Income from business

Question 1

If stock in trade measurment method is changed then where in income from business its adjustment is made?

Answer 1

If stock in trade method is changed from cash basis to accrual basis then difference in closing stock is adjusted in PROFIT BEFORE TAX

Question 2

In which case/ for which asset disposal consideration of taken as a/b xc and cost is taken as lower of 7,500,000 or actual cost where a is disposal consideration , b is lower of cost or 7,500,000 and c is actual cost?

Answer 2

In case of vehicle (not plying for hire)

Question 3

Can initial allowance is charged on assets used in foreign country?

Answer 3

Initial allowance is only charged on assets used in Pakistan.

Question 4

What is treatment of impairment of assets while calculating income from business?

Answer 4

If asset is shown to have been impaired , then impairment is not considered for tax purposes. Dep is charged on asset as asset is not impaired.

Question 5

How is depreciation calculated in year of purchase and in year of disposal of assset ?

Answer 5

Full depreciation is charged in the year of purchase while no depreciation is charged in the year of disposal.

Question 6

Can depreciation is charged on asset which is not used for business purpose?

Answer 6

Depreciation can only be charged while calculating income from business if asset is used wholly or partially for business purpose otherwise no depreciation will be calculated.

Question 7

Admissible expenses are deducted from IFB or not?

Answer 7

Admissible expenses being already deucted are not deducted while calculating income from business however depreciation, inital allowance , bad debts etc. are deducted while calculating income from business.

Question 8

What is treatment of donation and funds like superannuation fund?

Answer 8

Donation and other funds being not business nature expenditure are added while calculated income from business.

Question 9

What is treatment of fine/ penalty paid for violation of law?

Answer 9

Not admissible as expense while calculating income from business.

Question 10

What is treatment of professional fees paid on acquistion of land?

Answer 10

Not included in IFB

Question 11

Where is advance tax shown in calculation of IFB?

Answer 11

Advance tax paid is deucted from tax liability at the last.

Question 12

what is treatment of salary paid to manager of company or any other employee?

Answer 12

No treatment is shown while calculating IFB.

Question 13

Scholarship expense is an admissible expenditure or not?

Answer 13

Scholarship expense is an admissible expenditure and for it to be admissible or not it doesn’t matter whether the person is an employee or not.

Question 14

On which kind of vehicle initial allowance is charged?

Answer 14

Initial allowance is only charged on vehicle plying for hire.

Question 15

If any amount is received against bad debt then how its treatment is shown in IFB?

Answer 15

Difference of actual amount of bad debt and bad debt allowed is deducted from amount received against bad debt and net amount if positive is added in IFB while negative amount shall be allowed as deduction.

Question 16

Which assets are normally considered as eligible depreciable assets?

Answer 16

Normally new plant and machinery, computer and vehicle plying for hire are eligible depreciable assets.

Question 17

Treatment of revaluation gain?

Answer 17

Being notional income is not realized while calculating income from business

Question 18

life of intangible asse while calculating ammortization?

Answer 18

Ammortization is calculated over lower of ____actual useful life
_____25 years

Question 19

Profit paid to bank

Answer 19

Is an admissible expenditure

Question 20

What is treatment of lease rentals , interest and depreciation of leased assets?

Answer 20

Lease rentals are allowed as deduction which interest expense and depreciation are not allowed ass deduction

Question 21

Provision of bad debt

Answer 21

Provision for bad debts is a notional exp and is therfore not considered for tax purposes

Question 22

If tax on vehicle or any other asset is paid what is its treatment in IFB?

Answer 22

No treatment while calculating IFB

Question 23

If ther is income from any other head as capital gain ,other source or seprate block then whatis its treatment while calculating income from business?

Answer 23

It shall be deducted from IFB as being inadmissible income and when income from business is get then it shall ba added as other heads while calculating total income.

Question 24

What if business asset is started using for personal use and vice versa?

Answer 24

If business asset is used personally then it is considered to have been disposed similarly if personal asset is started using for business use then it will be considered as addition in business.

Question 25

What are eligible depreciable assets?

Answer 25

“Eligible depreciable asset” means a depreciable asset other than: a. any road transport vehicle unless the vehicle is plying for hire; b. any furniture, including fittings; c. any plant or machinery that has been used previously in Pakistan; or d. any plant or machinery in relation to which a deduction has been allowed under another section of the Ordinance for the entire cost of the asset in the tax year in which the asset is acquired. e. Immoveable property or structural improvements to the immoveable property.

Question 26

what is the rate of initial allowance?

Answer 26

25%

Question 27

what is meant by industrial undertaking?

Answer 27

“Industrial undertaking” means — a) an undertaking which is set up in Pakistan and which employs,— i. ten or more persons in Pakistan and involves the use of electrical energy or any other form of energy which is mechanically transmitted and is not generated by human or animal energy; or ii. twenty or more persons in Pakistan and does not involve the use of electrical energy or any other form of energy which is mechanically transmitted and is not generated by human or animal energy: and which is engaged in— i. the manufacture of goods or materials or the subjection of goods or materials to any process which substantially changes their original condition; or ii. ship-building; or iii. generation, conversion, transmission or distribution of electrical energy, or the supply of hydraulic power; or iv. the working of any mine, oil-well or any other source of mineral deposits; v. from the 1st day of May, 2020, a person directly involved in the construction of buildings, roads, bridges and other such structures or the development of land, to the extent and for the purpose of import of plant and machinery to be utilized in such activity, subject to such conditions as may be notified by the Board; vi. from the first day of July, 2020 a resident company engaged in the hotel business in Pakistan; vii. telecommunication companies operating under the license of Pakistan Telecommunication Authority (PTA)

Question 28

On which conditions intangible assets are allowed ammortization expense?

Answer 28

A person shall be allowed an amortisation deduction in a tax year for the cost of the person’s intangibles: (i) (ii) that are wholly or partly used by the person in the tax year in deriving income from business chargeable to tax; and that has a normal useful life exceeding one year.

Question 29

what is method of calculating ammortization?

Answer 29

the deduction of ammortization allowed under this section shall be computed according to the following formula, namely: A x B/C Where: A is the amount of amortization computed in accordance with the above provisions B is the number of days in the tax year the intangible is used in deriving income from business chargeable to tax; and C is the number of days in the tax year.

Question 30

what are precommencement expenditure?

Answer 30

“Pre-Commencement Expenditure” means any expenditure incurred before the commencement of a business wholly and exclusively to derive income chargeable to tax, including the cost of feasibility studies, construction of prototypes, and trial production activities, but shall not include any expenditure which is incurred in acquiring land, or which is depreciated or amortised under section 22 or 24 of the Ordinance.

Question 31

what is rate of precommencement expenditure?

Answer 31

A person shall be allowed a deduction for any pre-commencement expenditure @ 20% per annum on straight line basis.

Question 32

What is percentage of surcharge paid and when surcharge is required to be paid?

Answer 32

Surcharge is paid @10% when income of any person or AOP exceeds Rs. 10 million.

Question 33

What is treatment of salaries paid?

Answer 33

If salaries are paid to partners of AOP then it is a business expenditure and while calculating income from business it is considered as a deductible expenditure However, if salaries are paid to employees of the company then it will be added in income from business and not considered as a deductible expenditure.

Question 34

How expense on promotion of product is treated?

Answer 34

Expense on promotion of product is an admissible expensenditure while calculating income from business.

Question 35

What is treatment of tax deducted at source?

Answer 35

Tax deducted at source is deducted from tax liability to caculate tax payable to govt.

Question 36

How is foreign exchange loss treated?

Answer 36

Foreign exchange loss is an inadmissible expenditure therefore added in profit before tax while calculating income from business.

Question 37

If there is recovery of bad debt it has double treatment what is it?

Answer 37

Reversal of recovery of bad debt (recovery amount) is an allowed expenditure therefore deducted as an allowable expenditure however, amount after deducting difference of actual bad debt amount and allowed by commissioner from recovery amount shall be treated according to answer as if amount after net off is negative as bad debt it shall be deducted if pisitive then added as income.

Question 38

Normally fine /penalty paid on violation of law is considered as an inadmissible expenditure Then what is the treatment of fine/penalty paid to client?

Answer 38

Penalty paid to client is an admissible expenditure as therefore no treatment is shown while calculating income from business.

Question 39

Foreign exchange loss on any asset is an inadmissible expense despite of it what is its treatment in cost of asset?

Answer 39

Foreign exchange loss is added to cost of asset in the year in which it is incurred.

Question 40

For how many years loss is allowed to be deducted against gain under similar head?

Answer 40

Loss can only be deducted against gain under similar head of only of previous 3 years.

Question 41

What is treatment of personal and capital nature expenditure ?

Answer 41

Pesonal and capital nature expenditure are not allowed while computing income from business and is therefore added in profit before tax.

Question 42

If monthly payment of any expenditure is given how it is shown in IFB?

Answer 42

Monthly payments are converted into yearly paments before showing it in income from business.

Question 43

What is meant by women enterprise?

Answer 43

Woman enterprise means a start-up established on or after first day of July 2021 as sole proprietorship concern owned by a woman or an AOP all of whose members are women or a company, whose 100% shareholding is held or owned by women. In case of women enterprise tax liability is reduced by 25%.

Question 44

Describe the conditions under which any person or firm is allowed as an initial allowance?

Answer 44

The firm can claim the initial allowance against any asset if: ❑ It is used in Pakistan for the first time in a tax year: ❑ It is used by the firm for the purposes of its business; and ❑ It falls in the definition of eligible depreciable asset.