10-Practical Questions of Individuals (78-113)

Chapter 10: Income Tax Practical Questions of Individuals
Chapter 10
Income Tax Practical Questions of Individuals
Notes for students:
1. Certain dates and information have been changed to solve the questions
based on the tax year 2017
2. Basic knowledge and features of Final Tax Regime (FTR) are included in the
syllabus. Detailed knowledge, items covered under FTR and their rates are not
included in the syllabus. Therefore, the students are supposed to have basic
knowledge of FTR before attempting the practical questions of individuals. We
are explaining FTR features and selected items of FTR in this chapter to
facilitate the solution of practical questions of individuals.
This chapter includes the following questions:
ICAP CAF
Q.
Reference
No.
10.1
Q.15 Sept 2004
10.2
Q.15
March
2005
10.3
Q.2 Sept 2005
10.4
10.5
Mark
s
17
22
16
15
12
10.6
Q.1 March 2006

Q.2(a)
March
2007
Q.1 March 2009
10.7
Q.1 Sept 2009
21
10.8
Q.1 March 2011
20
10.9
Q.1 Sept 2011
19
10.10
Q.1 March 2013
20
ICAP Module CFAP

Q.
Reference
No.
10.11
Q.1 Dec 2009
18
Mark
s
18
Remarks i.e. special features in the

question
Fee for attending BOD meetings
Tax borne by the employer on specific
perquisites
Foreign source salary, TV and VCR provided for
use
Service income from abroad
Forfeited deposit
Foreign source salary
Foreign source salary
Change in slab due to tax borne by the
employer
Specified amount of tax borne by the company
Two pensions
Foreign source business income and Pakistan
source business loss
Deduction for use of car
Golden handshake as separate block of income
Taxability of bonus shares including their
disposal
Remarks i.e. special features in the
question
Specific amount of tax to be borne by the
employer
Forfeited deposit
Loan received in cash
78

10.12
Q.1 June 2011
20
10.13
Q.1 Dec 2012
25
10.14
10.15
Q.1 Dec 2013

Q.6 June 2015
22
8
Compensation under the redundancy scheme

taxable @ last 3 years average rate of tax
Returning expatriate
Refrigerator, cooking range and washing
machine provided by the employer for use
Rent of agricultural land
Loan for renovation of residential house
Dividend in specie
Compensation for delayed refund
Voluntary waiver of leave encashment by the
employee
Royalty income
SALIENT FEATURES OF FTR S 8 and 169

a) Tax deductible or collectible at source related to the items of FTR shall become
full and final discharge of tax liability and normal slab rates do no apply in this
case. However, any incorrect tax deduction shall be adjusted accordingly.
b) No expense, deduction or allowance against presumed income is allowed.
c) Losses cannot be adjusted against presumed income.
d) Tax liability under FTR shall not be reduced by any tax credit / rebate (except in
case of BMR etc. refer chapter of losses).
Q.3(d) March 2016 ICAP CAF
Under the provisions of the Income Tax Ordinance, 2001 explain the general
provisions/rules which may apply to income subject to final tax.
(Marks 6)
ITEMS UNDER FTR AND TAX THEREON
1. Dividend income S 5 and 150
Tax shall be deducted @ 12.5% of gross dividend which shall be considered full
and final tax for a person including a corporate shareholder.
2. Value of bonus shares sections 236M and 236N
Value of bonus shares is taxable under FTR @ 5% of the day-end price on the first
day of closure of books in case of a listed company. Value in case of unlisted
company shall be the value as may be prescribed by the FBR.
3. Prizes and winnings S 156
a) Tax shall be deducted of the gross amount of the following:
i.
ii.
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15% on Prize on prize bond and cross-word puzzle (20% for non-filer)
20% on Raffle, Lottery, Prize on winning a quiz or Prize offered by
companies for promotion of sales.

b) If the said prize or winning is not in cash then the payer is required to collect
tax at the specified tax rate of the FMV of prize from the recipient of prize.
4. Income from services rendered or construction contract outside Pakistan shall be
taxable at the specified fixed rates if such receipts are brought into Pakistan
through normal banking channel clauses 3 Part II 2nd Schedule.
Specified rates are as under:
For contracts: 3.5% for a company and 3.75% for an individual or AOP
For services:
- 0.75% for amount received by electronic and print media for advertising
services
- 5% for sportspersons
- 4% for service income by a company; and
- 5% for service income by an individual or AOP
5. Interest income S 151:
5.1 Tax shall be deducted @ 10% (for filer) on the amount of profit on debt (after
deducting Zakat) to a resident person:
a) Profit on certificates under National Savings Scheme including Defence Saving
Certificates (DSC) and Post Office Saving Account.
b) Bank profit including profit and loss sharing (PLS) account
c) Profit on certificates, debentures etc. (other than shares) issued by a company

or a financial institution.
d) Profit on securities issued by the government such as Pakistan Investment
Bonds.
The tax rates applicable on the above interest income are:
For a company
For an individual and AOP:
Where profit on debt does not exceed
Rs.25,000,000
Where
profit
on
debt
exceeds
Rs.25,000,000 but does not exceed
Rs.50,000,000
Where
profit
on
debt
exceeds
Rs.50,000,000
Tax rate
31%
10%
Rs.2,500,000 + 12.5% of amount
exceeding Rs.25,000,000
Rs.5,625,000 + 15% of amount
exceeding Rs.50,000,000
Interest income as above (a) to (d) shall be taxable under FTR for a person other than
a company. However, payer of the interest income in the above cases would deduct
tax @ 10% after deducting zakat. If the tax liability is more than the tax deduction at
source then the balance is payable with the return of income.
Note for students:
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Payment on account of profit on debt i.e. interest is not subject to withholding
tax in every case e.g. payment on account of interest on loan through loan
agreement is not subject to tax deduction and therefore the same is taxable
under normal tax structure.
Therefore, if an individual gives loan to a company through loan agreement
(other than through debentures etc.) then no tax shall be deducted in this case
and the interest income shall be taxable under the head income from other
sources at normal slab rates.
5.2
Interest income is exempt in certain cases and therefore no tax shall be
deducted. Few examples are:
a)
Interest payable to a non-resident on a loan in foreign exchange against

Export Letter of Credit which is used exclusively for export of goods
manufactured in Pakistan clause 72 Part I 2nd Schedule.
b)
Profit from foreign currency accounts by Citizens of Pakistan residing

abroad, Foreign Nationals residing in or outside Pakistan and foreign
entities registered and operating abroad clause 78 Part I 2 nd Schedule.
c)
Profit from rupee account by a citizen of Pakistan residing abroad where

foreign exchange remittance is made exclusively for this purpose clause
79 Part I 2nd Schedule.
d)
Profit on Certificates of Investment issued by the Investment Banks clause

78 Part I 2nd Schedule.
e)
Interest income by a non-resident if loan agreement is approved for tax

exemption purpose.
f)Profit received by a non-resident on a security approved by the FBR issued by

a resident where: (section 46)
The persons are not associates
The security was widely issued outside Pakistan for raising a loan for a
business in Pakistan
The profit was paid outside Pakistan

Q.1(b) Dec 2006 ICAP CFAP
GM Ltd is considering an option to issue TFC outside Pakistan for the
purpose of raising funds for use in its business in Pakistan. To induce the
investors for acquiring TFCs of the Company, it intends to advertise that
the income on the same will not be taxable in Pakistan.
Required: List down the conditions to be fulfilled for claiming exemption
on profit on debt payable on TFCs being issued by the Company.
(Marks 5)
PRACTICAL QUESTIONS OF INDIVIDUALS

Q.10.1 (Q.15 Sept 2004 ICAP CAF)
81

Mr. A is the Chief Executive of a multinational company (unlisted). Details of his
emoluments are as follows:
Rs.
(a) Basic salary
4,004,520
(b) Bonus
1,980,642
(c) Utility allowance
400,452
(d) Leave encashment
538,083
(e) Other allowance
90,000
(f) House rent allowance 1,802,040
Apart from the above, he is eligible to receive Directors Fee of Rs.52,000. The
company has paid this amount after deduction of tax @ 20%.
During the year he has sold shares that were acquired through exercise of a Stock
Option three years ago. The gain on sale amounts to Rs.4,206,000.
He also owns a property which has been let out on rent. The details of rent received
and expenses incurred are as follows:
(a) Rent Rs.40,000 per month. The property was let out on rent for the whole year.
The annual letting value of the house is Rs.450,000. No income tax was
deducted by the tenant.
(b) He has paid property tax amounting to Rs.11,500.
(c) During the year he has paid Rs.6,000 for repairs and maintenance.
He has also earned profit of Rs.6,500 on PLS (profit and loss sharing) Account.
During the year the following amounts were withheld at source towards income tax.
(a) From salary income Rs.1,800,000 other than directors fee
(b) From profit on PLS Account Rs.650
You are required to compute the taxable income and tax liability for the tax year
20X8.
(Marks 17)
Q.10.2 (Q.15 March 2005 ICAP CAF)
Mr B is the Chief Executive of a Multinational Company. Details of his emoluments
are as follows:
Rs.
(a) Basic Salary
8,800,000
(b) Bonus
5,000,000
(c) Utility allowance
880,000
(d) Relocation allowance 200,000
Apart from the above he is provided with the following perquisites / benefits:
(i)
(ii)
(iii)
A free unfurnished accommodation by the employer with land area of 2100 sq.
yds.
Motor vehicle for both private and official use, cost of acquisition of which was
Rs.2,000,000.
Children education fees for the year Rs.105,000.
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(iv)
House servant salaries for the year Rs.230,000.
According to the terms of employment the tax liability of Mr. B on the above
benefits and perquisites from (i) to (iv) above is borne by the employer. Tax liability
on other remuneration is borne by himself.
Mr. B also owns a property which was let out on rent for a part of the year details of
income and expenses incurred are as follows:
(a) Rent Rs.50,000 per month.
(b) The property was let out on rent from December to June
(c) Property tax paid Rs.35,000.
The Bank account of Mr. B was credited with profit during the year amounting to
Rs.6,300.
During the year the following amounts were withheld at source as Income Tax:
Rs.
(a) From salary income
3,786,000
(b) Tax paid by the employer 1,883,571
(c) From profit on bank account
630
(d) On receipt of rent
7,500
You are required to compute the taxable income and tax liability for the tax year
20X8.
(Marks 22)
Mr. Imran is a citizen of Pakistan. During the first nine months of the tax year, he
worked as financial controller of a Pakistan based unlisted subsidiary company of a
multinational group. After that he was transferred and employed as Head of Finance
of the UAE based subsidiary of the Group. Mr. Imrans family stayed in Dubai
throughout the year. The detail of income earned by him during the year is given
below:
From the UAE company
Mr. Imran earned US $ 30,000 during the three-months employment in the UAE. No
tax is deducted from salary earned and paid in the UAE.
To relocate Mr. Imran in UAE, the UAE Company incurred one time miscellaneous cost
of Rs.100,000 to move the household items of Mr. Imran from Pakistan to Dubai.
From Pakistan subsidiary
(a) Basic salary Rs.500,000 p.m.
(b) Medical allowance Rs.45,000 per month (no free medical or hospitalization
facility is given to Mr. Imran under the terms of employment).
(c) The company has provided Mr. Imran a TV and VCR costing Rs.40,000 on which
the company charges depreciation @ 20% in its books of accounts.
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(d) Company has provided interest free loan to Mr. Imran amounting to Rs.5 million
which remained outstanding throughout his employment with the company
(Pakistan subsidiary). Mr. Imran acquired a flat from the amount of loan and
rented it out @ Rs.50,000 per month for a period of seven months. He also paid
Rs.35,000 as property tax during the period.
(e) *His familys housing cost in Dubai, borne by the company amounts to
Rs.30,000 per month.
(f) Mr. Imrans travelling and related cost borne by the Pakistan subsidiary to meet
his family, amounts to Rs.30,000 p.m.
(g) During the employment with the Pakistan subsidiary, Mr. Imran had exercised
option to acquire 300 shares of the parent company @ US $ 8 per share. At the
time when the option was exercised, the value of the share was US $ 10
(Rs.580) per share. Furthermore, during the year Mr. Imran sold 200 options
previously received by him at a price of US $ 3 per option (Rs.171) after holding
it for more than a year. Neither the Pakistan subsidiary nor Mr. Imran incurred
any cost in this regard.
Required: Compute the taxable income of Mr. Imran for the tax year 20X8 based on
the data provided above.
(Marks 16)
*Note for students:
Housing cost in Dubai paid by the Pakistani company is being considered as
reimbursement of personal expense of Mr. Imran and not as accommodation
provided by the company. If it is considered as accommodation provided by the
company then 45% of the basic salary would be the taxable amount in this respect.
Ms. FH was working as a Marketing Head with Consumer Products Ltd (CPL) at
following emoluments:
(i) Basic salary
Rs.100,000 per month
(ii) House rent allowance Rs.40,000 per month
(iii) Utilities allowance
Rs.15,000 per month
In addition to the above cash emoluments, she was provided with a Honda Civic car,
exclusively for official use. The cost of car to the Company was Rs.1,000,000. As per
Companys policy, the car was sold to Ms. FH during the year at the WDV of
Rs.100,000 whereas the FMV of the same at the time of sale was Rs.300,000.
In May 20X8, Ms. FH was approached by Pharma Industries (Pvt) Ltd (PIL). They
offered her employment at a higher salary and some extra benefits, along with a one
time payment of Rs.200,000 as an inducement to accept their offer. Ms. FH accepted
PILs offer by resigning from CPL with effect from 1.6.20X8. She joined PIL from
1.7.20X8. The amount of Rs.200,000 was, however, paid to her on 29.6.20X8.
During the year, Ms. FH has also undertaken the following transactions:
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(i)
Shares in Queens Pakistan (Pvt) Ltd were sold for Rs.500,000. These shares
were acquired in the year 20X3 at a cost of Rs.200,000.
(ii)
A residential plot inherited in the year 20X1 was sold for Rs.1,000,000. The
FMV of the plot at the time of inheritance was Rs.200,000.
(iii)
A painting purchased at a cost of Rs.100,000 was sold for Rs.75,000.
(iv)
She had won a cash prize of Rs.250,000 in a quiz show. Tax of Rs.50,000 was
deducted from the prize money under section 156.
(v)
Gross dividend income of Rs.50,000 from a listed company. Dividend was

received after deduction of tax of Rs.6,250 under section 150.
(vi)
She received a fee of Rs.100,000 in consideration for preparing a research

paper for a foreign University. She incurred Rs.10,000 on the printing of
research paper and courier charges for sending the paper abroad.
(vii) An amount of Rs.50,000 was donated to an approved charitable institution.

In the light of above information, compute the taxable income of Ms. FH for the tax
year 20X8 by giving brief explanation for the items not included in the taxable
income.
(Marks 15)
Q.10.5 (Q.2(a) March 2007 ICAP CAF)
Explain the correct tax treatment in the tax year 20X8 in each of the following
situations:
(i) In 20X1, Mr. H inherited a rare sculpture of Buddha which had a FMV of
Rs.200,000 on the date of inheritance. In February 20X8, the sculpture was
sold by him at Rs.500,000.
(ii) In July 20X7, Mr. Y entered into an agreement for sale of his residential plot to
Mr. M, who paid an advance of Rs.500,000. According to the agreement, Mr. M
was required to pay the balance by 28.8.20X7. However, instead of paying the
balance amount, he terminated the sale agreement. Mr. Y forfeited the
advance of Rs.500,000 in accordance with the terms of the agreement.
(iii) In September 20X7, Mr. S sold his personal car, Toyota Corolla, to one of his
cousins at a price of Rs.50,000 whereas the FMV of the car was Rs.200,000.
The car was purchased by him in the year 20X4 at a cost of Rs.300,000.
(iv) Mr. I was working as a Chief Financial Officer in DW Pakistan (Pvt) Ltd, which is
a wholly owned subsidiary of DW AG, Germany. According to the Companys
policy, Mr. I was sent on secondment to Germany on 1.1.20X8 for a period of
five years. During this period, half of his salary will be credited to his bank
account in Pakistan, whereas the remaining portion will be received by him in
Germany.
(Marks 12)
Mr. Manto worked as an employee in Berlin Hotel, Germany for a period of five years.
During the said period he did not visit Pakistan for a single day. He returned to
85

Pakistan on 1.7.20X7 and immediately joined as a General Manager in a well-reputed
hotel, based in Karachi.
Assume that the details of his income for the tax year 20X8 are as follows:
(i)
Basic salary (per month) Rs.100,000

House rent allowance (per month) Rs.30,000
Medical allowance (per month) Rs.10,000
(ii)
Besides medical allowance, he is also entitled to free medical treatment at

approved hospitals.
(iii)
He has been provided a company maintained 1600cc car which was used partly
for official and partly for personal purposes. The hotel has leased the car from a
bank. The gross lease rentals payable over the period of lease amount to
Rs.2,700,000. The fair market value of the car at the time of lease was
Rs.1,600,000. The total lease rentals paid by the hotel during the year
amounted to Rs.800,000.
(iv)
He is entitled to lunch at the hotels restaurants where the usual charges are
Rs.400 per person. He is entitled to concessional rate of Rs.40 per day which is
deducted from his salary. Assume that there are 300 working days in the year.
(v)
He went for a training course to Islamabad where boarding and lodging cost
amounting to Rs.150,000 was borne by the hotel. He incurred a further expense
of Rs.125,000 which was reimbursed by the hotel.
(vi)
Provident fund was deducted @10% of his basic salary. An equal amount was
contributed by the hotel. Interest credited to his provident fund account
amounted to Rs.48,000.
(vii) As per terms of employment agreed with Mr. Manto, tax payable on salary will
be borne by the hotel.
(viii) On 15.7.20X7, he received a lump sum amount of Rs.4,000,000 through a
normal banking channel as final settlement from Berlin Hotel.
(ix)
On 1.8.20X7, he inherited 25,000 shares of a private limited company. The

estimated fair market value of the shares, on the date of inheritance, was Rs.42
per share. He sold all the shares on 28.2.20X8 at Rs.62 per share.
Required:
(a) Compute Mr. Mantos taxable income and tax payable.
(b) Briefly explain the treatment of items which are not considered in the above
computation.
(Marks 18)
Mr. Zulfiqar, a senior executive of Mirza Petroleum Ltd (MPL), retired on 31 st March
after completion of 19 years of dedicated service. The details of Mr. Zulfiqars income
for the year ended 30.6.20X8 are given below:
Income from MPL
(i)
Monthly remuneration:
86

Basic salary
Medical allowance
Utilities allowance
Cost of living allowance
Total monthly salary
Rs.
280,000
45,000
45,000
25,000
395,000
Market value of rent free accommodation provided 120,000

(ii)
As per terms of employment, tax liability of Mr. Zulfiqar to the extent of

Rs.200,000 is to be borne by MPL.
(iii)
On his retirement, he received gratuity of Rs.2,660,000 from an unrecognized

gratuity fund maintained by MPL.
(iv)
He is receiving pension amounting to Rs.50,000 per month from the date of his
retirement.
Other Information
(v) He is also receiving pension amounting to Rs.12,000 per month from a
multinational company where he worked from 1975 to 1995.
(vi)
A plot inherited from his father was sold for Rs.5,000,000. Fair market value of
the plot at the time of inheritance in the year 20X1 was Rs.1,000,000.
(vii) On 1st January, he rented out one of his residential bungalows for Rs.100,000
per month and received advance rent for two years.
(viii) Rs.500,000 were invested in new shares offered by a listed company.
(ix)
He paid mark up amounting to Rs.250,000 on a house loan obtained from a

scheduled bank. The house is being used for his residence.
(x)
He incurred a loss of Rs.20,000 on sale of a painting.
Required:
(a) Compute taxable income and tax liability of Mr. Zulfiqar.
(b) Briefly comment on the items which are not considered in the above computation.
(Marks 21)
Mr. M was employed with Melody Ltd (ML) as an event organizer. On 30.6.20X7 he
resigned from his employment without completion of notice period. On 1.7.20X7 he
joined another company Rock Star Ltd (RSL) as a senior event organizer. Following
information is available relating to his assessment for the tax year 20X8:
(a) On 1.7.20X7 RSL paid Rs.280,000 to ML as compensation in lieu of un-served
notice period by Mr. M.
(b) On 15.7.20X7 Mr. M received a gratuity of Rs.350,000 from an unrecognized
gratuity fund maintained by ML. He also received Rs.150,000 as leave
encashment.
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(c) In accordance with the terms of his employment with RSL, Mr. M was provided
with the following emoluments / benefits during the tax year 20X8:
(i)
Basic salary of Rs.245,000 per month and utility allowance of Rs.21,000 per
month.
(ii)
A reimbursement of personal medical expenses up to 15% of the annual

basic salary and Rs.250,000 on account of hospitalization charges of his
daughter were made after procuring hospital bills showing the national tax
number of the hospital. These bills were also attested and certified by RSL.
(iii)
For the first two months of his employment, a pick and drop facility was
provided to Mr. M at a monthly rent of Rs.25,000. On 1.9.20X7 RSL provided
a company maintained 1300 cc car which was partly used for private
purposes. The cost of the car was Rs.1,500,000.
(iv)
Monthly salary of Rs.6,000 was paid to Mr. Ms house keeper. Mr. M however,
reimbursed 20% of the house keepers salary to RSL.
(v)
A special allowance of Rs.50,000 was paid to meet expenses necessarily to

be incurred in the performance of his official duties. Actual expenditure was
Rs.40,000.
(vi)
On 1.1.20X8, he was provided an interest free loan of Rs.1,500,000. The

prescribed benchmark rate is 10% per annum.
(vii) A commission of Rs.500,000 for introducing new clients to the company.

Withholding tax was deducted by RSL @ 12% from such payments.
(viii) The tax deducted at source from his salary by RSL for the tax year 20X8
amounted to Rs.550,000 [other than tax deducted on commission].
(d) Apart from his employment with RSL, Mr. M also organized events for private
clients. He received a total of Rs.1,000,000 from such clients. No tax was
deducted from such receipts. However, he incurred an overall loss of Rs.350,000
on organizing these events.
(e) On 31.5.20X8 he received Rs.180,000 from Mr. A as consideration for vacating his
bungalow.
(f) He also received a share of profit from a business in Malaysia equivalent to Pak.
Rs.535,000. He paid Rs.130,000 in taxes in Malaysia on such income.
[Note for students: Foreign source loss cannot be adjusted against Pakistan
source income but Pakistan source loss can be adjusted against foreign source
income refer chapter on losses]
(g) Mr. M acquired 10,000 shares of a listed company from the Privatization
Commission of Pakistan at a price of Rs.100 per share on 31.5.20X7. He was
allowed a tax credit of Rs.100,000 in tax year 20X7 against this investment. On
20.5.20X8 he sold all the shares for Rs.1,000,000. These figures include incidental
expenses.
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Required: Compute the taxable income, tax liability and tax payable / refundable, if
any, by Mr. M for the tax year 20X8.
(Marks 20)
Mr. Khursheed, a Pakistani national, was employed as the chief financial officer in
Zulfiqar Gas Company (ZGC), since 20X1. Following information pertains to his
income for the tax year 2017:
(I) Income from ZGC
Khursheed was employed with ZGC up to 31.12.2016. During this period he received
the following emoluments:
Basic salary of Rs.400,000 per month, medical allowance of Rs.75,000 per

month and utility allowance equivalent to 10% of basic salary.
A company-maintained car for official and private use. The car was purchased
two years ago at a cost of Rs.5 million. According to the companys policy,
ZGC deducted Rs.10,000 per month from his salary, for private use of the car.
Khursheed had undergone a major surgery during the year and incurred an
expenditure of Rs.1,500,000. ZGC reimbursed the entire amount as a special case as
it was not covered under the terms of employment.
Due to poor health, Khursheed opted for early retirement on 31.12.2016 under the
companys voluntary retirement scheme. He received the following benefits on his
retirement:
Rs.7,500,000 as a golden handshake under the voluntary retirement scheme.

Rs.9,100,000 from an unapproved gratuity fund maintained by ZGC.
Transfer of companys car for Rs.2,600,000. The amount was deducted from
his final settlement. The fair market value of the car as of 31.12.2016 was
Rs.2,800,000.
The tax deducted at source from the salary amounted to Rs.3,600,000.

(II) Other Information
On 1.1.2017, Khursheed commenced business of marketing of horticultural
plants and related items. However, due to intense competition, he had to
wind-up this venture on 31.5.2017. During this period, he had incurred a loss
of Rs.750,000.
[Note for students: Business loss can be adjusted against any other head of
income except salary, income from property and FTR refer chapter on
losses]
89
He purchased 5,000 shares for Rs.500,000 from initial public offering of a new
listed company before 1.7.2012. He claimed a tax credit of Rs.60,000 on such
investment, against the tax payable for the tax year 2011. On 15.7.2016, he
sold these shares for Rs.700,000. Incidental expenses are included in these
figures.
He incurred a loss of Rs.500,000 on the sale of his shareholdings in a private

limited company.
He sold his personal car at a profit of Rs.300,000.
On 1.3.2017, he purchased an apartment for Rs.5,000,000. 60% of this

amount was financed by a scheduled bank under housing finance scheme.
During the tax year 2017, he paid markup amounting to Rs.127,500. On
1.4.2017, he rented out the flat to Mr. AS at a monthly rent of Rs.100,000 and
received advance rent for eight months.
His average tax rate for the preceding three years is 18%.
Required:
(a) Compute the amount of taxable income, tax liability and tax payable /
(refundable), if any, for the tax year 2017.
(13 marks)
(b) Briefly comment on the items which are not considered by you in the above
computation.
(6 marks)
Mr. Creative is working as Director Human Resources at Artistic Technologies Ltd
(ATL). Following are the details of his income/receipts during the latest tax year:
(a) Monthly cash remuneration from ATL:
Basic salary
Rs.300,000
Utility allowance
15% of basic salary
Medical allowance 12% of basic salary
(b) In addition to above, he was also provided the following benefits in accordance
with his terms of employment:
(i) Rent-free furnished accommodation in a bungalow situated on a 500 square
yard plot of land. Rent for a comparable accommodation facility in the vicinity
is Rs.120,000 per month.
(ii) An 1800cc company-maintained car. The car was purchased two years ago at
a cost of Rs.1,600,000 and is used both for official and personal purposes.
(c) A house owned by Mr. Creative had been leased-out by him at a monthly rent of
Rs.50,000. The lease expired on 31 December. Mr. Creative refused to renew the
lease in spite of the tenants offer to renew the lease after increasing the rent by
10%. He returned the non-adjustable deposit of Rs.300,000 to the tenant, which
was received two years ago.
The house was immediately leased to his cousin without any security deposit on a
monthly rent of Rs.48,000.
(d) Five years ago, Mr. Creative had purchased 20,000 shares of Rs.10 each, of an
unlisted public company @ Rs.140 per share. After one year of acquisition, he
received 8,000 bonus shares from the company. The value of such bonus shares
90

was Rs.142 per share at the time of issuance of bonus shares and Mr. Creative
had paid the tax on the value of such bonus shares. During the latest tax year, he
sold 75% of the bonus shares at a price of Rs.145 per share.
(e) During the latest tax year, following investments were made:
Rs.
Approved voluntary pension fund
600,000
Open-end mutual fund
1,100,000
(f) During the latest tax year, he redeemed 4,000 units of an open-end mutual fund
at Rs.58.6 per unit. These units were purchased at the beginning of the previous
tax year at Rs.50 per unit and Mr. Creative had claimed a tax credit of Rs.40,000
on this investment. The given figures include incidental expense.
(g) Donations of Rs.50,000 were paid to charitable institutions listed in the Second
Schedule of the Income Tax Ordinance, 2001.
(h) Tax deducted at source from his salary was Rs.737,000.
Required: Compute the taxable income, tax liability and tax payable for the latest
tax year.
(Marks 20)
Q.10.11 (Q.1 Dec 2009 ICAP CFAP)
Ms. Saima is a telecommunication engineer working with a leading GSM operator as
their chief technical officer for the last many years. She has provided you with the
following information relating to her assessment for the year ended 30.6.20X9:
(i)
Monthly salary of Rs.500,000 was paid to her by the company consisting of the
following:
Rs.
Basic Salary
400,000
Medical allowance
40,000
Conveyance allowance
60,000
The salary was credited to her bank account on the 25 th of every month. She
incurred actual medical expenses of Rs.100,000 during the year. These expenses
were reimbursed to her by the company in accordance with the terms of her
employment.
(ii) She received a bonus of Rs.1 million. Employer also agreed to pay tax on such
bonus to the extent of Rs.200,000.
(iii) Apart from her employment with a GSM operator, she also served as a visiting
faculty member at a local engineering university and received a total of
Rs.450,000 net of tax deduction at source @ 10%. Ms. Saima incurred an
expenditure of Rs.70,000 towards this service.
(iv) In August 20X8, she participated and won prize money of Rs.200,000 in a quiz
competition arranged by Pakistan Urdu Academy. The prize money was paid to
her after tax deduction of Rs.40,000.
(v) She inherited a plot of land from her father on his death in July 20X1. On
1.10.20X8 she entered into a contract of sale with Mr. Moin for a consideration of
91

Rs.50 million. Mr. Moin paid a deposit of Rs.1 million and agreed to pay the
balance within one month of the date of contract. On due date, Mr. Moin
defaulted in making the payment upon which Ms. Saima forfeited the deposit in
accordance with the terms of the contract. Later on, the plot was sold to Mr.
Parkash at a price of Rs.50 million.
(vi) Ms. Saima purchased another plot of land for a consideration of Rs.56 million.
She borrowed Rs.5 million from her sister for the purchase of this plot. The
amount was received in cash.
(vii) Ms. Saima also inherited a painting from her father few years ago. The painting
was valued at Rs.500,000 at the time of inheritance. On 1.4.20X9 she gifted the
painting to her brother who came from Canada after five years. He went back to
Canada after staying in Pakistan for a period of two months. The value of the
painting was Rs.1 million when it was gifted.
Required: Compute the taxable income of Ms. Saima for the tax year 20X9. Give
brief reasons under the Income Tax Ordinance, 2001 in support of your treatment of
each of the above items.
(Marks 18)
Q.10.12 (Q.1 June 2011 ICAP CFAP)
Mr. Khan has been working for a listed company Turtle Ltd (TL) for the last many
years. The details of his emoluments during the tax year ended 30.6.20X4 are as
under:
Rs.
Basic salary (per month)
350,000
Conveyance allowance (per month)
50,000
In addition to the above cash emoluments, Mr. Khan was also provided with the
following:
(a) A rent free furnished accommodation with a fair market rent of Rs.100,000 per
month.
(b) An 1800cc company maintained car, both for business and private use. The car
was purchased by TL on 1.7.20X1 at a fair market value of Rs.2,000,000.
(c) On 1.7.20X3 he was provided with an interest free loan of Rs.2,500,000 which is
repayable in lumpsum in December 20X4. The prescribed benchmark rate is 10%
per annum.
In order to increase its operational efficiency, TL announced a redundancy scheme to
its employees. Mr. Khan opting for the scheme resigned from TL with effect from
1.1.20X4. Upon resignation, 25% of his outstanding loan balance was waived by TL
and the remaining loan amount was adjusted from his final settlement. He received
the following payments from TL:
Rs.
Compensation under the redundancy scheme 4,000,000
Gratuity under unapproved scheme
2,000,000
Following further information is also available:
(i) Tax of Rs.1,837,000 was withheld by TL from the above payments.
92

(ii) Mr. Khan was allowed to purchase the 1800cc car at an accounting book value of
Rs.1,000,000 which he sold immediately in the open market at a price of
Rs.1,500,000.
(iii) On 1.3.20X4 Mr. Khan rented out the ground floor of his bungalow to Mr. Riaz, for
establishing a departmental store, at a monthly rent of Rs.137,500. Due to the
strategic location of the store, he also received adjustable and non-adjustable
deposits of Rs.600,000 and Rs.500,000 respectively.
(iv) On 1.4.20X4 he rented out the residential portion of the bungalow to a
Commercial Bank for their marketing executive. He received gross amount of
Rs.2,400,000 as two years advance rent. The Bank deducted tax of Rs.230,000
from such payment.
(v) A donation of Rs.500,000 was made to an un-approved trust for the construction
of mosque.
(vi) Five years ago, Mr. Khan was issued shares in TL. The fair market value of shares
at the time of issue was Rs.500,000. He disposed off these shares in June 20X4 at
a gain of Rs.500,000.
Required: Compute the taxable income, tax liability and tax payable/ refundable, if
any, to Mr. Khan for the tax year 20X4. The average rate of tax of Mr. Khan for the
last three years was 18%. Note: Show all exemptions, exclusions and disallowances
where relevant.
(Marks 20)
Mr. Yaqeen, a Pakistani citizen, returned to Pakistan on 30.6.20X1 after residing for six
years in Norway. On 1.7.20X1 he joined a private hospital KKUH and received the
following emoluments:
Rs.
500,000
Medical allowance (per month) 60,000
Leave fare assistance
240,000
On 1.1.20X2 Mr. Yaqeen resigned from the hospital and joined Dil (Private) Ltd (DPL),
a company engaged in health care and production of dental products. Mr. Yaqeen
received Rs.3,000,000 from DPL as consideration for joining the company. DPL agreed
to pay following emoluments to Mr. Yaqeen for the tax year 20X2:
Rs.
800,000
Medical allowance (per month) 80,000
Utilities allowance (per month) 100,000
On 1.1.20X2 DPL provided him with refrigerator, cooking range and washing machine
for his use at home. The book value of these appliances was Rs.200,000 and these
were returnable to the company after four years. 15% depreciation was charged by
DPL on these appliances.
93

On 31.3.20X2 he was given an option to purchase 2,000 shares of DPL at Rs.50 per
share. The break-up value of the company on that date was Rs.150 per share. Mr.
Yaqeen did not exercise this option till 30.6.20X2.
On 1.4.20X2 he received a loan of Rs.5,000,000 from DPL for the purchase of a
house. The profit on loan was payable @ 8% per annum. The prescribed bench mark
rate is 10% per annum.
Other information relevant to Mr. Yaqeen for the tax year 20X2 is as under:
(i) On 30.4.20X2 he received salary arrears of Rs.900,000 from his ex-employer in
Norway.
(ii) Mr. Yaqeen had 30 acres of agricultural land in Dheer which he did not cultivate
himself. During tax year 20X2 he received annual rent of Rs.600,000 from the
tenant cultivating the land.
(iii) On 1.5.20X2 he spent Rs.800,000 on the renovation of his residential house. The
entire amount was obtained as a loan from a scheduled bank on which a profit of
Rs.20,000 was paid to the bank during the tax year 20X2.
(iv) On 15.6.20X2 he received insurance claim of Rs.600,000 against theft of a
painting which was stolen on 31.5.20X2. The painting was purchased by him on
1.1.20X1 for Rs.350,000. He had paid insurance premium of Rs.24,000 and also
paid lawyers fee of Rs.50,000 who represented him in the settlement
proceedings.
(v) On 15.7.20X1 Mr. Yaqeen received 20,000 shares in AB (Private) Ltd (ABL), a
company incorporated under the Companies Ordinance, 1984 as a dividend in
specie. On 30.6.20X2 he sold 15,000 shares in ABL for Rs.425,000. The fair
market value of these shares, on the date of issue, was estimated at Rs.25 per
share.
Required: Under the provisions of Income Tax Ordinance, 2001 compute the taxable
income and net tax payable for the tax year 20X2. Give brief reasons for the
treatment of items in (iv) and (v) above. Also explain the treatment of any items that
are not appearing in your computation.
(Marks 25)
Mr. Iqbal, aged 45 years, is working as a Chief Engineer in a listed company Tameer
Ltd (TL). The company is engaged in the manufacture of chipboards for the local
market. He derived following emoluments during the tax year ended 30.6.20X4:
Rs.
300,000
Cost of living allowance (per month)
50,000
Milk allowance (per month)
10,000
In addition to the above emoluments, Mr. Iqbal was also provided the following:
(i) Special bonus equal to one months basic salary paid on 5.6.20X4.
94

(ii) A new company maintained car for his personal use. The car was purchased on
1.3.20X4 at a cost of Rs.1,800,000. However, the cost of the car would have been
Rs.3,000,000 had the company obtained it on finance lease. Mr. Iqbal, in
accordance with the terms of his employment, purchased his previous car from TL
for Rs.250,000. This car was provided to him solely for business purposes. The fair
market value of the car at the time of sale to Mr. Iqbal was Rs.600,000.
(iii) A reimbursement of Rs.36,000 in respect of drivers salary. Mr. Iqbal paid
Rs.60,000 to the driver for four months.
(iv) A fully furnished accommodation in DHA, Karachi. The fair market value of the
rent was estimated to be Rs.85,000 per month.
(v) An option to acquire 4,000 shares in TLs parent company, Tameer Inc. which is
listed on New York Stock Exchange was granted to him in May 20X3. Mr. Iqbal
exercised the option on 5.1.20X4 at a price of USD 1.5 per share. The market
value of the shares at the close of business on 5.1.20X4 was USD 2.5 per share.
He sold 3,000 shares on 30.6.20X4 at a price of USD 3 per share. The dollar rupee
parity on both the above dates was USD 1 = Rs.100.
(vi) On 15.5.20X4 Mr. Iqbal was provided 800 shares in TL as a reward for his
excellent performance. However, he was restricted from selling or transferring
these shares before 16.11.20X4. The market value of these shares at the close of
business on 15.5.20X4 was Rs.12.5 per share.
Mr. Iqbal received additional income from the following sources, for the tax year
20X4:
(i) Brokerage fee of Rs.200,000 in connection with the transfer of two apartments in
Islamabad. The brokerage fee was received in cash. Mr. Iqbal incurred an expense
of Rs.30,000 against telephone costs and air travel to Islamabad in connection
with the above deal. He also paid Rs.10,000 as a gift to his brother for showing
the apartments to his clients in Islamabad.
(ii) Profit of Rs.150,000 on a savings account maintained with an Islamic bank. The
bank deducted withholding tax of Rs.15,000.
(iii) Zakat of Rs.25,000 has been deducted by the bank.
(iv) He also received an income tax refund of Rs.225,000 related to tax year 20X2.
The amount included Rs.25,000 being compensation for delayed refund.
(v) Annual rent of Rs.800,000 from letting out a building to KK Enterprise. Following
expenses were incurred by Mr. Iqbal in relation to the building: Repairs
Rs.200,000, Fire insurance premium Rs.30,000, Ground rent Rs.10,000,
Watchmans salary Rs.8,000 and Interest of Rs.15,000 on a loan obtained for
building renovation by creating first charge on the building in favour of a
scheduled bank.
Other related information is as under:
95
TL deducted withholding tax of Rs.1,200,000 from Mr. Iqbals salary during

tax year 20X4.
On 1.7.20X3, Mr. Iqbal acquired a life insurance policy and paid a premium
of Rs.500,000. He also contributed Rs.1,600,000 to an approved pension fund.
On 1.6.20X3, he purchased 50,000 shares in a listed company AB Ltd at a

price of Rs.20 each. On 1.1.20X4, AB Ltd announced 20% right shares to
existing shareholders at a price of Rs.18 per share. On 25.1.20X4, Mr. Iqbal
subscribed the right issue in full.
During tax year 20X3 his assessed taxable income was Rs.3,000,000.
Required: Under the Income Tax Ordinance, 2001 and Rules made thereunder,
compute the taxable income and income tax payable by or refundable to Mr. Iqbal for
the tax year ended 30.6.20X4. Show all exemptions, exclusions and disallowances
where relevant.
(Marks 22)
Q.10.15 (Q.6 June 2015 ICAP CFAP)
Mr. Pansari, a Pakistani citizen, is working as a company secretary in Sukoon Ltd (SL),
an un-listed public company, engaged in the business of production and supply of
olive oil.
Following are the details of his emoluments during the year ended 30.6.20X4:
Basic salary per month
Conveyance allowance per month
Rs.
450,000
50,000
In addition to the above cash emoluments, Mr. Pansari was also provided with the
following:
(i)
A 2000cc company maintained car both for business and private use. The car
was purchased in tax year 20X3 at a cost of Rs.3,000,000. However, the current
market value of the car is Rs.3,500,000.
(ii)
A special payment of Rs.75,000 in lieu of leave was made available to him. Mr.
Pansari however, voluntarily waived his right to receive such payment.
(iii)
Free provision of two cans of olive oil per month. The market value of each can
was Rs.500.
(iv)
In July 20X2 he was granted an employee stock option to purchase up to 15,000

shares in SLs holding company Trio Ltd, situated in Bermuda, at an option price
of USD 3 per share. The shares were required to be purchased within 18 months
from the option date. Mr. Pansari exercised the option in September 20X3 to
purchase 8,000 shares when the market price of the shares was USD 5 per
share. After two months of the acquisition, Mr. Pansari sold 6,000 shares at a
price of USD 8.5 per share. [Assume the dollar rupee parity on the above dates
was USD 1 = PKR 102].
Following further information is also available:
96

(i)
Received a royalty of Rs.2,000,000 from K Publishing on a book written on Wild

Hunting. Mr. Pansari completed the book in 19 months and all the costs relating
to its publication were borne by the publisher. The applicable tax rates in tax
years 20X2 and 20X3 were 16% and 18% respectively.
(ii)
Received a pension of Rs.50,000 from his ex-employer.
(iii)
Rs.200,000 gross fee for attending a directors meeting of SLs associated

company Nice (Pvt) Ltd held in June 20X3 received in July 20X3 after tax
deduction @ 20%.
(iv)
There was a brought forward capital loss of Rs.25,000. The loss was suffered by
Mr. Pansari on sale of shares in Ghareeb (Pvt) Ltd in the immediately preceding
tax year.
Required: Under the provisions of the Income Tax Ordinance, 2001 and Rules made
thereunder, compute the taxable income of Mr. Pansari for the tax year 20X4.
Note: Show all relevant exemptions, exclusions and disallowances.
(Marks 8)
ANSWERS
Answer to Q.10.1
Mr. A
Tax Year 20X8
Computation of taxable income and tax liability
Rs.
SALARY
Basic salary
Bonus
Utility allowance
Leave encashment
Other allowance
House rent allowance
Directors fee
CAPITAL GAIN
Gain on sale of shares of an unlisted company i.e. private
company
97
4,004,520
1,980,642
400,452
538,083
90,000
1,802,040
52,000
8,867,737
4,206,000

75% is taxable being holding period is more than one
year
INCOME FROM PROPERTY
Actual rent Rs.480,000 or fair market rent Rs.450,000 whichever is
higher
Taxable income
Less: Property income taxable at separate rates
Income taxable at normal slab rates
Tax liability (salaried case)
Income tax on Rs.7,000,000
Income tax on Rs.5,022,237 @ 30%
Income tax on property income 5% of (Rs.480,000
200,000)
Total tax liability
Less: Tax withheld from salary 1,800,000 + 10,400
Tax payable with return of income
3,154,500
480,000
12,502,23
7
480,000
12,022,23
7
1,422,000
1,506,671
2,928,671
14,000
2,942,671
1,810,400
1,132,271
Note for income covered under FTR: Bank profit is taxable under FTR @ 10%.
Answer to Q.10.2
Mr. B
Tax Year 20X8
SALARY
Basic salary
Bonus
Utility allowance
Relocation allowance
Accommodation: 45% of basic salary
Car: 5% of Rs.2 million
Children Education Fee
House servant salaries
Tax borne by the employer (working note)
Taxable salary
Income from property Chargeable rent 7 x 50,000
Taxable income
Rs.
8,800,000
5,000,000
880,000
200,000
3,960,000
100,000
105,000
230,000
1,883,571
21,158,57
1
350,000
21,508,57
1
350,000
21,158,57
1
98

Income tax on Rs.14,158,571 @ 30%
Income tax on property income 5% of (Rs.350,000
200,000)
Total tax liability
Less: Tax paid by the employer
Tax withheld from salary
On receipt of rent
1,422,000
4,247,571
5,669,571
7,500
1,883,5
71
3,786,0
00
7,500
5,677,071
5,677,071
Tax payable
Nil
Note for tax borne by the employer:

Taxable perquisites on which tax shall be borne by the employer
Accommodation: 45% of basic salary

Car: 5% of Rs.2 million
Children Education Fee
House servant salaries
3,960,000
100,000
105,000
230,000
4,395,000
As taxable salary exceeds Rs.7 million, applicable tax rate would be 30%
Tax @ 30% on Rs.4,395,000
Grossed up tax 1,318,500 / 70%
1,318,500
1,883,571
Note for income covered under FTR: Bank profit is taxable under FTR @ 10%.
Answer to Q.10.3
Mr. Imran
Tax Year 20X8
Computation of taxable income
Rs.
SALARY from UAE company
Exempt from tax in Pakistan (Note)
SALARY from Pakistan subsidiary
Basic salary 500,000 x 9
Medical allowance 45,000 x 9
Less: Exempt up to 10% of basic salary
TV and VCR: 20% of 40,000 = 8,000 x (9/12)
Interest free loan: 5 million x 10% for 9 months
Housing cost in Dubai paid by the Pakistani company:
30,000 x 9
Traveling cost: 30,000 x 9
Employee Share Scheme
99
--
4,500,000
405,000
450,000
Nil
6,000
375,000
270,000
270,000

- Disposal of option 200 shares x 171
- Shares acquisition ($10 - $8) x 58 x 300
Taxable salary
Income from property Chargeable rent 7 x 50,000
Taxable income
34,200
34,800
69,000
5,490,000
350,000
5,840,000
350,000
5,490,000
Note for salary from UAE company:

Salary earned outside Pakistan shall be exempt if a citizen of Pakistan leaves Pakistan
during a tax year and remains abroad during that tax year Section 51(2).
Therefore, foreign source salary of Mr. Imran would not be taxable in Pakistan.
Answer to Q.10.4
Ms. FH
Tax Year 20X8
Rs.
SALARY
House rent allowance 40,000 x 11
Utility allowance 15,000 x 11
Purchase of car from the employer 300,000 100,000
Payment to accept the offer of PIL
CAPITAL GAIN
Shares in Queens Pakistan (Pvt) Ltd (500,000 200,000) x
75%
Taxable income
1,100,000
440,000
165,000
200,000
200,000
2,105,000
225,000
2,330,000
Notes for items not included in taxable income:

a) Car for office use: No amount is taxable if the car is used exclusively for office
use.
b) Residential plot: Gain on disposal of immovable property held for more than
3 years is not taxable and therefore gain on disposal of residential plot
inherited in the year 20X1 is not included in taxable income.
c) Painting: Painting is a capital asset. However, there is a specific category of
capital assets including painting on which capital gain, if any, is taxable but
capital loss is not recognized. Therefore, capital loss on disposal of painting is
not considered in the computation of income.
100

d) Donation: Rebate is allowed on donation to an approved charitable institution
through banking channel.
Notes on income covered under FTR:
The following items are covered under Final Tax Regime whereby tax deduction at
source is considered as full and final tax and therefore these items are not included in
normal taxable income:
Gross amount
Final Tax
Cash prize in a quiz show 20%
250,000
50,000
Dividend 12.5%
50,000
6,250
Service income from outside Pakistan 5%
100,000
5,000
[Clause 3 Part II 2nd Schedule]
Answer to Q.10.5
(i)
A rare sculpture is a capital asset and its disposal is taxable under the head
Capital Gain. Where a taxable capital asset is held for more than one year
then 25% of the capital gain is exempt and 75% is taxable. Therefore, capital
gain of Rs.500,000 200,000 = 300,000 x 75% = Rs.225,000 is taxable.
(ii)
Forfeited deposit under a contract for sale of immovable property is included

in the definition of rent under the head income from property which is taxable
as separate block of income at the specified rates without considering
expenses related to property.
(iii) Car held for personal use is not a capital asset and therefore its disposal does
not fall within the ambit of capital gain. Sale of a personal car is a capital
receipt which is not taxable under any head of income.
(iv) Salary shall be Pakistan source income where the salary is received from any
employment exercised in Pakistan, wherever paid. As the services are
performed outside Pakistan, salary in this case shall be foreign source salary.
Foreign source salary shall be exempt if a citizen of Pakistan leaves Pakistan
during a tax year and remains abroad during that tax year Section 51(2).
Therefore, foreign source salary in this case would not be taxable in Pakistan.
Answer to Q.10.6
(a)
Mr. Manto
Tax year 20X8
Computation of Taxable Income and Tax payable
Rs.
Salary
Basic salary
House rent allowance
Medical allowance
Company maintained car: 5% of the FMV of Rs.1,600,000
Provident fund (assumed to be recognised)
101
1,200,000
360,000
120,000
80,000

Companys contribution 10% of basic salary
120,000
Less: Exempt up to Rs.150,000 or 10% of basic +
Dearness allowance whichever is lower
120,000
Nil
Interest credited 48,000 / (120,000 + 120,000) = 20%

Interest credited @ 20%
48,000
Less: Interest @ 16% i.e. Rs.38,400 or 1/3rd of basic +
Dearness allowance whichever is lower
38,400
9,600
Taxable salary excluding tax borne by the company
1,769,600
Tax borne by the company (working note)
159,612
Taxable salary
1,929,212
Capital Gain
Sale proceed 62 x 25,000
1,550,000
Less: FMV at the time of inheritance is deemed cost @ 421,050,000
Fully taxable being holding period not more than one year
500,000
Taxable income
2,429,212
Working for Tax borne by the company
Taxable salary excluding tax borne by the company Rs.1,769,600
In this case tax slab will change due to tax borne by the employer
Taxable salary excluding tax borne by the employer 1,769,600
Initial tax of the next slab
137,000
1,906,600
Income tax on Rs.106,600 @ 17.5% = 18,655
Grossed up amount of Rs.18,655 / 82.5%
Grossed up tax
Proof of the above grossed up figure
Taxable salary excluding tax borne by the
employer
Tax borne by the employer
Taxable salary
Tax on Rs.1,800,000
Tax on Rs.129,212 @ 17.5%
137,000
22,612
159,612
1,769,600
159,612
1,929,212
137,000
22,612
159,612

Income tax on Rs.629,212 @ 17.5%
Less: Tax borne by the employer
Tax payable with the return of income
137,000
110,112
247,112
159,612
87,500
(b) Explanations for items not taken into consideration
102

1. Free medical treatment
Free medical treatment is exempt if it is in accordance with terms of
employment where National Tax Number of the medical practitioner along
with employers attestation are available. However, in this case medical
allowance is fully taxable.
2. Lunch
Certain perquisites without marginal cost to the employer are exempt which
include free or subsidized food provided by hotels and restaurants to its
employees during duty hours.
3. Training course
It is assumed that the training course was required and beneficial for
performance of office duty. Any perquisite or allowance solely expended for
office purpose is not a part of salary.
4. Final settlement from Berlin Hotel
If an individual citizen of Pakistan (returning expatriate) is resident in the
current tax year but was non-resident in the 4 preceding tax years, his
foreign-source income shall be exempt in the current tax year and in the
following tax year.
Mr. Manto was out of Pakistan for the last 5 years and returned to Pakistan in
the beginning of the tax year 20X8. Therefore, he is a returning expatriate as
per Pakistan tax law and his foreign source income including salary income
would be exempt from tax.
Answer to Q.10.7
(a)
Mr. Zulfiqar
Tax year 20X8
Computation of Taxable Income and Tax payable
Salary
405,000
Less: Exempt up to 10% of basic salary
252,000
Cost of living allowance 25,000 x 9
Rent free accommodation 45% of basic salary
Tax liability borne by the employer
Gratuity from unrecognised fund
2,660,000
Less: Exempt up to Rs.75,000 or 50% of amount
receivable whichever is lower
75,000
Pension
9 months from a multinational company (one pension is received)
3 months (more than one pension): Rs.50,000 per month or
Rs.12,000 per month whichever is lower is taxable
Taxable salary
103
Rs.
2,520,000
153,000
405,000
225,000
1,134,000
200,000
2,585,000
exempt
36,000
7,258,000

Income from property Chargeable rent 100,000 x 6
Total income
Less: Mark up paid on housing scheme to a scheduled bank
Taxable income
600,000
7,858,000
250,000
7,608,000
600,000
7,008,000

Income tax on Rs.8,000 @ 30%
1,422,000
2,400
1,424,400
20,000
1,444,400
Income tax on property income

Total tax liability
Less: Tax credit on investment in shares
(1,444,400 / 7,608,000) x 500,000
Total tax liability
Tax to be borne by the employer
Tax liability of Mr. Zulfiqar
94,926
1,349,474
200,000
1,149,474
(b) Explanations for items not taken into consideration

Residential plot: Gain on disposal of immovable property held for more than 3
years is not taxable and therefore gain on disposal of residential plot inherited in the
year 20X1 is not included in taxable income.
Painting: Painting is a capital asset. However, there is a specific category of capital
assets including painting on which capital gain, if any, is taxable but capital loss is
not recognized. Therefore, capital loss on disposal of painting is not considered in the
computation of income.
Answer to Q.10.8
Mr. M
Tax Year 20X8
SALARY
Profit in lieu of salary
Gratuity received from unrecognized fund maintained by
ML
Less: Exempt up to lower of 50% of gratuity or Rs.75,000
Leave encashment
Basic salary (245,000 x 12)
Utility allowance (21,000 x 12)
Company maintained car (5% of Rs.1,500,000 x 10/12)
Salary of house keeper (6,000 x 12 x 80%)
Interest free loan (1,500,000 x 10% x 6/12)
Commission from ML
INCOME FROM BUSINESS
Rs.
350,000
75,000
280,000
275,000
150,000
2,940,000
252,000
62,500
57,600
75,000
500,000
4,592,100
104

Foreign source business income from Malaysia
Pakistan source business loss
535,000
(350,00
0)
INCOME FROM OTHER SOURCES

Consideration received for vacating possession (180,000 /
10)
18,000
Taxable income
4,795,100

Income tax on Rs.795,100 @ 27.5%
Less: Tax credit on foreign source income on lower of:
Tax paid in Malaysia
Pakistan tax payable (815,653 / 4,795,100) x 185,000
Whichever is lower
Reversal of tax credit on investments in shares
Income tax liability
Less: Tax withheld from salary
Tax withheld on commission receipts (500,000 x 12%)
185,000
597,000
218,653
815,653
130,000
31,469
550,000
60,000
31,469
784,184
100,000
884,184
610,000
274,184
Notes:
a) Profits in lieu of salary: Compensation paid by RSL in lieu of un-served
notice period by Mr. M is taxable as profits in lieu of salary as the same is
received as consideration to enter into employment agreement with RSL.
b) Company maintained car: 5% of the cost of car to the employer is taxable
where the car is used for office and private purposes.
c) Interest free loan: Since interest free loan is obtained from employer, such
benefit at the benchmark rate at 10% is taxable as salary.
d) Commission received: Commission is received from the employer while
performing employment duties it is therefore taxable as salary and the tax
withheld from commission is adjustable from tax payable. However, if
commission is received from any person other than employer, it is taxable
under the head Income from Business under FTR.
e) Receipts from Private clients: Receipts from private clients is not a part of
employment it is therefore taxable as Income from Business. Business loss
can be adjusted against any head of income other than salary, income from
property and FTR.
f)
105
Tax credit recouped: Tax credit allowed on shares is subject to the condition
that the shares must be held for a period of 24 months from the date of
purchase. Since they have been disposed off within a period of 24 months
therefore the tax credit availed previously is recouped in the current tax year.

Explanations for items not taken into consideration
a) Reimbursement of medical expenses: Reimbursement of medical
expenses is exempt as the same is attested and certified by RSL and NTN of
hospital is also available.
b) Pick and drop facility: Since the facility is provided exclusively for business
purpose the same is therefore exempt.
c) Special Allowance: Any special allowance paid to meet expenses incurred in
performing official duties is exempt irrespective of the actual expenditure
incurred.
Answer to Q.10.9
Mr. Khursheed
Tax Year 2017
Rs.
SALARY
Utility allowance 2,400,000 x 10%
Less: 10% of basic salary
Medical reimbursement not in accordance with terms
Company maintained car (5% of Rs.5,000,000 x 6/12)
Less: amount deducted from salary 10,000 x 6
Golden handshake payment
Gratuity from unapproved fund
Less: Rs.75,000 or 50% of gratuity whichever is lower
Vehicle purchased from employer 2,800,000 2,600,000
Taxable salary
450,000
240,000
125,000
60,000
9,100,0
00
75,00
0

Chargeable rent 100,000 x 3
INCOME FROM BUSINESS
Tax loss on private business (It can be c/f but can not be
adjusted against salary, income from property and FTR)
Total income
Less: Mark up under housing finance scheme
Taxable income
2,400,000
240,000
210,000
1,500,000
65,000
7,500,000
9,025,000
200,000
21,140,00
0
300,000
(750,00
0)
--21,440,00
0
127,500
21,312,50
0
106

Bifurcation of taxable income
Golden handshake [taxable @ 18% as separate block of
income]
Income from property taxable at separate rates
Income taxable at normal rates
7,500,000
300,000
13,512,50
0
21,312,50
0

Income tax on Rs.6,512,500 @ 30%
1,422,000
1,953,750
3,376,250
1,350,000
5,000
Income tax on golden handshake of Rs.7,500,000 @ 18%

Income tax on property income @ 5% of (Rs.300,000
200,000)
4,731,250
3,600,000
1,131,250

Explanations for items not taken into consideration
a) Gain on sale of listed shares: Where shares of a listed company were

acquired before 1.7.2012 then gain on disposal of such shares is exempt from
tax and therefore not included in taxable income.
b) Reversal of tax credit on investment in listed shares is not required as the
shares were disposed of after 24 months.
c) Capital loss: Where a person sustains capital loss on disposal of shares of a
private company it can not be set-off against any other head of income but it
can be carried forward for subsequent six tax years against capital gain.
d) Sale of personal car: Car held for personal use is not included in the
definition of capital asset nor is it stock in trade and therefore its disposal is
not a taxable activity in the hands of Mr. Khursheed.
Answer to Q.10.10
Mr. Creative
Tax Year ____
Rs.
SALARY
Utility allowance 15% of basic salary
Medical allowance 12% of basic salary
Less: 10% of basic salary
Accommodation 45% of basic salary
Company maintained car 5% of Rs.1,600,000
Taxable salary
107
432,000
360,000
3,600,000
540,000
72,000
1,620,000
80,000
5,912,000

Chargeable rent (50,000 x 6) + (55,000 x 6)
CAPITAL GAIN
Disposal of bonus shares of unlisted company u/s 37
Sale proceed 6,000 bonus shares x Rs.145
Amount already taxed as dividend @ Rs.142
630,000
870,000
852,000
18,000
75% is taxable being holding period more than one

year
13,500
Disposal of mutual funds taxable u/s 37A

4,000 x (Rs.58.6 50)
34,400
Total income
Less: Donation under 2nd Schedule
6,589,900
50,000
Taxable income
Capital gain u/s 37A taxable at separate rate
6,539,900
630,000
34,400

Income tax on Rs.1,875,500 @ 27.5%
Income tax on property income Rs.20,000 + 10% of
Rs.30,000
Income tax on capital gain 12.5% of Rs.34,400
Tax rebate on mutual fund
Amount eligible for rebate = actual cost or 20% of
taxable income or Rs.1,500,000 whichever is lower =
Rs.1,100,000
1,140,063 / 6,539,900 x 1,100,000
Reversal of tax credit on investments in mutual fund
[disposal within the period of 24 months]
Tax rebate on APF
Amount of eligible for rebate = actual amount or 20%
of taxable income whichever is lower = Rs.600,000
1,140,063 / 6,539,900 x 600,000
Income tax liability
664,400
5,875,500
597,000
515,763
23,000
4,300
1,140,063
191,757
(40,000)
104,595
256,352
883,711
737,000
146,711
Answer to Q.10.11
Ms. Saima
108

Tax Year 20X9
SALARY
Basic salary 400,000 x 12 months
Conveyance allowance 60,000 x 12
Reimbursement of medical expenses exempt
Bonus
Tax borne by the employer
Taxable salary
4,800,000
480,000
720,000
-1,000,000
200,000
7,200,000
Income from Property

Forfeited deposit against contract for sale of plot as rent
1,000,000
Income from Business

Service income 450,000 / 90%
Less: Expenditures related to service income
500,000
70,000
Capital Gain
Consideration received (i.e. FMV of painting at the time of gift)1,000,000
Less: Deemed cost i.e. FMV at the time of inheritance
500,000
Capital gain
500,000
75% of the gain as the holding period is more than one year
Income from Other sources
Loan received in cash
Taxable income
Income taxable at normal rates
430,000
375,000
5,000,000
14,005,000
1,000,000
13,005,000
Notes:
(1) Medical allowance is fully taxable where medical expenses are reimbursed as
per policy. However, reimbursement of medical expenses is exempt assuming
that NTN of medical practitioner and employers attestation are available.
(2) Tax borne by the employer is a taxable perquisite.
(3) Service income as a visiting faculty is taxable under NTR as business income.
(4) Prize winning in a quiz competition is taxable under FTR @ 20% and the tax
deduction is the full and final discharge of tax liability. Therefore, it is not
included in normal taxable income.
(5) Sale of plot inherited is exempt as the holding period is more than 3 years.
However, deposit forfeited under a contract for sale of immovable property is
included in the definition of rent and therefore taxable under the head income
from property as separate block of income.
(6) Loan received in cash is taxable under the head income from other sources.
(7) Gift of painting to brother is taxable under the head capital gain as the
painting is a capital asset. Non-recognition rule is not applicable in this case
109

as the recipient of gift is a non-resident person. FMV at the time of gift is
treated as consideration received and FMV at the time of inheritance from her
father is treated as deemed cost of the painting.
Answer to Q.10.12
Mr. Khan
Tax Year 20X4
SALARY
Company maintained car 2,000,000 x 5% for 6 months
Interest free loan 2,500,000 x 10% for 6 months
Waiver of loan 25% of Rs.2,500,000
Compensation under redundancy scheme (separate block of income)
Gratuity from unapproved scheme
2,000,000
Less: exempt up to Rs.75,000 or 50% of amount receivable
whichever is lower
75,000
Car purchased from the employer:
FMV Rs.1,500,000 payment Rs.1,000,000
Taxable salary
Income from property
Rent of ground floor Rs.137,500 x 4 months
10% of non-adjustable deposit of Rs.500,000
Rent of residential portion Rs.2,400,000 x 3/24
Capital Gain
Gain on disposal of listed company shares
Taxable income
Breakup of taxable income

Compensation taxable as separate block of income
Capital gain u/s 37A taxable at separate rates
Tax on Rs.6,570,000
Tax on Rs.4,000,000
Tax on Rs.2,570,000 @ 27.5%
Tax on compensation @ 18% of Rs.4,000,000
Tax on property income Rs.20,000 + 10% of Rs.300,000
Tax on capital gain 7.5% of Rs.500,000
550,000
50,000
300,000
2,100,000
300,000
945,000
50,000
125,000
625,000
4,000,000
1,925,000
500,000
10,570,000
900,000
500,000
11,970,000
4,000,000
900,000
500,000
6,570,000
11,970,000
597,000
706,750
720,000
50,000
37,500
110

Total tax liability
Less: Tax deducted from salary
Tax deducted by the tenant
Tax payable
2,111,250
1,837,000
230,000
2,067,000
44,250
Notes:
(1) Interest free loan: The benchmark rate 10% is included in taxable salary as a
taxable perquisite.
(2) Compensation under redundancy scheme may be taxable at the last three
years average rate of tax at the option of the taxpayer which is 18% in this
case and beneficial for Mr. Khan
(3) Property income is taxable on accrual basis and therefore rent for the actual
rent out period of the relevant tax year is taxable and the advance rent
adjustable against future rentals is not taxable in the current tax year
(4) Donation to unapproved institution is not eligible for rebate.
Answer to Q.10.13
Mr. Yaqeen
Tax Year 20X2
Salary from KKUH
360,000
Less: exempt up to 10% of basic salary
300,000
Leave fare assistance
Salary from DPL
Consideration for joining DPL
Less: exempt up to 10% of basic salary
Use of refrigerator, cooking range and washing machine
15% depreciation on Rs.200,000 for 6 months
Concessional loan 5,000,000 x (10% - 8%) for 3 months
Taxable salary
480,000
480,000
111
60,000
240,000
3,000,000
4,800,000
-600,000
15,000
25,000
11,740,000
Capital Gain
Consideration received i.e. insurance claim for painting
600,000
Admissible deductions incidental to purchase and sale of painting
Purchase cost
(350,000)
Insurance premium
(24,000)
Lawyers fee for insurance claim
(50,000)
Capital gain
176,000
75% of capital gain as the holding period is more than one year
Disposal of shares in ABL
Sale proceed
3,000,000
425,000
132,000

Less: taxed as dividend income 15,000 shares x Rs.25
Taxable income
375,000

Tax on Rs.11,922,000
Tax on Rs.7,000,000
Tax on Rs.4,922,000 @ 30%
Total tax liability
50,000
11,922,000
1,422,000
1,476,600
2,898,600
Notes:
(1) Option under employee share scheme is not taxable unless it is disposed off.
As the same is not yet disposed off no taxable benefit arises.
(2) Salary received from ex-employer in Norway is exempt as Mr. Yaqeen is a
returning expatriate and therefore his foreign source income is exempt.
(3) Rent of agricultural land used for agricultural purpose is exempt as this
amount is part and parcel of agricultural income which is exempt.
(4) Profit on debt utilized for renovation of house is not eligible to be deducted
from total income.
(5) Where a capital asset is lost or destroyed, consideration received shall be the
scrap value along with any compensation, indemnity or damages received
under an insurance policy, agreement, settlement or judicial decision.
Therefore, insurance claim shall be treated as consideration received and
insurance premium and lawyers fee for insurance settlement shall be treated
as incidental expenses for the insurance claim.
(6) The amount of dividend in specie (i.e. FMV of shares at the time of transfer to
the shareholder) shall be taxed as dividend under FTR @ 5% and at the time
of disposal the difference between the consideration received and the amount
of dividend shall be taxable as capital gain.
Answer to Q.10.14
Mr. Iqbal
Tax Year 20X4
SALARY
Cost of living allowance 50,000 x 12
Milk allowance 10,000 x 12
Bonus
Company maintained car for personal use 1,800,000 x 10% x 122/365
Purchase of car from the employer 600,000 250,000
Reimbursement of drivers salary
Employee share scheme ($2.5 $1.5) x 4,000 shares x Rs.100
Taxable salary
Income from Property
Rent
Income from Business
Brokerage fee
200,000
3,600,000
600,000
120,000
300,000
60,164
350,000
36,000
1,620,000
400,000
7,086,164
800,000
112

Less: expenses Rs.30,000 + 10,000
Capital Gain u/s 37
Disposal of shares of TLs parent company
$3 $1.5 $1 = $0.5 x 3,000 x 100
Income from Other Sources
Compensation on delayed refund
Total income
Less: Zakat deducted by the bank
Taxable income
40,000
150,000
25,000
8,221,164
25,000
8,196,164
800,000
7,396,164

Tax on Rs.7,396,164
Tax on Rs.7,000,000
Tax on Rs.396,164 @ 30%
Tax on property income Rs.20,000 + 10% of Rs.200,000
Total tax liability
Less: Tax credit on life insurance premium
1,580,849 / 8,196,164 x 500,000
Tax credit on approved pension fund
1,580,849 / 8,196,164 x 900,000
Tax liability
Less: Tax deducted from salary
Tax payable
160,000
1,422,000
118,849
1,540,849
40,000
1,580,849
96,438
173,589
270,027
1,310,822
1,200,000
110,822
Notes:
(1) Company maintained car exclusively for business purpose is not a taxable
perquisite. Company maintained car for personal use is taxable at 10% of the
cost to the employer i.e. Rs.1,800,000 proportionate to the days available for
use i.e. 1st March to 30th June (122 days).
(2) Capital gain on disposal of shares in Tameer Inc is taxable under section 37 as
Tameer Inc is a not a public company being not listed in Pakistan.
(3) Shares in TL as a reward for his excellent performance is taxable at the FMV.
However, as the employee does not have right to transfer the shares in the
current tax year the same is not taxable in the current tax year.
(4) Commission paid to brother Rs.10,000 as a gift is allowable tax expense as
the brother has performed an activity for the business. Any expense whether
paid voluntary is also allowable tax expense if related to business e.g. bonus
paid to employees on voluntary basis in addition to the terms of employment
contract is also allowable tax expense.
(5) Profit on saving account with an Islamic bank is taxable under FTR @ 10% as
full and final tax liability.
(6) One of the two (i) investment in shares; or (ii) premium on life insurance
policy is eligible for rebate. Rebate is therefore calculated on premium on life
insurance policy being the higher amount.
113

(7) Investment in approved pension fund is subject to lower of actual premium or
20% of current years taxable income or 30% of taxable income of the
immediately preceding tax year. The eligible amount is therefore Rs.900,000
being 30% of taxable income for the tax year 20X3.
Answer to Q.10.15
Mr. Pansari
Tax Year 20X4
Rs.
SALARY
Company maintained car 5% of Rs.3,000,000
[company maintained car is taxable @ 5% of the cost of
car for the employer instead of FMV in the current year]
Leave encashment
[salary is taxable on receipt basis. However, the
definition of receipt includes an amount made available
to the employee and therefore leave encashment made
available to Mr. Pansari and waived by him voluntarily is
treated as received by him and taxable]
Cans of olive oil Rs.500 x 2 x 12
Employee share scheme
FMV of 8,000 shares x $5 x Rs.102
Cost paid by Mr. Pansari 8,000 shares x $3 x Rs.102
Pension from ex-employer
Fee for attending BOD meeting
Taxable salary
Capital Gain u/s 37
Sale value of 6,000 shares x $8.5 x Rs.102
Cost of 6,000 shares x ($3 + $2) x Rs.102
Less: Capital Loss of the last year

OTHER SOURCES
Royalty income
[Where completion time of a literary or artistic work
exceeds 24 months, the author may elect to treat any
lump sum royalty received in a tax year in respect of the
5,400,000
600,000
150,000
75,000
12,000
4,080,0
00
2,448,0
00
exempt
5,202,0
00
3,060,0
00
2,142,0
00
25,00
0
1,632,000
-200,000
8,069,000
2,117,000
2,000,000
114

work as having been received in that tax year and the
preceding two tax years in equal proportions.
Time of completion in this case is 19 months and
therefore the royalty is fully taxable in the current year]
Taxable income
115
12,186,00
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Chapter 10: Income Tax Practical Questions of Individuals

Q.1 March 2006

Q.1 Sept 2009

Q.1 March 2011

Q.1 Sept 2011

Q.1 March 2013

ICAP Module CFAP

Remarks i.e. special features in the

Chapter 10: Income Tax Practical Questions of Individuals

Q.1 June 2011

Q.1 Dec 2012

Q.1 Dec 2013

Compensation under the redundancy scheme

SALIENT FEATURES OF FTR S 8 and 169

Chapter 10: Income Tax Practical Questions of Individuals

c) Profit on certificates, debentures etc. (other than shares) issued by a company

Chapter 10: Income Tax Practical Questions of Individuals

Interest payable to a non-resident on a loan in foreign exchange against

Profit from foreign currency accounts by Citizens of Pakistan residing

Profit from rupee account by a citizen of Pakistan residing abroad where

Profit on Certificates of Investment issued by the Investment Banks clause

Interest income by a non-resident if loan agreement is approved for tax

f)Profit received by a non-resident on a security approved by the FBR issued by

The persons are not associates

The profit was paid outside Pakistan

PRACTICAL QUESTIONS OF INDIVIDUALS

Chapter 10: Income Tax Practical Questions of Individuals

Chapter 10: Income Tax Practical Questions of Individuals

House servant salaries for the year Rs.230,000.

Chapter 10: Income Tax Practical Questions of Individuals

Chapter 10: Income Tax Practical Questions of Individuals

A painting purchased at a cost of Rs.100,000 was sold for Rs.75,000.

Gross dividend income of Rs.50,000 from a listed company. Dividend was

She received a fee of Rs.100,000 in consideration for preparing a research

(vii) An amount of Rs.50,000 was donated to an approved charitable institution.

Chapter 10: Income Tax Practical Questions of Individuals

Basic salary (per month) Rs.100,000

Besides medical allowance, he is also entitled to free medical treatment at

On 1.8.20X7, he inherited 25,000 shares of a private limited company. The

Chapter 10: Income Tax Practical Questions of Individuals

Market value of rent free accommodation provided 120,000

As per terms of employment, tax liability of Mr. Zulfiqar to the extent of

On his retirement, he received gratuity of Rs.2,660,000 from an unrecognized

He paid mark up amounting to Rs.250,000 on a house loan obtained from a

He incurred a loss of Rs.20,000 on sale of a painting.

Chapter 10: Income Tax Practical Questions of Individuals

A reimbursement of personal medical expenses up to 15% of the annual

A special allowance of Rs.50,000 was paid to meet expenses necessarily to

On 1.1.20X8, he was provided an interest free loan of Rs.1,500,000. The

(vii) A commission of Rs.500,000 for introducing new clients to the company.

Chapter 10: Income Tax Practical Questions of Individuals

Basic salary of Rs.400,000 per month, medical allowance of Rs.75,000 per

Rs.7,500,000 as a golden handshake under the voluntary retirement scheme.

The tax deducted at source from the salary amounted to Rs.3,600,000.

Chapter 10: Income Tax Practical Questions of Individuals

He incurred a loss of Rs.500,000 on the sale of his shareholdings in a private

He sold his personal car at a profit of Rs.300,000.

On 1.3.2017, he purchased an apartment for Rs.5,000,000. 60% of this

Chapter 10: Income Tax Practical Questions of Individuals

Chapter 10: Income Tax Practical Questions of Individuals

Chapter 10: Income Tax Practical Questions of Individuals

Chapter 10: Income Tax Practical Questions of Individuals

Chapter 10: Income Tax Practical Questions of Individuals