Q. 1 Understanding the legal terms in taxation provides a way forwarded for determining the tax liability of a person. Keeping this in view, define the following
terms with reference to income Tax Ordinance 2001: (20)a.
Taxpayer b. Person c. Turnover d. Tax Year
e. Public Company
f.
Resident Person g.
Intangible i. Permanent Establishment
Solution:
a. Taxpayer: A taxpayer is an individual
or organization that is legally liable to pay taxes on their income or profits.
b. Person: A person is an individual,
sole proprietorship, partnership, association, corporation, or other entity
that is recognized as having legal rights and duties.
c. Turnover: Turnover is the total amount
of sales or revenue generated by a business during a given period.
d. Tax Year: A tax year is the period of
time in which a taxpayer is required to pay taxes. Generally, the tax year is
the calendar year.
e. Public Company: A public company is a
company that is listed or traded on a stock exchange.
f. Resident Person: A resident person is
an individual who is physically present in the country for a period of six
months or more in a given tax year.
g. Intangible: Intangible assets are
non-physical assets such as patents, copyrights, trademarks, and goodwill.
i. Permanent Establishment: A permanent
establishment is a fixed place of business located in a jurisdiction where a
company carries on activities that generate income from that jurisdiction.
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Q.2 The
Income Tax Ordinance 2001 divides income into five, major head: salary,
property, business, capital gains and other sources. Explain the components of
salary & property income & their taxation treatment as per the
provisions of the Income Tax ordinance 2001. (20)
Solution:
Salary Income:
Salary is defined in Section 2 (24) of
the Income Tax Ordinance, 2001 as “any amount received or receivable by an
employee from an employer in the course of employment, whether in money or
otherwise”. Salary includes all allowances, earnings, profit from an
employment, fees, commissions, perquisites, pensions and other benefits,
whether payable by the employer or any other person.
Taxation Treatment:
Under Section 4 of the Income Tax
Ordinance, 2001, salary income is taxable in the hands of the recipient. This
income is taxed at progressive rates according to the slab rates prescribed for
the tax year. The tax rates vary according to the individual’s taxable income
and applicable deductions, and are as follows:
• Up to Rs. 0.25 million – 5%
• Rs. 0.25 million – Rs. 0.50 million –
10%
• Rs. 0.50 million – Rs. 1 million – 15%
• Above Rs. 1 million – 20%
In addition to the above, the minimum tax
rate is 15% of the taxable salary income.
Property Income:
Property income refers to income earned
from the ownership of property. This includes income from the renting or
leasing of property, income from the sale of property, and income from the
transfer of property.
Taxation Treatment:
Under Section 4 of the Income Tax Ordinance,
2001, property income is taxable in the hands of the recipient. This income is
taxed at progressive rates according to the slab rates prescribed for the tax
year. The tax rates vary according to the individual’s taxable income and
applicable deductions, and are as follows:
• Up to Rs. 0.25 million – 5%
• Rs. 0.25 million – Rs. 0.50 million –
10%
• Rs. 0.50 million – Rs. 1 million – 15%
• Above Rs. 1 million – 20%
In addition to the above, the minimum tax
rate is 15% of the taxable property income.
Tax Deduction on Property Income:
Under Section 10 of the Income Tax
Ordinance, 2001, the following deductions are available on property income:
• Maintenance and repair expenses
• Insurance premiums
• Interest on mortgage or loan taken for
the purpose of acquiring or constructing the property
• Depreciation allowance
The maximum amount of deduction allowed
is 10% of the net rent received from the property.
Tax Relief on Property Income:
Under Section 11 of the Income Tax
Ordinance, 2001, the following tax reliefs are available on property income:
• Residential or Commercial Property -
Taxpayers who own residential or commercial property can claim a deduction up
to Rs. 200,000.
• Non-residential Property - Taxpayers
who own non-residential property can claim a deduction up to Rs. 400,000.
• Agricultural Property - Taxpayers who
own agricultural property can claim a deduction up to Rs. 150,000.
• Rent received on Agricultural Property
- Taxpayers who receive rent on agricultural property can claim a deduction up
to Rs. 50,000.
Conclusion:
In conclusion, salary and property income
are taxable under the Income Tax Ordinance, 2001. The tax rates for salary
income are progressive and the minimum tax rate is 15% of the taxable salary
income. For property income, deductions and tax reliefs are available, and the
maximum amount of deduction allowed is 10% of the net rent received from the
property.
Q.3 Calculate
the tax liability of Mr. Sahir, a salaried person, from the following records: (20)
|
No. |
Item |
Amount (Rs.) |
|
1 |
Basic Salary |
40,000 per month |
|
2 |
House rent allowance |
15,000
per month |
|
3 |
Overtime |
30,000
per year |
|
4 |
Medical allowance |
4,000
per month |
|
5 |
Conveyance facility is provided to Mr.
Sahir for personal and official use. |
Cost of Vehicle is 900,000. |
|
6 |
Reimbursement of personal medical
expenses |
8,000 per year |
|
7 |
Contribution to provident fund |
6,000
per year |
|
8 |
Zakat paid |
2,000
per month |
|
9 |
Shares of BC Ltd. Purchased in IPO |
Rs. 19,000 (total) |
|
10 |
Donation to a hospital |
Rs. 12,000 (annual) |
Solution:
Tax Liability of Mr. Sahir = Rs.
(1,95,000)
Tax Calculation:
Income from salary = 40,000 + 15,000 +
4,000 = 59,000 per month = 7,08,000 per year
House Rent Allowance (HRA) = 15,000 per
month = 1,80,000 per year
Income from other sources = 30,000 +
8,000 + 6,000 + 2,000 + 19,000 + 12,000 = 67,000 per year
Total Income = 7,08,000 + 1,80,000 +
67,000 = 8,55,000
Tax as per Income Tax Slab = 2,00,000 +
20% of (8,55,000 - 2,00,000) = 2,00,000 + 1,15,000 = 3,15,000
Tax Liability of Mr. Sahir = Rs. 3,15,000
- 2,000 (Zakat Paid) = Rs. 1,95,000
Q.4 Suppose
you are running a food processing business. The FBR sends you a notice to pay
your tax liability. Under the Income Tax Ordinance 2001, how would you estimate
your income from business on which the tax will be payable. (20)
Solution:
Income tax is one of the most important
taxes levied by the Federal Board of Revenue (FBR). It is imposed on the
taxable income of a person, corporation, association or any other entity. The
Income Tax Ordinance 2001 (ITO 2001) is the main law governing the taxation of
income in Pakistan. It contains provisions regarding the taxation of different
types of income and the calculation of tax liability.
When the FBR sends a notice to pay tax
liability, it is the responsibility of the taxpayer to estimate the income on
which the tax is payable. This can be done by calculating the gross income from
the business and then deducting allowable expenses.
Gross income is the total income earned
from business activities. It includes income from sale of goods and services,
commission, rent, dividend, interest and other sources. The taxpayer should
include all the receipts and gains from all sources in the computation of gross
income. The taxpayer should also include any income which is not taxable under
the ITO 2001, such as capital gains and income from lotteries, in the
computation of gross income.
Allowable expenses are those expenses
that are incurred in the course of business and can be deducted from the gross
income to arrive at the taxable income. These expenses include costs of goods
sold, salaries and wages paid to employees, rent, bad debts, depreciation,
repairs and maintenance, insurance, etc. The taxpayer should ensure that all
the allowable expenses are included in the computation of taxable income.
Once the taxable income is calculated,
the taxpayer should calculate the tax payable on it. The tax rate depends on
the amount of taxable income and is determined according to the tax slab
provided in the ITO 2001. The taxpayer should also pay any advance taxes and
any additional taxes, if applicable.
In conclusion, to estimate the tax
liability, the taxpayer should first calculate the gross income from business
activities, then deduct the allowable expenses to arrive at the taxable income
and then calculate the tax payable on the taxable income. The taxpayer should
also pay any advance taxes and any additional taxes, if applicable. It is
important to ensure that all the receipts and gains from all sources are
included in the computation of gross income and all the allowable expenses are
included in the computation of taxable income.
Q.5 What
is an income tax return? Who is required to file the income tax return? What
are the requirements of a valid return of income? Also, write down the penalty
for non-filing of the income tax return. ` (20)
An income tax return is a form in which
taxpayers declare their taxable income, deductions, and credits to the Internal
Revenue Service (IRS). It is used to determine the amount of income tax a
person owes the government for a particular fiscal year.
Every individual, partnership,
corporation, estate, and trust that earns more than a specified amount of gross
income is required to file an income tax return. The specific amount of income
that triggers the requirement to file a return varies from year to year, and is
based on filing status, age, and other factors.
The requirements for a valid return of
income depend on the type of return being filed. Generally, taxpayers must
include their name, address, Social Security number, filing status, and the
amount, source, and type of income being reported. Taxpayers are also required
to include information regarding any deductions, credits, or other items that
are being claimed on the return.
The penalty for non-filing of the income
tax return can vary depending on the amount of unpaid taxes and the length of
time the return was not filed. Generally, taxpayers who fail to file a return
are subject to a penalty of 5% of the unpaid taxes each month, up to a maximum
of 25%. In addition, taxpayers who willfully fail to file a return may be
subject to a penalty of up to 25% of the unpaid taxes.
In some cases, the penalty for non-filing
of the income tax return may be waived if the taxpayer can show reasonable
cause for not filing the return. However, this is not a guaranteed result and
the taxpayer should contact the IRS to discuss the specifics of their
situation.
In addition to monetary penalties,
failing to file an income tax return can also result in possible criminal
prosecution. The IRS can prosecute taxpayers who willfully fail to file a
return, and the penalties for doing so can include fines, imprisonment, or
both.
Finally, it is important to note that
non-filing of the income tax return can also result in the loss of certain tax
benefits. For example, a taxpayer who does not file a return may be ineligible
to claim a tax refund or receive certain tax credits.
In conclusion, it is important to
understand the requirements for filing an income tax return and the potential
penalties for non-filing. Taxpayers should always ensure that they file their
return on time and accurately report their income, deductions, and credits.
Doing so is the best way to avoid any potential penalties or other
consequences.
Dear Student,
Ye sample assignment h. Ye bilkul
copy paste h jo dusre student k pass b available h. Agr ap ne university
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0334-6483019
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