Pakistan Central Board of Revenue (Revenue Division)
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GOVERNMENT OF PAKISTAN CENTRAL BOARD OF REVENUE (REVENUE DIVISION) INCOME TAX MANUAL PART I INCOME TAX ORDINANCE, 2001 (XLIX OF 2001) AMENDED UPTO JUNE, 2006 INCOME TAX ORDINANCE 2001 TABLE OF CONTENTS CHAPTER 1 PRELIMINARY 1. Short title, extent and commencement 17 2. Definitions 17 3. Ordinance to override other laws 33 CHAPTER II CHARGE TO TAX 4. Tax on taxable income 33 5. Tax on dividends 34 6. Tax on certain payments to non-residents 34 7. Tax on shipping and air transport income of a non- 35 resident person 8. General provisions relating to taxes imposed under 35 sections 5, 6 and 7 CHAPTER III TAX ON TAXABLE INCOME PART I COMPUTATION OF TAXABLE INCOME 9. Taxable income 36 10. Total income 36 11. Heads of income 36 PART II HEAD OF INCOME SALARY 12. Salary 37 13. Value of perquisites 39 14. Employee share schemes 43 PART III HEAD OF INCOME INCOME FROM PROPERTY 15. Income from property 44 16. Non-adjustable amounts received in relation to 45 buildings 17. Omitted by the Finance Act, 2006. 45 PART IV HEAD OF INCOME INCOME FROM BUSINESS Division I Income from Business 18. Income from business 47 19. Speculation business 49 Division II Deductions General Principles 20. Deductions in computing income chargeable under the 48 head "Income from Business" 21. Deductions not allowed 49 Division III Deductions Special Provisions 22. Depreciation 51 23. Initial allowance 55 24. Intangibles 56 25. Pre-commencement expenditure 58 26. Scientific research expenditure 59 27. Employee training and facilities 59 28. Profit on debt, financial costs and lease payments 60 29. Bad debts 61 29A Provision regarding consumer loans 62 30. Profit on non-performing debts of a banking 63 company or development finance institution 31. Transfer to participatory reserve 63 Division IV Tax Accounting 32. Method of accounting 64 33. Cash-basis accounting 65 34. Accrual-basis accounting 65 35. Stock-in-trade 66 36. Long-term contracts 67 PART V HEAD OF INCOME CAPITAL GAINS 37. Capital gains 68 38. Deduction of losses in computing the amount chargeable 70 under the head "Capital Gains" PART VI HEAD OF INCOME INCOME FROM OTHER SOURCES 39. Income from other sources 71 40. Deductions in computing income chargeable under the 73 head "Income from Other Sources" PART VII EXEMPTIONS AND TAX CONCESSIONS 41. Agricultural income 74 42. Diplomatic and United Nations exemptions 75 43. Foreign government officials 75 44. Exemptions under international agreements 75 45. President's honours 76 46. Profit on debt 76 47. Scholarships 77 48. Support payments under an agreement to live apart 77 49. Federal and Provincial Government, and local authority 77 income 50. Foreign-source income of short-term resident individuals 77 51. Foreign-source income of returning expatriates 78 52. Omitted by Finance Ordinance, 2002 78 53. Exemptions and tax concessions in the Second Schedule 78 54. Exemptions and tax provisions in other laws 79 55. Limitation of exemption 80 PART VIII LOSSES 56. Set off of losses 80 57. Carry forward of business losses 80 57A. Set off of losses consequent to amalgamation 81 58. Carry forward of speculation business losses 82 59. Carry forward of capital losses 82 59A. Limitations on set off and carry forward of losses 83 59B. Group relief 84 PART IX DEDUCTIBLE ALLOWANCES 60. Zakat 85 60A. Workers’ Welfare Fund 85 60B. Workers’ Participation Fund 85 PART X TAX CREDITS 61. Charitable donations 85 62. Investment in shares 86 63. Contribution to an Approved Pension Fund. 87 64. Profit on debt 89 65. Miscellaneous provisions relating to tax credits 90 CHAPTER-IV COMMON RULES PART I GENERAL 66. Income of joint owners 91 67. Apportionment of deductions 91 68. Fair market value 92 69. Receipt of income 92 70. Recouped expenditure 92 71. Currency conversion 92 72. Cessation of source of income 92 73. Rules to prevent double derivation and double deductions 93 PART II TAX YEAR 74. Tax year 94 PART III ASSETS 75. Disposal and acquisition of assets 96 76. Cost 96 77. Consideration received 98 78. Non-arm's length transactions 99 79. Non-recognition rules 99 CHAPTER V PROVISIONS GOVERNING PERSONS PART I CENTRAL CONCEPTS Division I Persons 80. Person 100 Division II Resident and Non-resident Persons 81. Resident and non-resident persons 101 82. Resident individual 102 83. Resident company 102 84. Resident association of persons 102 Division III Associates 85. Associates 102 PART II INDIVIDUALS Division I Taxation of Individuals 86. Principle of taxation of individuals 104 87. Deceased individuals 104 Division II Provisions Relating to Averaging 88. An individual as a member of an association of persons 105 88A. Share profits of company to be added to taxable income 105 89. Authors 106 Division III Income Splitting 90. Transfers of assets 106 91. Income of a minor child 107 PART III ASSOCIATIONS OF PERSONS 92. Principles of taxation of associations of persons 107 93. Taxation of members of an association of persons 108 PART IV COMPANIES 94. Principles of taxation of companies 109 95. Disposal of business by individual to wholly-owned 109 company 96. Disposal of business by association of persons to wholly- 111 owned company 97. Disposal of asset between wholly-owned companies 113 PART V COMMON PROVISIONS APPLICABLE TO ASSOCIATIONS OF PERSONS AND COMPANIES 98. Change in control of an entity 114 PART VA TAX LIABILITY IN CERTAIN CASES 98A. Change in the constitution of an association of 115 persons 98B. Discontinuance of business or dissolution of an 115 association of persons 98C. Succession to business, otherwise on death 115 CHAPTER-VI SPECIAL INDUSTRIES PART I INSURANCE BUSINESS 99. Special provisions relating to insurance business 116 PART II OIL, NATURAL GAS AND OTHER MINERAL DEPOSITS 100. Special provisions relating to the production of oil and 116 natural gas, and exploration and extraction of other mineral deposits CHAPTER VII INTERNATIONAL PART I GEOGRAPHICAL SOURCE OF INCOME 101. Geographical source of income 117 PART II TAXATION OF FOREIGN-SOURCE INCOME OF RESIDENTS 102. Foreign source salary of resident individuals 120 103. Foreign tax credit 120 104. Foreign losses 121 PART III TAXATION OF NON-RESIDENTS 105. Taxation of a permanent establishment in Pakistan of a 122 non-resident person 106. Thin capitalization 123 PART IV AGREEMENTS FOR THE AVOIDANCE OF DOUBLE TAXATION AND PREVENTION OF FISCAL EVASION 107. Agreements for the avoidance of double taxation and 125 prevention of fiscal evasion CHAPTER VIII ANTI-AVOIDANCE 108. Transactions between associates 126 109. Re-characterization of income and deductions 126 110. Salary paid by private companies 127 111. Unexplained income or assets 127 112. Liability in respect of certain security transactions 128 CHAPTER IX MINIMUM TAX 113. Minimum tax on the income of certain persons 128 113A. Tax on income of certain persons 129 113B. Taxation of income of certain retailers 130 CHAPTER X PROCEDURE PART I RETURNS 114. Return of income 130 115. Persons not required to furnish a return of income 133 116. Wealth statement 134 117. Notice of discontinued business 135 118. Method of furnishing returns and other documents 136 119. Extension of time for furnishing returns and other 136 documents PART II ASSESSMENTS 120. Assessments 138 121. Best judgment assessment 139 122. Amendment of assessments 140 122A. Revision by the Commissioner 143 122B. Revision by the Regional Commissioner 143 123. Provisional assessment in certain cases 143 124. Assessment giving effect to an order 144 124A. Powers to tax authorities to modify orders, etc. 145 125. Assessment in relation to disputed property 145 126. Evidence of assessment 146 PART III APPEALS 127. Appeal to the Commissioner (Appeals) 146 128. Procedure in appeal 148 129. Decision in appeal 149 130. Appointment of the Appellate Tribunal 150 131. Appeal to the Appellate Tribunal 151 132. Disposal of appeals by the Appellate Tribunal 152 133. Reference to High Court 154 134. Omitted by Finance Act, 2005 156 134A. Alternative Dispute Resolution 156 135. Omitted by the Finance Ordinance, 2002 157 136. 1 Burden of proof 158 PART IV COLLECTION AND RECOVERY OF TAX 137. 1 Due date for payment of tax 158 138. Recovery of tax out of property and through arrest of 159 taxpayer 138A. Recovery of tax by District Officer (Revenue) 160 139. Collection of tax in the case of private companies and 160 associations of persons 140. Recovery of tax from persons holding money on behalf of 161 a taxpayer 141. Liquidators 162 142. Recovery of tax due by non-resident member of an 163 association of persons 143. Non-resident ship owner or chatterer 164 144. Non-resident aircraft owner or chatterer 164 145. Assessment of persons about to leave Pakistan 165 146. Recovery of tax from persons assessed in Azad Jammu 166 and Kashmir 146A. Initiation, validity, etc., of recovery proceedings. 167 PART V ADVANCE TAX AND DEDUCTION OF TAX AT SOURCE Division I Advance Tax Paid by the Taxpayer 147. Advance tax paid by the taxpayer 167 Division II Advance Tax Paid to a Collection Agent 148. Imports 170 Division III Deduction of Tax at Source 149. Salary 173 150. Dividends 173 151. Profit on debt 174 152. Payments to non-residents 175 153. Payments for goods and services 177 154. Exports 180 155. Income from property 181 156. Prizes and winnings 182 156A. Petroleum products 182 156B. Withdrawal of balance under pension fund 183 157. Omitted by the Finance Ordinance, 2002 183 158. Time of deduction of tax 184 Division IV General Provisions Relating to the Advance Payment of Tax or the Deduction of Tax at Source 159. Exemption or lower rate certificate 184 160. Payment of tax collected or deducted 185 161.