Basic Concepts of Income Tax

Question 1

Can Zakat for a tax year that is not fully deducted be refunded?

Answer 1

Zakat which is not fully deducted shall not be
i: refunded
ii: carried forward to next year
iii: carried back to preceding tax year

Question 2

Zakat Paid to Relatives?

Answer 2

Zakat paid to relatives will not be deducted because it is not considered as Zakat as per Zakat and usher Ordinance, 1980.

Question 3

Name Deductible Allowances?

Answer 3

I:ZAKAT
ii:Workers’ Welfare Fund
iii: Workers’ Participation Fund

Question 4

Name Headings of Principle of Taxation of Individuals?

Answer 4

1: Deceased individuals
2: Author’s
3: Income of Minor child

Question 5

The Legal representative of a deceased individuals shall be liable for-?

Answer 5

a) any tax that the individual would have become liable if he had not died; and
b) any tax payable in respect of the income of the deceased’s estate.

Question 6

Liability of legal representative of deceased?

Answer 6

The liability of legal representative shall be limited to the extent of deceased’s estate.

Question 7

First charge on deceased’s estate?

Answer 7

The liability (tax) shall be the first charge on the deceased’s estate.

Question 8

Proceeding taken against deceased before his death?

Answer 8

Any proceeding taken against deceased before his death shall be assumed as having taken against the legal representative.

The proceeding will be continued against legal representative from the stage at which they were at the time of death

Any proceeding which could have been taken against deceased may be taken against the legal representative of deceased.

Question 9

Receiving royalty by authors?

Answer 9

Where the time taken by author of a literary or artistic work to complete the work exceeds 24 months,
“the author may elect any lump sum amount received in a tax year as royalties for the work
as having been received in the tax year and the preceeding 2 tax years in equal proportions “

Question 10

Income from business of Minor child is taxable?

Answer 10

Income from business of Minor child is taxable in hands of parent who has highest taxable income

Question 11

Minor business acquired through inheritance?

Answer 11

Above provision will not apply of business is acquired through inheritance. ( Will not be taxable in hands of parent who has highest taxable income)

Question 12

Who is minor?

Answer 12

Minor child is an individual under age of 18 at end of tax year.

Question 13

What are common rules studied in ch 4?

Answer 13

1: Apportionment of deductions
2: Apportionment of Expenditure
3: Fair market value
4: Recouped Expenditure
5: Currency conversion
6: Cessation of source of income
7: Rules to prevent double derivation and double deductions
8 Tax dividends

Question 16

What are gross receipts?

Answer 16

Gross receipts are receipts without deduction of expenditures.

Question 17

When does the expenditures/ deductions and allowances are apportioned?

Answer 17

Where Expenditures/ deductions and allowances are related to -
a) derivation of more than one head of income
ab) derivation of income comprising of
-taxable income ( NTR )
-income falling under final tax regime
b)
- derivation of income chargeable to tax under a head of income (taxable)
- for some other purpose ( ghr)

the expenditure, deduction and allowances shall be apportioned on any reasonable basis considering relative nature and size of activities.

Question 18

Apportionment of common expenditure?

Answer 18

Any common expenditure shall be allocated to each class of income according to the following formula:
Amount of expense× gross receipt for a class of income/ gross receipt for all class of income

Question 19

What is common expenditure?

Answer 19

Any expenditure that is not clearly allocable to any particular class of income.

Question 20

What’s FMV?

Answer 20

The fair market value of any property or rent, asset, service, benefit or perquisite at a particular time shall be the price which will ordinarily be fetched on a sale or supply in the open market at that time.

Question 21

How the FMV will be determined if it’s not ascertainable?

Answer 21

-Where the price is not ascertainable, the Board may, by notification in the official gazette determine the FMV of the immovable property.

-Where the FMV of any immovable property of an area has not been determined by the Board as above, the FMV of such immovable property shall be deemed to the value fixed by district officer or provincial or any other authority authorized in this behalf for the purposes of stamp duty.

Question 22

Does the income will be taxable in case of cessation of source of income?

Answer 22

If a taxable source of income ceases to exist either;

- before the commencement of the year or
- during the tax year , 

Then any subsequent benefit derived from it shall be taxable in normal way assuming that the source has not ceased at the time income was derived.

Question 23

How the tax will be imposed on dividends?

Answer 23

1) Tax shall be imposed, at prescribed rate, on every person who receives a dividend from a company.
2) The tax shall be computed by applying the rate of tax to the gross amount of the dividend.

3) this section shall not apply to a dividend that is exempt from tax.

Question 24

State Rules applicable to income chargeable under Final Tax Regime?

Answer 24

The tax imposed under section 5 and 7B shall be a final tax and

a) This income shall not be chargeable under any head of income;
b) no deduction shall be allowable for any expense incurred;
c) the income shall not be reduced by-
i) any deductible allowances ( Zakat etc)
ii) the set off of any loss;
d) the tax deducted shall not be reduced by any tax credit; and
e) the liability of a person ( under section 5 and 7B) shall be discharged if tax has been deducted. ( Company ny dy dia)