Before Registration
and Filing of your Income Tax Return, it is recommended that one should
establish basic understanding regarding these processes. Knowledge of basic
concepts would not only ensure that the tasks are performed easily but also in
the prescribed manner.
TAXABLE INCOME
Taxable Income means
Total Income reduced by donations qualifying straight for deductions and
certain deductible allowances.
TOTAL INCOME
Total Income is the
aggregate of Income chargeable to Tax under each head of Income.
HEAD OF INCOME
Under the Income Tax
Ordinance, 2001, all Income are broadly divided into following five heads of
Income:
Salary;
Income from property;
Income from business;
Capital gains; and
Income from Other
Sources
RESIDENT
An individual is
Resident for a Tax Year if the individual:
Is present in
Pakistan for a period of, or periods amounting in aggregate to, one hundred and
[eighty-three] days or more in the tax year;
Is present in
Pakistan for a period of, or periods amounting in aggregate to, one hundred and
twenty days or more in the tax year and, in the four years preceding the tax
year, has been in Pakistan for a period of, or periods amounting in aggregate
to, three hundred and sixty-five days or more; or
Is an employee or
official of the Federal Government or a Provincial Government posted abroad in
the Tax Year.
An Association of
Persons is Resident for a Tax Year if the control and management of its affairs
is situated wholly or partly in Pakistan at any time in that year;
A Company is Resident
for a Tax Year if :
It is incorporated or
formed by or under any law in force in Pakistan;
The control and
management of its affairs is situated wholly in Pakistan at any time in the
year; or
It is a Provincial
Government or a local Government in Pakistan.
NON-RESIDENT
An Association of
Persons, a Company and an Individual are Non-Resident for a Tax Year if they
are not Resident for that year.
PAKISTAN SOURCE
INCOME
Is defined in section
101 of the Income Tax Ordinance, 2001, which caters for Incomes under different
heads and situations. Some of the common Pakistan source Incomes are as under:
-
Salary received or
receivable from any employment exercised in Pakistan wherever paid;
Salary paid by, or on
behalf of, the Federal Government, a Provincial Government, or a local
Government in Pakistan, wherever the employment is exercised;
Dividend paid by
Resident Company;
Profit on debt paid
by a Resident Person;
Property or rental
Income from the lease of immovable property in Pakistan;
Pension or annuity
paid or payable by a Resident or permanent establishment of a Non-Resident;.
FOREIGN SOURCE INCOME
Is any Income, which
is not a Pakistan source Income.
PERSON
An Individual;
A Company or
Association of Persons incorporated, formed, organized or established in
Pakistan or elsewhere;
The Federal
Government, a foreign government, a political subdivision of a foreign
government, or public international organization
COMPANY
A Company as defined
in the Companies Ordinance, 1984 (XLVII of 1984);
A body corporate
formed by or under any law in force in Pakistan;
A modaraba;
A body incorporated
by or under the law of a country outside Pakistan relating to incorporation of
Companies;
An amendment has been
made through Finance Act, 2013 to enlarge the scope of definition of a Company.
Now as per Income Tax Ordinance, 2001 a company includes:
A co-operative
society, a finance society or any other society;
A non-profit
organization;
A trust, an entity or
a body of persons established or constituted by or under any law for the time
being in force.
A foreign
association, whether incorporated or not, which the Board has, by general or
special order, declared to be a company for the purposes of this Ordinance;
A Provincial
Government;
A Local Government in
Pakistan;
A Small Company
ASSOCIATION OF
PERSONS
Includes a firm (the
relation between persons who have agreed to share the profits of a business
carried on by all or any of them acting for all), a Hindu undivided family, any
artificial juridical person and any body of persons formed under a foreign law,
but does not include a Company.
TAX YEAR
Is a period of twelve
months ending on 30th day of June i.e. the financial year and is denoted by the
calendar year in which the said date falls. For example, tax year for the
period of twelve months from July 01, 2022 to June 30, 2023 shall be denoted by
calendar year 2023 and the period of twelve months from July 01, 2023 to June
30, 2024 shall be denoted by calendar year 2024. It is called Normal Tax Year.
SPECIAL TAX YEAR
Means any period of
twelve months and is denoted by the calendar year relevant to the Normal Tax
Year in which closing date of the Special Tax Year falls. For example, Tax Year
for the period of twelve months from January 01, 2022 to December 31, 2022 shall be denoted by calendar year 2022 and the period of twelve months from
October 01, 2022 to September 30, 2023 shall be denoted by calendar year 2024.