Riaz Academy
Question: Define
income from business? What expenses are
not admissible for tax purpose under the head business OR explain Inadmissible
deductions under the head income from business?
income from business? What expenses are
not admissible for tax purpose under the head business OR explain Inadmissible
deductions under the head income from business?
Answer:
Income from business-section-18
Income from business is a 3rdsource of income
from which a person can derive income. Income from business is chargeable to
tax under section-18 of income tax ordinance 2001.Let us define business and
then income from business.
from which a person can derive income. Income from business is chargeable to
tax under section-18 of income tax ordinance 2001.Let us define business and
then income from business.
Business:
“Business includes any trade, commerce, manufacture,
profession, vocation or adventure or concern or in the nature of trade,
commerce, manufacture, profession, vocation but does not include employment”.
profession, vocation or adventure or concern or in the nature of trade,
commerce, manufacture, profession, vocation but does not include employment”.
INADMISSIBLE EXPENSES /
DEDUCTIONS
DEDUCTIONS
Certain expenses have been charged to the profit and loss
account by a business entity. But these business expenses are not admissible
for the purpose of taxation. So these expenses will be add back to the net
profit of the business to find out taxable profit. Following are some examples
of un-admissible expenses.
account by a business entity. But these business expenses are not admissible
for the purpose of taxation. So these expenses will be add back to the net
profit of the business to find out taxable profit. Following are some examples
of un-admissible expenses.
1.
Cess Rates or Tax
Cess Rates or Tax
Any rate or tax levied on profit or gain of the business is not allowed
as expense. Whether it is paid or payable by a person in Pakistan or outside
the Pakistan.
as expense. Whether it is paid or payable by a person in Pakistan or outside
the Pakistan.
2.
Sum paid to Non
Resident
Sum paid to Non
Resident
Any salary interest profit rent fee brokerage commission or any amount
which is chargeable to tax paid to a non-resident is not deductible expense. If
the tax on its has been paid or deducted paid to income tax department u/s
149,158,233.
which is chargeable to tax paid to a non-resident is not deductible expense. If
the tax on its has been paid or deducted paid to income tax department u/s
149,158,233.
3.
Remuneration to
Member By AOP
Remuneration to
Member By AOP
Any amount of salary interest and profit on debt commission or other
remuneration paid to its members by an association of person is not admissible
as deductions of AOP.
remuneration paid to its members by an association of person is not admissible
as deductions of AOP.
4.
Fine or Penalty Paid
Fine or Penalty Paid
Any
sum paid or payable by a person as fine or penalty on violation of any law,
rule of regulation is a not admissible expense for the purpose of tax
sum paid or payable by a person as fine or penalty on violation of any law,
rule of regulation is a not admissible expense for the purpose of tax
5.
Personal
Expenditures
Personal
Expenditures
Any
personal expenditures of the owner is not allowed as expense of the business,
so it cannot be deducted from the business income
personal expenditures of the owner is not allowed as expense of the business,
so it cannot be deducted from the business income
6.
Entertainment
Expenses
Entertainment
Expenses
Entertainment
expense are allowable expenses up to certain limit and under certain
conditions. Any entertainment expenses in excess of limit or in violation of
conditions are not admissible.
expense are allowable expenses up to certain limit and under certain
conditions. Any entertainment expenses in excess of limit or in violation of
conditions are not admissible.
7.
Capital Nature
Expenditures
Capital Nature
Expenditures
Any
expenditures which is of capital nature, is not allowed as expense of the
business for tax purpose .For example Rs 50000 paid to purchase furniture.
However depreciation on such assets will be allowed.
expenditures which is of capital nature, is not allowed as expense of the
business for tax purpose .For example Rs 50000 paid to purchase furniture.
However depreciation on such assets will be allowed.
8.
Salary Excess Rs
15,000 P.m. In Cash
Salary Excess Rs
15,000 P.m. In Cash
Salary
exceeding Rs 15,000 per month should be paid through cross cheque or should
transfer in employee bank account otherwise it will not allow as admissible
deductions.
exceeding Rs 15,000 per month should be paid through cross cheque or should
transfer in employee bank account otherwise it will not allow as admissible
deductions.
9.
Contribution to
un-approved funds
Contribution to
un-approved funds
Any
contribution towards un-approved provident fund or gratuity fund, un-approved
pension or to un-approved superannuation fund is not allowed as admissible
deductions.
contribution towards un-approved provident fund or gratuity fund, un-approved
pension or to un-approved superannuation fund is not allowed as admissible
deductions.
10.
Employer’s
Contribution to fund
Employer’s
Contribution to fund
Any
employer contribution towards provident fund is not admissible unless he
deducts tax source from any payment made out such fund.
employer contribution towards provident fund is not admissible unless he
deducts tax source from any payment made out such fund.
11.
Limitation on prerequisites:
Limitation on prerequisites:
Any expenditures on account of perquisites allowance or other
benefits to any employer exceeding 50% of his salary is not admissible. This
clause is not applicable from year 2007
benefits to any employer exceeding 50% of his salary is not admissible. This
clause is not applicable from year 2007
12.
Appropriation of
funds
Appropriation of
funds
Appropriations
of any amount out of its profit such as transfer to reserve fund or amount
capitalized so not allowed as admissible for tax purpose
of any amount out of its profit such as transfer to reserve fund or amount
capitalized so not allowed as admissible for tax purpose
13.
Payment exceeding Rs
50,000 pain in cash
Payment exceeding Rs
50,000 pain in cash
If
amount of any expenditure exceeds Rs.50,000 on aggregate and it is paid in cash
on a single head then such expenditure will not be allowed as deduction because
it should be paid through a cross cheque, crossed bank draft or any other
crossed banking instrument. This clause shall not apply in the case of:
amount of any expenditure exceeds Rs.50,000 on aggregate and it is paid in cash
on a single head then such expenditure will not be allowed as deduction because
it should be paid through a cross cheque, crossed bank draft or any other
crossed banking instrument. This clause shall not apply in the case of:
a) Expenditure not exceeding ten thousands rupees.
b) Expenditures on account of Utility Bill, Freight
Charges, Travel Fair, Postage.
Charges, Travel Fair, Postage.