Tax Credits Flashcards
Describe admissible deductions?
An admisable deduction is specific to a particular head of income and is deducted from income under that head. Where total deduction allowed to a person for a taxier under a head of income exceed the total amounts chargeable to text the person shall be treating as sustaining a loss for that head.
Examples
Tax depreciation, initial allowance, salaries, repair expense.
Describe deductible allowance?
A deductable allowance is deducted from the total income. An allowance for a tax year that is not fully deducted shall not be carried forward.
Examples of deductible allowance are zakat, workers welfare fund, workers participation fund, deductable allowance for educational expenses.
How much deductable allowance for educational expenses is allowed?
The allowance allowed shall be lower of
a) 5% of the total tuition fee paid by the individual in the year
b) 25% of the persons taxable income for the year; and
c) An amount computed by multiplying rupees 60000 with number of children of individual.
tax on charitable donations?
A person shall be entitled to a text credit for a tax year for amount paid or property given as a donation voluntary contribution or subscription.
Name institutions which are eligible to give charitable donations?
a: Any Board of education or any university in Pakistan established by, or under, a federal or provincial law;
b: Any educational institution, hospital or relief fund established in Pakistan by Federal provincial or a local government
c: Any non profit organisation or any persons eligible for tax credit under section 100c; and
d: entities organisations and funds mentioned in 13th schedule of ordinance
Formula to calculate tax credit on charitable donations?
(A/B) × C
A is the amount of “tax payable” for the tax year before allowance of any credit.
B is the person’s “taxable income” for the taxier
What is C in the formula of tax credit on charitable donations?
C is the lower of
a) The amount of the donation in the year, including the FMV of the property given
b) Where the person is
- an individual or AOP, 30% of the taxable income
-a company 20% of taxable income
c) If amount of property is donated by associate C shall be in the case of an
-individual or AOP, 15% of the taxable income;
-a company 10% of taxable income.
What are other conditions in calculation of tax credit on charitable donations?
- The fair market value of property shall be determined at the time it is given
- cash paid will only qualify for text credit if amount is paid by a crossed cheque.
Describe tax credit on contribution to approved pension fund?
An eligible person earning income from salary or business shell be allowed a text 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 National Tax Number or computerised NIC or NIC for overseas Pakistanis issued by NADRA.
“Approved Pension Fund” means pension fund approved by SECP under Voluntary Pension System rules, 2005.
Describe C in the formula of tax credit on contribution to approved Pension Fund?
C is the lower of:
-the premium paid by the person in the year
-20% of the taxable income of the person for relevant tax year
Give provisions of deductable allowance for educational expenses?
1) Every individual is entitled to a deductable allowance for tuition fee paid if the taxable income of individual is less than rupees 1500,000.
3) An allowance which is not able to be deducted shall not be carried forward to a subsequent year. ( Aik sal ka allowance agr deduct ni ho Saka to usy agly sal ni ly ja skty )
4) An allowance shall be allowed to either of
the parents on furnishing National tax number or name of the educational institution.
5) The allowance shall not be considered for calculating tax deduction under the head salary.
Describe individuals which are allowed 100% tax credit?
I) Person engaged in coal mining projects in Sindh supplying call 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.
Following are the conditions;
i ) annual return of income has been filed.
ii) withholding tax for relevant tax year have been filed, if person is withholding agent. and
iii) monthly sales tax returns for the experience have been fired
Describe full time teacher allowance?
A tax payable by
A full time teacher or a researcher
Who is employed in a non profit education or research institute Duly recognised by
1:Higher education commission
2:A board of education or
3:A University recognised by the higher education commission
Including government research institution shall be reduced by 25% of tax payable on his income from salary
This clause shall not applied to teachers of medical profession who
-Derive income from private medical practice; or
-receive share of consideration received from patients
Describe text treatment of tax credit on foreign source income?
Where a resident tax payer derived taxable foreign source income on which foreign income tax is paid tax credit will be allowed at lower of–
a) the foreign Income Tax paid; or
b) the Pakistan tax payable in respect of the income.
“Foreign income tax” includes a foreign withholding tax.
Describe the term “ the Pakistan tax” in foreign tax credit
The Pakistan tax shall be calculated by multiplying the “average rate of Pakistan income tax” to the “net foreign source income”.
Average rate of Pakistan income tax is the percentage that Pakistan tax is of the taxable income.
Net foreign source income means “total chargeable foreign source income less deductions which
-relate exclusively and
-can reasonably be allocated
for deriving foreign income.
