Ch#06 Tax credits

Question 1

Charitable donations (Sec.61)

Answer 1

A person shall be entitled to a tax credit for a tax year for amount paid or property given as donation , voluntary contribution or subscription to:

a) any board of education or any university in Pakistan established by,or under ,a Federal or a provincial law;
b) any educational institution, hospital or relief funds established in Pakistan by federal , provincial or a local government; or
c) any non profit organization or any persons eligible for tax credit under section 100C; and
d) entities, organizations and funds mentioned in 13 the schedule of the ordinance

Question 2

Charitable donations (u/s 61)
C is lower of ?

Answer 2

a)the amount of the donations in the Year,
including the fair market value of property given

b) where the person is -
i) an individual or AOP,30% of taxable income
ii) a company,20 %of taxable income

If amount or property is donated by associates C shall be in the case of -

i) an individual or AOP,15% of taxable income
ii) a company,10 %of taxable income

Question 3

Other consideration u/s 61 (charitable donations)?

Answer 3

• The fair market value of property shall be determined at the time it is given.
• Cash paid will only qualify for tax credit if amount is paid by a crossed cheque.

Question 4

Tax credit for investment in shares and insurance (u/s 62)?

Acquisition of new shares

Answer 4

A resident person other than a company shall be entitled to a tax credit for a tax year either

If it has acquired new shares offered to public by a public company listed on stock exchange in Pakistan.
The person should be the original allottee of the shares ,or
If it has acquired shares from privatization commission of Pakistan

Question 5

Tax credit for investment in shares and insurance (u/s 62)

Acquisition of sukuks:

Answer 5

A resident person other than a company shall be entitled to a tax credit for a tax year either

ii) on cost of acquiring sukuks offered to public by a public company listed on stock exchange in Pakistan
The person should be the original allottee of the sukuks

Question 6

Tax credit for investment in shares and insurance u/s 62

Acquisition of unit of exchange traded funds

Answer 6

A resident person other than a company shall be entitled to a tax credit for a tax year either

iii)in respect of cost of acquiring in a tax year,
Unit of exchange traded traded funds offered to public and traded on stock exchange in Pakistan

Question 7

Tax credit for investment in shares and insurance u/ s 62

For life insurance premium paid

Answer 7

A resident person other than a company shall be entitled to a tax credit for a tax year either
iv) for life insurance premium paid to a life insurance company registered by SECP if he is deriving income from salary or business

Question 8

Tax credit for investment in shares and insurance u/s 62

C is lower of?

Answer 8

a) the cost of acquiring the shares ,or sukuks or the contribution or premium paid by the person
b) 20% of the taxable income or
c) Rupees.2,000,000

Question 9

Other considerations u/s 62

For disposal of shares

Answer 9

Where-
a)a tax credit has been allowed for shares purchased ; and
b) the person has made disposal of the shares within 24 months of date of acquisition,
the tax for the tax year in which shares were disposed of shall be increased by the credit allowed.

Question 10

Other considerations u/s 62 (tax credit for investment in shares and insurance)

For life insurance premium paid:

Answer 10

Further where-
a)a tax credit has been allowed for life insurance premium paid and
b)the insurance policy is surrendered/cancelled within 2 years of it’s acquisition,
The tax credit allowed shall be deemed to have been wrongly allowed and the commissioner shall re-compute the tax payable by the taxpayer for the relevant tax year.

Question 11

Tax credit for investment in health insurance u/s62A

Answer 11

A resident person other than a company shall be entitled to a tax credit for a tax year for health insurance premium or contribution paid to any insurance company registered by SECP if the person is deriving income from salary or business.

Question 12

Tax credit for investment in health insurance u/s 62A

C is lower of

Answer 12

a) the total contribution or premium paid in the tax year;
b) 5% of the taxable income and
c) Rupees .150,000

Question 13

Contribution to approved pension fund u/s 63

Answer 13

An eligible person earnings income from salary or business shall be entitled for a tax credit for premium paid in approved pension fund under the voluntary pension system rules ,2005
“Eligible person means an individual Pakistani who holds a valid NTN or computerized NIC or NIC for overseas Pakistani issued by NADRA”
“Approved pension fund means pension fund approved by SECP under voluntary pension system rules 2005.

Question 14

Contribution to approved pension fund u/s 63

C is lower of ?

Answer 14

a)the premium paid by the person in the year
b)20% of the taxable ,income of the person for relevant tax year.
However if he joins the pension fund at the age of 41 years or above he shall be allowed additional contribution of 2% per annum for each year of age exceeding 40 years (upto the 30th June 2019).
However total contribution shall not exceed 30%of the taxable income of the previous year

Question 15

Other considerations u/s 63

Contribution to approved pension fund

Answer 15

The transfer by the members of old schemes of their old balances to the new individual pension account shall not qualify for tax credit.

Question 16

Tax credit for certain persons

[Sec.65F]

Answer 16

Following tax payers shall be allowed 100% tax credit upon fulfillment of certain conditions

i) person engaged in coal mining projects in Sindh supplying coal to power generation projects.
ii) A startup which is certified by the Pakistan software export board . credit will be allowed in the year of startup and for the following two years ;
iii) persons deriving income from from export proceeds are brought into Pakistan in foreign exchange through normal banking channel.

Question 17

Conditions of tax credit for certain persons [Sec.65F]

Answer 17

Following are the conditions:
I)Annual return of income has been filed .
II) withholding tax statement for relevant tax year have been filed ,if person is withholding agent ;and
III) Monthly sales tax returns for the tax periods have been filed.

Question 18

Tax credit for specified industrial undertakings [Sec.65G]

Answer 18

A tax credit of 25% of eligible investment amount is allowed to eligible persons in the year of investment.it will be allowed against normal tax payable.unadjusted amount of tax credit may be carried forward to 2 subsequent tax years.

Question 19

Eligible investment u/s 65G

Tax credit for specified industrial undertakings

Answer 19

Eligible investment means any investment made in the purchase and installation of new machinery, building, equipment, hardware and software except self created software and used capital goods.

Question 20

Eligible person u/s 65G

Tax credit for specified industrial undertakings

Answer 20

Eligible person means:
a) Green field industrial undertakings engaged in :
I) the manufacture of goods or materials or putting goods or materials to any process which substantially changes their original condition or
II)Ship building

The credit will be allowed only if undertakings is incorporated between 30 june 2019 and 30 June 2024 and is not formed by splitting up or reconstitution of undertaking already in existence.

b) Industrial undertaking set up by the 30 the day of June 2023 and engaged in the manufacture of plant , machinery, equipment and items with dedicated use for generation of renewable ener.gy from source like solar and wind for a period of 5 years beginning from the date such industrial undertaking is set up

Question 21

What is meant by Green field industrial undertaking?

Answer 21

Green field industrial undertaking means-
a) a new industrial undertaking which is :
I)setup on land that is not previously used for any commercial, industrial or manufacturing activities
II)built without demolishing, revamping,renovating, upgrading, remodeling or modifying any existing structure or plant;
III)not formed by splitting up or reconstitution of an undertaking already in existence
IV)using any process or technology that has not earlier been used in Pakistan and is approved by the engineering devey board ;and
b) approved by the commissioner
This definition is applicable from July 1,2019 and onwards.

Question 22

What is meant by point of sale machine (post)?

Answer 22

POS is a machine made for processing and recording the sale transactions for goods or services,either in cash or through credit and debit cards or online payments (in an internet enabled environment)

Question 23

Tax credit for POS(Sec.64D)?

Answer 23

1.all tier 1 retailers are required to integrate with Board’s point of sale online real time reporting system.A tax credit for POS machines will be allowed to them.
2.The tax credit will be allowed for the tax year in which the point of sale machine is installed,integrated and configured with the FBR’s computerized system ,at lower of :
I.amount actually invested in purchase of point of sale machine ;or
II.Rupees 150,000/machine