Sunday, December 11

Business Taxation (456) - Autumn 2022 - Assignment 1

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 assignment send krni h to UNIQUE assignment hasil krne k lye ham c contact kren:

0313-6483019

0334-6483019

0343-6244948

University c related har news c update rehne k lye hamra channel subscribe kren:

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