Chapter 18. Numericals Income Tax - Lock Almost

Chapter 18: Numericals Income Tax
CHAPTER 18
NUMERICALS INCOME TAX
ICAP PAST PAPER QUESTIONS
Question-1
Mr. A is the Chief Executive of a multinational private company. Details of his emoluments are as follows:
Rs.
a) Basic salary 4,004,520
b) Bonus 1,980,642
c) Utility allowance 400,452
d) Leave encashment 538,083
e) Other allowance 90,000
f) House rent allowance 1,802,040
Apart from the above he has received Director‟s Fee amounting to Rs.52,000
During the year he has sold shares that were acquired through exercise of a `Stock Option‟ (being the shares of a UK
company) two years ago. The gain on sale amounts to Rs.4,206,000.
He also owns a property which has been let out on rent. The details of rent received and expenses incurred are as
follows:
(a) Rent Rs.10,000 per month. The property was let out on rent for the whole year.
(b) He has paid property tax amounting to Rs.11,500.
(c) During the year he has paid Rs.6,000 for repairs and maintenance.
During the year the tax withheld at source from salary income is Rs.3,600,000
Required: You are required to compute the taxable income and tax liability for the tax year.
(17)
(Q.15 September 2004)
Question-2
Mr. “B‟‟ is the Chief Executive of a Multinational Company. Details of his emoluments are as follows:
Rs.
(a) Basic Salary 8,800,000
(b) Bonus 5,000,000
(c) Utility allowance 880,000
(d) Education allowance 200,000
Apart from the above he is provided with the following perquisites / benefits:
(i) A free unfurnished accommodation by the employer with land area of 2100 sq. yds.
(ii) Motor vehicle for both private and official use, cost of acquisition of which was Rs.2,000,000.
(iii) Children education fees for the year Rs.105,000
(iv) House servant salaries for the year Rs.230,000
According to the terms of employment the tax liability of Mr. ``B‟‟ amounting to Rs. 2,976,000. Tax liability on
other remuneration is borne by himself.
Mr. “B‟‟ also owns a property which was let out on rent for a part of the year details of income and expenses
incurred are as follows:
(a) Rent Rs.50,000 per month.
(b) The property was let out on rent from December 2011 to June, 2012.
(c) Property tax paid Rs.35,000.
During the year the following information was also provided:
Rs.
(a) Tax deducted from salary income 4,541,250
(b) Tax paid by the employer 2,976,000
Required: You are required to compute the taxable income and tax liability for the tax year 2012. (22)
(Q.15 March 2005)
385
Question-3
Mr. Imran is a citizen of Pakistan. During the first nine months of the tax year, he worked as financial controller of a
Pakistan based subsidiary of a multinational group. After that he was transferred and employed as Head of Finance
of the UAE based subsidiary of the Group. Mr. Imran‟s family stayed in Dubai throughout the year. The detail of
income earned by him during the year is given below:
From the UAE company

Mr. Imran earned US $ 30,000 during the three-month‟s employment in the UAE. No tax is deducted from salary
earned and paid in the UAE.
To relocate Mr. Imran in UAE, the UAE Company incurred one time miscellaneous cost of Rs.100,000 to move the
household items of Mr. Imran from Pakistan to Dubai.
From Pakistan subsidiary
a) Basic salary Rs.500,000 p.m.
b) Medical allowance Rs.45,000 p.m. (no free medical or hospitalization facility is given to Mr. Imran under the
terms of employment).
c) The company has provided Mr. Imran a TV and VCR costing Rs.40,000 on which the company charges
depreciation @ 20% in its books of accounts.
d) Company has provided interest free loan to Mr. Imran amounting to Rs.5 million which remained outstanding
throughout his employment with the company (Pakistan subsidiary).
e) His family‟s housing cost in Dubai, borne by the company amounts to Rs.30,000 p.m.
f) Mr. Imran‟s travelling and related cost borne by the Pakistan subsidiary to meet his family, amounts to
Rs.30,000 p.m.
g) During the employment with the Pakistan subsidiary, Mr. Imran had exercised option to acquire 300 shares of
the parent company @ US $ 8 per share. At the time when the option was exercised, the value of the
share was US $ 10 (Rs.580) per share. Furthermore, during the year Mr. Imran sold 200 options previously
received by him at a price of US $ 3 per option (Rs.171) after holding it for more than a year. Neither the
Pakistan subsidiary nor Mr. Imran incurred any cost in this regard.
Required: Compute the taxable income of Mr. Imran for the tax year 2012 based on the data provided above. (16)
Question-4
Ms. Fatima Hassan was working as a Marketing Head with Consumer Products Ltd (CPL) at following emoluments:
(i) Basic Salary Rs.100,000 per month
(ii) House rent allowance Rs.40,000 per month
(iii) Utilities allowance Rs.15,000 per month
In addition to the above cash emoluments, she was provided with a Honda Civic car, exclusively for official use.
The cost of car to the Company was Rs.1,000,000. As per company‟s policy, the car was sold to Fatima in January
2012 at the WDV of Rs.100,000 whereas the FMV of the same at the time of sale was Rs.300,000.
In May 2012, Ms. Fatima Hassan was approached by Pharma Industries (Pvt.) Ltd (PIL). They offered her
employment at a higher salary and some extra benefits, along with a one time payment of Rs.200,000 as an
inducement to accept their offer. Fatima accepted PIL‟s offer by resigning from CPL w.e.f. June 1, 2012. She joined
PIL from July 1, 2012. The amount of Rs. 200,000 was, however paid to her on June 29, 2012.
During the year, Ms. Fatima Hassan has also undertaken the following transactions:
(i) Shares in Queens Pakistan (Pvt.) Ltd were sold for Rs.500,000. These shares were acquired in the year
2006 at a cost of Rs.200,000.
(ii) A painting purchased at a cost of Rs.100,000 was sold for Rs.75,000.
(iii) An amount of Rs.50,000 was donated to an approved charitable institution.
Required: In the light of above information, compute the taxable income of Ms. Fatima for tax year 2012 by giving
brief explanation for the items not included in the taxable income. (15)
(Q.1 March 2006)
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Question-5
Mr. Dollar has been working as a senior engineer in a local company. The detail of his monthly emoluments is as
under:
Rs.
Basic salary 100,000
Medical allowance 15,000
Utilities allowance 10,000
In addition to the above cash emoluments, he is entitled to the following perquisites:
(i) A car for his personal and official use, having cost of Rs.700,000 to the employer.
(ii) Rent free accommodation having monthly rent of Rs.20,000 or cash in lieu thereof. However he has opted
to take rent free accommodation.
Required: Compute the tax to be deducted each month, from his salary for tax year. (10)
(Q.2 (b) September 2006)
Question-6
Mr. Ayub, after retirement from a multinational company as a senior executive, was rehired on contract for a period
of three years. However, due to certain reasons, the contract was prematurely terminated six months earlier i.e. on
31.12.2011.
The details of emoluments received by him during TY 2012 are given below:
Rs.
Basic salary (per month) 70,500
Fair market Rent of furnished accommodation (per month) 60,000
Utilities allowance (per month) 12,000
Medical benefits reimbursed during the year 25,000
House rent was paid by the company directly to the landlord. Medical benefits were reimbursed against bills
submitted by Mr. Ayub.
On his retirement as a permanent employee, he had been paid gratuity from the approved fund. According to the
rules of the fund, he was also entitled to a special gratuity in lieu of his services rendered under the contract.
Accordingly, an amount of Rs.120,000 was also paid out of the fund, on termination of the contract.
In lieu of premature termination, the following additional benefits were allowed to Mr. Ayub:
(i) A compensation for early termination of Rs.150,000 was paid.
(ii) Mr. Ayub had obtained an interest free loan of Rs.200,000 on July 1, 2011 which was payable in lump sum
on March 31, 2012. 25% of the outstanding balance was waived and remaining amount of loan was
deducted from his final settlement.
(iii) He was allowed to retain a 1600cc car which was in his use at accounting book value of the car was
Rs.650,000. The FMV of the car at the time of settlement was Rs.700,000.
Required: Compute the taxable income for TY 2012. (14)
Question-7
Mr. Ali Raza is working as a senior Executive in DD Pakistan Ltd. The detail of his income / receipts during the
year is as follows:
(i) He received basic salary of Rs.65,000 per month.
(ii) He was provided with furnished accommodation for which DD Pakistan Ltd paid a rent of Rs.25,000 per
month.
(iii) A company owned car was provided to him which was used partly for official and partly for private
purpose. The car was purchased at a cost of Rs.500,000 but had a fair market value of Rs.520,000.
(iv) Medical allowance of Rs.150,000 was paid to him during the year. The actual medical expenses incurred by
him amounted to Rs.40,000.
(v) He earned an income of Rs.45,000 on the sale of jewellery but incurred a loss of Rs.28,000 on sale of an
antique.
(vi) An apartment owned by him was rented on July 1, 2007 at a monthly rent of Rs.30,000. He received a non-
adjustable security deposit of Rs.100,000 which was partly used to repay the non-adjustable security
deposit received from the previous tenant in July 2005, amounting to Rs.70,000.
(vii) He incurred the following expenses on the apartment:
Rs.
- Repairs 8,000
- Share of rent to House Building Finance Corporation 15,000
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(viii) Provident fund was deducted @ 12% of his basic salary. An equal amount was contributed by the
company.
(ix) Tax deducted by the company amounted to Rs.170,000.
Required: Compute his taxable income, total tax payable and tax payable with the return. (15)
Question-8
Mr. Manto worked as an employee in Berlin Hotel, Germany for a period of five years. During the said period he
did not visit Pakistan for a single day. He returned to Pakistan on July 1, 2008 and immediately joined as a General
Manager in a well-reputed hotel, based in Karachi.
Assume that the details of his income for the tax year 2009 are as follows:
(i) Basic salary (per month) 100,000
(ii) House rent allowance (per month) 30,000
(iii) Medical allowance (per month) 10,000
(iv) Besides medical allowance, he is also entitled to free medical treatment at approved hospital.
(v) He has been provided a company maintained 1600cc car which was used partly for official and partly for
personal purposes. The hotel has leased the car from a bank. The gross lease rentals payable over the period
of lease amount to Rs.2,700,000. The fair market value of the car at the time of lease was Rs.2,000,000.
The total lease rentals paid by the hotel during the year amounted to Rs.800,000.
(vi) He is entitled to lunch at the hotel‟s restaurants where the usual charges are Rs.400 per person. He is
entitled to concessional rate of Rs. 40 per day which is deducted from his salary. Assume that there are 300
working days in the year.
(vii) He went for a training course to Islamabad where boarding and lodging cost amounting to Rs.150,000 was
borne by the hotel. He incurred a further expense of Rs.125,000 which was reimbursed by the hotel.
(viii) Provident fund was deducted @ 10% of his basic salary. An equal amount was contributed by the hotel.
Interest credited to his provident fund account amounted to Rs.48,000.
(ix) As per terms of employment agreed with Mr. Manto, tax payable on salary will be borne by the hotel.
(x) During the year, he earned income from other source of Rs. 100,000.
(xi) On July 15, 2008, he received a lump sum amount of Rs.4,000,000 through a normal banking channel as
final settlement from Berlin Hotel.
(xii) On August 1, 2008, he inherited 25,000 shares of a private limited company from father. The estimated fair
market value of the share, on the date of inheritance, was Rs. 45 per share and cost to father was Rs. 42 per
share . He sold all the shares on February 28, 2009 at Rs. 62 per share.
(xiii) He paid Zakat amounting Rs.200,000 to an approved organization, through cross cheque.
Required:
(a) Compute Mr. Manto‟s taxable income and tax payable for the tax year 2009.
(b) Briefly explain the treatment of items which are not considered in the above computation. (18)
(Q.1 March 2009)
Question-9
Mr. Zulfiqar, a senior executive of Mirza Petroleum Ltd (MPL), retired on March 31, 2009 after completion of 19
years of dedicated service. The details of Mr. Zulfiqar‟s income for TY 2009 are given below:
Income from MPL
(i) Monthly remuneration:
Rs.
Cost of living allowance 25,000
Total monthly salary 395,000
Market value of rent free accommodation provided 90,000
(ii) As per terms of employment, tax liability of Mr. Zulfiqar to the extent of Rs.200,000 is to be borne by
MPL.
(iii) On his retirement, he received gratuity of Rs.2,660,000 from an unrecognized gratuity fund maintained by
MPL.
(iv) He is receiving pension amounting to Rs.50,000 per month from the date of his retirement.
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Other Information
(v) He is also receiving pension amounting to Rs.12,000 per month from a multinational company where he
worked from 1975 to 1990.
(vi) On January 1, 2009, he rented out one of his residential bungalows to a private school for Rs.100,000 per
month and received advance rent for two years.
(vii) He incurred a loss of Rs.20,000 on sale of a painting.
Required:
(a) Compute taxable income and tax liability of Mr. Zulfiqar for the TY 2009.
(b) Briefly comment on the items which are not considered in the above computation. (21)
Question-10
Mr. Zameer Ansari is working as a Chief Executive Officer in Wimpy (Private) Limited (WPL). Following are the
details of his income / receipts during the tax year 2010:
(a) His monthly cash remuneration in WPL is as follows:
Rupees
(b) In addition to the above, he was also provided the following benefits in accordance with his terms of
employment:
(i) Medical insurance for hospitalization and surgery, limited to Rs. 1,500,000 per annum.
(ii) Payment of his children‟s school fees of Rs. 15,000 per month. The fee is deposited directly into
the school‟s bank account.
(iii) Rent free furnished accommodation on 1000 square yards. The accommodation is located within
the municipal limits of Karachi.
(iv) Two company-maintained cars. One of the cars was purchased by WPL for Rs. 3,000,000 and is
exclusively for his business use. The second car was obtained on lease on February 1, 2009 and is
used partly for official and partly for personal purposes. The fair market value of the leased
vehicle at the time of lease was Rs. 1,800,000.
(v) Leave encashment amounting to Rs. 100,000 was paid to Mr. Zameer on July 5, 2010.
(vi) An amount equal to one basic salary was paid by WPL to an approved pension fund.
(c) Mr. Zameer had received 15,000 shares of WPL on December 1, 2006 under an employee share scheme.
He had the option to transfer the shares on or after January 1, 2009. However, he sold all the shares on
April 1, 2010.
Fair value of the shares was as follows:
o Rs. 35 per share on December 1, 2006
o Rs. 42 per share on January 1, 2009
o Rs. 48 per share on April 1, 2010
(d) An apartment owned by Mr. Zameer was rented on July 1, 2009 to Mr. Abdul Ghaffar at a monthly rent of
Rs. 22,000. He received a non-adjustable security deposit of Rs. 150,000 which was partly used to repay
the non-adjustable security deposit amounting to Rs. 90,000 received from the previous tenant in July 2007.
He also incurred Rs. 20,000 on account of repairs to the apartment.
(e) The bank withheld Zakat amounting to Rs. 250,000.
(f) Tax deducted at source from his salary, amounted to Rs. 650,000.
Required:
Compute the taxable income, tax liability and tax payable by Mr. Zameer Ansari for the tax year 2010. (21)
389
Question-11
Mr. Mateen was employed with Melody Limited (ML) as an event organizer. On June 30, 20X1 he resigned from
his employment without completion of notice period. On July 01, 20X1 he joined another company Rock Star
Limited (RSL) as a senior event organizer. Following information is available relating to his assessment for the tax
year 20X2:
(a) On July 01, 20X1 RSL paid Rs. 280,000 to ML as compensation in lieu of un-served notice period by Mr.
Mateen.
(b) On July 15, 20X1 Mr. Mateen received a gratuity of Rs. 350,000 from an unrecognized gratuity fund
maintained by ML. He also received Rs. 150,000 as leave encashment.
(c) In accordance with the terms of his employment with RSL, Mr. Mateen was provided with the following
emoluments / benefits during the tax year 20X2:
(i) Basic salary of Rs. 245,000 per month and utility allowance of Rs. 21,000 per month.
(ii) A reimbursement of personal medical expenses up to 15 % of the annual basic salary and
Rs.250,000 on account of hospitalization charges of his daughter were made after procuring
hospital bills showing the national tax number of the hospital. These bills were also attested and
certified by RSL.
(iii) On September 01, 20X1 RSL provided a company maintained 1300 cc car which was partly used
for private purposes. The cost of the car was Rs. 1,500,000.
(iv) Monthly salary of Rs. 6,000 was paid to Mr. Mateen‟s house keeper. Mr. Mateen however,
reimbursed 20% of the house keeper‟s salary to RSL.
(v) A special allowance of Rs. 50,000 was paid to meet expenses necessarily to be incurred in the
performance of his official duties. Actual expenditure was Rs. 40,000.
(vi) On January 01, 20X2, he was provided an interest free loan of Rs. 1,500,000. The prescribed
benchmark rate is 10% per annum.
(vii) A commission of Rs. 500,000 was paid for introducing new clients to the company. Withholding
tax was deducted by RSL at the rate of 10% from such payments.
(viii) The tax deducted at source from his salary by RSL for the tax year 20X2 amounted to Rs.550,000.
(d) Apart from his employment with RSL, Mr. Mateen also organized events for private clients. He received a
total of Rs. 1,000,000 from such clients. However, he incurred an overall loss of Rs. 350,000 on organizing
these events.
(e) On May 31, 20X2 he received Rs. 180,000 from Mr. Ali as consideration for vacating his bungalow.
(f) He also received a share of profit from a business in Malaysia equivalent to Pak. Rs. 535,000. He paid
Rs.130,000 in taxes in Malaysia on such income.
(g) He paid Zakat of Rs. 250,000 to an approved organization, through cross cheque.
Required:
Compute the taxable income, tax liability and tax payable / refundable, if any, by Mr. Mateen for the tax
year 20X2. (20)
(Q.1 March 2011)
Question-12
Mr. Khursheed, a Pakistani national, was employed as the chief financial officer in Zulfiqar Gas Company (ZGC),
since 1992. Following information pertains to his income for the tax year 2022:
(i) Income from ZGC
Khursheed was employed with ZGC up to 31 December 2021. During this period he received the
following emoluments:
 Basic salary of Rs. 400,000 per month, medical allowance of Rs. 75,000 per month and utility allowance
equivalent to 10% of basic salary
 A company-maintained car for official and private use. The car was purchased two years ago at a cost of
Rs. 5 million According to the company's policy; ZGC deducted Rs. 10,000 per month from his salary,
for private use of the car.
On 31 July 2021, Khursheed had undergone a major surgery and incurred an expenditure of Rs. 1,500,000.
ZGC reimbursed the entire amount as a special case as it was not covered under the terms of employment.
Due to poor health, Khursheed opted for early retirement on 31 December 2021 under the company's
voluntary retirement scheme. He received the following benefits on his retirement:
 Rs. 7,500,000 as a golden handshake under the voluntary retirement scheme.
 Rs. 9,100,000 from an unapproved gratuity fund maintained by ZGC.
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 Transfer of company's car for Rs. 2,600,000. The amount was deducted from his final settlement. The
fair market value of the car as of 31 December 2021 was Rs. 2,800,000.
The tax deducted at source for the tax year 2022 amounted to Rs. 3,750,000.
(ii) Other Information
 On 1 January 2022, Khursheed commenced business of marketing of horticultural plants and related
items. However, due to intense competition, he had to wind-up this venture on 31 May 2022. During this
period, he had incurred a loss of Rs. 750,000.
 He purchased 5,000 shares for Rs. 500,000 from initial public offering of a new listed company on 1 June
2021. On 15 June 2022, he sold these shares for Rs. 700,000.
 He incurred a loss of Rs. 500,000 on the sale of his shareholdings in a private limited company.
 He sold his personal car at a profit of Rs. 300,000.
 On 1 March 2022, he purchased an apartment for Rs. 5,000,000. On 1 April 2022, he rented out the flat
to Mr. Abdul Sattar at a monthly rent of Rs. 25,000 and received advance rent for eight months.
 His average tax rate for the preceding three years is 5%;
 He paid zakat under Zakat & Ushr Ordinance amounting to Rs. 67,500.
Required:
(a) Compute the amount of taxable income, tax liability and tax payable / (refundable), if any, for the tax year
2022. (13)
(b) Briefly comment on the items which are not considered by you in the above computation. (6)
Question-13
Dr. Sona is a leading Eye Specialist. He manages a private clinic. A summary of his receipts and payments for the
latest tax year is as follows:
Receipts Note Rs. Payments Note Rs.
Consultation fees 4,400,000 Rent of clinic 300,000
Income from surgery 3,950,000 Household expenses 1,960,000
Purchase of motor car 640,000
Property income (i) 1,062,000 Surgical equipment 500,000
Other income (ii) 83,000 Salary to assistant 180,000
Clinic running expenses 240,000
Car expenses (iii) 200,000
Donation (iv) 300,000
Notes to the receipts and payments are presented below:
(i) Dr. Sona owns a commercial building which he has rented out. Details of net receipts is as follows:
Rs.
Rent for the year 870,000
Non-adjustable security deposit:
- received from a new tenant 700,000
- paid to old tenant (received three years ago) (500,000)
Property tax on building (8,000)
Net receipts 1,062,000
(ii) The amount was received for writing an article in an international magazine on World Health Day.
(iii) 60% of the motor car expenses were incurred in connection with his personal use.
(iv) Donation was given to a Government medical college for upgrading its library.
(v) Depreciation on motor car and surgical equipment, under the 3 rd Schedule of the Income Tax Ordinance,
2001 is Rs. 96,000 and Rs. 75,000 respectively.
Required: Compute the taxable income, tax liability and tax payable by Dr. Sona for the latest tax year. Provide
appropriate comments on the items which are not relevant for your computations. (20)
(Q.1 March 2012)
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Question-14
Beena Sikandar is a lawyer and owns a law firm under the name Beena & Co. She is also Director Legal Affairs at
Ayesha Foods Limited. Details of her income for the tax year 2012 are as follows:
(A) INCOME FROM BEENA & CO.
Income Statement
Note Rupees
Revenue (i) 8,500,000
Less: Expenses
Salaries (ii) 2,000,000
Gifts and donations (iii) 400,000
Lease charges (iv) 900,000
Professional fee (v) 400,000
Property expenses (vi) 350,000
Travel expenses 150,000
Other expenses (vii) 710,000
Income tax (Previous year) 90,000
(5,000,000)
Net profit 3,500,000
Notes to the Income Statement
(i) Revenue includes Rs. 750,000 recovered from Rafia in respect of bad debts that had been written
off while calculating the taxable income for the tax year 2010. The amount was receivable against
professional services rendered to Rafia.
(ii) Salary expenses include amounts of Rs. 50,000 and Rs. 75,000 per month paid to Beena and her
brother respectively. Her brother looks after administration and financial matters of the firm.
(iii) Gifts and donations include gifts to clients, gift to her son and donation to approved non-profit
organization amounting to Rs. 100,000, Rs. 50,000 and Rs. 250,000 respectively.
(iv) A vehicle was obtained solely for official purposes on lease, from a bank. The lease commenced
on 1 March 2012. Lease charges include Rs. 500,000 paid as security deposit to the bank.
(v) The professional fee includes an amount of Rs. 150,000 paid to a legal firm for defending a law
suit filed against Beena, in a family court.
(vi) Beena lives in an apartment situated above her office, and two-fifths of the total property expenses
relates to this apartment.
(vii) Other expenses include an amount of Rs. 260,000 paid for Beena‟s Golf Club membership which
she exclusively used to promote her business interests. The payment to the club was made in cash.
(B) DIRECTOR’S REMUNERATION FROM AYESHA FOOD LIMITED (AFL)
(i) Beena received monthly remuneration of Rs. 100,000 from AFL.
(ii) During the year, she also received two bonus payments of Rs. 100,000 each. One of the bonus
pertains to tax year 2011. It was announced last year but disbursed to her in the current year.
(iii) Beena has also been provided a vehicle, by AFL, for her personal as well as business use. The car
was acquired by AFL in May 2007 at a cost of Rs. 2,000,000. The fair market value of the car as
at 30 June 2012 was Rs. 1,500,000.
(iv) She received a fee of Rs.150,000 from AFL for attending the meetings of the Board of Directors
(BOD).
(v) Details of tax deducted by AFL are as follows:
Rupees
From salaries 390,000
From fee received for attending the meetings of BOD 9,000
Required:
Compute the taxable income, tax liability and tax payable by Beena Sikandar for the tax year 2012. Provide appropriate
comments on the items appearing in the notes which are not considered by you in your computations. (17)
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Question-15
On 1 July 2010, Kashmala and Shumaila formed an Association of Persons (AOP) with the objective of providing
information technology support services. They contributed Rs. 1.2 million and Rs. 0.8 million respectively in their
capital accounts and agreed to share profits and losses in the ratio of their capitals.
For the year ended 30 June 2011, business loss and unabsorbed depreciation of Rs. 0.4 million and Rs. 0.3 million
respectively were assessed and carried forward.
During the year ended 30 June 2012, the AOP incurred a net loss of Rs. 0.8 million. The cost for the year was
arrived after adjustment of the following:
(i) Salaries amounting to Rs. 0.5 million and Rs. 0.3 million were paid to Kashmala and Shumaila respectively.
(ii) Accounting depreciation on office assets amounted to Rs. 0.3 million.
AOP is entitled to claim tax depreciation of Rs. 0.25 million in respect of the office assets.
Required:
Calculate the taxable income, net tax payable and unabsorbed losses (including unabsorbed depreciation), if any, to
be carried forward by the AOP for the year ended 30 June 2012. (8)
Question-16
Mr. Creative is working as Director Human Resources at Artistic Technologies Limited (ATL). Following are the
details of his income/receipts during the latest tax year:
(a) Monthly cash remuneration from ATL:
Basic salary Rs. 300,000

Utility allowance 15% of basic salary
Medical allowance 12% of basic salary
(b) In addition to above, he was also provided with the following benefits in accordance with his terms of
employment:
(i) Rent-free furnished accommodation in a bungalow situated on a 500 square yard plot of land. Rent for
a comparable accommodation facility in the vicinity is Rs. 130,000 per month.
(j) An 1800cc company-maintained car. The car was purchased two years ago at a cost of Rs. 1,600,000
and is used both for official and personal purposes.
(c) A house owned by Mr. Creative had been leased-out by him at a monthly rent of Rs. 50,000. The lease expired
on 31 December. Mr. Creative refused to renew the lease in spite of the tenant‟s offer to renew the lease after
increasing the rent by 10%. He returned the non-adjustable deposit of Rs. 300,000 to the tenant, which was
received two years ago.
The house was immediately leased to his cousin without any security deposit on a monthly rent of Rs. 48,000.
(d) Five years ago, Mr. Creative had purchased 20,000 shares of Rs. 10 each, of an unlisted public company at the
rate of Rs. 140 per share. After one year of acquisition, he purchased 8,000 more shares at Rs. 142 per share.
During the latest tax year, he sold 75% of the new shares at a price of Rs. 145 per share.
(e) During the latest tax year, following investment was made:
Rupees
Approved voluntary pension fund 600,000
(f) During the latest tax year, he redeemed 4,000 units of an open-end mutual fund at Rs. 58.60 per unit. These
units were purchased three and a half years back at Rs. 50 per unit.
(g) Zakat of Rs. 50,000 were paid under Zakat and Ushr Ordinance.
(h) Tax deducted at source from his salary was Rs. 737,000.
Required:
Compute the taxable income, tax liability and tax payable for the latest tax year. (20)
(Q.1 March 2013)
393
Question-17
Mrs. Aslam was employed with Sahal Limited (SL) as a Marketing Manager. On 30 June 2021 she resigned from
her employment with SL. On 1 July 2021, she joined Hassan Pakistan Limited (HPL), a quoted company, as a
Marketing Director. She has provided you the following information in respect of the tax year 2022:
(i) In July 2021, she received following amounts from SL in final settlement:
 Leave encashment amounting to Rs. 95,000.
 Gratuity of Rs. 500,000 from an unrecognized gratuity fund maintained by SL.
 Reimbursement of Rs.100,000 against a health insurance policy. The insurance claim was lodged by
SL on behalf of Mrs. Aslam in January 2021.
(ii) In accordance with the terms of her employment, income tax related to her salary and benefits is to be
borne by HPL. Her emoluments/benefits during the tax year were as follows:
 Basic salary of Rs. 200,000 per month.
 Medical allowance of Rs. 60,000 per month.
 Rent free accommodation with annual letting value of Rs. 480,000.
 Travelling allowance of Rs. 20,000 per month. 60% of the amount was spent in the performance of
official duties.
 Provident fund @10% of basic salary. An equal amount was contributed by HPL.
(iii) Under an employee share scheme, Mrs. Aslam was awarded 5,000 shares in HPL on 1 January 2022. Under
the scheme she was not allowed to sell the shares up to 31 March 2022. She sold all the shares in HPL on
1 May 2022. Fair value of the shares on the above dates was as follows:
 Rs. 20 per share on 1 January 2022
 Rs. 28 per share on 31 March 2022
 Rs. 32 per share on 1 May 2022
(iv) On 31 December 2021, she received a loan of Rs. 400,000 from HPL. The loan carries a mark-up of 4% per
annum. The prescribed benchmark rate is 10%.
(v) She won the best executive employee award of HPL and received a laptop having a fair market value of
Rs. 150,000.
(vi) An amount of Rs. 355,000 was received from her spouse as support payment, under an agreement to live
apart.
(vii) She paid Rs. 105,000 as zakat under the Zakat and Ushr Ordinance, 1980.
(viii) Donation of Rs. 70,000 was paid to an institute listed in 13 th schedule.
Note: Ignore notional expense.
Required:
Compute the taxable income, tax liability and tax payable for the tax year 2022. (21)
394
Question-18
Qamar is engaged in the business of trading of electric motors. His accountant has prepared the following tax
computation for the tax year 20X4:
----- Rs. -----
Sale of motors 45,000
Less: Cost of sales and administrative expenses
(excluding depreciation for the year) (33,000)
Income before depreciation 12,000
Less: Tax depreciation for the year (9,000)
3,000
Less: Brought forward business loss from tax year 20X3
(Total business loss was Rs. 4,000) (3,000)
Taxable Income -
Computation of tax
Tax liability -
Following expenses are included in the cost of sales and administrative expenses:
Description Rs.
Travelling expenses include travel and hotel expenses of Qamar‟s visit to Malaysia for attending a 100
trade fair
Electricity charges paid for Qamar‟s residence 150
Damages paid to a distributor for delayed supplies 200
Donations to a non-profit organization 300
Salary paid to Bari who is Qamar‟s brother. Advance tax has been deducted from the salary 720
Fine paid to the Ministry of Environment for infringement of environmental and safety laws 200
Unabsorbed depreciation brought forward from previous tax year 500
Qamar is not satisfied with the tax return prepared by his accountant and has requested you to review the return.
Required:
(a) Compute the revised taxable income of Qamar and tax payable by or refundable to him for the tax year 20X4. (11)
(b) Briefly comment on treatment of the above items of expenses in your tax computation. (6)
(Q.1 March 2014)
Question-19
Sultan is working as electronic engineer with Ansari Electrical Company Limited (AECL).
He has provided you with the following information for the tax year ended 30 June 2023:
(a) His monthly cash remuneration in AECL is as follows:
Rupees
Market value of rent free accommodation 75,000
(b) He was also provided the following benefits in accordance with the terms of his employment:
(i) Leave encashment amounting to Rs. 300,000.
(ii) Hospitalization cost is covered by an insurance policy upto the amount of Rs. 1.5 million. The
insurance premium relating to this benefit amounted to Rs. 55,000.
(iii) He is allowed to use his personal car for office use. Reimbursement of car running and
maintenance expenses amounted to Rs. 550,000. 15% of these expenses pertain to personal use.
(c) Rs. 200,000 were received from a private limited company for attending board meetings.
(d) A lump sum amount of Rs. 1.2 million was received as the author of a literary work. Sultan took three years
to complete this literary work.
(e) Sultan is also a part time singer and owns a studio. He sold the premises in which the studio was situated
for Rs. 10 million and shifted his musical instruments to new premises which he purchased for Rs. 74.82
million. He received Rs. 2.5 million from his father in cash as loan to pay for his new studio. The previous
premises was purchased several years ago for Rs. 1.4 million and had a tax written down value of
Rs.600,000 at the time of disposal.
395
(f) The net income from the studio for tax year 2023 was Rs. 990,000. The expenses include salaries of two
workers at Rs. 25,000 and Rs. 36,000 per month and utility bills amounting to Rs. 110,000. All expenses
were paid in cash.
(g) He won a car, in a competition held by Star Motor Limited for promotion of its sales. The fair market value
of the car was Rs. 850,000.
(h) He gifted 40 fans having a fair market value of Rs. 100,000 to an approved charitable organisation.
(i) An amount of Rs. 500,000 was paid by him as contribution to an approved pension fund.
Required:
Under the provisions of the Income Tax Ordinance, 2001 compute the taxable income and tax thereon for the tax
year 2023. (20)
Question-20
On 1 July 20Y0, Tahir commenced business of selling garments. Income statement of the business for the
year ended 30 June 20Y1 is as follows:
Notes Rs. in 000
Sales 49,330
Less: Cost of sales (i) (39,150)
Gross profit 10,180
Less: Administrative and selling expenses (ii) (9,140)
Financial charges (iii) (2,500)
Other charges (iv) (1,358)
(12,998)
Add: Other income 3,875
Profit before taxation 1,057
Notes to the income statement:
(i) On 15 July 20Y0, used machinery was imported from China valuing Rs.1,500,000. Depreciation @ 15%
was charged on machinery for the whole year and is included in cost of sales.
(ii) Administrative and selling expenses include:
 Rs.975,000 paid for the purchase of computer software. The software is likely to be used for ten years.
 Cost of preparation of a feasibility study amounting to Rs.250,000 which was issued prior to the
commencement of business.
 Salary of Rs.50,000 per month was paid to Tahir‟s brother who handles the financial matters of the
business.
(iii) Financial charges include Rs.80,000 pertaining to a vehicle obtained on lease from a leasing company. The
cost of vehicle was Rs.1,300,000. Depreciation of Rs.260,000 has been included in administrative and
selling expenses. Lease rentals paid during the year amounted to Rs.384,375.
(iv) Other charges include:
 running and maintenance expenses of vehicle amounting to Rs.295,450. Use of vehicle for personal
purposes was approximately 20%.
 provision for bad debts amounting to Rs.25,000.
Other information:
(i) Tahir was working in UAE for the past five years and had come back to Pakistan in April 20Y0. He
received an amount equivalent to Rs.150,000 from his ex-employer as differential amount on his final
settlement in August 20Y0.
(ii) In December 20Y0 he sold a plot for Rs.5,500,000 which was inherited from his father in September 20X9.
His father purchased it for Rs.1,500,000.
Required: Under the provisions of the Income Tax Ordinance, 2001 compute the taxable income and tax liability of
Tahir for the tax year 20Y1. Provide comments in respect of items which do not appear in your computation.
(Ignore minimum tax) (18)
(Q.1 March 2015)
396
Question-21
Mukarram is working as a Commercial Manager in Airmen Engineering Limited (AEL), an unlisted public company,
for the past many years. He derived following emoluments during the tax year ended 30June 20X5:
Rupees
Basic salary (per month) 250,000
Medical allowance(per month) 37,500
Housing allowance(per month) 25,000
Travel allowance(per month) 11,500
In addition to above, Mukarram was also provided the following:
(i) A used company maintained car for both business and personal use. This car was provided to him on
1 July 20X4 in replacement of his previous car. This car was purchased three years ago at a price of
Rs.1,000,000. However, the fair market value of the car on 1 July 20X4 was Rs.800,000. On
1 September 20X4 , in accordance with the terms of his employment, AEL transferred the previous car to
Mukarram free of cost. The market value of the car at the time of transfer was Rs.400,000 where as its book
value was Rs.200,000. On 1 June 20X5, Mukarram sold this car to his neighbor at a price of
Rs. 350,000.
(ii) Performance related bonus of Rs.500,000. The bonus was however, paid to him on 5 July 20X5.
(iii) Two free buffet dinner coupons per month, one each for Mukarram and his wife in a five star hotel. The
coupons were provided in line with AEL‟s policy for its management employees. The dinner costs AEL
Rs.2,000 per person.
(iv) Reimbursement of Rs.20,000 in respect of telephone and internet charges. 20% of this amount was spent by
Mukarram in performance of his official duties.
(v) Two air-conditioners and a washing machine for use at home. The combined book value of these appliances
was Rs.300,000. The appliances are returnable to AEL after three years‟ time. AEL charged 10% depreciation
on these appliances.
(vi) An option to purchase 20,000 shares in AEL on 1 May 20X5 at Rs.25 per share. The break-up value of AEL
on that date was Rs.85 per share.
Other information relevant to tax year20X5 is as under:
(a) On 1 April 20X5, Mukarram sold a diamond ring to his brother Zohaib for Rs.250,000. The ring was
purchased on 1 January 20X3 at a price of Rs. 280,000.
(b) Mukarram has 65 acres of agricultural land in Badin and a building in immediate vicinity of the land.
Mukarram rented out 30 acres of his land along with the building to Dino who is a cultivator. Dino uses the
building as a store house. Mukarram received annual rents of Rs.750,000 and Rs.325,000 in respect of the
land and building respectively.
Mukarram is also running a small rice husking unit in Badin. He uses entire agricultural produce in the
husking unit which is grown on the remaining portion of his land. During the year he brought 5,000
kilograms of raw rice from his land to the unit for husking. He would have earned Rs.2,500 per
40 kilogram of raw rice had he sold it directly to the market. His sales from rice husking unit stood at
Rs.860,000 where as other operating expenses were of Rs. 10,000.
(c) On 31 May 20X5 a painting was destroyed by heavy rains. Mukarram had purchased the painting on
30 June 20X2 for Rs.100,000. However, due to constant increase in the value of the painting, he had
insured it at a premium of Rs.15,000. He received insurance claim of Rs.275,000 on 15 June 20X5.
Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder, compute the taxable income
of Mukarram for tax year 20X5. (20)
Note: show all relevant exemptions, exclusions and disallowance. (Q.1 September 2015)
397
Question -22
Wajahat, aged 48 years, is a marketing manager in Nayaab (Pvt.) Limited (NPL), a company engaged in the
manufacture and supply of tissue papers. The details of his monthly emoluments during the year ended 30 June
20Y1 are as under:
Rupees
Basic salary 70,000
Dearness allowance 10,000
Conveyance allowance 8,000
In addition to the above, Wajahat was also provided the following:

(i) Provident fund (PF) contribution of Rs. 8,400 per month. An equal amount per month was contributed by
Wajahat to the fund. Interest income of Rs.391,000 at the rate of 20% of accumulated balance of PF was
credited to his PF account.
(ii) Reimbursement of electricity bills during the year amounting to Rs.60,000.
Following further information is also available:

(i) Wajahat received net dividend of Rs.73,600 from BEE Limited, a company listed on Pakistan Stock
Exchange Limited. Withholding tax and zakat deducted from dividend amounted to Rs.13,800 and
Rs.4,600 respectively. He also received dividend of Rs.65,000 from a company in U.A.E through normal
banking channels. However, no tax was withheld either in Pakistan or U.A.E.
(ii) Wajahat contributed Rs.890,000 in an approved pension fund under the Voluntary Pension System Rules,
2005.
(iii) On 1 September 20Y0, Wajahat started a tuition centre for the students of finance in a posh locality. He
received tuition fees of Rs.2,198,000 and incurred following expenses:
 Monthly salary of Rs.50,000 paid to himself and Rs.35,000 to his friend Yousuf who taught financial
accounting at the centre.
 Travelling, boarding and lodging expenses of Rs.328,125. These expenses were incurred by Wajahat in
Sri Lanka for attending teachers training workshop.
 Rs. 250,000 against purchase of computers for the centre.
 Other miscellaneous expenses amounting to Rs.195,000.
(iv) Wajahat‟s total taxable income during the previous tax year was Rs.1,850,000.
Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder, compute the total income,
taxable income and net tax payable by/refundable to Wajahat during the tax year 20Y1. (16)
Note: Show all relevant exemptions, exclusions and disallowances. (Q.1, March 2016)
398
Question –23
Bader is working as General Manager Finance with HiFi Limited (HFL) for the past two years. The details of his
monthly emoluments during the year ended 30 June 2016 are as under:
Rupees
House rent allowance 120,000
In addition to above, Bader was also provided the following:
(i) Rs. 900,000 for signing a bond with HFL. According to the bond Bader would not resign from his
employment before the expiry of 30 June 2019.
(ii) Company maintained car for both official and private use. The car was purchased on 1 August 2015 at a
fair market value of Rs. 1,500,000.
(iii) On 1 January 2016 HFL sold an item of inventory to Bader for Rs. 12,000. The net realizable value of the
item of inventory at the end of 31 December 2015 and 30 June 2016 was Rs. 22,000 and Rs. 24,000
respectively. HFL had acquired it in July 2014 at a cost of Rs. 35,000.
(iv) An option was granted to Bader in August 2014 to acquire 2,500 shares in HFL‟s parent company, Mamoo
plc. (MP), listed on Hong Kong stock exchange. However, the option was exercisable after completion of
one year of service with HFL. Bader paid an amount equivalent to PKR 200,000 to acquire the option when
the fair market value of the option was PKR 250,000.
On 1 September 2015 he paid an amount equivalent to PKR 300,000 to acquire the shares in MP. The
shares were issued to him on 15 September 2015 when the market value of each share was equivalent to
PKR 375.
On 15 June 2016 Bader sold 2,000 shares in MP and received net proceeds equivalent to PKR 875,000 in
his bank account in Pakistan. This amount was received after deduction of bank charges of PKR 5,000 and
brokerage commission equivalent to PKR 10,000.
Other information relevant to tax year 2016 is as under:
(i) On 1 July 2015 Bader received following payments from his previous employer Sultan Hospital Limited
 Rs. 600,000 in respect of termination benefits under an agreement.
 Rs. 485,000 against gratuity under an unapproved scheme.
(ii) On 1 November 2015 Bader fell ill and was admitted to Sultan Hospital Limited. The hospital incurred
Rs. 65,000 on his treatment but did not charge anything to Bader.
(iii) Withholding tax deducted from Bader‟s salary during tax year 2016 amounted to Rs. 1,105,000.
(iv) His total assessed taxable income and total taxes paid thereon during the three preceding tax years
amounted to Rs. 10,500,000 and Rs. 1,260,000 respectively.
Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder, compute the taxable
income and net tax payable by or refundable to Bader for tax year 2016. (15)
Note: Show all relevant exemptions, exclusions and disallowances.
(Q.1, September 2016)
399
Question-24
Mushtaq is a sole proprietor of Mushtaq Enterprises (ME) engaged in the business of selling different products.
ME‟s profit and loss account shows profit before taxation of Rs. 1.8 million for the year ended 30 June 20Y1. A
review of ME‟s records has revealed the following information.
(i) ME employs two salesmen. Rs. 46,000 per month were paid to each salesman in cash which includes
reimbursement of Rs. 6,000 per month incurred on entertainment of customers at the business premises.
(ii) Administrative expenses include Rs. 150,000 which were paid to a research institute in China for the
purpose of developing a new product.
(iii) Accounting loss on the sale of patents was Rs. 65,000. The tax written down value of these patents at the
beginning of the year was Rs. 430,000 and these were sold for Rs. 524,000. Amortization charged to the
profit and loss account on these patents for the current year was Rs. 25,000.
(iv) Receivables from Atif and Aslam which had been written off in the previous year were recovered. Details
are as follows:
Atif Aslam
-----Rupees-----
Claimed bad debts in last tax return 800,000 1,200,000
Allowed by tax authorities last year 550,000 600,000
Amount recovered during the year 700,000 400,000
(v) ME has opened a sales office in Dubai. In this respect, furniture costing Rs. 850,000 with written down
value (WDV) of Rs. 650,000 was shifted to Dubai office. The tax WDV of the furniture at the beginning of
the year was Rs. 610,000.
(vi) Accounting depreciation for the year is Rs. 580,450. However, no depreciation has been provided on the
following fixed assets purchased on 1 March 20Y1:
Rupees
Furniture 400,000
Used machinery imported from Germany 500,000
(vii) Tax depreciation for the year, prior to the adjustments mentioned in (vi) above, amounted to
Rs. 484,525.
(viii) Advance tax paid u/s 147 was Rs. 200,000.
(ix) The assessed business losses of tax year 20X5 brought forward in year 20Y1 are Rs. 830,000. These
include unabsorbed tax depreciation amounting to Rs. 705,000.
Other transaction of Mushtaq
On 1 June 20Y1, he sold 6,000 shares for Rs. 432,000 out of 15,000 shares which he received on 1 May 20X8, on
the death of his father. His father purchased those shares for Rs. 25 per share.
Required:
Under the provisions of Income Tax Ordinance, 2001 and rules made thereunder, compute taxable income and net
tax payable by or refundable to Mushtaq for the year ended 30 June 20Y1. (16)
(Q.1, March 2017)
400
Question-25
Taqi Ahmed is working as Director Marketing with Zee Textiles Limited (ZTL) for the last twenty five years.
Details of his monthly emoluments during the year ended 30 June 20X7 are as under:
Rupees
Conveyance allowance 44,000
In addition to the above, Taqi Ahmed has provided the following information:
(i) He and his family members are covered under the health insurance policy in accordance with the terms of
employment. The amount of annual premium paid by ZTL was Rs.200,000.
(ii) During the year, daily allowance of Rs.40,000 was received to meet the expenses for working on
assignments at ZTL‟s factories located in Lahore and Multan.
(iii) On 31 July 20X7, the HR Committee approved a performance bonus for all employees for the year ended
30 June 20X7. Taqi received Rs.1,200,000 as performance bonus on 15 August 20X7.
(iv) On 31 March 20X7, in recognition of completion of twenty five years of his service with ZTL, the board of
directors approved to waive the outstanding amount of loan taken by Taqi Ahmed. This loan of
Rs.2,500,000 was taken on 1 January 20X5 and was repayable in fifty equal monthly instalments
commencing from May 20X5. The prescribed benchmark rate is 10% per annum and employer also
charged interest at 10%.
(v) During the year, he received Rs.60,000 for attending board meetings of ZTL. No tax was withheld from
this amount.
(vi) Amount of tax withheld by ZTL from his salary amounted to Rs.2,000,000.
Other information relevant to tax year 20X7 is as under:
(i) Salary is transferred to the bank account on 10th of the following month.
(ii) 10% annual increase was given to him effective 1st July in each of the last three years.
(iii) Taqi has given his house on rent to his cousin at annual rent of Rs.1,500,000. The rent was inclusive of
amenities and utilities of Rs.25,000 per month. However, annual rent for a similar house with same
amenities and utilities, in the vicinity, is Rs.1,800,000.
(iv) On 31 August 20X6, he won a prize bond amounting to Rs. 110,000.
(v) On 5 September 20X6, he was entitled to receive 5,000 interim bonus shares from Arian Limited (AL) a
listed company. The market value of these shares on that date was Rs. 24 per share.
(vi) He also received Rs.159,375 as cash dividend declared by AL. The share registrar correctly deducted
withholding tax accordingly.
Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder, compute under correct head of
income, the total income, the taxable income and net tax payable by or refundable to Taqi Ahmed for the year ended
30 June 20X7. (16)
(Q.1, September 2017)
401
Question-26
Mr. Qateel, a resident individual, is engaged in the manufacturing of various consumer goods under the name and
style Qateel Enterprises (QE). The following information has been extracted from the records of QE for the financial
year ended 30 June 2023.
Rupees
Total turnover 28,500,000
Cost of sales (26,155,000)
Gross profit 2,345,000
Operating expenses (4,500,000)
Operating loss (2,155,000)
Finance charges on lease of machinery (35,703)
Other income 5,000,000
Profit before tax 2,809,297
Additional information:
(i) Cost of sales includes:
 Rs. 45,000 paid as fine for violation of contract with a customer for delay in supply of goods.
 accounting depreciation of Rs. 2,498,940 (including depreciation on leased assets).
(ii) Operating expenses include:
 Rs. 450,000 paid for renewal of a licence for fifteen years.
 vehicle tax paid in cash amounting to Rs. 255,000 for eight office cars.
 Rs. 185,000 paid as security deposit to K-Electric (KE) for replacement of transformer at the factory.
 Rs. 300,000 collected by KE as advance tax through monthly electricity bills.
 cash donation to poor families amounting to Rs. 64,600 and Zakat of Rs. 1,401,060 paid under Zakat &
Ushr Ordinance.
 penalty of Rs. 25,000 imposed by the Commissioner Inland Revenue for late filing of annual return of
income for the tax year 2022.
 entertainment expenditure of Rs. 128,000 incurred on arrival of foreign customers for business
purposes.
(iii) Other income includes:
 dividend of Rs. 580,000 received from listed companies. The amount is net of income tax at the rate of
15% and Zakat of Rs. 100,000 deducted under the Zakat and Usher Ordinance, 1980.
 Capital gain of Rs. 1,200,000 from sale of shares of a private limited company. Shares were acquired
on 1 August 2016.
(iv) On 30 June 2023, leased machinery was transferred to Qateel on maturity of lease. The leasing company
was asked to adjust the amount of security deposit against the residual value of Rs. 100,000. The date of
commencement of lease was 1 July 2018.
Lease rentals paid during the year amounted to Rs. 270,000.
On the date of maturity, the accounting written down value and market value of the machinery was
Rs.590,490 and Rs. 800,000 respectively.
(v) During the year, a warehouse was constructed for storage of goods at a cost of Rs. 4,888,000. No
accounting depreciation has been recorded on it.
(vi) Tax depreciation for the tax year 2023 without considering the effect of para (iv) and (v) above, amounted
to Rs. 1,560,000.
(vii) Advance income tax paid during the year amounted to Rs. 480,000.
Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder, compute the total income,
taxable income and net tax payable by or refundable to QE for the year ended 30 June 2023. (18)
Note:
 Ignore minimum tax under section 113
 Show all the relevant exemptions, exclusions and disallowances
402
Question-27
Ahmer Ghazi has been working as director production in Delta Pakistan Limited (DPL) for last three years. He
received following monthly emoluments from DPL during the year ended 30 June 20X8:
Rupees
In addition to the above, the employer also provided following to Ahmer Ghazi:
(i) Health insurance for him and his family members. The amount of annual premium paid by DPL was
Rs.50,000.
(ii) Return air ticket for Dubai worth Rs. 180,000 for him and his family as a reward for achieving the production
target.
(iii) Loan of Rs. 5 million was given to him on 1 August 20X7 at 6% per annum.
(iv) Withholding tax of Rs. 1,244,000 deducted from his salary was reimbursed to him.
Other information relevant to the tax year 20X8 is as under:
(i) Under an employee share scheme 10,000 shares of DPL were allotted to Ahmer Ghazi on 1 January 20X6.
According to the scheme, he was not allowed to sell/transfer the shares up to 31 December 20X6. On 1 April
20X8. he sold 6,000 shares of DPL for Rs. 33 per share. The face value of each share is Rs. 10. Fair market
values of each share on different dates were as follows:
 Rs. 20 per share on 1 January 20X6
 Rs. 23 per share on 1 January 20X7
 Rs. 29 per share on 30 June 20X8
(ii) On 30 October 20X7 Ahmer Ghazi let out his apartment at a monthly rent of Rs. 30,000 to his friend. The fair
market rent of the apartment is Rs. 40,000 per month.
(iii) He is a part time singer and earned Rs. 225,000 by allowing a private TV channel to use his song in a TV
drama.
Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder, compute the following for the
year ended 30 June 20X8:
(a) Total income (10)
(b) Taxable income (01)
(c) Net tax payable or refundable (05)
Note: ■ Show all the relevant exemptions, exclusions and disallowances.
403
Question-28
Saleem is a resident taxpayer and runs a fitness centre in DHA Karachi. He files his return of income regularly.
Following information pertains to his business for the tax year 2026:
(i) Accounting profit before tax amounted to Rs. 2,162,500.
(ii) Administrative expenses include annual rent of the premises used for fitness centre amounting to
Rs.1,560,000. Withholding tax of Rs. 144,000 was deducted from the rent payment but was not deposited in
the government treasury.
(iii) A passenger transport vehicle used for pick and drop of employees of fitness centre was disposed of for
Rs.8,000,000. The vehicle was purchased for Rs. 8,500,000 in tax year 2025. No accounting depreciation was
provided during the year 2026. Accounting gain of Rs. 400,000 has been recorded in the profit or loss
account.
(iv) On 1 July 2025, a car was acquired on finance lease. The vehicle has been used 70% for business purposes
and 30% for Saleem‟s personal use.
Accounting depreciation of Rs. 600,000 and financial charges of Rs. 462,000 were recorded in the profit or
loss account. Lease rentals paid during the year amounted to Rs. 857,000.
(v) During the year, Saleem recorded gain of Rs. 50,000 on disposal of shares. Details are asunder:
Purchased Gain/(loss) on
Name of investee company Sold on On disposal (Rs.)
Sun (Private) Limited 1 Aug 2025 1 Sep 2020 500,000
Moon Limited – a listed company 15 Sep 2025 1 Jan 2023 (700,000)
Planet Limited - a listed company 1 Feb 2026 1 Jan 2023 250,000
50,000
Required:
Compute Saleem‟s taxable income under appropriate head of income and tax liability for the tax year 2026. (12)
Question-29
Saeed, a citizen of Pakistan joined Haris Pharma Limited (HPL) as a General Manager on 01 Oct 20X8. He was
offered following monthly salary and allowance in HPL:
Rupees
In addition to the above, he was also provided the following:
(i) Bonus equal to two monthly basic salaries. However, bonus amount was adjusted in proportion to the duration
of his stay in the company. The bonus amount was paid to him on 5 July 20X9.
(ii) Two company maintained cars. Both cars were purchased on 1 October 20X8. The car costing Rs. 3,500,000
was used for official purposes whereas the car costing Rs. 1,900,000 was used for personal purposes.
(iii) Free lunch from the restaurant owned by one of HPL‟s directors. The fair market value of food provided to
him during the year was Rs. 80,000.
(iv) A special allowance of Rs. 5,000 per month to meet expenses wholly and necessarily incurred in the
performance of his official duties.
(v) Provident fund contribution of Rs. 60,000 per month. An equal amount per month was also contributed by
Saeed to the fund.
Other information relevant to tax year 20X9 is as under:
(i) During the year, he received dividends of Rs. 575,000 from a listed company. The amount was net of
withholding income tax at the rate of 15% and Zakat of Rs. 62,500 deducted under the Zakat and Usher
Ordinance, 1980.
(ii) Withholding tax deducted by HPL from Saeed‟s salary during the tax year 20X9 amounted to Rs. 1,300,000.
Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder, compute under the
appropriate head of income, the total income, taxable income and net tax payable by or refundable to Saeed for the
tax year 20X9. (17)
404
Question-30
During the tax year 2023, Amjad carried out the following transactions in respect of his properties:
(i) On 1 July 2022, Amjad purchased a factory building in Sukkur along with the installed machinery at the price
of Rs. 4 million and Rs. 6 million respectively. To manage the shortage of funds of Rs. 2,000,000, he borrowed
the same on 1 July 2022 from his friend Shamshad through a crossed cheque. The loan carries interest at the
rate of 18% per annum.
On 1 January 2023, he let out this building along with the machinery to Basit at a monthly rent of Rs. 500,000
payable in advance.
(ii) On 1 July 2022, Amjad let out his residential property situated in DHA Karachi to Mirza Limited at a monthly
rent of Rs. 300,000. Rent for the two years was received in advance on 1 August 2022.
(iii) On 1 July 2022, Amjad also entered into an agreement with Zeeshan for the sale of his plot situated in Quetta
for Rs. 50 million. The plot had been purchased for Rs. 40 million in 2014. Under the terms of sale agreement,
he received Rs. 5 million at the time of signing the agreement and the balance was to be received on 30
September 2022. However, due to financial difficulties, Zeeshan failed to pay the balance amount on the due
date and consequently, Amjad forfeited the advance in accordance with the terms of the agreement.
On 10 April 2023, he finally sold the plot to Jamshed for Rs. 65 million.
(iv) Following expenditures were incurred by Amjad in respect of his properties in Sukkur and Karachi:
Property situated in
Details of expenditures
Sukkur Karachi
Repair & maintenance – building 270,000 70,000
– machinery 50,000 -
Ground rent 50,000 10,000
Insurance – building 150,000 20,000
Total 520,000 100,000
Required:
In view of the provisions of the Income Tax Ordinance, 2001 compute under appropriate head of income, taxable
income of Amjad for the tax year 2023. (10)
405
Question-31
For the purpose of this question, assume that the date today is 31 August 2022.
Shahid is engaged in the business of manufacturing and supplying of auto parts. Following is the extract of his profit
or loss statement for the tax year 2022:
Rs. in ‘000’
Sales 29,058
Cost of goods sold (18,724)
Gross profit 10,334
Operating expenses (3,137)
Financial charges (2,030)
Other income 760
Profit before tax 5,927
(i) The above accounts have been prepared on cash basis and stock-in-trade has been valued on prime cost
method. However, Shahid wants to change the method of accounting from cash basis to accrual basis. In
this respect, following information has been gathered:
Opening balances Closing balances
-----------Rs. in ’000-----------
Stock-in-trade using prime cost method 1,800 2,800
Stock-in-trade using absorption cost method 2,300 3,200
(ii) Cost of goods sold includes:
▪ purchase of packing material of Rs. 2,200,000 from Nasir Traders. No withholding tax was
deducted at the time of payment.
▪ freight charges of Rs. 285,000. These were paid in cash for transporting goods from suppliers.
(iii) Operating expenses include:
▪ salary of Rs. 80,000 per month paid to Shahid's brother who handles administrative matters of the
business.
▪ expenditure of Rs. 950,000 incurred on the development of a product which is expected to
generate revenue for five years.
▪ penalty of Rs. 465,000 for late filing of income tax return.
(iv) Financial charges include profit on debt of Rs. 450,000 earned on fixed deposit account maintained with a
bank. The bank withheld income tax and Zakat amounting to Rs. 45,000 and Rs. 93,750 respectively.
(v) Other income includes:
▪ capital gain of Rs. 45,000 received, net of withholding tax of Rs. 6,750 on sale of 20,000 shares in
Metal Limited (ML) in November 2021. ML is listed on PSX. On 1 January 2020, Shahid
purchased these shares for Rs. 200,000 at initial public offering.
▪ rent of Rs. 980,000 received from an agriculture land in Badin. No withholding tax was deducted
at the time of receipt.
(vi) Tax depreciation for the year amounts to Rs. 680,000.
(vii) Tax deducted at source by customers amounts to Rs. 875,000.
(viii) The unabsorbed tax depreciation brought forward from tax year 2021 amounts to Rs.568,000.
Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder, compute total income, taxable
income and net tax payable by or refundable to Shahid for the tax year 2022. (Use accrual basis of accounting)
Note: ▪ Your computation should commence with profit before tax figure.
▪ Show all relevant exemptions, exclusions and disallowances.
▪ Ignore notional expense.
. (18)
(Q.1 March 2020)
406
Question-32
Sageer, a resident individual, is working as a full time professor at Knowledge Institute (KI) which is a non-profit
education and research institution and is duly recognized by Higher Education Commission. KI is entirely owned
and funded by Zinger Limited (ZL), a company listed on the Pakistan Stock Exchange.
Details of his monthly remuneration during the year ended 30 June 2020 are given below:
Rupees
Fair market rent of accommodation 80,000
In addition to the above, he was also provided the following:
 Health insurance for Sageer and his dependents as per the terms of employment. For this purpose, KI is
paying annual insurance premium of Rs. 40,000.
 Provident fund contribution of Rs. 15,000 per month to a recognized provident fund. An equal amount was
also contributed by Sageer to the fund.
Additional information
(i) On 1 July 2019, Sageer was granted an option to acquire 10,000 shares in ZL at a price of Rs. 105 per share
under an employee share scheme. Sageer bought the option on the same date by paying Rs. 175,000 to KI
when the fair market value of the option was Rs. 200,000. He exercised the option on 30 September 2019
when the fair market value was Rs. 130 per share.
As per the scheme, he was not allowed to sell or transfer the shares before 31 December 2019. On 31
December 2019, the fair market value of ZL‟s shares was Rs. 142. On 30 May 2020, he sold 5,000 of these
shares at Rs. 135 per share.
(ii) On 1 July 2019, Sageer obtained an interest free loan of Rs. 1,500,000 from KI in exchange for which he
agreed to waive the interest receivable on his provident fund balance maintained with KI. Interest provided
on provident fund balance for the year was 8%. The prescribed benchmark rate is 10%.
(iii) On 31 August 2019, he received leave encashment of Rs. 100,000 relating to previous year.
(iv) During the year, tax of Rs. 160,000 was deducted at source by KI.
Other information relevant to tax year 2020:
(i) On 15 January 2020, he sold a constructed property situated in Karachi for Rs. 15,000,000. He had
purchased this constructed property in Dec 2018 for Rs. 19,000,000 out of which Rs. 5,000,000 was paid in
cash.
(ii) On 25 December 2019, he sold a residential plot situated in Faisalabad for Rs. 18,000,000. The plot was
inherited from his father in 2010. His father purchased it for Rs. 7,000,000 in 2010.
(iii) In June 2020, Sageer independently developed learning courses for sale through a web based marketplace
managed by a company situated outside Pakistan. On 25 June 2020, he received USD 4,260 into his dollar
account from sale of these courses. Withholding income tax @ 8% was deducted from the receipt as per the
income tax laws of the foreign country.
Relevant exchange rates were as follows:
25 June 2020 USD 1 = PKR 168
30 June 2020 USD 1 = PKR 169
Average exchange rate for June 2020 USD 1 = PKR 168.5
(iv) On 1 June 2020, Sageer paid Rs. 1,446,874 as Zakat under Zakat & Ushr Ordinance.
Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder, compute the taxable income
and net tax payable by or refundable to Sageer for the year ended 30 June 2020. Show all relevant exemptions,
exclusions and disallowances. (19)
(Q.1 Sep. 2020)
407
Question-33
(a) Farheen is a resident filer and has provided following information pertaining to tax year 2020:
(i) She owns a bungalow situated in Multan which was given on rent to Abbas under a rental
agreement of four years which expired on 31 March 2020. Details of payments received as per the
rent agreement are given below.
Rent Rs. 175,000 per month
Security guards‟ salaries Rs. 50,000 per month
Non-adjustable security deposit Rs. 2,500,000
On expiry of the rental agreement, Farheen refunded the security deposit to Abbas and rented out
the bungalow to a new tenant Zafar on the same terms and conditions.
Farheen pays Rs. 40,000 per month to a security services company which provides security guards
at the bungalow.
(ii) She owns a residential plot in Karachi. On 1 March 2020, she decided to sell the plot to Mehreen
for Rs. 2,200,000 and received a deposit of Rs. 176,000. On 1 June 2020, she forfeited the deposit
on refusal of Mehreen to purchase the plot.
(iii) On 1 December 2017, she had acquired a furnished office on monthly rent of Rs. 5,000 for her
own use and had paid a non-refundable amount of Rs. 2,000,000 to the previous tenant for
vacating the office. During the year, she received an offer of Rs. 2,400,000 from Shehroz to vacate
this office which she accepted and received the amount on 1 March 2020.
(iv) On 1 October 2019, she inherited a factory with plant and machinery from her father and let it out
on 1 December 2019 at a monthly rent of Rs. 500,000.
(v) On 15 November 2019, she received income tax refund of Rs. 180,000 related to tax year 2017.
This amount included Rs. 30,000 being additional payment on delayed refund.
Required: Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder, compute the total
income of Farheen under appropriate heads of income for the tax year 2020. (07)
(b) Ahmed has completed his MBA from a university in USA. He had been living there since August 2013 for
his education and came to Pakistan only once in 2017 i.e. from 10 March 2017 to 30 September 2017 and
then went back to USA to complete his MBA. Along with his studies, he was also doing a part time job at a
restaurant in USA till November 2019. He returned to Pakistan on 1 December 2019 and commenced a
trading business from 1 January 2020.
Below is the computation for taxable income/loss for the tax year 2020:
Pakistan Foreign
source source Total
income income
Income from Salary -------------Rupees-------------
Salary from restaurant in USA 840,000 840,000
Income from business
Revenue 4,000,000 4,000,000
Less: Deductions
Cost of goods sold (2,200,000) (2,200,000)
Selling and administrative expenses [Note A] (2,820,000) (2,820,000)
Donation [Note B] (600,000) (250,000) (850,000)
Taxable income/(loss) (1,620,000) 590,000 (1,030,000)
Note A: Selling and administrative expenses include the following:
(i) Salaries of Rs. 840,000 paid to two employees equally in cash. Withholding income tax
was deducted as required under Income Tax Ordinance, 2001.
(ii) Rs. 600,000 in respect of the feasibility study which was conducted before
commencement of the business.
Note B: Donation of Rs. 600,000 was paid to a charitable hospital in Pakistan and Rs. 250,000 was paid to
a non-profit organization in USA.
Required: Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder, comment on the
above tax computation for tax year 2020. Give suggestion(s) wherever required. (08)
Note: Revised computation is not required. (Q.4 Sep. 2020)
408
Question-34
Muhammad Asghar owns an industrial undertaking under the name and style of Asghar & Company (AC) which is
engaged in the business of manufacturing pharmaceutical products. Following information is available for the year
ended 31 December 20X1
Rs. in ‘000
Turnover 324,850
Cost of goods sold (217,197)
Gross profit 107,653
Administrative and distribution expenses (88,980)
Marketing expenses (19,765)
Other income 3,560
(i) Cost of goods sold includes:
 Raw materials of Rs. 7,800,000. No withholding tax was deducted at the time of payment.
 Accounting depreciation of Rs. 2,100,000 on plant and machinery.
 Provision for slow moving inventory of Rs. 1,800,000.
(ii) Administrative and distribution expenses include:
 Rs. 676,500 paid to a local hotel for holding annual Eid-Milan party for the employees and their
families.
 Rs. 1,235,000 paid as penalty to a customer in settlement of his claim for damages under a
contract for the supply of a batch of vaccines. Laboratory tests and in-house investigations
revealed that the level of impurities in the vaccines exceeded the acceptable level as agreed in the
contract.
 Rs. 2,300,000 paid as donation to a hospital established by the local government.
(iii) Marketing expenses include a reward of Rs. 500,000. The reward was paid in cash to one of the salesmen
for exceeding his sales target.
(iv) Other income includes:
 Dividend of Rs. 174,000. This amount was received from a listed company after deduction of
income tax at the rate of 15% and Zakat of Rs. 30,000 deducted under the Zakat and Usher
Ordinance, 1980.
 Gain of Rs. 660,000 on sale of shares in Akash (Pvt) Limited (APL) in November 20X1. 60% of
the shares in APL are owned by the Federal Government. AC purchased these shares in June
20X0.
Other information:
(i) A second hand plant was imported from France at a cost of Rs. 2,500,000. Withholding tax of Rs.150,000
was deducted at import stage. The plant was installed in the month of September 20X1. AC incurred Rs.
375,000 on the installation of plant which is included in administrative and distribution expenses.
(ii) Pre-commencement expenditures of Rs. 3,400,000 were charged to accounting profit and loss for the year
ended 31 December 20X0. However, for tax purposes, it has to be amortized over the period of five years.
(iii) Tax depreciation other than imported plant amounted to Rs. 1,900,000.
(iv) Income tax deducted by the customers u/s 153 and advance income tax paid u/s 147 during the year
amounted to Rs. 1,400,000 and Rs. 200,000 respectively.
Required:
income and net income tax payable by or refundable to AC for the tax year 20X2.
Note:
 Your computation should commence with profit before tax figure of Rs. 2,468K.
 Ignore minimum tax under section 113.
 Show all relevant exemptions, exclusions and disallowances.
(19)
(Q.3 March 2021)
409
Question-35
Abbas, a resident individual, is engaged in the business of manufacturing various consumer goods under the name
and style of „Kamyab Enterprises (KE)‟. Following information has been extracted from KE‟s records for the year
ended 30 June 2025:
Rupees
Sales 43,089,000
Cost of sales (26,042,000)
Gross profit 17,047,000
Administrative and selling expenses (7,800,000)
Financial charges (2,100,000)
Other income 5,560,000
Cost of sales includes:
(i) accounting depreciation of Rs. 1,400,000. The tax written down values of KE‟s fixed assets on 1 July 2024
were:
Rupees
Plant and machinery 6,860,000
Computers and related products 800,000
Motor vehicles (80% for business purposes) 3,000,000
A new computer was purchased on 1 April 2025 for Rs. 150,000.
Motor vehicle which was purchased on 15 June 2023 at the cost of Rs. 1,000,000 was sold for Rs. 750,000
on 31 May 2025. Carrying value of this motor vehicle was equal to sale proceeds.
(ii) an amount of Rs. 40,000 paid to factory supervisor on 23 March 2025 as advance salary for the month of
April. Since he was in urgent need of the amount and the banks were closed on 23 March 2025 due to the
Pakistan Day, he was paid in cash.
Administrative and selling expenses include:
(i) expenditure on „In-house scientific research‟ related to KE‟s business. It includes salaries of Rs. 880,000
paid to scientists, material of Rs. 230,000 used in the research and Rs. 700,000 paid to a company in China
for supporting KE‟s scientists in the research work. This expenditure was not recorded as intangible asset
as it could not provide an advantage for a period of more than one year.
(ii) an expense of Rs. 650,000 paid as an instalment towards the purchase price of an industrial plot.
(iii) purchase of goats worth Rs. 225,000 for sacrifice on Eid-ul-Azha. The payment was made through cross
cheque.
(iv) donations of Rs. 1,000,000 to approved non-profit organisations. 40% of this amount was donated to
organisations listed on the 13th Schedule of the Income Tax Ordinance, 2001. All donations were made
through crossed cheques.
Other income includes:
(i) an amount of Rs. 720,000 received from income tax department on account of tax refund related to tax year
2022. This amount includes an additional payment of Rs. 80,000 due to delay in tax refund.
(ii) capital gains of Rs. 430,000 and Rs. 250,000 on sale of investments in shares of Manzil Limited, a public
unlisted company and Himmat Limited, a public listed company respectively on 20 June 2025. Both
investments were made on 1 January 2023.
Required:
income and net income tax payable by or refundable to Abbas for the tax year 2025. (18)
Note:
 Your computation should commence with profit before tax figure of Rs. 12.707 million.
 Ignore minimum tax under section 113.
410
Question-36
Nauman has been working as manager finance in Dua Limited (DL), public listed company, for many years. He
received following monthly emoluments from DL during the year ended 30 June 2021:
Rupees
In addition to the above, the employer also provided him the following benefits:
(i) Company maintained car for both official and personal use. The car was purchased on 1 July 2016 at the
cost of Rs. 1,400,000. As per company policy Nauman purchased this car at its book value of Rs. 450,000
on completion of five years i.e. 30 June 2021. Fair market value of this car on the date of sale to Nauman
was Rs. 1,000,000.
(ii) Provident fund contribution of Rs. 18,000 per month to a recognized provident fund. An equal amount was
also contributed by Nauman to the fund. Interest income of Rs. 540,000 at the rate of 18% of accumulated
balance of the fund was credited to Nauman's account.
(iii) On 1 July 2020, he was paid education allowance of Rs. 300,000.
(iv) On 2 July 2020, he was paid relocation allowance of Rs. 40,000.
(v) HR Committee approved a performance bonus for the year ended 30 June 2021 for all employees. Nauman
received Rs. 400,000 as performance bonus on 15 July 2021.
(vi) On 1 April 2021, Nauman obtained a loan of Rs. 5,000,000 @ 6% per annum from DL to purchase a new
house for his own use. First instalment of the loan was paid on 30 June 2021. He incurred legal expenses of
Rs. 20,000 for obtaining the loan.
Other information relevant to tax year 2021:
(i) During the year, Nauman received interest income of Rs. 510,000 on his investment in defence savings
certificates. The amount was net of withholding income tax at the rate of 15%.
(ii) Zakat of Rs. 200,000 was paid under the Zakat and Usher Ordinance, 1980.
(iii) On 1 October 2020, Nauman received advance rent of Rs. 1,200,000 for 12 months for renting office
premises. This amount includes Rs. 400,000 for utilities, cleaning and security. During the tax year 2021,
Nauman incurred following expenditures in relation to the premises:
Rupees
Repair and maintenance 70,000
Insurance premium 50,000
Administration and collection charges of rent 30,000
Utility, cleaning and security 250,000
Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder, compute total income and
taxable income of Nauman for the tax year 2021. Show all relevant exemptions, exclusions and disallowances. (13)
411
Question-37
Basit, a senior manager at Master Limited (ML), resigned on 31 January 2022 after completion of three and a half
year of service. During the tax year 2022, he received the following emoluments from ML:
(i) Salary of Rs. 610,000 per month.
(ii) Allowance of Rs 60,000 per month for services of domestic servant. Out of which, he paid Rs. 36,000 per
month in respect of these services.
(iii) Allowance equal to 5% of salary solely expended in the performance of his duties of employment.
(i) On 1 July 2021, he leased a car having fair market value of Rs. 4,800,000 at a monthly rental of Rs.
120,000. He pays lease rentals from his own sources but has used this vehicle for both official and personal
purposes.
(ii) On 1 July 2021, 13000 shares of ML were allotted to Basit under an employee share scheme, against the
payment of Rs. 30 per share. According to the scheme, he was not allowed to sell / transfer the shares upto
31 December 2021. On 31 May 2022, he sold 5000 shares of ML at its fair market value (FMV). FMV of
each share on different dates are as follows:
1 July 2021 31 December 2021 31 May 2022
Rs. 50 Rs. 90 Rs. 80
(iii) On 15 February 2022, he received the following payments from ML, as final settlement:
 Rs. 320,000 on account of leave encashment.
 Rs. 2,200,000 under gratuity scheme approved by the Board.
 Rs. 700,000 salary arrears related to tax year 2021.
(iv) Withholding tax deducted by ML from Basit‟s salary during the tax year 2022 amounted to Rs. 1,400,000.
Other information:
(i) On 31 January 2022, he received gold worth Rs. 200,000 as a gift from his old friend.
(ii) On 1 April 2022, he left for United Kingdom and joined Oliver Limited (OL) as an employee at a monthly
salary of GBP 3,200. He remained abroad till end of the tax year 2022. No withholding tax was deducted
by OL from his salary.
(iii) While residing in UK, Basit served as a visiting faculty member at a University. He earned GBP 1,500
from the university and incurred an expenditure of GBP 500 for providing services at the university.
Withholding tax deducted by the university amounted to GBP 225.
(iv) Average exchange rate during 1 April 2022 to 30 June 2022 was GBP 1 = Rs. 250.
Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder:
(a) compute the total income, taxable income and net tax payable by or refundable to Basit for the tax year
2022. (Show all relevant exemptions, exclusions and disallowances and ignore notional expense) (16)
(b) what other option is available to Basit for the taxation of salary arrears of Rs. 700,000 received from ML as
part of final settlement. (Revised computation is not required) (01)
(c) identify the additional statement that Basit needs to file in respect of his foreign source income. Also
briefly discuss the particulars to be mentioned in the additional statement. (02)
(Q.1 March 2022)
412
Question-38
Aakash Kumar owns an industrial undertaking under the name and style of Premjee & Co. (PJC) which is engaged
in the business of manufacturing fast moving consumer goods. Following information is available from PJC‟s
records for the year ended 30 June 2022:
(i) Loss before tax for the year was Rs. 87 million.
 a penalty of Rs. 2 million for late delivery of goods to a customer.
 commission of Rs. 2.5 million which was paid to a distributor, Liaquat Bashir, on sale of PJC‟s
products of Rs. 50 million. These products are covered in the Third Schedule of the Sales Tax Act,
1990. Name of Liaquat Bashir is not appearing in the active taxpayers‟ list under the Income Tax
Ordinance, 2001.
 freight charges of Rs. 1.2 million which were paid in cash to a freight forwarding company in Karachi.
 accounting depreciation of Rs. 40 million.
(iii) Other income includes:
 an insurance claim of Rs. 6 million, equivalent to accounting book value, received on 8 November
2021 in respect of a vehicle which was completely destroyed by fire. The cost and fair market value of
the vehicle before fire incident were Rs. 10 million and Rs. 8 million respectively. This vehicle was
purchased on l October 2019.
 amounts recovered during the year from two debtors i.e. Shameem and Faheem. These amounts had
been written off in the last year. Details are as follows:
Shameem Faheem
— Rs. in million —
Bad debts claimed in the last tax return 19.2 28.8
Bad debts allowed by tax authorities last year 13.2 14.8
Amounts recovered during the year 16.8 10.6
 rent of Rs. 21.6 million. On 1 July 2021, Aakash leased one of its factory buildings alongwith the
plant to Kamran at a monthly rent of Rs. 1.8 million, payable in advance. The building was purchased
for Rs. 85 million on 16 August 2019 whereas a second hand locally purchased plant was installed at a
cost of Rs. 34 million on 1 July 2021. During the year, Aakash incurred Rs. 3.2 million on repair and
maintenance of the factory building.
(iv) PJC‟s liabilities include amounts of Rs. 14 million and Rs. 17 million in respect of purchases made on 18
March 2018 and 1 August 2018 respectively. These purchases were allowed as admissible deductions while
computing income from business in their relevant tax years.
(v) During the year, outstanding financial charges of Rs. 2.8 million were waived by the bank on rescheduling
the loan. These charges were claimed as admissible deduction in the tax year 2020.
(vi) Tax depreciation for the year on all fixed assets, other than factory building and plant which were leased
out to Kamran, amounted to Rs. 48 million.
Other information:
(i) On 15 August 2021, Aakash entered into a derivative contract for the purchase of gold. The contract was to
be expired on 15 November 2021. Aakash sold the contract before the settlement date and earned a net gain
of Rs. 23 million on the contract.
(ii) On 30 June 2022, Aakash earned capital gains of:
 Rs. 20 million on sale of his plot which was purchased on 1 June 2019.
 Rs. 3.6 million on sale of shares in a private company. These were acquired on 1 June 2021.
(iii) During the year, Aakash received his share of profit from an AOP of Rs. 70 million.
Required:
income and net income tax payable by or refundable to Aakash for the tax year 2022. (18)
(Q.3 March 2022)
Note:  Ignore minimum tax under section 113.
413
Question-39
Azaadi & Co. (AC) is an association of persons engaged in the business of manufacturing disposable products.
Following information has been extracted from AC‟s records for the year ended 30 June 2022:
Rs. in million
Sales 380
Less Sales tax (45)
Less: Trade discount (15)
Net sales 320
Less: Cost of sales (240)
Gross profit 80
Less: Operating expenses (l46)
Loss before tax (66)
(i) Cost of sales includes:
 payment of Rs. 12 million (including sales tax of Rs. 2 million) to Hashim Limited (HL) for the
purchase of a new machine for making plastic container in exchange of an old machine having a
book value and a fair market value of Rs. 5 million and Rs 4 million respectively on exchange
date. The transaction was carried out on 1 July 2021.
Old machine was purchased on 1 January 2020. Disposal of old machine and depreciation of new
machine were not recorded in AC‟s books of accounts. Tax WDV of old machine was the same as
accounting WDV on the disposal date.
 purchase of raw materials of Rs. 40 million against which no withholding tax was deducted at the
time of payment. During the year, AC purchased total raw material of Rs. 120 million.
 closing inventory of damaged finished goods of Rs 18 million. Due to heavy rain, these goods
were damaged and it is expected to fetch Rs. 12 million only.
 salary of Rs. 0.275 million paid to office boy in cash. He was paid a monthly salary of Rs. 25,000
for eleven months.
 warehouse rent of Rs. 1.6 million paid through credit card linked to notified business bank
account.
 bad debt of Rs. 2.8 million written off against receivable from a customer on his insolvency.
 commission of Rs. 3.2 million paid to one of the members of AC, by crediting the amount to his
bank account.
 scholarship of Rs. 4.5 million paid to Sara, one of AC‟s staff members, for higher studies in
accordance with the terms of the employment.
 payment of Rs. 6.4 million for the purchase of a specialized software for AC‟s manufacturing
department on 1 April 2022. The software is expected to be used for five years. Although the
software is available for use from the date of purchase, AC‟s members have decided to implement
this software from 1 July 2022.
 depreciation and financial charges of Rs. 2.1 million and Rs. 1.5 million respectively in respect of
a car which was acquired on financial lease.
On 1 July 2021, AC entered into a lease agreement with a bank for a car of Rs.10.5 million against
the annual lease rentals of Rs. 3.0 million, payable in arrears. The car has been used 80% for
business purposes and 20% for personal use of members.
Required:
(a) compute the total income, taxable income and tax liability of Azaadi & Co. for the tax year 2022. (15)
(b) discuss the tax implication in respect of scholarship received by Sara in her return of income for tax year
2022. (02)
(Q-1 September 2022)
Note: Show all relevant exemptions, exclusions and disallowances.
414
Question-40
Nasir has been working as head of finance in Asaaish (Private) Limited (APL). He received following monthly
emoluments from APL during the year ended 30 June 2022:
Rupees
Cost of living allowance 200,000
In addition to the above, APL also provided him the following benefits:
(i) Residential house owned by APL for no rent. The fair market value of the rent was Rs.300,000 per month.
(ii) Company maintained car. The car was acquired on lease by APL on 1 July 2020 at an annual rental of Rs.
1,100,000. The fair market value of the car as on 1 July 2020 and 30 June 2022 were Rs. 4,000,000 and Rs.
6,000,000 respectively. 70% of the car is used for office purpose while 30% is used for personal purposes.
(iii) 250 liter of fuel every month. The average petrol price during the year was Rs. 180 per liter.
(iv) Reimbursement of car maintenance expenses upto Rs. 20,000 per month. During the year, APL reimbursed
Rs. 150,000 to him in this respect.
(v) Health insurance for Nasir and his dependents as per the terms of employment. For this purpose, APL is
paying annual insurance premium of Rs. 100,000. The insurance company incurred expenses of Rs.
500,000 on hospitalization of his dependents.
(vi) Ad-hoc relief allowance equal to one month‟s basic salary keeping in view the increase in inflation.
Nasir incurred a monthly expenditure of Rs. 20,000 from July 2021 to November 2021 while working from home
under the COVID guidelines issued by APL‟s management.
Withholding tax deducted by APL from his salary during the tax year 2022 amounted to Rs. 4,500,000.
Other information:
(i) During the year, he got married and received Rs. 1,000,000 in cash as gifts from various relatives and
friends including Rs. 400,000 from his parents. In addition his parents gifted him a car worth Rs.
5,000,000.
(ii) During the year, he paid a cash donation of Rs. 480,000 to a non-profit organization listed in the Thirteenth
Schedule.
(iii) During the year, Nasir contributed Rs. 4,700,000 to an approved pension fund under the Voluntary Pension
System Rules, 2005
Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder compute the total income,
taxable income and net tax payable by or refundable to Nasir for the tax year 2022. (Show all relevant exemptions,
exclusions and disallowances) (14)
415
Question-41
(a) Nargis is a resident filer. During the tax year 2022, she disposed of various assets. Relevant details of these
assets are as follows:
Disposal Purchase
Cash Fair Date of Cost of Date of

consideration market disposal purchase purchase
value
Rs. In million Rs. In million
Investment in shares of a public 2.8 3.0 01-Apr-22 2.0 01-Jun-20

unlisted company
Investment in shares of a listed 3.5 3.5 01-Jul-21 2.1 30-Jun-13
company
Personal car 5.0 6.0 31-Dec-21 3.8 01-Jan-19
Painting 1.2 1.2 16-Sep-21 1.7 16-Feb-17
Jewelry 8.0 7.6 30-Jun-22 (see note 1) 01-May-16
Note 1: She received the jewelry as a gift from her mother in law at the time of her marriage when its fair
market value was Rs. 4.8 million and cost was Rs. 3.2 million in hands of her mother in law.
Required:
(i) compute the amount to be chargeable to tax under the head of capital gain. Also state the reason
for ignoring gain / loss, if any. (06)
(ii) compute the tax liability of Nargis in respect of the capital gain computed in (i) above assuming
that she has no other source of income. (02)
(b) Shahid is a resident and has provided following information pertaining to tax year 2022:
(i) On 16 June 2018, he inherited a bungalow having a fair market value of Rs. 50 million from his
father on his death. The cost to father was Rs. 40 million. On 1 January 2022, he decided to sell
the bungalow to Zamin for Rs. 60 million and received a deposit of Rs. 6 million. On 14 February
2022, he forfeited the deposit on refusal of Zamin to purchase the bungalow in accordance with
the terms of the contract.
On 31 March 2022, he sold and transferred the bungalow to Kazim for Rs. 54 million.
(ii) He owns a factory building at Faisalabad. On 1 July 2021, he let out this factory building along
with the plant and machinery at a monthly rent of Rs. 1 million. During the year, he incurred
expenses of Rs. 3.5 million on the repair and maintenance of the factory.
(iii) He owns an agricultural land in Punjab. On 1 January 2022, he rented out the agriculture land at an
annual rent of Rs. 4 million. The fair market value of the annual rent was Rs. 5 million.
Required:
Under the provision of the Income Tax Ordinance, 2001 and Rules made thereunder, compute the total and
taxable income of Shahid under appropriate heads of income for the tax year 2022. Also compute his tax
liability for the tax year 2022. (07)
(Q-3 September 2022)
416
ICAP PAST PAPER SOLUTIONS

Answer-1
Mr. A
Computation of income and tax thereon
For TY 2xxx
Income from salary (W-1) 8,867,737

Income from capital gain [S.37(1)] 4,206,000
Income from property (W-2) 84,500
Taxable income 13,158,237
Tax liability (765,000 + 9,158,237 x 35%) (1) 3,970,383

Less: Tax deducted u/s 149-Salary (3,600,000)
Payable to Government 370,383
Workings
(W-1) Income from salary
Basic Salary [S.12(2)(a)] 4,004,520
Bonus [S.12(2)(a)] 1,980,642
Utility allowance [S.12(2)(c)] 400,452
Leave Encashment [S.12(2)(a)] 538,083
Other allowance [S.12(2)(c) ] 90,000
House rent allowance [S.12(2)(c)] 1,802,040
Director‟s fee [S.12(2)(a)] 52,000
8,867,737
(W-2) Income from property
Gross Rent (10,000 x 12) 120,000
Less: Admissible deductions
Repair allowance (120,000 x 1/5) (24,000)
Property tax of house (11,500)
Rent chargeable to tax 84,500
Answer-2
Mr. B
For TY 2012

Tax liability on income under NTR (1,095,000 + 16,496,000 x 35%) (2) 6,868,600
Less: Tax deducted on Salary (4,541,250)
Less: Tax paid by employer on employee behalf (2,976,000)
(7,517,250)
Refundable from Government (648,650)
417
Workings
Basic Salary [S.12(2)(a)] 8,800,000
Bonus [S.12(2)(a)] 5,000,000
Utility allowance [S.12(2)(c)] 880,000
Education allowance [S.12(2)(c)] 200,000
Accommodation provided (45% of basic salary) [S.13(12)] N-1 (8,800,000 x 45%) 3,960,000
Motor vehicle provided [S.13(3)] (2,000,000 x 5%) 100,000
Children education fees [S.12(2)(d)] 105,000
House servant salaries [S.13(5)] 230,000
Tax of employee paid by employer [S.12(3)] 2,976,000
22,251,000
(N-1) As amount that would have been paid had no accommodation been provided is not given in question, therefore
comparison of this amount cannot be made with 45% of basic salary. Therefore only 45% of basic salary is added in
the income in respect of accommodation provided.
(W-2) Property Income [Sec. 15]
Gross Rent (50,000 x 7) 350,000
Property tax of house (35,000)
Answer-3
Mr. Imran
Computation of taxable income
For TY 2012
Income from salary

Income from UAE Company Rs.
Salary Income [S.51(2)] Note – 1 -
Income from Pakistan subsidiary
Basic Salary [S.12(2)(a)] (500,000 x 9) 4,500,000
Medical allowance (45,000 x 9) 405,000
Less: Exempt up to 10% of basic salary (4,500,000 x 10%)
[2nd Sch. Clause 139] (450,000) -
Benefit provided in respect of TV and VCR (40,000 x 20% x 9/12) 6,000
[S.13(11)]
Interest free loan [S.13(7)] (5,000,000 x 10% x 9/12) 375,000
Family‟s housing cost in Dubai [S.12(2)(d)] (30,000 x 9) 270,000
Travelling and related cost [S.12(2)(d)] (30,000 x 9) 270,000
Exercise of right [S.14(2)] (300 shares x (10$ – 8$) x 58) 34,800
Disposal of options [S.14(5)] (200 x 171) 34,200
Note 1 - Where a citizen of Pakistan leaves Pakistan during a tax year and remains abroad during that tax year, any
income chargeable under the head “Salary” earned by him outside Pakistan during that year shall be
exempt from tax under ITO, 2001 [S.51(2)]. Therefore, salary earned in UAE will be exempt from tax.
Answer-4
Ms. Fatima Hassan
Computation of taxable income
For TY 2012
Income from capital gain (W-2) 300,000
Taxable income – taxable under NTR 2,405,000
418
Items not included in calculation

Where car is used solely for official purpose, nothing will be added in the salary income of employee.[S.13(3)]
Workings

Basic Salary [S.12 (2)(a)] (100,000 x 11m) 1,100,000
House rent allowance [S.12(2)(c)] (40,000 x 11m) 440,000
Utilities allowance [S. 12(2)(c)] (15,000 x 11m) 165,000
Motor vehicle transferred [S.13(11)]
Fair market value of car at time of transfer 300,000
Less: Cost paid by employee (100,000) 200,000
Consideration to enter into an employment [S.12(2)(e)(i)] 200,000
2,105,000
(W-2) Income from capital gain
Shares in Queen Ltd.[S.37(1)] (500,000-200,000) 300,000
Painting [S.38(5)] Loss in not to be recognized -
300,000
Answer-5
Mr. Dollar
For TY 2xxx

Tax liability on income under NTR (15,000 + 755,000 x 12.5%) (2) 109,375
Tax to be deducted by employer each month (109,375/12) 9,115
Workings
Basic Salary [S.12(2)(a)] (100,000 x 12 months) 1,200,000
Medical allowance (15,000 x 12 months) 180,000
Less: Exempt up to 10% of basic salary (1,200,000 x 10%) (120,000) 60,000
(assuming as per terms of employment)
[2nd Sch. Clause 139]
Utility allowance [S. 12(2)(c)] (10,000 x 12 months) 120,000
Conveyance provided [S.13(3)] (700,000 x 5%) 35,000
Accommodation provided [S.13(12)]
Higher of:
- 45% of basic salary or (1,200,000 x 45%) 540,000
- Amount that would have been paid had no
accommodation been provided (20,000 x 12 months) 240,000 540,000
1,955,000
419
Answer-6
Mr. Ayub
Computation of Taxable Income
For TY 2012
Income from salary

Basic Salary [S.12(2)(a)] (70,500 x 6) 423,000
Higher of:
- 45% of basic salary (423,000 x 45%) 190,350
- Fair market Rent of furnished accommodation (60,000 x 6) 360,000 360,000
Utilities allowance [S.12(2)(c)] (12,000 x 6) 72,000
Medical reimbursement (assumed to be as per terms) [2 nd Sch. Clause 139] -
Gratuity [2nd Sch. Clause 13 (ii)] N-1 -
Compensation for early retirement [S.12(2) (e)(iii) ] 150,000
Interest free loan (not chargeable as loan is below Rs. 1,000,000) [S.13(7)] -
Waiver of loan (200,000 x 25%) [S.13(9)] 50,000
Car transferred FMV at the time of transfer [S.13(11)] 700,000
Less: Cost paid by employee (650,000) 50,000
(N-1) As the gratuity fund is approved so both (special and general) amounts received from the fund are
exempt.[Exemptions in Second Schedule Part 1(13)]
Answer-7
Mr. Ali Raza
For TY 2008

Income from capital gain – Gain on sale of jewelry 45,000
Tax liability on income under NTR [15,000 + 368,480 x 12.5%] (2) 61,060
Less: Tax deducted u/s 149-Salary (170,000)
Workings
Basic Salary [S.12(2)(a)] (65,000 x 12) 780,000
Higher of:
- 45% of basic salary (780,000 x 45%) 351,000
- Rent of accommodation (25,000 x 12) 300,000 351,000
Conveyance provided [S.13(3)] (500,000 x 5%) 25,000

Less: Exempt up to 10% of basic salary [2nd Sch. Clause 139] (780,000 x 10%) (78,000) 72,000
(assuming as per terms of employment)
Employer contribution to provident fund (780,000 x 12%) 93,600
Less: Exempt up to lower of:
- 10% of basic salary and dearness all. (10% x 780,000 = 78,000) or
- 150,000 (78,000) 15,600
1,243,600
420
(W-2) Property Income

Rental Income
Rental from July 2007 to June 2008 (30,000 x 12) 360,000
Non-adjustable amount received [S.16(3)] 100,000
Less: Already taxed
In TY 2007 (7,000)
In TY 2006 (7,000)
86,000
Amounted to be taxed (86,000/10) 8,600
Gross rent 368,600
Share of rent to House Building Finance Corporation[HBFC] (15,000)
Answer-8
a)
Mr. Manto
Computation of Income and Tax Thereon
For TY 2009

Income from other source 100,000
Income from capital gain – Gain on sale of shares 25,000 x (62-42) 500,000
Less: Tax paid by employer [S.12(3)] (99,805)
(b) Items which are not considered
(N-1) Lease rentals are not considered when car is acquired on lease, rather fair market value is considered.
(N-2) Interest credited is exempt up to higher of interest calculated @ 16% or 1/3 of salary. Since the rate at
which interest has been credited is not given therefore it cannot be compared with 1/3rd of salary.
(N-3) As Mr. Manto is returning expatriate as per section 51(1), therefore Rs. 4,000,000 is exempt.

Basic Salary [S.12(2)(a)] (100,000 x 12) 1,200,000
House rent allowance [S.12(2)(c)] (30,000 x 12) 360,000
Medical allowance (Fully taxable)[S.12(2)(c)] (10,000 x 12) 120,000
Medical facility (Fully exempt because as per terms) [2nd Sch. Clause 139] -
Conveyance provided [S.13(3)] (2,000,000x5%) 100,000
Concessional lunch facility (Exempt because Manto is employee of a hotel)[2nd Sch. Clause 53A(ii)] -
Training course (Not chargeable because for official purpose) [S.12(2)(d)] -
Employer contribution to provident fund (1,200,000 x 10%) 120,000
- 10% of basic salary and dearness all. (10% of 1,200,000 = 120,000) or
- 150,000 (120,000) -
Interest credited 48,000
Less: Exempt up to 1/3rd of (basic salary+dearness allowance) (1/3 x 1,200,000) (400,000) -
1,780,000
Add: Tax borne by employer [S.12(3)] (W-2) 99,805
1,879,805
421
(W-2) Tax borne by employer

Step 1
Salary income 1,780,000
Tax thereon (15,000 + 580,000 x 12.5%) 87,500
Step 2
Salary income (1,780,000 + 87,500) 1,867,500
Tax thereon (15,000 + 667,500 x 12.5%) 98,438
Step 3
Salary income (1,780,000 + 98,438) 1,878,438
Tax thereon (15,000 + 678,438 x 12.5%) 99,805
Answer-9
a)
Mr. Zulfiqar
For TY 2009

Income from capital gain – Loss on sale of painting is not allowed as deduction [S.38(5)] -
Total/Taxable Income 7,846,000
Tax liability on income under NTR (1,095,000 + 1,846,000 x 35%) (2) 1,741,100
Less: Tax paid by employer u/s 149-Salary (200,000)
Payable to Government 1,541,100
b) Items not included
(N-1) Rent received relating to relevant tax year is chargeable only.
Workings
Basic Salary [S.12(2)(a)] (280,000 x 9) 2,520,000
Utilities allowance [S.12(2)(c)] (45,000 x 9) 405,000
Cost of living allowance [S.12(2)(c)] (25,000 x 9) 225,000
Higher of:
- 45% of basic salary (2,520,000 x 45%) 1,134,000
- Fair market rent of accommodation (90,000 x 9) 810,000 1,134,000
Tax borne by employer [S.12(3)] 200,000
Gratuity [2nd Sch. Clause 13(iv)] 2,660,000
- 50% of 2,660,000 = 1,330,000
- 75,000 (75,000) 2,585,000
Pension: Lower of the following [2nd Sch. Clause 8]
From Mirza Petroleum Limited (50,000 x 3) 150,000
From Multinational company (12,000 x 12) 144,000 144,000
7,366,000
(W-2) Property Income [Sec. 15]
Gross Rent (100,000 x 6) 600,000
422
Answer-10
Mr. Zameer Ansari
For TY 2010
Income from capital gain [S.37(1) 15,000 x (48 – 42) 90,000
Total Income under NTR 4,541,760
Less: Zakat (250,000)
Less: Tax deducted on salary (650,000)
Workings
Basic Salary [S.12(2)(a)] (200,000x12) 2,400,000
Medical allowance (fully taxable) [2nd Sch. Clause 139] (30,000x12) 360,000
Utility allowance [S.12(2)(c)] (10,000x12) 120,000
School fee of children [S.12(2)(d)] (15,000x12) 180,000
Accommodation provided [S.13(12)] (2,400,000x45%) 1,080,000
Car for business use [S.13(3)] (not chargeable to tax) -
Car partly for personal use [S.13(3)] (1,800,000x5%) 90,000
Leave encashment [S.12(2)(a)] (taxable in next year) -
Contribution to approved pension fund (Its chargeability will be decided at the time of receipt) -
4,230,000
Rental (22,000 x 12) 264,000
Add: Non-adjustable amount received [S.16(3)] 150,000
Less: Already taxed
In TY 2008 (9,000)
In TY 2009 (9,000)
132,000
Amount to be taxed (132,000/10) 13,200
Gross rent chargeable to tax 277,200
Less: Repair allowance (277,200 x 1/5) (55,440)
221,760
423
Answer-11
Tutorial note: Loss of Pakistan source income cannot be adjusted against foreign source income.
Mr. Mateen
For TY 20X2
Income from business – FSI 535,000

Income from salary – PSI (W-1) 4,592,100
Income from other source - PSI [S.39(1)(k)] (180,000/10) 18,000
Loss from business – PSI [S.56] (350,000) -
Tax liability on income under NTR (435,000 + 1,527,100 x 27.5%) (2) 854,953
Less: Foreign tax credit (lower of) [S.103]
– Actual foreign tax paid 130,000
– Pakistan tax (854,953/5,127,100) x 535,000 89,212 (89,212)
Total tax liability 765,741
Less: Tax deducted on salary u/s 149-Salary 550,000
Less: Tax deducted on commission (500,000 x 10%) 50,000
(600,000)
Business loss to be c/f [S.57(1)(2)] (350,000 – 18,000) 332,000
Items not included in calculation
As Zakat is not paid under Zakat and Ushr Ordinance, so it will not be allowed as deduction.
424
Workings
Income from ML
Gratuity [2nd Sch. Clause 13(iv)] 350,000
Less: exempt up to lower of - 50% of 350,000 175,000
Or 75,000 (75,000) 275,000
Leave encashment [S.12(2)(a)] 150,000
Income from RSL
Compensation in respect of un-served notice period [S.13(10)] 280,000
Basic Salary [S.12(2)(a)] (245,000x12) 2,940,000
Utility allowance [S.12(2)(c) ] (21,000x12) 252,000
Reimbursement of personal medical expenses (exempt being as per terms) [2 nd Sch. Clause 139] -
Reimbursement of hospitalization charges (exempt being as per terms) [2 nd Sch. Clause 139] -
Conveyance provided [S.13(3)] (1,500,000x5%x10/12) 62,500
House keeper services [S.13(5)] (6,000-20% of 6,000) x 12) 57,600
Special allowance [S.12(2)(c)] (exempt) -
Interest fee loan [S.13(7)] (1,500,000x 10%x6/12) 75,000
Commission [S.12(2)(a)] 500,000
4,592,100
Answer-12 (a)
Mr. Khursheed
For TY 2022
Income from salary (W-l) 21,200,000
Income from business - loss (750,000) -
Income from capital gain – securities (700,000 – 500,000) – 0.5% of 1,200,000 194,000
Total income 21,394,000
Less: Income from capital gain – taxable separately (194,000)
Golden handshake – taxable separately (7,500,000)
Total income under NTR 13,700,000
Tax liability on income taxable under NTR (1,095,000 + 7,632,500 x 35%) (2) 3,766,375
Add: Tax on golden hand shake [S.12(6)] (7,500,000 x 5%) 375,000
(assuming Khursheed, by notice in writing to commissioner would elect to be taxed on the basis of
average rate of tax of last three year)
Total tax liability 4,141,375
Add: Tax on securities [S.37A(1)] (194,000 x 12.5%) 24,250
4,165,625
Less: Tax deducted at source (3,750,000)
Payable to government/Refundable from government 415,625
c/f Income from business loss of Rs. 690,000 (60,000 – 750,000)
425
(W-l) Income from salary

Basic Salary [S.12(2)(a)] (400,000 x 6) 2,400,000
Utility allowance [S.12(2)(c)] (2,400,000 x 10%) 240,000
Car provided [S.13(3)] (5,000,000 x 5% x 6/12) 125,000
Reimbursement of surgery cost (taxable because not as per terms) [2 nd Sch. Clause 139] 1,500,000
Gratuity [2nd Sch. Clause 13(iv)] 9,100,000
- 50% of 9,100,000 = 4,550,000
- 75,000 (75,000) 9,025,000
Car transferred [S.13(11)] (2,800,000 - 2,600,000) 200,000
Golden hand shake 7,500,000

Gross rent (25,000 x 3) 75,000
Income from property 60,000
b) Items not included

- Rs. 10,000/month deducted from his salary will have no impact because it is nowhere provided in law to deduct
this amount.
- Capital loss of Rs. 500,000 cannot be adjusted against any other head during the year, so it will be carried
forward.[S.56(1)]
- Sale of personal car has no impact because as per the definition of capital asset personal moveable property is not a
capital asset. [S.37(5)]
Answer-13
Dr. Sona
Income from Business (W-1) 7,436,600
Income from Other source (W-2) 83,000
Taxable income under NTR 8,251,600
Tax liability on income under NTR (765,000 + 4,251,600 x 35%) (1) 2,253,060
Less: Tax credit on donation [S.61] (2,253,060/8,251,600) x 300,000 (81,914)
C is lower of: 300,000 or 30% of 8,251,600
Tax payable to Government 2,171,146
Note: It is assumed that charitable donation is paid through crossed cheque.
426
(W-1) Income from business

Revenues
Consultation fees [S.18(1)(a)] 4,400,000
Income from surgery [S.18(1)(a)] 3,950,000
8,350,000
Less: Expenses
Rent of clinic [S.20(1)] 300,000
Depreciation motor car (96,000 x 40%) 38,400
Depreciation surgical equipment 75,000
Salary to assistant [S.20(1)] 180,000
Clinic running expenses [S.20(1)] 240,000
Car expenses [S.20(1)] (200,000 x 40%) 80,000
(913,400)
7,436,600
(W-2) Income from other sources

Article writing [S.39] 83,000

Income
Rentals 870,000
Non- adjustable amount received [S.16(3)] 700,000
Less: Already taxed
In TY - - (50,000)
In TY - - (50,000)
In TY - - (50,000)
550,000
Amount to be taxed (550,000/10) 55,000
925,000
Property tax (8,000)
Income from property 732,000
Items not included:
- House hold expense is not an allowable deduction.[S.21(h)]
- Cost of car and surgical equipment is not an allowable deduction, rather their depreciation will be allowed as
deduction.
Answer -14
Beena Sikandar
For Tax Year 2012
Income from business (W-1) 5,540,000
Taxable Income 7,190,000
Tax liability on income falling under NTR (765,000+ 3,190,000 x 35%) (1) 1,881,500
Less: Tax credit u/s 61 (1,881,500/7,190,000) x 250,000 (65,421)
C is lower of: 250,000 or 30% of 7,190,000
1,816,079
Less: Taxes deducted at source
From salaries 390,000
From fee received for attending the meetings of BOD 9,000
(399,000)
427

Accounting profit 3,500,000
Add: Deductions not allowed
Tax Bad debt recovery (W-3) 750,000
Salaries [S.21(h)] (50,000 x 12) 600,000
Gifts and donation [S.21(h)] (50,000 + 250,000) 300,000
Lease security deposit 500,000
Professional fees [S.21(h)] 150,000
Property expenses [S.21(h)] (350,000 x 40%) 140,000
Other expenses [S.21(l)] 260,000

Income Tax (Previous year)[S.21(a)] 90,000
2,790,000
Less: Accounting bad debt recovery 750,000
Salary to brother -
Gifts to client -
Travel expenses -
(750,000)
5,540,000
Remuneration [S.12(2)(a)] (100,000 x 12) 1,200,000
Bonus (taxed on receipt basis) [S.12(2)(a)] (100,000 x 2) 200,000
Car benefit [S.13(3)] (2,000,000 x 5%) 100,000
Board meetings [S.12(2)(a)] 150,000
1,650,000
(W-3) Tax Bad debt Recovery

Amount Recovered 750,000
Less: Actual Bad debt 750,000
Less: Previously allowed as deduction (750,000) (0)
Tax Bad debt Recovery 750,000
Answer-15
Kashmala and Shumaila
Income and Tax Thereon
For TY 2012
Income from business
Accounting Profit/(Loss) (800,000)
Add: Salaries [S.21(h)] (500,000 + 300,000) 800,000
Add: Accounting depreciation 300,000
Profit before depreciation 300,000
Less: b/f business loss [S.57(1)(2)] (400,000)
Taxable income -
Actual tax liability (no taxable income, so zero) -
c/f - business loss (100,000)

- unabsorbed depreciation[S.57(4)] (300,000 + 250,000) (550,000)
428
Answer-16
Mr. Creative
For TY 20XX
Calculation of taxable income and tax liability
Income from capital gain
- Shares of private company (W-2) 18,000
- Securities (Open ended mutual fund) (4,000 x 58.6) – (4,000 x 50) 34,400
Less: Income from capital gain – securities (open ended mutual fund) (34,400)
Total income under NTR 6,434,000
Tax liability (1,095,000 + 384,000 x 35%) (2) 1,229,400
Less: Tax credit on approved pension fund [S.63] 1,229,400/6,384,000 x 600,000 (115,545)
C is lower of: 600,000 or 20% of 6,384,000
Tax liability of income falling under normal tax regime 1,113,855
Add: Tax on security -Open Ended Mutual Fund (34,400 x 7.5%) 2,580
1,116,435
Less: Tax deducted u/s 149-Salary (737,000)
Tax Payable to /Refundable from Government 379,435
Workings
Basic salary [S.12(2)(a)] (300,000 x 12) 3,600,000
Utilities [S.12(2)(c)] (15% x 3,600,000) 540,000
Medical [2nd Sch. Clause 139] (12% of 3,600,000) 432,000
Less: Exempt upto 10% of basic salary (10% of 3,600,000) (360,000) 72,000
Higher of:
- 45% of basic salary (45% x 3,600,000) 1,620,000
- Rent of accommodation (130,000 x 12) 1,560,000 1,620,000
Car for business & personal use[S.13(3)] (5% of 1,600,000) 80,000
5,912,000
(W-2) Income from capital gain-NTR

Consideration received (8,000 x 75%) = 6,000 x Rs. 145/share 870,000
Less: Cost of shares (6,000 x 142) (852,000)
18,000
Income
Rental from July to December (50,000 x 6) 300,000
Rental from January to June (higher of) [S.15(4)]
- Actual (48,000 x 6) 288,000
- Fair market rent (50,000 x 6 x 110%) 330,000 330,000
630,000
504,000
Items not included:
429
(N-1) Where an amount an amount which is not adjustable against the rent is refunded by the owner to the tenant on
termination of the tenancy before the expiry of 10 years, no portion of the amount shall be allocated to the tax year
in which it is refunded or to any subsequent tax year. Therefore Rs. 300,000 is ignored.[S.16(2)]
Answer-17
Mrs. Aslam
Calculation of Taxable Income and Tax Liability
TY 2022

Income from capital gain (Separate block) (W-2) 20,000
Income from other source (Exempt income) - Support payment under an agreement to live apart 355,000
Total Income 6,426,515
Less: Exempt income – Support payment under an agreement to live apart (355,000)
Less: Income from capital gain – taxable separately (20,000)
Total Income under NTR 6,051,515
Less: Zakat [Sec. 60] (105,000)
Tax liability on income falling under NTR (435,000 + 2,346,515 x 27.5%) 1,080,292
Less: Tax credit on charitable donation [S.61] (1,080,292/5,946,515) x 70,000 (12,717)
C is lower of - 70,000 or 30 % of 5,946,515 1,067,575
Add: Tax on securities [S.37A] ((W-1)20,000 x 12.5%) 2,500
Less: Tax borne by employer (W-3) (951,515)
(W-1) Income from salary Rs.
From SL
Gratuity [2nd Sch. Clause 13(iv)] 500,000
Less: Exempt (lower of:)
- 50 % of 500,000
-or 75,000 (75,000) 425,000
Reimbursement (Exempt assuming as per terms) [2 nd Sch. Clause 139] -
520,000
From HPL
Basic Salary [S.12(2)(a)] (200,000 x 12) 2,400,000
Medical allowance [S.12(2)(c)] (60,000 x 12) 720,000
Less: Exempt upto 10% of basic salary (10% of 2,400,000) (240,000) 480,000
Rent free accommodation [S.13(12)]
Higher of:
- 45% of basic salary (45% x 2,400,000) 1,080,000
- Annual letting value 480,000 1,080,000
Travelling allowance [S.12(2)(c)] (20,000 x 12) 240,000
Employer contribution - Provident fund (10% of 2,400,000) 240,000
Less: Exempt (lower of:)
- 10% of 2,400,000
- 150,000 (150,000) 90,000
Employee contribution (Ignored being already part of salary) -
Shares acquired under scheme [S.14(2)]
Fair market on date restriction released (5,000 x28) 140,000
Less: Cost of shares - 140,000
Interest benefit [S.13(7)] (Exempt because loan less than Rs. 1,000,000) -
Laptop transferred [S.13(11)] 150,000
4,580,000
Tax to be borne [S.12(3)] (W-3) 951,515
6,051,515
430
(W-2) Income from capital Gain –Separate block

Consideration received (5,000 x 32) 160,000
Less: Cost
Cost of shares -
Cost of right -
Amount charged under salary 140,000 (140,000)
20,000
(W-3) Tax borne by employer[S.12(3)]
Step 1
Tax there on (435,000 + 980,000 x 27.5%) 704,500
Step 2
Salary income (4,580,000 + 704,500) 5,284,500
Tax there on (435,000 + 1,684,500 x 27.5%) 898,238
Step 3
Salary income (4,580,000 + 898,238) 5,478,238
Tax there on (435,000 + 1,878,238 x 27.5%) 951,515
Answer-18
a) Rs.
Mr. Qamar
TY 20X4
Income from business (W-1) -
Taxable income -
Tax liability -
Less: Tax credit on charitable donation [S.61] (-)
-
C/f – tax depreciation [S.57(4)] (150 – 500) 350

Sale of motors 45,000
Less: Cost of sales and administrative expenses (W-2) (31,850)
Less: b/f business loss before depreciation [S.57(1)] (4,000)
9,150
Less: Tax depreciation current year (9,000)
150
Less: Tax depreciation brought forward (500)
-
(W-2) Calculation of cost of sales and administrative expenses

Cost of sales and administrative expenses as per question 33,000
Less: Drawings (Electricity charges of residence) [S.21(h)] (150)
Donations to a non-profit organization [S.61] (300)
Fine paid to the Ministry of Environment [S.21(g)] (200)
Unabsorbed depreciation brought forward from previous tax year [S.57(4)] (500)
31,850
431
b)
- Travelling expense on Qamar's visit to Malaysia for attending trade fair is incurred wholly and exclusively for the
purpose of business, therefore it is allowed as deduction under the head income from business. [S.20 (1)]
- Electricity charges paid for Qamar‟s residence is drawing, therefore it is not allowed as deduction. [S.21(h)]
- As per the provisions of law any fine, penalty paid for violation of law, rule or regulation is not allowed as
deduction. Damages paid to a distributor for delayed supplies is allowed as deduction because it is not a violation of
law, rule or regulation.[S.21(g)]
- A tax credit will be allowed for donation made to a non-profit organization therefore no deduction will be allowed.
- Salary paid to Bari who is Qamar‟s brother is incurred wholly and exclusively for the purpose of business and tax
has also been properly deducted, therefore it is allowed as deduction under the head income from business. [s.20 (1)]
- As per the provisions of law any fine, penalty paid for violation of law, rule or regulation is not allowed as
deduction. Fine paid to the Ministry of Environment for infringement of environmental and safety laws is therefore
not allowed as deduction. [S.21(g)]
- Brought forward unabsorbed depreciation will be treated as part of current year depreciation and will be adjusted
against profit before depreciation after adjustment of b/f business loss.
Answer-19
Mr. Sultan
TY 2023
Income from other source (W-2) 3,950,000
Income from business (W-3) (5,260,000) -
Tax liability on income falling under NTR (1,095,000 + 3,970,500 x 35%) 2,484,675
Less: Tax credit on charitable donation u/s 61 (2,484,675 /9,970,500) x 100,000 (24,920)
C is lower of: 100,000 or 30% of 9,970,500
Less: Tax credit on contribution to pension fund u/s 63 (2,484,675 /9,970,500) x 500,000 (124,601)
C is lower of: 500,000 or 20% of 9,970,500
Payable to Government 2,335,154
C/f Business loss (3,950,000-5,260,000) 1,310,000
Basic Salary [S.12(2) (a)] (480,000 x 12m) 5,760,000
Medical allowance [S.12(2) (c)] (48,000 x 12m) 576,000
Utilities allowance [S.12(2) (c)] (55,000 x 12m) 660,000
Higher of:
- 45% of basic salary (5,760,000 x 45%) 2,592,000
Hospitalisation [2nd Sch. Clause 139] (Exempt being as per terms) -
Reimbursement of personal expenses[S.12(2)(d)] (550,000 x 15%) 82,500
9,970,500
(W-2) Income from other source
Receipt of board meeting [S.39(1)] 200,000
Car won in lottery [S.39(1)(h)] 850,000
Loan received from father in cash [S.39(3)] 2,500,000
Lit. work (Assuming that it is favourable for tax payer if spread over 3 Y) (1,200,000/3) [S.89] 400,000
3,950,000
(W-3) Income from Business
Net income 990,000
Add: Salary paid in cash (36,000 x 12) [S.21(m)] 432,000
Add: Gain on sale of immoveable property (W-3.1) [S.22(13)(d)] 800,000
Less: Tax depreciation building (74,820,000 x 10%) (7,482,000)
(5,260,000)
432
(W-3.1) Gain on sale of immoveable property [S.22(13)(d)]

Consideration 10,000,000
Less: WDV
Cost 10,000,000
Less: Accumulated depreciation (1,400,000 - 600,000) (800,000) (9,200,000)
800,000
Items not included
- Salary of Rs. 32,000 or below can be paid in cash, so it is allowed as deduction.
- Utility bills can be paid in cash, so it is allowed as deduction.
Answer-20
Mr. Tahir
TY 20Y1
- Gain on disposal of immoveable property (W-2) 4,000,000
Less: Income from capital gain – taxable separately (4,000,000)
Tax liability on income falling under NTR (75,000 + 655,465 x 20%) 206,093
Add: Tax on disposal of immoveable property (4,000,000 x 12.5%) 500,000
Add: Accounting depreciation (1,500,000 x 15%) 225,000
Computer software wrongly included in expenses 975,000
Cost of feasibility wrongly included in expense 250,000
Financial charges on leased asset 80,000
Depreciation on leased asset 260,000
Personal car expenses [S.21(h)] (295,450 x 20%) 59,090
Provision for bad debt [S.29 (1)] 25,000
1,874,090
Less: Initial allowance on machinery [S.23(1)] (1,500,000 x 25%) 375,000
Tax depreciation [S.22] (1,500,000 - 375,000) x 15% 168,750
Amortization on computer software [S.24(4)] (975,000/10 years) 97,500
Amortization on pre-commencement Exp. S.25(2)] (250,000 x 20%) 50,000
Salary of Tahir brother -
Lease rentals paid [S.28 (1)(b)] 384,375
(1,075,625)
1,855,465
(W-2) Gain on disposal of immoveable property (5,500,000 – 1,500,000) 4,000,000

Items not included
1. Any foreign- source income derived by a citizen of Pakistan in a tax year who was not a resident individual
in any of the 4 tax years preceding the tax year in which the individual became a resident shall be exempt
from tax in the tax year in which the individual became a resident and in the following tax year. Therefore
income of Tahir from UAE is exempt from tax.[S.51]
433
Answer-21
Mr. Mukarram
Taxable Income for the
Tax Year 20X5

Income from business (W-3) 537,500
Exempt income – Agriculture income (750,000 + 325,000) 1,075,000
Exempt income – Agriculture income (1,075,000)

Basic salary [S.12 (2) (a)] (250,000 x 12) 3,000,000
Medical allowance [2nd Sch. clause 139] (37,500 x 12) 450,000
Less: Exempt 10% of basic salary (3,000,000 x 10%) (300,000) 150,000
Housing allowance [S.12(2) (c)] (25,000 x 12) 300,000

Travel allowance [S.12(2) (c)] (11,500 x 12) 138,000
Car provided [S.13(3)] (1,000,000 x 5%) 50,000
Car transferred [S.13(11)] (400,000-0) 400,000
Performance bonus (Taxable in next year) -
Buffet Dinner coupons [S.13(11)] (2,000 x 2 x 12) 48,000
Telephone & Internet facility [S.12(2) (d)](20,000 x 80%) 16,000
Benefit of appliances [S.13(11)](300,000 x 10%) 30,000
Employee share scheme – option not exercised -
4,132,000
(W-2) Income from capital gain
Disposal of painting [S.37(1)] [S. 77(2)] (275,000 - 100,000 – 15,000) 160,000
Sold personal car to neighbor (Not taxable being personal moveable) -
Loss on disposal of diamond (not allowed) [S.38(5)] -
160,000
(W-3) Income from business[Rule 11 below S.41]
Sales/revenue 860,000
Less: Market value of produce used as raw material (2,500 x 5,000/40) (312,500)
Less: Other operating expenses (10,000)
537,500
Answer-22
Wajahat
Income and tax thereon
Tax Year 20Y1
Calculation of taxable income and tax liability Rs.
Income from other Source - Foreign source dividend [S .39(1) (a)] 65,000
Income from other sources – FTR dividend income (W-3) 92,000
Less: Income from other sources – FTR dividend income (92,000)
2,462,925
Less: Zakat (4,600)
434
Tax liability on income under NTR (315,000 + 58,325 x 25%) 329,581

Less: Tax credit under section 63 (65,916)
A/B x C 329,581/2,458,325 x 491,665
C is lower of :
- Actual contribution 890,000
- 20% of taxable income of current year (2,458,325 x 20%) 491,665
263,665
Add: Tax on FTR (Dividend) (92,000 x 15%) 13,800
Less: Tax on FTR (Dividend) (13,800)
Workings
Basic Salary [S. 12 (2) (a)] (70,000 x 12) 840,000
Dearness allowance [S. 12 (2) (c)] (10,000 x 12) 120,000
Conveyance allowance [S. 12 (2) (c)] (8,000 x 12) 96,000
Employee contribution (ignored being already included in above salary) -
Employer contribution (8,400 x 12) 100,800
Less: Exempt upto lower of:
- 1/10th of (840,000 + 120,000) 96,000
or - 150,000 150,000 (96,000) 4,800
Interest on fund balance 391,000

Less: Exempt upto higher of:
- 1/3rd of (840,000 + 120,000) 320,000
or - 391,000 / 20% x 16% 312,800 (320,000) 71,000
Reimbursements of electricity bills[S. 12 (2) (d)] 60,000
1,191,800
Tuition Fee (Revenue) 2,198,000
Less: Deductions allowed
Salary to Yousaf [S.20 (1)] (35,000 x 10) (350,000)
Teacher training work shop [S.20 (1)] (328,125)
Initial allowance on computer [S.23] (250,000 x 25%) (62,500)
Tax depreciation on computer (250,000 - 62,500) x 30% (56,250)
Other miscellaneous expenses[S.20(1)] (195,000)
1,206,125
- Rs.50,000 paid to himself per month will not be allowed as deduction being personal expenditure in nature.
[S.21(h)]
(W-3) Dividend income

Net dividend = Gross dividend – Zakat – income tax
73,600 = x – 4,600 – 13,800
x = 92,000
435
Answer-23
Mr. Bader
For TY 2016
Rs.
Income from Capital gain (W-2) 125,000
Less: Termination benefits – taxable separately (600,000)
Tax liability on income under NTR (1,095,000 + 427,250 x 35%) 1,244,538

Add: Tax on Separate block income
- termination benefit [S.12(6)]600,000 x (1,260,000 /10,500,000) 72,000
(assuming Bader, by notice in writing to commissioner would elect to be taxed on the
basis of average rate of tax of last three year)
Total tax payable 1,316,538
Less: Tax deducted on salary (1,105,000)
Tax payable to/refundable from Government 211,538
Workings
Basic Salary [S. 12(2)(a)] (250,000 x 12) 3,000,000
Less: Exempt upto 10% of Basic Salary (3000,000 x 10%)
[2nd Sch. Cl. 139] (300,000) 36,000
House rent allowance [S. 12(2)(c)] (120,000 x 12) 1,440,000
Amount received for employment condition [S. 12 (2) (e) (ii)] 900,000
Benefit on purchase of inventory [S. 13(11)] (22,000-12,000) 10,000
Car for personal and official use [S. 13(3)] (1,500,000 x 5% x 11/12) 68,750
Purchase option exercised [S.14 (3)] (W-1.1) 437,500
Unapproved gratuity from previous employer 485,000
Less: exempt upto lower of: - 75,000 OR
[2nd Sch Part1 Cl. 13 (iv)] - 50% 0f 485,000 = 242,500 (75,000) 410,000
Free medical facility of Rs. 65,000 [2nd Sch. clause 53A] ( Exempt as employee -
of hospital)
Termination benefit – Separate block 600,000
6,902,250
(W-1.1) Purchase option exercised
Fair market value of share on 15.9.2015 (2,500 x 375) 937,500
Less: Amount paid for option (200,000)
Less : Amount paid for shares (300,000)
437,500
(W-2) Income from Capital Gain – MP (Private) Company [S.14(4)]

Sale of 2,0000 share (875,000 + 5,000 + 10,000) 890,000
Less: Cost of share [S. 14(4)]
Cost of option (200,000/2,500) x 2,000 160,000
Consideration given at exercise of option (300,000/2,500) x 2,000 240,000
Amount chargeable under the head salary(W-1) (437,500/2,500) x 2,000 350,000 (750,000)
Less: Bank charges and brokerage commission (5,000 + 10,000) (15,000)
125,000
As MP is not listed in Pakistan Stock Exchange so it will be considered as private company.
436
Items not included:

1. Value of right or option is not taxable, so Rs 250,000 is ignored. [S. 14(1)]
2. In case of inventory sold we only need the FMV of inventory on the date it is transferred to employee and
amount paid by employee to employer. Therefore cost to employer of Rs.35,000 and NRV on June 30th, 2016 are
ignored.
437
Answer-24
Notes for students:
Adj.(i) As reimbursement of Rs. 6,000 is for official purpose so it is not a part of salary, hence ignored.
Mr. Mushtaq
TY 20Y1

Tax liability on income under NTR (75,000 + 590,675 x 20%) (1) 193,135
Less: Advance Tax Paid u/s 147 (200,000)
Payable to Government / (Refundable) (6,865)
(W-1)Income from business

Add: Salary paid in cash [S.21 (m)] (46,000- 6,000) x 12 months x 2 employees 960,000
Research paid outside Pakistan [S.26 (1)] 150,000
Accounting Loss on patent 65,000
Tax Gain on Patent [S. 24 (9)] (524,000 – 430,000) 94,000
Accounting amortization 25,000
Tax bad debt recovery – Atif[S.29 (3) (a)] (W-2.1) 450,000
Tax gain on disposal of furniture [S. 22 (14)] (W-3) 240,000
Accounting depreciation 580,450
2,564,450
Less: Accounting bad debt recovery – Atif 700,000
Accounting bad debt recovery – Aslam 400,000
Tax bad debt – Aslam [S. 29 (3) (b)] (W-2.2) 200,000
(1,300,000)
Profit before Tax Depreciation, tax amortization and Initial Allowance 3,064,450
Less: Loss before depreciation ( -830,000 + 705,000) (125,000)
2,939,450
Less: Tax Depreciation, tax amort. and Initial Allowance (c/y) (W-4) (725,775)
2,213,675
Less: Tax depreciation (b/f) (705,000)
1,508,675
(W-2.1) Tax Bad debt Recovery-Atif

Less: Actual Bad debt 800,000
Less: Previously allowed as deduction (550,000) (250,000)
Tax Bad debt Recovery 450,000
(W-2.2)Tax Bad debt Recovery-Aslam

Less: Actual Bad debt 1,200,000
Less: Previously allowed as deduction (600,000) (600,000)
Tax Bad debt Recovery (200,000)
438
(W-3) Tax Gain on Disposal of Furniture

Consideration 850,000
Less: WDV (610,000)
240,000
(W-4) Tax Depreciation, amortization and Initial Allowance[S.22 & 23]
Tax Depreciation as per adjustment (vii) 484,525
Add: Tax Depreciation on furniture 400,000 x 15% 60,000
Add: Initial allowance on machinery (500,000 x 25%) 125,000
Add: Tax Depreciation on machinery (500,000 – 125,000) x 15% 56,250
725,775
(W-5) Income from Capital Gain
Consideration Received 432,000
Less: Cost (6,000 x 25) (150,000)
282,000
Answer-25
Mr. Taqi Ahmed
For TY 20X7
Income from other source (W-3) 410,000
Income from property (W-2) 1,200,000
Income from other sources - FTR bonus dividend (5,000 x 24) 120,000
Income from other sources - FTR dividend income (159,375 / 85) x 100 187,500
Less: Income from other sources - FTR bonus dividend (120,000)
Less: Income from other sources - FTR dividend inc. (187,500)
Tax liability - NTR (1,095,000 + 3,398,000 x 35%) 2,284,300
Add: Tax on final tax regime
- Tax on Bonus dividend (120,000 x 10%) 12,000
- Tax on Dividend (187,500 x 15%) 28,125
Less: Tax deducted by ZTL on salary (2,000,000)
Tax deducted on bonus shares (12,000)
Tax deducted on Dividend (28,125)
Tax Payable to/Refundable from Government 284,300

Basic Salary [S. 12 (2) (a)] (*400,000 + (440,000 x 11)) 5,240,000
Conveyance allowance [S. 12 (2) (c)] (40,000 + (44,000 x 11)) 524,000
Medical allowance (40,000 + (44,000 x 11)) 524,000
Health insurance – Exempt being as per terms [2nd. Sch Cl. 139] -
Daily allowance 40,000
Performance bonus (received in TY 20X8) -
Loan Waived by ZTL [S. 12 (9)] (50,000 x 28 (W-4)) 1,400,000
Directors‟ Fee [S. 12 (2) (a)] 60,000
7,788,000
*440,000/110 x 100 = 400,000
(W-2) Income from property [S. 15(1)]
Gross rental (1,800,000 – 25,000 x 12) 1,500,000
439

Repair allowance (1,500,000 x 1/5) (300,000)
1,200,000
Rent of amenities and utilities connected with renting of building [S. 39 (1) (fa)]
Gross receipt (25,000 x 12) 300,000
Less: Expenses (not given) (0)
300,000
Prize bond [S. 39 (1) (h)] 110,000

410,000
(W-4) No. of installments paid and waived
Months in TY 2005 (01/05/2005 to 30/06/2006) 2 months
Months in TY 2006 (01/07/2006 to 30/06/2007) 12 months
Months in TY 2007 (01/07/2007 to 28/02/2007) *8 months
Total installments paid 22 months
Installments waived (50 – 22) 28
*Note: On 31 March 20X7 installments are waived so it means that no installment is paid in the month of March.
440
Answer-26
Qateel Enterprises
TY 2023
Income from capital gain (share disposal) 1,200,000
Income from other sources - FTR dividend income (W-3) 800,000
Less: Income from other sources - FTR dividend income (800,000)
4,825,800
Less: Zakat [S. 60] (100,000 + 1,401,060) (1,501,060)
Taxable Income 3,324,740
Tax liability on income falling under NTR (465,000 + 324,740 x 30%) 562,422
Add: Tax on Dividend ((W-2) 800,000 x 15%) 120,000
682,422
Less: Tax on Dividend ((W-2) 800,000 x 15%) (120,000)
Advance Tax paid to KE (300,000)
Advance tax paid (480,000)
Tax refundable to QE (217,578)

Add:
Accounting depreciation (including on leased assets) 2,498,940
Renewal of license – intangible 450,000
Security deposit to KE 185,000
Advance tax collected by KE 300,000
Donation – poor families – not allowed 64,600
Zakat 1,401,060
Penalty paid to Govt. [S. 21(g)] 25,000
Finance charges on lease 35,703
4,960,303
Less: Fine for violation of contract (allowed not being paid to Government) [S. 20(1)] -
Amortisation on license [S. 24(4)] (450,000/15 years) 30,000
Vehicle tax paid (allowed even if paid in cash) [S. 20(1)] [S. 21(l)(v)] -
Entertainment (allowed because wholly and exclusively for business) [S. 21(d)] -
Dividend Income – falling under FTR [S. 5] 580,000
Capital Gain on sale of shares 1,200,000
Lease Rentals [S. 28(1)(b)] 270,000
Tax depreciation [S. 22] (W-2) 2,063,800
(4,143,800)
3,625,800
(W-2) Calculation of tax depreciation
Depreciation on ware house (4,888,000 x 10%) 488,800
Depreciation on machine purchased (100,000 x 15%) 15,000
Tax Depreciation (given) 1,560,000
2,063,800
(W-3) Calculation of gross amount of dividend
Net Dividend = Gross dividend - Tax Deducted - Zakat Paid
580,000 =X - 15% of X - 100,000
X = 8000,000
441
Answer-27
Mr. Ahmer Ghazi
For TY 20X8
Rupees
Income from capital gain – Disposal of shares [S.37(3)] [60,000(W-3)] 60,000
Income from other sources – From TV Channel [S.39(1)(b)] 225,000
Taxable Income under NTR 11,928,333
Tax liability on income under NTR (1,095,000 + 5,928,333 x 35%) 3,169,917
Less: Tax deducted by DPL (1,244,000)
Tax Payable to Government 1,925,917
Basic salary [S.12 (2)(a)] (650,000 x 12) 7,800,000
House rent allowance [S.12 (2)(c)] (95,000 x 12) 1,140,000
Medical allowance Clause 139 (70,000 x 12) 840,000
Health insurance- Exempt being as per terms Clause 139 -
Production target reward S.12(2)(a)] 180,000
Interest on loan outstanding [S.13 (7)] (5,000,000 x 4%x 11/12) 183,333
Withholding Tax reimbursed by employer [S.12 (2)(d)] 1,244,000
11,387,333
(W-2) Gain on release of restriction on shares already taken to income from salary on 31.12.x6 [S.14 (3)]
FMV shares (10,000 x 23) 230,000
Less:
Cost of shares -
Cost of right - -
230,000
(W-3)Income from Capital Gain[S.14 (4)]
Less:
Cost of shares -
Cost of right -
Income from salary ( ) 138,000 (138,000)
60,000
(W-4)Income from Property
Rental received (40,000 x 8) 320,000
256,000
442
Answer-28
Mr. Saleem
Computation of Taxable Income and Tax Liability
TY 2026
Rupees
Income from capital gain – NTR (W-2) 500,000
Income from capital gain – securities (Note-1) -
Less: Gain on disposal of securities – taxable separately -
Tax liability on income under NTR (765,000 + 918,424 x 35%) 1,086,448
Add: Tax on gain on disposal of securities [Note-1]
- Moon limited -
- Planet limited -
-
Items not included in computation of taxable income

[Note-1] There is a net loss of Rs. 450,000 on the disposal of securities as computed below:
Loss on sale of shares of Moon Limited [S. 37A(5)] (700,000)
Gain on sale of shares of Planet limited [S. 37A(5)] 250,000
Loss (450,000)
Loss of Rs. 450,000 shall be carried forward to subsequent 3 tax years.

Accounting profit 2,162,500
Add:
Annual rent [S.21(c)] 1,560,000
Accounting depreciation of car 600,000
Financial charges 462,000
Tax gain on disposal vehicle (W-1.1) 683,824
3,305,824
Less:
Accounting gain on vehicle 400,000
Lease rentals paid [S.28 (1)(b)] (857,000 x 70%) 599,900
Net accounting Gain on the sale of all shares 50,000
(1,049,900)
Income from business 4,418,424
(W-1.1) Disposal of passenger transport vehicle [S. 22(13)(a)]

Consideration on disposal [8,000,000 x (7,500,000/8,500,000)] 7,058,824
Less: Tax Written down value on Disposal (W-1.2) (6,375,000)
Tax Gain on disposal 683,824
(W-1.2) Tax Written down value (WDV)

Restricted cost -TY 2025 7,500,000
Less: Tax depreciation -TY 2025 (7,500,000 x 15%) (1,125,000)
Tax WDV 6,375,000
(W-2) Income from Capital gain

Sun (Private) Limited 500,000
443
Answer -29
Saeed
Income & Tax Thereon
For tax year 20X9
Rupees
Income from salary HPL (W-1) 6,111,500
Income from other source - FTR dividend income (W-2) 750,000
Less: Income from other source - FTR dividend income (750,000)
6,111,500
Less: Deductible allowances:
Zakat paid [S.60] (62,500)
Tax liability (1,095,000 + 35% x 49,000) 1,112,150
Add: Tax on final tax regime
- Tax on dividend income (W-2) (750,000 x 15%) 112,500
Less: Tax already deducted
- Tax on dividend (112,500)
- Tax withheld on salary (1,300,000)
Net tax refundable (187,850)
Workings
(W-1) Income from salary - HPL
Rupees
Basic salary [S.12(2)(a)] (600,000  9) 5,400,000
Medical allowance [S.12(2)(c)] (66,000 x 9) 594,000
Less: Exempt upto 10% of basic salary [2nd Sch. Clause 139] (5,400,000 x 10%) (540,000) 54,000
Bonus (received after year end) [S.12(1)] -
Company maintained cars: [S.13(3)]
- For official use costing Rs. 3,500,000 -
- For personal use (1,900,000 x 10% x 9/12) 142,500
Free food provided in lunch [S.13(13)] 80,000
Special allowance of Rs. 5,000 p.m x 9 months (for official duties) 45,000
Provident fund:
- Employee contribution -
- Employer contribution (60,000 x 9) 540,000
Less: Exempt upto lower of
- 1/10 x 5,400,000 = 540,000
- 150,000 (150,000) 390,000
6,111,500
(W-2) Tax on dividend income
Net dividend = Gross dividend – Zakat – income tax
575,000 = x – 62,500 – 0.15x
0.85x = 637,500
Gross dividend = 750,000
444
Answer-30
Mr. Amjad
Computation of Taxable Income
For tax year 2023
Rupees
Income from other sources
Factory building at Sukkur – Basit (W-1) 1,000,000

Disposal of immovable property (65 million - 40 million) 25,000,000
Less: Income from capital gain (25,000,000)
(W-1) Income from other sources (Sukkur Factory)

Rental Income (500,000×6) 3,000,000
Less: Admissible expenses
Repair to building [S.40(1)] 270,000
Repair to machinery [S.40(1)] 50,000
Ground rent [S.40(1)] 50,000
Insurance – Building [S.40(1)] 150,000
Tax Depreciation: Building – Normal dep. [S.40(3)] [Rs. 4mill. @ 10%] 400,000
Plant (N-1) – Normal dep. [S.40(3)] [Rs. 6mill. @ 15% ] 900,000
Interest on loan from Shamshad [Rs. 2mill. @ 18% 6/12] 180,000
(2,000,000)
Net Income 1,000,000
Rental Income
Residential property at DHA – Karachi (300,000×12) 3,600,000
Amount forfeited from Zeeshan 5,000,000
Gross rent chargeable to tax 8,600,000
Repair allowance (3,600,000 x 1/5) (720,000)
Ground rent (10,000)
Insurance building (20,000)
7,850,000
Note-1: As plant is already installed so no initial allowance is calculated.
445
Answer -31
Note for students:
If method of accounting is changed from cash to accrual basis, opening stock of current year will actually be the
closing of previous year (calculated using prime cost method) thus there will be no error in the opening stock given
in question. However at year end, the closing stock should be calculated using absorption cost method.
Shahid Enterprises
For the tax year 30 June 2022
Rs. '000'
Income from capital gain – securities (45 + 6.75) 51.75
Income from other sources – FTR profit on debt 450
Exempt income – agriculture income 980
Total income 6,750.75
Less: Gain on disposal of securities – taxable separately (51.75)
Less: Income from other sources – FTR profit on debt (450)
Less: Exempt income – agriculture income (980)
5,269
Less: Zakat [S.60] (93.75)
Taxable income 5,175.25
Tax liability (765,000 + 1,175,250 x 35%) 1,176.34
Add: Tax liability on separate block
Tax on disposal of securities (51.75 x 12.5%) 6.47
Add: Tax on profit on debt (450 x 15%) 67.5
Total tax liability 1,250.31
Less: Tax already deducted:
Tax deducted by customers (875.00)
Tax deducted on profit on debt (45)
Tax deducted on securities (6.75)
Tax payable/(refundable) 323.56

Add: Inadmissible deductions/Adjustments
Adjustment of closing stock (3,200 - 2,800) [S.35] 400
Payment without deduction of tax [S.21(c)] (W-2) 440
Capital expenditure [S.21(n)] 950
Penalty [S.21(g)] 465
2,255
Less: Admissible deductions/Adjustments
Freight charges paid in cash of Rs. 85(Allowed) [S.21(l)] -
Salary paid to shahid brother of Rs. 80 p.m.(allowed) -
Capital gain (45)
Profit on debt (450)
Rent from agriculture land [S.41] (980)
(1,475)
Less: Tax depreciation (c/f) (870)
5,837
Less: Tax depreciation (b/f) [W-3] (568)
Income from business 5,269
446
(W-2) Packing Material

Purchases disallowed (lower of):
- Purchases on which tax not deducted; or 2,200
- 20% of total purchases (20% x 2,200) 440 440
(W-3) Current Year Tax Depreciation and Amortization
Tax Amortization (950/5) [S.24] 190
Tax depreciation 680
870
Answer-32
Mr. Sageer
For TY 2020
Rs.
Income from capital gain – Disposal of securities (Sep. block) (W-2) (N-1) -
Income from capital gain – Disposal of residential plot (Sep. block) (W-3) 11,000,000
Income from capital gain – Disposal of constructed property (Sep. block) (W-3.1) 1,000,000
Income from business – Foreign source income (W-4) 777,913
Less: Income from capital gain – residential plot (11,000,000)
Less: Income from capital gain – constructed property (1,000,000)
Less: Zakat (1,446,874)
Tax liability on income under NTR (165,000 + 976,039 x 22.5%) 384,609
Less: Tax reduction because of full time teacher
[435,000 + (27.5% x 445,000)] = 557,375 x 25% (139,344)
245,265
Less: Foreign tax credit on income from business (lower of):
- Pakistani average rate of tax (245,265/3,376,039) x 777,913 = 56,514
- Foreign income tax paid (W-4) 62,233 (56,514)
188,751
Add: Tax on Separate block income
- Tax on disposal of plot (Exempt as holding period is more than 6 years) -
- Tax on disposal of constructed property (1,000,000 x 10%) 100,000
Total tax payable 288,751
Less: Tax deducted on salary (160,000)
Tax payable to/refundable from Government 128,751
(N-1) Loss on disposal of securities amounting to Rs. 41,925 can be carried forward to three subsequent tax years.
WORKINGS
Basic Salary [S.12(2)(a)] (200,000 x 12) 2,400,000
Medical allowance (Fully taxable)[S.12(2)(c)] (20,000 x 12) 240,000
Insurance premium (as per terms) (Exempt) -
Higher of:
- 45% of basic salary (2,400,000 x 45%) 1,080,000
Employee contribution -
Employer contribution to provident fund (15,000 x 12) 180,000
- 10% of basic salary + dearness all.
(10% of 2,400,000 = 240,000) or
- 150,000 (150,000) 30,000
447
Shares acquired under scheme [S.14(2)]

Fair market on date restriction released (10,000 x 142) 1,420,000
Less: Cost of shares (10,000 x 105) (1,050,000)
Less: Cost of rights (175,000) 195,000
Interest benefit [S.13(7)] (Exempt because similar benefit provided by employee) -
Leave encashment 100,000
4,045,000
(W-2) Gain/loss on disposal of securities – Income from capital gain
Less: Cost
Cost of shares 1,050,000
Cost of right 175,000
Amount charged under salary 195,000
1,420,000
(1,420,000 x 5,000/10,000) (710,000)
(35,000)
Less: Notional expense (675,000 + 710,000) x 0.5% (6,925)
(41,925)
(W-3) Gain/loss on disposal of residential plot – Income from capital gain

Consideration received on disposal of residential plot 18,000,000
Less: Cost (7,000,000) 11,000,000
(W-3.1) Gain/loss on disposal of constructed property – Income from capital gain
Gain on disposal of constructed property [15,000,000 - (19,000,000 - 5,000,000)] 1,000,000

(W-4) Income from Business – Foreign Source
Net income (USD 4,260 x 168) 715,680
Add: Withholding tax (715,680/92 x 8) 62,233
777,913
Answer-33
(a)
Farheen
Computation of Income
For TY 2020
Rupees
Income from other sources (W-3) 3,690,000

Rent from Bungalow - Abbas [175,000 x 9] 1,575,000
Rent from Bungalow – Zafar [175,000 x 3] 525,000
Non-adjustable security deposit – Zafar (W-2) 150,000
2,250,000
Forfeiture of deposit for sale of plot 176,000
Gross rent chargeable to tax 2,426,000
Repair allowance [2,250,000 x 1/5] (450,000)
1,976,000
448
(W-2) Non-adjustable advance

Received from Zafar 2,500,000
Less: Already taxed
- In TY 2016 (2,500,000/10) (250,000)
- In TY 2017 (2,500,000/10) (250,000)
- In TY 2018 (2,500,000/10) (250,000)
- In TY 2019 (2,500,000/10) (250,000)
1,500,000 /10 150,000
Security guard's salary [50,000 x 12] 600,000
Less: Payment for security services [40,000 x 12] (480,000) 120,000
Deposit for vacating the office [(2,400,000–2,000,000)/10] 40,000

Rentals from lease of factory with machinery [500,000 x 7] 3,500,000
Additional payment of delayed refund [S.39(1)(cc)] 30,000
Income from other sources 3,690,000
(b) (i) Ahmed is a returning expatriate because he was not a resident in any of the preceding four tax
years. Therefore, his foreign source income for the tax year 2020 from the restaurant is exempt.
[S.51 (1)]
(ii) Salary exceeding Rs. 32,000 per month should be paid through cheque or direct transfer to the
employees‟ bank account after deduction of tax (if any), to claim it as a deduction from income
from business. In this case, although Ahmed had deducted tax at source from salaries, however he
paid the monthly salary of Rs. 70,000 ((840,000/2)/6) to each employee in cash. Therefore, this
expense will be disallowed.
(iii) Cost of feasibility study conducted before commencement of the business falls under the
definition of pre-commencement expenditure on which 20% amortization is charged on straight
line bases. Therefore, the full amount of this cost will be disallowed and Ahmed will only be
allowed a deduction of Rs. 120,000 (600,000×20%) as amortization.
(iv) Donation to non-profit organization in USA
No tax credit will be allowed for donation paid to the non-profit organization in USA because
it does not fall under the definition of non-profit organization as per the Income Tax Ordinance,
2001.
A tax credit under section 61 on the donation paid will be allowed if donation is made to
Government hospital or to a hospital listed in 13th Schedule.
449
Answer-34
Asghar & Company
Income and Tax thereon
TY 20X2
Rs. in ‘000
Income from capital gain – separate block 660
Income from other source - FTR dividend income (W-4) 240
Total Income 7,547
Less: income from capital gain – separate block (660)
Income from other source - FTR dividend income (240)
Total Income – NTR 6,647
Less: Zakat [S. 60] (30)
Taxable income – NTR 6,617
Tax liability [765,000 + (35% x 2,617,000)] 1,681
Less: Donation to hospital established by local government
(1,681/6,617) x 1,985 (504)
C is lower of 2,300 or 30% x 6,617 = 1,985
Tax liability – NTR 1,177
Tax on separate block income:
Tax on gain on disposal of shares of public company (660 x 12.5%) 83
Tax on FTR income:

Tax on dividend income (240 (W-4) x 15%) 36
Less: Tax already paid/deducted:
- Tax collected at import stage (150)
- Advance tax paid (200)
- Withholding tax deducted (1,400)
- Tax deducted on dividend (36)
Tax refundable to Asghar & Company (490)
(W-1) Income from Business Rs. in ‘000

Add: Raw material and finished goods disallowed (W-2) 1,560

Accounting depreciation 2,100
Provision for slow moving inventory 1,800
Donation paid to hospital established by local government 2,300
Reward paid in cash to salesman [Total – Allowed] (W-3) = [19,765 – 19,265] 500
Installation charges of imported plant 375
8,635
Less: Expenditure on Eid Milan party (allowed as deduction) -
Penalty paid to a customer (allowed being not paid to govt.) -
Dividend received from listed company (174)
Gain on sales of shares of APL (660)
Initial allowance of imported plant (2,500 + 375) = 2,875 x 25% (719)
Tax depreciation of imported plant (2,875 – 719) x 15% (323)
Amortisation of pre-commencement expenditure (3,400 x 20%) (680)
Tax depreciation on other assets (1,900)
(4,456)
6,647
450
(W-2) Purchase disallowed (lower of)

- Purchase on which tax is not deducted 7,800
- 20% of purchase (7,800 x 20%) 1,560
(W-3) Advertisement allowed (lower of)

- Actual (19,765 – 500) 19,265
- 10% of sale (324,850 x 10%) 32,485
(W-4) Calculation of gross amount of dividend

Net Dividend = Gross dividend - Tax Deducted - Zakat Paid
174 =X - 15% of X - 30
X (Dividend) = 240
Answer-35
Kamyab Enterprises
TY 2025
Rs.
Income from capital gain – separate block (W-3) 250,000
Income from other sources (W-4) 80,000
Less: income from capital gain – separate block (250,000)
Taxable Income – NTR 14,190,450
Tax liability on income falling under NTR (765,000 + 10,190,450 x 35%) 4,331,658
Less: Tax credit on donation [S.61] (4,331,658/14,190,450) x 1,000,000 (305,252)
C is lower of:1,000,000 or 30% of 14,190,450 = 4,257,135
Net tax liability – NTR 4,026,406
Add: Tax on separate block – Shares of Himmat Ltd (250,000 x 10%) 25,000
Tax payable by KE 4,051,406
(W-1) Income from Business Rs.

Add: Accounting depreciation 1,400,000
Salary paid in cash 40,000
Scientific research expense paid outside Pakistan 700,000
Instalment of industrial plot (capital expenditure) 650,000
Purchase of goats for Eid-ul-Azha (personal expenditure) 225,000
Donation to approved non-profit organization 1,000,000
4,015,000
Less: Tax depreciation [S. 22] (W-5) 1,613,550
Tax Loss on disposal of motor vehicle (W-6) 28,000
Salaries to scientist (allowed) -
Material cost (allowed) -
Tax refund 720,000
Capital gain on sale of shares (430,000 + 250,000) 680,000
(3,041,550)
13,680,450
451
(W-2) Income from Capital Gain

Gain on disposal of shares of Manzil Limited 430,000
(W-3) Income from Capital Gain – Separate Block

Gain of disposal of shares of Himmat Limited (Separate Block) 250,000

Additional payment on delay in tax refund 80,000
(W-5) Calculation of tax depreciation & initial allowance

Depreciation on plant & machinery 6,860,000 x 15% 1,029,000
Depreciation on computer & related products
- Opening (800,000 x 30%) 240,000
- Additions during the year
- Initial allowance (150,000 x 25%) 37,500
- Depreciation (150,000 – 37,500) x 30% 33,750
Depreciation on motor vehicles ((3,000,000 – 722,500 (W-6.1) x 15% x 80%) 273,300
1,613,550
(W-6) Tax Gain/loss on disposal of motor vehicles
Consideration received 750,000
Less: Tax written down value (W-6.1) 722,500
Add: Deductions not allowed
TY2023 30,000
TY2024 25,500 (778,000)
Loss on disposal (28,000)
(W-6.1) Calculation of Tax WDV Normal
Depreciation Depreciation Depreciation
Calculation Allowed not allowed
@15% Dep * 80% Dep * 20%
Cost (15.6.23) 1,000,000
Depreciation (1,000,000 x 15%) (2023) (150,000) 120,000 30,000
WDV as on 30.6.23 850,000
Depreciation (850,000 x 15%) (2024) (127,500) 102,000 25,500
WDV as on disposal 722,500
Answer-36
Mr. Nauman
Total income & taxable income
For tax year 2021
Rupees
Income from other source – FTR (Profit on debt) (W-2) 600,000
Less: Income from other source – FTR (Profit on debt) (600,000)
3,814,000
Less: Deductible allowances:
Zakat paid [S.60] (200,000)
452

Basic Salary [S.12(2)(a)] (120,000 x 12) 1,440,000
Less: Exempt up to 10% of basic salary (1,440,000 x 10%) (144,000)
[2nd Sch. Clause 139] 96,000
House rent allowance [S.12(2)(c)] (60,000 x 12) 720,000
Car provided [S.13(3)] (1,400,000 x 5%) 70,000
Car transferred [S.13(11)] (1,000,000 – 450,000) 550,000
Employer contribution to provident fund (18,000 x 12) 216,000
- 10% of basic salary and dearness all. (10% of 1,440,000 = 144,000) or
- 150,000 (144,000) 72,000
Interest credited 540,000

Less: Exempt up to (higher of)
- 1/3rd of (basic salary + dearness allowance) (1/3 x 1,440,000) = 480,000
- 540,000 / 18% x 16% = 480,000 (480,000) 60,000
Education allowance 300,000
Relocation allowance Exempt -
Performance bonus (will be taxed in TY 2022) -
Interest benefit on loan outstanding [S.13(7)] (5,000,000 x 4% x 3/12) 50,000
Less: legal expenses (deduction not allowed under the head income from salary) -
3,358,000
(W-2) Profit on debt - FTR

Net interest income = Gross interest income – income tax
510,000 =x – 0.15x
0.85x = 510,000
Gross interest income = 600,000

Rental [(1,200,000 – 400,000) = 800,000 x 9/12] 600,000
Insurance premium (50,000)
Rent collection charges and admin expenses
Lower of: (24,000)
 Actual expense or = 30,000
 4% of gross rent chargeable (600,000 x 4%) = 24,000
406,000

Rent of amenities and utilities connected with renting of building [S. 39 (1) (fa)]
Gross receipt (400,000 x 9/12) 300,000
Less: Expenses (250,000)
50,000
453
Answer-37
a)
Mr. Basit
Computation of tax liability
For tax year 2022
Pakistan Source Incomes: Rs.
Income from capital gain – separate block (W-2) -
Foreign Source Incomes:
Income from salary – Exempt (3,200 x 3 month x 250) 2,400,000
Income from Other Source (W-4) 250,000
Less: Foreign source salary – exempt (2,400,000)
Tax liability [1,095,000 + 35% x 3,053,500] 2,163,725
Less: Foreign tax credit (lower of) (56,250)
- Foreign tax (225 x 250) = 56,250
- Pakistani tax (2,163,725/9,053,500 x 250,000) = 59,748
Net tax liability – NTR 2,107,475
Less: Tax already deducted (1,400,000)
Tax payable/ (refundable) 707,475
Salary (610,000 x 7) 4,270,000
Allowance for services of domestic servant (60,000 x 7) 420,000
Allowance @ 5% of salary for official duties (4,270,000×5%) 213,500
Acquired car on lease (no benefit is given by employer) -
Shares acquired under employee share scheme:
FMV of shares on the date restriction is lifted (13,000 x 90) 1,170,000
Less: Cost of shares (13,000 x 30) (390,000) 780,000
Leave encashment 320,000
Gratuity approved by Board 2,200,000
Less: Exempt (300,000) 1,900,000
Salary arrears of tax year 2021 700,000
8,603,500
(W-2) Income from capital gain (Disposal of securities)
Less:
Cost of shares 390,000
Amount charged under the head salary 780,000
1,170,000
(1,170,000/13,000 x 5,000) (450,000)
Loss (50,000)
Gift received from friend - gold 200,000
200,000
(W-4) Foreign source income GBP Rs.

Gross receipt 1,500
Deductions (500)
1,000
Profit (1,000 x 250) 250,000
454
b) Where any salary is paid to an employee in arrears; and because of this employee‟s income is charged at higher
rate as compared to the rate that was applicable if the salary was paid in the year he rendered the services, he
may, give notice to the Commissioner, and elect the rate applicable in the year in which he earned salary i.e. tax
year 2021.
c) Basit is required to furnish a foreign income and assets statement giving particulars of:
(a) total foreign assets and liabilities as on 30 June 2022;
(b) any foreign assets transferred by the Basit to any other person during tax year 2022 and the
consideration received; and
(c) complete particulars of foreign income derived, and the expenditure incurred during tax year 2022
and that the expenditure is wholly and necessarily for the purposes of deriving the said income.
Answer-38
Aakash
Computation of tax liability
For tax year 2022
Rs. in million
Income from other source (W-6) 6.4
Income from business – speculation (W-7) 23
Income from capital gain- NTR (W-8) 3.6
33
Less: Income from business – non speculation (W-1) (124.3) -
Income from capital gain – (disposal of immovable property) - separate block 20.0
Total Income 20.0
Less: Income from capital gain – separate block of income (20.0)
Taxable income -
Add: Share from AOP 70
Taxable income for rate purpose 70
Tax liability No need
Actual tax liability -
Add: Tax on separate block of income
- Disposal of plot (20.0 x 7.5%) 1.5
Tax payable to government 1.5
c/f loss from business – non speculation (124.3 – 33) (91.3)
455
(W-1) Income from business Rs. in million

Loss before tax (87.0)
Add:
Commission expense disallowed (Total – allowed) ( 2.5 – 0.1(W-2)) 2.4
Accounting depreciation 40.0
Tax Bad debt recovery from Shameem (W-4) 10.8
Outstanding payments for more than 3 years (TY 2018) [S.34 (5)] 14.0
Outstanding payments for more than 3 years (TY 2019) [S.34 (5)] -
Financial charges waived by the bank [S.18 (1) (d)] 2.8
70.0
Less:
Penalty (allowed not being paid to government) -
Freight charges paid in cash (allowed even if paid in cash) -
Insurance claim received (6.0)
Tax loss on disposal of vehicle (W-3) (0.9)
Accounting bad debt recovery – S (16.8)
Accounting bad debt recovery – F (10.6)
Tax Bad debt – Faheem (W-5) (3.4)
Rental income – Chargeable under income from other sources (21.6)
Tax depreciation (48.0)
(107.3)
Income from non-speculation business (124.3)
(W-2) Commission allowed

Lower of:
- Actual amount 2.5
- 0.2% of sale of 50 0.1
(W-3)Tax gain / (loss) TY 2022 on vehicle

Consideration received [S.22(13)(a)] [ ] 4.5
Less: Tax written down value (W-3.1) (5.4)
(0.9)
(W-3.1) Tax WDV
Cost of vehicle 7.5
Less: Depreciation (2020) (7.5 x 15%) (1.1)
WDV 6.4
Less: Depreciation (2021) (6.4 x 15%) (1.0)
WDV 5.4
(W-4) Tax Bad debt recovery – Shameem

Amount received 16.8
Less: Actual amount of bad debt 19.2
Less: Previously allowed as deduction (13.2) (6)
10.8
(W-5) Tax Bad debt - Faheem
Amount received 10.6
Less: Actual amount of bad debt 28.8
Less: Previously allowed as deduction (14.8) (14)
(3.4)
456

Rental income from leasing of property together with plant & machinery (1.8 x 12 months) 21.6
Less: Deductions
Tax depreciation of building (85 x 90% x 90%) = 68.9 x 10% (6.9)
Tax depreciation of plant (34 x 15%) (5.1)
Repair and maintenance (3.2)
6.4
(W-7) Income from business - speculation

Net gain from derivative contract 23.0
23.0
(W-8) Income from capital gain-NTR

Sale of private company shares – NTR 3.6
3.6
Answer-39
Azadi and company
TY 2022
Rs. In 000
Income from business (W-1) -
Taxable Income – NTR -
Tax liability(Higher of)
- Tax under normal tax regime -
- Tax on turnover (320,000 x 1.25%) 4,000 4,000
c/f income from business loss of Rs. 29,765,000.
(W-1) Income from Business Rs. in ‘000

Loss (66,000)
Add: Payment for purchase of machine 12,000
Purchase disallowed (W-4) 24,000
Commission paid to partner 3,200
Cost of software 6,400
Accounting depreciation on leased asset 2,100
Finance charges 1,500
49,200
Less: Initial allowance (W-3) (3,500)
Tax depreciation (W-3) (1,575)
Tax loss on disposal of old machine (W-2) (1,000)
NRV loss (18,000 – 12,000) (6,000)
Salary to office boy (Allowed being upto Rs. 32,000) -
Warehouse rent -
Bad debt written off -
Scholarship to Sara -
Tax amortization (6,400/5 x 91/365) (319)
Lease rentals (3,000 /10,500 x 2,500) x 80% (571)
(12,965)
(29,765)
457
(W-2) Tax Gain/(loss) on Disposal TY 2022

Consideration (Fair value) 4,000
Less: Tax Written down value on Disposal (5,000)
Tax loss on disposal (1,000)
(W-3) Initial allowance and tax depreciation on new machine
Payment made (12,000 – 2,000) 10,000
Fair value of old machine 4,000
Cost [S. 76] 14,000
Less: Initial allowance (14,000 x 25%) (3,500)
10,500
Less: Tax depreciation -TY 2022 (10,500 x 15%) (1,575)
Tax WDV 8,925
(W-4) Purchase disallowed (lower of)

- Purchase on which tax is not deducted 40,000
- 20% of purchase (120,000 x 20%) 24,000
b)
As Sara is an employee of AC and employee is not considered as an associate of employer, the scholarship received
by Sara from AC is exempt from tax.
Answer-40
Mr. Nasir
For TY 2022
Income from other source (W-2) 1,000,000
Total/Taxable income 19,727,000
Tax liability (1,095,000 + 13,727,000 x 35%) (2) 5,899,450
Less: Tax credit on charity (not allowed because paid in cash) (-)
Less: Tax credit on approved pension fund [S.63] (5,899,450/19,727,000 x 3,945,400) (1,179,890)
C is lower of: - 4,700,000 or
- 20% of 19,727,000
= 3,945,400
Tax liability of income falling under normal tax regime 4,719,560
Less: Tax deducted by employer (4,500,000)
Tax payable to/ refundable from Government 219,560
458
Workings
Basic Salary [S.12(2)(a)] (800,000 x 12) 9,600,000
Medical allowance (100,000 x 12) 1,200,000
Cost of living allowance (200,000 x 12) 2,400,000
Higher of:
- 45% of basic salary (9,600,000 x 45%) 4,320,000
- Fair market rent of accommodation (300,000 x 12) 3,600,000 4,320,000
Car provided [S.13(3)] (4,000,000 x 5%) 200,000
Fuel benefit – Personal use only (250 x 180 x 12) x 30% 162,000
Car maintenance (150,000 x 30%) 45,000
Hospitalization (Exempt being as per terms) -
Ad-hoc relief 800,000
Expenditure of Rs. 200,000 on working from home (No deductions allowed under salary) -
18,727,000

Cash received as gift 1,000,000
Car received as gift (Received from relatives so not taxable) -
1,000,000
Answer-41
a)
(i)
Nargis
Resident Individual
Taxable Income
Tax year 2022
Rupees
Income from capital gain – securities (W-1) 1,372,000
Income from capital gain – NTR 5,800,000
Less: Income from capital gain – securities (1,372,000)
(W-1) Income from capital gain – securities
Gain on listed company shares [3.5 million - 2.1 million] – 0.5% of 5.6 million 1,372,000
(W-2) Income from capital gain – NTR

Disposal on Public Unlisted Company shares [3 million - 2 million] 1,000,000
Disposal of Personal Car [ As personal car is a movable property, so it is not a capital asset] -
-
Disposal of Painting (Loss is not allowed as deduction)
Disposal of Jewellery [8 million - 3.2 million] 4,800,000
5,800,000
(ii) Tax Liability of Nargis
Taxable Income [As calculated above in (i)] 5,800,000

Tax liability [765,000 + 35% x 1,800,000] [A] 1,395,000
Add: Tax on Income from capital gain - securities [ 1,372,000 x 12.5%] [B] 171,500
Total tax Liability [A + B] 1,566,500
459
b)
Mr. Shahid
Resident Individual
Income and Tax Liability
Tax Year 2022
Rs
Income from capital gains (W-2) - Disposal of immovable property 14,000,000
Income from other sources (W-3) 8,500,000
Agricultural Income – Exempt (W-4) 2,500,000
Less: Income from capital gain - Disposal of immovable property (14,000,000)
Agricultural Income – Exempt (2,500,000)
Tax Liability [765,000 + 35% x 9,300,000 [A] 4,020,000
Add: Tax on Separate Block
- Tax on Disposal of constructed Property [14,000,000 x 5%] [B] 700,000
Tax payable to Government [A + B] 4,720,000

Amount of forfeited deposit from Zamin [Sec. 15(2)] 6,000,000
Less: Admissible deduction:
- Repair Allowance (6,000,000 x 1/5) (1,200,000)
Income from property 4,800,000
(W-2) Income from Capital Gain - Separate Block

Disposal of Bungalow to Kazim [54 million - 40 million] 14,000,000
(W-3) Income from Other Sources

Rental Income from factory building along with plant and machinery [S.39(1)(f)] (1m x 12) 12,000,000
Less: Admissible deductions:
Repair and maintenance expenditure [S.40(1)] (3,500,000)
Income from other source 8,500,000
(W-4) Agricultural Income

Rent from agricultural land [5,000,000 x 6/12] 2,500,000
460
FREQUENTLY ASKED
QUESTIONS
1. If word „earned‟ is mentioned in question with dividend/interest income, it means it is gross
amount (before deduction of tax). For calculating tax, simply apply rate on this gross amount of
dividend/interest.
2. If director is an employee of the organization, director‟s fee will be added in his Income from
salary, otherwise it will be included in his Income from other source.
3. Loss on “securities” can be carried forward for 3 tax years while loss on “capital asset” falls
under normal tax regime, therefore it can be carried forward for 6 tax years.
4. If the question is silent about the company whether it is public or private, then it will be
considered as private company.
5. Interest income may be included in „other income‟ or may be net off in „financial charges‟ by
accountant while preparation of profit and loss by accountant.
6. In case of calculation of income under the head „Income from salary‟,
i. car benefit (car provided by employer to employee) and
ii. interest benefit on loan
will be apportioned on the basis of months (For example 7/12 or 5/12 etc.)
7. Holding period of shares acquired under employee share scheme shall be calculated from the date
we acquired the shares or purchased the shares or exercised the right and not the date when the
restriction was released.
8. If in question, you are supposed to calculate minimum tax then you will compare the tax liability
after allowing foreign tax credit and tax credit under S.61-63.
9. If an author has received any amount as royalty income, it will be taxable in current tax year (year
of receipt) and previous 2 tax years. This means, he will revise the return for previous 2 tax years.
10. In calculating Income from property, repair allowance at 1/5 of gross rent chargeable to tax will
be allowed even if no repair expense is given in question.
11. Personal moveable asset such as dining table, bicycle, chair, furniture, car etc. if disposed, the
gain is not chargeable under any of the head.
12. Loss on disposal of immoveable property (separate block) is not carried forward.
461

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Chapter 18: Numericals Income Tax

From the UAE company

Basic salary Rs. 300,000

(Q.1 March 2015)

In addition to the above, Wajahat was also provided the following:

Following further information is also available:

Other information relevant to the tax year 20X8 is as under:

(Q.2 (b) September 2019)

Cash Fair Date of Cost of Date of

Rs. In million Rs. In million

Investment in shares of a public 2.8 3.0 01-Apr-22 2.0 01-Jun-20

ICAP PAST PAPER SOLUTIONS

Income from salary (W-1) 8,867,737

Tax liability (765,000 + 9,158,237 x 35%) (1) 3,970,383

Income from salary (W-1) 22,251,000

Income from salary

Items not included in calculation

(W-1) Income from salary

Income from salary (W-1) 1,955,000

Income from salary

Income from salary (W-1) 1,243,600

Conveyance provided [S.13(3)] (500,000 x 5%) 25,000

(W-2) Property Income

Income from salary (W-1) 1,879,805

(W-1) Income from salary

(W-2) Tax borne by employer

Income from salary (W-1) 7,366,000

Income from business – FSI 535,000

(W-l) Income from salary

(W-2) Income from property

b) Items not included

(W-1) Income from business

(W-2) Income from other sources

(W-3) Income from property

(W-1) Income from business

Other expenses [S.21(l)] 260,000

(W-3) Tax Bad debt Recovery

c/f - business loss (100,000)

Tax liability (1,095,000 + 384,000 x 35%) (2) 1,229,400

(W-2) Income from capital gain-NTR

Income from salary (W-1) 6,051,515

(W-2) Income from capital Gain –Separate block

C/f – tax depreciation [S.57(4)] (150 – 500) 350

(W-1) Income from business

(W-2) Calculation of cost of sales and administrative expenses

(W-3.1) Gain on sale of immoveable property [S.22(13)(d)]

(W-2) Gain on disposal of immoveable property (5,500,000 – 1,500,000) 4,000,000

Income from salary (W-1) 4,132,000

(W-1) Income from salary Rs.

Housing allowance [S.12(2) (c)] (25,000 x 12) 300,000

Tax liability on income under NTR (315,000 + 58,325 x 25%) 329,581

Interest on fund balance 391,000

(W-3) Dividend income

Tax liability on income under NTR (1,095,000 + 427,250 x 35%) 1,244,538

(W-2) Income from Capital Gain – MP (Private) Company [S.14(4)]

Items not included:

Income from business (W-1) 1,508,675

(W-1)Income from business

(W-2.1) Tax Bad debt Recovery-Atif

(W-2.2)Tax Bad debt Recovery-Aslam