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Taxation Management ­ FIN 623
VU
MODULE 2
LESSON 2.4
BASIC FEATURES OF INCOME TAX
Background/ History
Income Tax Act of 1922:
At the time of independence, this Act prevalent in undivided India was adopted by the Government of
Pakistan as its Income Tax Law.
Income Tax Ordinance, 1979
First law on Income Tax was promulgated in Pakistan from 1st July, 1979.
Income Tax Ordinance, 2001
To updates the tax laws and bring our law in accordance with international standards, this ordinance was
promulgated on 13th September, 2001, which became effective from 1st July, 2002
IT rules 2002
These were promulgated by CBR on 1st July 2002 in exercise of powers granted under section 237 of the
Ordinance.
Rules are integral part of the main enactment / Law.
I.T Ordinance 1979 stands repealed vide section 238 of the Ordinance.
The Ordinance overrules all other laws for the time being in force (Sec 3).
Federal Government empowered to allow exemptions to certain types of income or specific
persons during financial year but required to place the same before National Assembly at the end of
that financial year Sec 53(3).
CBR can issue administrative instructions explanations/circulars under the powers vested through
Sec 206 and 213. However, CBR's instructions not binding on Tax Payers since these are
administrative interpretation not judicial interpretation.
Sec 206 and sec 213 of the ordinance are reproduced below:
Section 206:
(1) To achieve consistency in the administration of this Ordinance and to provide guidance
to taxpayers and officers of the Central Board of Revenue, the Central Board of Revenue
may issue Circulars setting out the Board's interpretation of this Ordinance.
(2) A circular issued by the Central Board of Revenue shall be binding on all Income Tax
Authorities and other persons employed in the execution of the Ordinance, under the
control of the said Board other than Commissioners of Income Tax (Appeals).
(3) A Circular shall not be binding on a taxpayer.
Section 213:
In the course of any proceedings under this Ordinance, the Commissioner or any taxation officer may
be assisted, guided or instructed by any income tax authority to which he is subordinate or any other
person authorized in this behalf by the Central Board of Revenue.
Case Law is an important source of interpretation.
Decisions and interpretation of Supreme Court are binding on all courts in Pakistan, according to
Article 189 of constitution 1973.
Decisions and interpretation of High courts are binding on subordinate courts/tribunals in the area
of their jurisdictions.
Basic Features of Income Tax Ordinance 2001
Scheme of the Ordinance is given below:
There are thirteen chapters
Chapters are divided into:
Parts &
Divisions
There are 240 Sections
This ordinance comprises of seven Schedules
Schedules are integral part of the Ordinance.
Rules of Interpretation or Construction of Statutes
Following aids / assistance are available that help in the interpretation of law / statue.
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Taxation Management ­ FIN 623
VU
Internal Aids:
These are available in the Act:
Explanation to the section
Marginal notes
Punctuation marks
Preamble
Title of a chapter
Non-Obstinate clause
Proviso
Context
External Aids:
These are not available in the statute/ law but are available in the following instruments / sources.
Dictionary
Tax committee report
Statement of objects appended to a finance bill
Finance Minister's budget speech
CBR's circulars
Definitions in other statutes
Departmental manuals
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Table of Contents:
  1. AN OVERVIEW OF TAXATION
  2. What is Fiscal Policy, Canons of Taxation
  3. Type of Taxes, Taxation Management
  4. BASIC FEATURES OF INCOME TAX
  5. STATUTORY DEFINITIONS
  6. IMPORTANT DEFINITIONS
  7. DETERMINATION OF LEGAL STATUS OF A PERSON
  8. HEADS OF INCOME
  9. Rules to Prevent Double Derivation of Income and Double Deductions
  10. Agricultural Income
  11. Computation of Income, partly Agricultural,
  12. Foreign Government Officials
  13. Exemptions and Tax Concessions
  14. RESIDENTIAL STATUS & TAXATION 1
  15. RESIDENTIAL STATUS & TAXATION 2
  16. Important Points Regarding Income
  17. Geographical Source of Income
  18. Taxation of Foreign-Source Income of Residents
  19. Exercises on Determination of Income 1
  20. Exercises on Determination of Income 2
  21. SALARY AND ITS COMPUTATION
  22. Definition of Salary
  23. Significant points regarding Salary
  24. Tax credits on Charitable Donations
  25. Investment in Shares
  26. SALARY AND ITS COMPUTATION EXERCISES 1
  27. SALARY AND ITS COMPUTATION EXERCISES 2
  28. SALARY AND ITS COMPUTATION EXERCISES 3
  29. Tax treatment of Gratuity
  30. Gratuity Exercise
  31. PROVIDENT FUND
  32. Exemptions on Business income, Treatment of Speculation Business
  33. Deductions Allowed & Not Allowed
  34. Deductions: Special Provisions, Depreciation
  35. Methods of Accounting
  36. Taxation of Resident Company
  37. Taxation of Companies: Exercises
  38. Computation of Capital Gain
  39. Disposals Not Chargeable To Tax
  40. TAX RETURNS & ASSESSMENT OF INCOME UNIVERSAL SELF ASSESSMENT SCHEME
  41. Normal Assessment, USAS, Provisional Assessment, Best Judgment Assessment
  42. ADVANCE TAX COLLECTION & RECOVERY OF TAX PENALTIES & PROSECUTION
  43. What is Value Added Tax (VAT)?
  44. SALES TAX
  45. SALES TAX RETURNS