Introduction to key concepts Flashcards
(41 cards)
Describe the main components of income tax laws in Pakistan.
Income Tax Ordinance, 2001; Income Tax Rules, 2002; Notifications/SROs; Circulars; Circular letters.
Explain whether ITO-2001 overrides other laws in Pakistan.
Yes, it overrides all other laws except the Constitution of Pakistan.
Describe the format for computing tax liability under ITO-2001.
Start with income from five heads (Salary, Property, Business, Capital Gains, Other Sources), add exempt income to get total income, then subtract exempt income, deductions under Part 1 of 2nd Schedule, and deductible allowances to get taxable income. Then, calculate tax on taxable income, apply reductions and credits, and finally adjust for withholding and advance taxes.
Explain the difference between Allowable Deductions and Deductible Allowances.
Allowable Deductions reduce income under a specific head and can create a loss, while Deductible Allowances reduce total income but cannot create a loss. Examples of Deductible Allowances are Zakat, WWF, WPPF, and Education expenses.
Define Total Income as per ITO-2001.
Sum of income under all heads plus exempt income.
Define Taxable Income according to ITO-2001.
Total income minus exempt income, deductions under Part 1 of 2nd Schedule, and deductible allowances.
Name the deductible allowances under ITO-2001.
Zakat, Workers’ Welfare Fund, Workers’ Participation Fund, Education expenses.
What is the Charging Section in ITO-2001?
Section 4, which states that tax shall be imposed on every person having income for the year.
Define ‘Tax’ under ITO-2001.
Any tax imposed under Chapter II, including penalties, fees, or other charges leviable under ITO-2001.
Define ‘Income’ under ITO-2001.
Amounts chargeable to tax, subject to collection/deduction, treated as income, or any loss of income.
List the types of ‘Persons’ recognized under ITO-2001.
Individual, Company, Association of Persons, Federal Government, Foreign Government, Political sub-Division of a Foreign Government, Public International Organization.
Explain the significance of establishing a ‘Person’ under ITO-2001.
To determine applicable tax regimes, rates, exemptions, and credits.
Describe the difference between a Firm and an Association of Persons.
A Firm is a specific type of AOP where persons agree to share profits of a business carried on by all or any acting for all.
What is a ‘Trust’ under ITO-2001?
An obligation annexed to property ownership for the benefit of another or the owner and another.
Define ‘Small Company’ under ITO-2001.
A company registered after July 1, 2005, with paid-up capital plus reserves ≤ Rs. 50 million, employees ≤ 250, annual turnover ≤ Rs. 250 million, not formed by splitting or reconstitution, and not an SME.
Describe the three types of tax years under ITO-2001.
Normal Tax Year (July 1 to June 30), Special Tax Year (any 12-month period other than normal), Transitional Tax Year (period between end of last tax year and start of new tax year upon change).
How is a Special Tax Year denoted?
By the calendar year in which the closing date of the special tax year falls.
What is the procedure for changing the tax year under ITO-2001?
Apply in writing to the Commissioner, who may grant permission if there’s a compelling need, subject to conditions.
Under what circumstances can the Commissioner withdraw permission for a special tax year?
The content does not provide specific circumstances for withdrawal.
Describe the process for determining the tax year for a person about to leave Pakistan.
The tax year is determined as the period from the end of the latest assessed tax year to the probable date of departure, treated as a separate tax year.
Explain the significance of residential status under ITO-2001.
Residential status determines whether a person is taxed on worldwide income (if a resident) or only on Pakistan-source income (if a non-resident).
Define a Resident Individual according to ITO-2001.
A Resident Individual is defined as an individual present in Pakistan for 183 days or more in a tax year, an employee of the government posted abroad, or a Pakistani citizen not present in another country for more than 182 days or not a resident of another country.
Do foreigners qualify as resident individuals in Pakistan for tax purposes?
Yes, foreigners can qualify as resident individuals in Pakistan if they are present in the country for 183 days or more in a tax year.
How is the residential status of a company determined under ITO-2001?
The residential status of a company is determined if it is incorporated in Pakistan, if its control and management are wholly in Pakistan, or if it is a Provincial or Local Government.
