Income From Business - Definition and Admissible Expenses

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:

1. Any profit and gain from a business which is carried on by the person at any time in the year.
2. 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.)
3. Any income from the hiring or lease of tangible movable property.
4. 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.
5. Any management fee derived by a management company including modaraba management company.
6. Any profit on debt derived, where the business of a person is to derive such income;
7. 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”.
8. 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.