Income from Business

(A quick introduction)


Types of Businesses (The Scope)
Exclusively Identified Businesses under Income Tax Ordinance:
1. Income Received Against Lease
2. Income From Mutual Funds

Deductions

1. Admissible Deductions 2. Deductions not Admissible
( Allowed) ( )

Group A: Expenses incurred for the purpose of Business

Group B: Depreciation and Amortization of Assets

Group C: Amalgamation Expenses incurred by an Amalgamated Company




Specimen of General Purpose Income Statement


Hussain & Brothers
Income Statement
For The Year Ended June 30, 2014

Sales 1000
Sales Return (10) 990
Cost of Sale: (390)
Gross Profit 600
Administrative Expenses:
Salaries xxx
Wages xxx
Depreciations xxx
Amortizations xxx
Rent xxx (100)
Marketing Expenses:
Advertisement xxx
Entertainment xxx (50)
Financial Cost xxx (50)
Operating Profit / Profit before Tax 400
Tax (35%) (140)
Profit after Tax 260









Exercises:
(Extracts from Trail Balance) Rs. 000
Components
Group
A
Group
B
Group
C

Sales 40000 20000 22000 31500 350000 70000
Sales Returns --- 50 70 25 ---- ----
Cost of Sales 3000 400 10000 15500 20000 40000
Salaries 1000 2500 500 1200 1500 3600
Rent 5000 200 6000 1400 5000 15000
Wages 100 100 --- 1335 2000 1500
Utility Bills 1500 500 200 1100 2000 4600
Sales Promotional
Expenditures

500

Nil

Nil

200

1000

800
Payment for Foreign
Travel (private)

200

Nil

100

130

800

1600
Advertisement
Expenses

500

200

150

270

100

1550
School fee of
children

100

100

113

226

200

1000
Personal Motor
Repair

80

120

110

117

160

240
Depreciation of van
partially used in
business (1:1)

---

---

350

517

500

800
Amortization of
Patents

---

---

80

120

30

40
Impairment of
Goodwill

---

---

40

75

70

30
Amalgamation
Expenses

---

---

---

---

1000

1100







Often used Withholding Payments

Heads Amount Tax (Deductions) Net Payment
Salary 1000,000/- e.g., 70,000/-
(based on given
slab)
930,000/-
Rent 700,000/- e.g., 40,000/-
(based on given
slab)
640,000/-
Brokerage /
Commission

40,000/-
(Fixed Rate)
10%

36,000/-

Prize Bonds

100,000/-
(Fixed Rate)
15%

85,000/-
Prize and Awards
(e.g., Sales
promotion)

200,000/-
(Fixed Rate)
20%


160,000/-
Payment of Goods
/ Supplies:

To Company
To Non Company



100,000/-
100,000/-
(Fixed Rate)
If payments in a year
exceeds Rs. 25,000/-
3.5%
4% (from 2013-14)



96,500/-
96,000/-
Payment of
Services:

To Company
To Non Company



100,000/-
100,000/-
(Fixed Rate)
If payment in a year
exceeds Rs. 25,000/-
6%
7% (from 2013-14)



94,000/-
93,000/-



Bank Withdrawals



100,000/-
(Fixed Rate)
If payment in a year
exceeds Rs. 50,000/-
.03% (from 2013-14)
(in this case bank pay
you full amount but
deduct tax from your
account balance)
100,000/-