(1) The following incomes of a person for a tax year, other than income exempt
from tax under this Ordinance, shall be chargeable to tax under the head
“Income from Business”-
(a) the profits and gains of any business carried on by a person at any time in
the year;
(b) any income derived by any trade, professional or similar association from
the sale of goods or provision of services to its members;
(c) any income from the hire or lease of tangible movable property;
(d) the fair market value of any benefit or perquisite, whether convertible into
money or not, derived by a person in the course of, or by virtue of, a past,
present, or prospective business relationship 1[.]
2[Explanation: For the purposes of this clause, it is declared that the word
‘benefit’ includes any benefit derived by way of waiver of profit on debt or the
debt itself
(e) any management fee derived by a management company
(2) Any profit on debt derived by a person where the person’s business is to
derive such income shall be chargeable to tax under the head “Income from
Business” and not under the head “Income from Other Sources”.
(3) Where a lessor, being a scheduled bank or an investment bank or a
development finance institution or a leasing company has leased out any asset
to another person, any amount received in connection to lease arrangements
shall be treated as the income of the said lessor and shall be chargeable to tax
under the head “Income from Business”.]
(4) Any amount received by a banking company or a non-banking finance
company, where such amount represents distribution by a mutual fund, out of
its income from profit on debt, shall be chargeable to tax under the head
“Income from Business” and not under the head “Income from Other
Sources”.]
Deductions in computing income chargeable under the
head “income from business”:
• A person shall be allowed deduction in respect of expenditures incurred
wholly and exclusively for the purposes of business
• Where animals which have been used for the purposes of business or
profession and have died or become permanently useless, the difference
between actual cost of the animals and the amount, if any, realized in
respect of the carcasses of animals
• Special provisions regarding normal depreciation, initial
allowance and amortization of intangible assets [U/s 20(2)]:
Where the expenditure is incurred in acquiring a depreciable asset or an
intangible asset with useful life of more than one year, the person must
depreciate or amortize the expenditure in accordance with sections
22,23,24 and 25
• Scientific research expenditure:
1) A deduction will be allowed for scientific research expenditure in
Pakistan wholly and exclusively for business
2) In this section-
“Scientific research” means any activity in Pakistan in the fields of
natural/applied science for the development of human knowledge and
expenditure on scientific research in Pakistan for development of
business.
• Employee training and facilities [Sec. 27]:
A person shall be allowed a deduction for expenditure incurred for-
a) Any educational institution or hospital in Pakistan established for the
benefit of the employee and their dependents;
b) Any institute in Pakistan for training of industrial workers recognized
by Federal, provincial or local government
Bad debts
A person shall be allowed a deduction for a bad debt in a tax year if the
following conditions are satisfied, namely:
• The amount of the debt was:
▪ previously included in the person’s income from business
chargeable to tax; or
▪ in respect of money lent by a financial institution in deriving
income from business chargeable to tax;
▪ The debt or part of the debt is written off in the accounts of the
person in the tax year; and
▪ There are reasonable grounds for believing that the debt is
irrecoverable.
▪ The amount of the deduction allowed to a person for a tax year
shall not exceed the amount of the debt written off in the
accounts of the person in the tax year.
Where a deduction is allowed in a tax year for a bad debt written off and in
a subsequent tax year the person receives in cash or kind any amount in
respect of that debt, a computation shall be made as under:
a- b
Here
(a) Is amount received against the written off debt; and
(b) Is the difference between whole amount of bad debt and bad debt
allowed as a deduction under Income Tax Ordinance, 2001
If (a) is greater than (b), the difference shall be treated as income of the
person. In other case, where (a) is less than (b) the difference shall be
treated as bad debts for the year in which the amount is received.
Amortization of intangibles
"Intangible"
Means any patent, invention, design or model, secret formula or process,
copyright, trademark, scientific or technical knowledge, computer software,
motion picture film, export quotas, franchise, license, intellectual property,
or other like property or right, contractual rights and any expenditure that
provides an advantage or benefit for a period of more than one year…
Intangible eligible for amortization
➢ A person shall be allowed an amortization deduction in a tax year for
the cost of the person's intangibles;
▪ That are wholly or partly used by the person in the tax year in deriving
income from business chargeable to tax and
▪ That has a normal useful life exceeding one year.
The term cost of intangible in this section means any expenditure incurred in
acquiring or creating the intangible, including any expenditure incurred in
improving or renewing the intangible;
➢ Limitation on amortization and method to compute
amortization:
▪ No deduction shall be allowed where a deduction has been allowed
under another section of this Ordinance for the entire cost of the intangible.
▪ The total deductions allowed to a person under this section in the
current tax year and all previous tax years shall not exceed the cost of the
intangible.
▪ Formula to compute amortization deduction is as under:
Cost of intangible / Normal useful life of the intangible in
whole years
➢ Where an intangible asset useful life is more than
ten years or not ascertainable:
An intangible that does not have an ascertainable useful life shall be
treated as if it had a normal useful life of twenty-five years.
➢ Where an asset used partly for business:
▪ Where an intangible is used in a tax year partly in deriving income from
business chargeable to tax and partly for another use, the deduction
allowed for that year shall be restricted to the fair proportional part of the
amount that would be allowed if the intangible were wholly used to derive
income from business chargeable to tax.
➢ Where an asset not used for the whole of the year:
If an intangible is not available for use for the whole year then amortization
shall be calculated according to this formula:
Amount of amortization x Number of days in the tax year the
intangible is used in deriving income from business
chargeable to tax / Number of days in the tax year
➢ Amortization in case of disposal:
▪ Where, in any tax year, a person disposes of an intangible, no
amortization deduction shall be allowed under this section for that year;
▪ Gain / loss on disposal of intangibles:
✓ if the consideration received by the person exceeds the WDV of the
intangible at the time of disposal, the excess shall be income of the
person chargeable to tax in that year under the head "Income from
Business"; or
✓ if the consideration received is less than the WDV of the intangible
at the time of disposal, the difference shall be allowed as a deduction in
computing the person's income chargeable under the head "Income from
Business" in that year.