Business Income - Inadmissible Expenses
Tuesday, April 23, 2013
Deductions Not Admissible (Section 21)
i) Amount paid or payable on account of any cess, rate or tax levied on profits or gains of business or assessed as percentage or otherwise on the basis of such profits or gains. Tax shall include any tax paid or payable in Pakistan or in a foreign country.
Note: In case where sales tax paid by a tax payer is not charged by him to his customers, such sales tax shall be allowed as deduction.
ii) Any amount of tax deducted at source under division III of Part V of Chapter X. being tax deducted at source u/s 149 to 158.
iii) Any sum paid on account of salary, profit on debt, brokerage, commission, rent, payment to non-resident, payment for services or fee paid by the person unless tax is paid or deducted at source and paid under Income Tax Ordinance, 2001.
iv) Any entertainment expenditure in excess of such limits or in violations of such conditions as may be prescribed.
Limits prescribed for allowing any expenditure on entertainment are as under (Rule 10).
Expenditure should be incurred in deriving income from business chargeable to tax and should not be in excess of following limits or in violation of condition specified:
a) Such expenditure is: -
- Incurred outside Pakistan on entertainment in connection with business transactions: or
- Allocated as head office expenditure; or
b) Incurred in Pakistan on the entertainment of foreign customers & suppliers;
c) Incurred on the entertainment of customer & clients at the person’s business premises
d) Incurred on the entertainment at the meeting of shareholders, agents, directors or employees
e) Incurred on entertainment at the opening of branches.
Note All these person (who are entertained) should be related directly to the person’s business.
v) Any contribution to un-recognized provident fund, unapproved pension, superannuation or gratuity funds. Moreover, contributions to any fund unless effective arrangements are made to deduct tax shall also be inadmissible.
vi) Any sum paid by an association of persons to a member of the association on account of profit on debt, commission, salary, brokerage or any other remuneration.
vii) Any expenditure paid or payable exceeding Rs. 10,000 on a single item is inadmissible if the balance under relevant head of account exceeds Rs.50,000 and the payment is made otherwise than through crossed bank cheque or crossed bank draft or crossed pay order or any other crossed banking instrument showing transfer of amount from the business bank account of the taxpayer.
Provided that online transfer of payment from the business account of the payer to the business account of payee as well as payments through credit card shall be treated as transactions through the banking channel, subject to the condition that such transactions are verifiable from the bank statements of the respective payer and the payee.
However, this shall not be applicable in case of payments for:
- freight charges; -
- travel fare; -
- postage; -
- utility bills; and -
- taxes, duties, fee, fines or other statutory obligation
viii) Salary exceeding Rs.15,000 per month not paid through crossed cheque or bank transfer to employee’s account.
ix) Any payment of a fine or penalty for the violation of any law or rule or regulation.
x) Any personal expenditure.
ix) Any payment of a fine or penalty for the violation of any law or rule or regulation.
x) Any personal expenditure.
xi) Any amount carried to a revenue fund or capitalized in any way.
xii) Any capital expenditure. However, depreciation or amortization shall be allowed in respect of a depreciable asset, intangible or pre-commencement expenditure.
Labels: Business Income, Deductions not admissible, Inadmissible Expenses, Income Tax, Section 21
posted @ 10:01 AM,
,
Income From Business - Definition and Admissible Expenses
Monday, April 22, 2013
Business Income
The following incomes of a person for a tax year, other
than exempt incomes, shall be chargeable to tax under this head of income:
- Any profit and gain from a business which is carried on by the person at any time in the year.
- Any income derived by any trade, professional or similar association from the sale of goods or provision of services to its members (e.g. Cloth Merchants Association, Professionals Association, Stock Exchange, Chamber of Commerce etc.)
- Any income from the hiring or lease of tangible movable property.
- The fair market value of any benefit or perquisite derived by a person from any past, present or future business relationship. However, it is clarified that the word ‘benefit’ includes any benefit derived by way of waiver of profit on debt or the debt itself under SBP circular 29 of 2002 or in any other scheme issued by SBP.
- Any management fee derived by a management company including modaraba management company.
- Any profit on debt derived, where the business of a person is to derive such income;
- In case where a lesser, being a scheduled bank or an investment bank or a development finance institution or a modaraba or a leasing company has leased out any asset, whether owned by it or not, to another person, any amount paid or payable by the said person in connection with the lease of said asset shall be treated as the income of the said lessor and shall be chargeable to tax under the head “Income from Business”.
- Any amount received by a banking company or a non-banking finance companies, where such amount represents distribution by a mutual fund or a Private Equity and Venture Capital Fund out of its income from profit on debt, shall be chargeable to tax under the head “Income from Business” and not under the head “Income from other sources”.
ADMISSIBLE
DEDUCTIONS (SECTION 20)
- In computing the income of a person chargeable to tax under the head “Income from Business” for a tax year, a deduction shall be allowed for every expenditure incurred wholly & exclusively for the purpose of business.
- Where animals which have been used for the purposes of business or profession otherwise than as stock-in-trade and have died or become permanently useless for such purposes, the difference between the actual cost to the tax payer of the animals and the amount, if any, realized in respect of carcasses or animals. Admissibility of this expenditure has encouraged dairy farming businesses.
- If the expenditure stated above is incurred in acquiring a depreciable asset or an intangible with a useful life of more than one year or is pre-commencement expenditure, the person must depreciate or amortize the expenditure in accordance with sections 22, 23, 24 and 25.
- Expenditure incurred by an amalgamated company on the financial advisory services and other administrative cost relating to planning and implementation of amalgamation shall be allowed as deduction. To the amalgamated company.
Labels: Admissible deductions, Business Income, Income Tax, Section 18, Section 20
posted @ 1:19 PM,
,
