Question 3
(a) Transfer of Plant to Subsidiary
Consideration - plant exported after its use 1,800,000 Cost shall be considered
Less: Tax WDV as consideration
Cost 1,800,000
Less: Tax Depreciation (1,200,000) (600,000)
Tax gain on disposal of Asset 1,200,000
(b) Settlement of Forward Contract
SL entered a forward contract to hedge raw-material price risk. On maturity, it paid 500,000 in lieu of delivery.
Under Inocme tax ordinance, 2001, gains or losses on hedging contracts form part of business income.
– Payment of Rs. 500,000 is an allowable deduction in computing taxable income.
(c) Rental Income from Bungalow
Gross rent agreed: 6,000,000 per annum (inclusive of utilities, cleaning & security at 100,000×12).
Actual utilities expense incurred by Zahid: 35,000×12 = 420,000.
Younger
Particulars Amount (Rs) Zahid
Brother
60% 40%
Income from Property
Gross rent received 6,000,000
Less: utilities component (100,000×12) 1,200,000
Chargeable Rent 4,800,000 2,880,000 1,920,000
Less: Admissible Expenses
1/5 th repair allowance (576,000) (384,000)
2,304,000 1,536,000
Income from Other Source
Utilites Charges Received 1,200,000 720,000 480,000
Less Expenses (420,000) (252,000) (168,000)
468,000 312,000
Taxable Income 2,772,000 1,848,000
If the share of each co-owners is definite then the share of each shall be taxable in the hands of
each co-owner otherwise it will considered as an AOP.
Amount
(d) Recognized Provident Fund Contributions (Rs)
Employer’s RPF contribution exempt up to
10% of salary (s12; RPR). Salary 6,000,000; 0
employer 600,000 → fully exempt. taxable 10% × 6,000,000 = 600,000 600,000
Interest credited to RPF taxable to the extent
rate exceeds prescribed rate (assume 16%). 678,200
Actual 20% → excess 4%. taxable 3,391,000 × (4/20) = 678,200
Salary Income (Section 12):
Basic salary: Fully taxable – Rs. 6 million
Provident Fund Contributions:
Employer’s Contribution (Section 12(2)(a)(ii)):
Exempt up to Rs. 150,000 or 15% of salary, whichever is less
Excess is taxable: Rs. 600,000 – Rs. 150,000 = Rs. 450,000 taxable
Employee’s Contribution:
Not taxable (already taxed salary)
3. Interest on Provident Fund (Section 12(2)(a)(iii)):
Exempt up to rate prescribed by FBR (currently 16%) OR
1/3 rd of the Basic Salary