

Tax deductible (professional income services Rs.10,000 x 10%) (C) 1,000

Higher of (B) or (C) 1,000 6,831

Tax liability under FTR

Tax on dividend U/S 150 1,750 Tax on profit on PLS account U/S 151 2,000

3,750 Total tax liability 10,581 Less: Tax deducted at source

On dividend income 1,750 On profit on PLS account 2,000 Tax deducted on professional fee 1,000 Tax deducted u/s 149 60,000



Balance tax refundable (54,169)

Summer - 2003 Q. 5

Payments Rs. Receipts Rs.

Rent of clinic 24,000 Consultation fees 450,000 Household expenses 96,000 Visiting fees 100,000 Purchase of motor car 300,000 Remuneration from articlesPurchase of surgical equipments 40,000 published in magazines 12,000 Advance income tax 60,000 Rental income 72,000 Salary to assistant 36,000 Gifts from patients 30,000 Car running expenses 30,000 Property tax 12,000 Depreciation of motor car 80,000 Stationery 5,000 Utilities 25,000

Required:Compute the income for the relative tax year and tax thereon after taking into account the following facts:

i) Two-third of car running expenses are in connection with personal use.ii) Depreciation on car should be charged according to the rules.iii) Investment in Defense Saving Certificates at Rs. 30,000.

Solution

Dr. A. A. Qureshi - ResidentComputation of taxable income and tax liability

Dr. A. A. Qureshi a medical practitioner, furnishes his Receipt and Payment Account for the period 1st July, 2002 to 30thApril, 2003 (Tax year, 2004).

Computation of taxable income and tax liabilityFor the tax year 2016

Rs. Rs.INCOME FROM BUSINESS U/S 18

Consultation fees (Note - 1) 450,000

Less: Expenses Rent of clinic 24,000 Household expenses (Not allowed being personal) -



Purchase of motor car (Capital nature payment) - Purchase of surgical equipments (Capital nature payment) - Salary to assistant 36,000 Car running expenses (30,000 x 1 / 3 related to business) 10,000 Property tax 12,000 Depreciation:

(Motor car (300,000 x 15% x 1/3 business) U/S 22 15,000 Surgical equipments (initial 40,000 x 25%) U/S 23 10,000 Surgical equipments (normal 30,000 x 15%) U/S 22 4,500

Stationery 5,000 Utilities 25,000

141,500 Net profit from business 308,500


Property income (assumed after allowable deductions) 72,000


Visiting fees 100,000 Remuneration from articles in magazines 12,000 Gifts from patients (Not chargeable to tax because of personal nature liability) -

112,000


112,000 Total taxable income including property income taxable under NTR as SBI 492,500


As the taxpayer is a non salaried person hence tax liability is computed as under:

Tax on Rs. 492,500 [0 + 7% x (492,500 - 400,000)] 6,475

Less: Advance income tax paid 60,000 Balance tax refundable (53,525)

Note - 2 Investment in DSC's shall be accounted for in the personal wealth statement of the taxpayer.

Note-1 The question has been solved on the assumption that no tax on consultation fee has been deducted during the year

othewise the same shall constitute as minimum tax liability U/S 153 of the Income Tax Ordinance, 2001.


chapter-28 (solved past papers of icma stage iv tax - for...chapter 25 solved past papers income tax...

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