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Taxation Managment

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Taxation Management ­ FIN 623
VU
MODULE 8
LESSON 8.34
INCOME FROM BUSINESS & ITS COMPUTATION
Deductions---Special Provisions
Depreciation (Sec. 22)
Deduction for depreciation allowed to a person if depreciable assets used in the person's business in a tax
year. Rate of depreciations shall be applied as specified in part 1 of 3rd schedule.
Written down value of a depreciable asset of a person as at the beginning of the tax year shall be ;
a)  where the asset was acquired in the tax year, the cost of the asset to the person as reduced by any
initial allowance under sec 23
b)  in any other case, the cost of the asset to the person as reduced by the total depreciation
deductions ( including any initial allowance under sec 23 ) allowed to the person in respect to the
asset in previous tax years.
 No depreciation deductions allowed where in a tax year a person disposes of a depreciable asset;
 If consideration received exceeds the value of the written down value of the asset at the time of
disposal, the access consideration shall be chargeable to tax under the head "Income from business".
 If the consideration received is less than the written down value, the difference shall be allowed as a
deduction in computing the person's income chargeable under the head "income from business" for
that year.
Depreciable asset means a tangible movable or immovable property (not unimproved land) or structural
improvement to immovable property owned by a person that has:
 Normal useful life of one year or more.
 Likely to lose value due to normal wear and tear.
 Used wholly in deriving income from business chargeable to tax.
Initial Allowance (Sec. 23)
A person who places an eligible depreciable asset into service in Pakistan for the first time in a tax year shall
be allowed a deduction at the rate of 50% of the cost of asset provided the asset is used by the person for
the purposes of business for the first time or the tax year in which commercial production is commenced,
whichever is later.
"Eligible depreciable asset" means a depreciable asset other than:
Any road transport vehicle unless the vehicle is plying for hire;
Any furniture, including fittings;
Any plant or machinery that has been used previously in Pakistan or
Any plant or machinery in relation to which a deduction has been allowed under another section of
this Ordinance for the entire cost of the asset in the tax year in which the asset is acquired.
Intangibles (Sec. 24):
A person shall be allowed an amortization deduction in a tax year for the cost of intangibles;
The intangibles or wholly or partially used by the person is the tax year in deriving income from
business chargeable to tax and
The intangibles have a normal useful life exceeding one year.
Amortization deduction allowed as under
A/B
Where
A is the cost of intangible; and
B is normal useful life of intangible
Deductions---Special Provisions
An intangible that has
a) Normal useful life of more than 10 years; or
b) Does not have an ascertainable useful life, shall be treated as if it had a normal useful life of 10
years.
Pre-commencement expenditure (Sec.25)
It means any expenditure incurred before the commencement of the business wholly and exclusively to
derive income chargeable to tax, including the cost of feasibility studies, trial production activities but shall
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Taxation Management ­ FIN 623
VU
not include any expenditure which is incurred in acquiring land, or which is depreciated or amortized under
section 22 ( depreciation) or section 24 ( intangibles)
Rate of amortization of pre-commencement expenditure shall be 20%.
Deductions--Special Provisions
Scientific research institutions (sec 26)
Employee training and facilities (sec 27)
Profit on debt, financial costs and lease payments (sec 28)
Bad debts (sec 29)
Sec 29A: Deductions on consumer loans to a banking company, non banking finance company and
house building finance corporations. (Deduction shall not exceed 3 % of income for the tax year arising
out of consumer loans.
Profit on non- performing debts of a banking company or development finance institution (sec 30)
Transfer to Participatory Reserve (Sec 31)
Following Incomes are taxable under the head Income from Business even in cases where no business is
carried on by taxpayer.
Recovery against any deduction/expenses previously allowed (Add back to income).
Gain on sale of depreciable asset.
Recovery of bad debt/or written off loan.
Trading liabilities not paid within expiration of three years.
Amount received after discontinuance of business.
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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