Income Tax Ordinance, 2001 amended upto 31st October, 2018

616 Pages·2017·6.02 MB·English

INCOME TAX ORDINANCE, 2001 AMENDED UPTO 31.10.2018
TABLE OF CONTENTS

CHAPTER 1 PAGE
SECTIONS
PRELIMINARY NO.
1. Short title, extent and commencement 1
2. Definitions 1
3. Ordinance to override other laws 25

CHAPTER II
CHARGE OF TAX
4. Tax on taxable income 26
4B. Super tax for rehabilitation of temporary displaced 27
persons.
5. Tax on dividends 28
5A. Tax on undistributed Profits. 28
5AA. Tan on return on investments in Sukuks. 29
6. Tax on certain payments to non-residents 29
7. Tax on shipping and air transport income of a non- 30
resident person
7A. Tax on shipping of a resident person. 30
7B. Tax on profit on debt 31
7C. Tax on builders 31
7D. Tax on developers 32
8. General provisions relating to taxes imposed under 33
sections 5, 6 and 7

CHAPTER III
TAX ON TAXABLE INCOME

PART I
COMPUTATION OF TAXABLE INCOME
9. Taxable income 35
10. Total income 35
11. Heads of income 35

PART II
HEAD OF INCOME
SALARY
12. Salary 37
13. Value of perquisites 39
14. Employee share schemes 43
PART III
HEAD OF INCOME
INCOME FROM PROPERTY
15. Income from property 45
15A. Deductions in computing income chargeable under 46
the head “Income from Property”
16. Non-adjustable amounts received in relation to 48
buildings
17. Omitted by the Finance Act, 2006. 49

PART IV
HEAD OF INCOME
INCOME FROM BUSINESS

Division I
Income from Business
18. Income from business 50
19. Speculation business 51

Division II
Deductions
General Principles
20. Deductions in computing income chargeable under 53
the head "Income from Business"
21. Deductions not allowed 53

Division III
Deductions
Special Provisions
22. Depreciation 57
23. Initial allowance 61
23A. First Year Allowance 62
23B. Accelerated depreciation to alternate energy 62
projects.
24. Intangibles 62
25. Pre-commencement expenditure 65
26. Scientific research expenditure 65
27. Employee training and facilities 66
28. Profit on debt, financial costs and lease payments 66
29. Bad debts 68
29A Provision regarding consumer loans 69
30. Profit on non-performing debts of a banking 70
company or development finance institution
31. Transfer to participatory reserve 70

Division IV
Tax Accounting
32. Method of accounting 71
33. Cash-basis accounting 71
34. Accrual-basis accounting 71
35. Stock-in-trade 72
36. Long-term contracts 74

PART V
HEAD OF INCOME
CAPITAL GAINS
37. Capital gains 75
37A. Capital gain on disposal of securities 77
38. Deduction of losses in computing the amount 78
chargeable under the head “Capital Gains”

PART VI

HEAD OF INCOME
INCOME FROM OTHER SOURCES
39. Income from other sources 80
40. Deductions in computing income chargeable under 82
the head “Income from Other Sources”

PART VII
EXEMPTIONS AND TAX CONCESSIONS
41. Agricultural income 84
42. Diplomatic and United Nations exemptions 85
43. Foreign government officials 85
44. Exemptions under international agreements 85
45. President’s honours 86
46. Profit on debt 86
47. Scholarships 87
48. Support payments under an agreement to live apart 87
49. Federal Governments, Provincial Government and 87
Local Government
50. Foreign-source income of short-term resident 88
individuals
51. Foreign-source income of returning expatriates 88
52. Omitted by Finance Ordinance, 2002 89
53. Exemptions and tax concessions in the Second 89
Schedule
54. Exemptions and tax provisions in other laws 91
55. Limitation of exemption 91

PART VIII
LOSSES
56. Set off of losses 92
56A. Set off of losses of companies operating hotels. 92
57. Carry forward of business losses 92
57A. Set off of business loss consequent to 93
amalgamation
58. Carry forward of speculation business losses 94
59. Carry forward of capital losses 95
59A. Limitations on set off and carry forward of losses 95
59AA. Group Taxation. 97
59B. Group relief 97

PART IX
DEDUCTIBLE ALLOWANCES
60. Zakat 100
60A. Workers’ Welfare Fund 100
60B. Workers’ Participation Fund 100
60C. Deductible allowance for profit on debt 100
60D. Deductible allowance for education expenses 101

PART X
TAX CREDITS
61. Charitable donations 102
62. Tax credit for investment in shares and insurance 103
62A. Tax credit for investment in health insurance 105
63. Contribution to an Approved Pension Fund. 106
64. Omitted by Finance Act, 2015. 108
64A Section re-numbered as 60C 108
64AB Section re-numbered as 60D 108
64B. Tax credit for employment generation by 108
manufacturers
65. Miscellaneous provisions relating to tax credits 109
65A. Omitted by the Finance Act, 2017 110
65B. Tax credit for investment 110
65C. Tax credit for enlistment 112
65D. Tax credit for newly established industrial 112
undertakings
65E. Tax credit for industrial undertakings established 114
before the first day of July, 2011

CHAPTER-IV
COMMON RULES

PART I

GENERAL
66. Income of joint owners 117
67. Apportionment of deductions 117
68. Fair market value 118
69. Receipt of income 119
70. Recouped expenditure 119
71. Currency conversion 119
72. Cessation of source of income 119
73. Rules to prevent double derivation and double 120
deductions

PART II
TAX YEAR
74. Tax year 121

PART III
ASSETS
75. Disposal and acquisition of assets 123
76. Cost 123
77. Consideration received 125
78. Non-arm's length transactions 126
79. Non-recognition rules 126

CHAPTER V
PROVISIONS GOVERNING PERSONS
PART I
CENTRAL CONCEPTS
Division I
Persons
80. Person 128

Division II
Resident and Non-resident Persons
81. Resident and non-resident persons 130
82. Resident individual 130
83. Resident company 130
84. Resident association of persons 131

Division III
Associates
85. Associates 131

PART II

INDIVIDUALS

Division I
Taxation of Individuals
86. Principle of taxation of individuals 133
87. Deceased individuals 133

Division II
Provisions Relating to Averaging
88. An individual as a member of an association of 134
persons
88A. Omitted by Finance Act, 2014 134
89. Authors 134

Division III
Income Splitting
90. Transfers of assets 135
91. Income of a minor child 136

PART III
ASSOCIATIONS OF PERSONS
92. Principles of taxation of associations of persons 137
93. Omitted by the Finance Act, 2007. 137

PART IV
COMPANIES
94. Principles of taxation of companies 138
95. Disposal of business by individual to wholly-owned 138
company
96. Disposal of business by association of persons to 140
wholly-owned company
97. Disposal of asset between wholly-owned 142
companies
97A. Disposal of asset under a scheme of arrangement 143
and reconstruction.

PART V
COMMON PROVISIONS APPLICABLE TO
ASSOCIATIONS OF PERSONS AND
COMPANIES
98. Change in control of an entity 146

PART VA
TAX LIABILITY IN CERTAIN CASES
98A. Change in the constitution of an association of 147
persons
98B. Discontinuance of business or dissolution of an 147
association of persons
98C. Succession to business, otherwise than on death 147

CHAPTER-VI
SPECIAL INDUSTRIES
PART I
INSURANCE BUSINESS
99. Special provisions relating to insurance business 149
99A. Special provisions relating to traders 149

PART II
OIL, NATURAL GAS AND OTHER MINERAL
DEPOSITS
100. Special provisions relating to the production of oil 151
and natural gas, and exploration and extraction of
other mineral deposits
100A. Special provisions relating to banking business. 151
100B. Special provision relating to capital gain tax. 152
100C. Tax credit for certain persons 152

CHAPTER VII
INTERNATIONAL
PART I
GEOGRAPHICAL SOURCE OF INCOME
101. Geographical source of income 156
101A Gain on disposal of assets outside Pakistan 160

PART II

TAXATION OF FOREIGN-SOURCE INCOME OF
RESIDENTS
102. Foreign source salary of resident individuals 162
103. Foreign tax credit 162
104. Foreign losses 163

PART III
TAXATION OF NON-RESIDENTS
105. Taxation of a permanent establishment in Pakistan 164
of a non-resident person
106. Thin capitalization 166

PART IV
AGREEMENTS FOR THE AVOIDANCE OF
DOUBLE TAXATION AND
PREVENTION OF FISCAL EVASION
107. Agreements for the avoidance of double taxation 168
and prevention of fiscal evasion

CHAPTER VIII
ANTI-AVOIDANCE
108. Transactions between associates 170
109. Recharacterisation of income and deductions 171
109A Controlled foreign company. 171
110. Salary paid by private companies 173
111. Unexplained income or assets 174
112. Liability in respect of certain security transactions 177

CHAPTER IX
MINIMUM TAX
113. Minimum tax on the income of certain persons. 178
113A. Omitted by the Finance Act, 2016 180
113B. Omitted by the Finance Act, 2016 180
113C. Alternative Corporate Tax 181

CHAPTER X
PROCEDURE
PART I
RETURNS
114. Return of income 184
115. Persons not required to furnish a return of income 190
116. Wealth statement 191
116A Foreign income and assets statement 193
117. Notice of discontinued business 194
118. Method of furnishing returns and other documents 194
119. Extension of time for furnishing returns and other 196
documents

PART II
ASSESSMENTS
120. Assessments 199
120A. Omitted by Finance Act, 2013 200
121. Best judgment assessment 200
122. Amendment of assessments 202
122A. Revision by the Commissioner 205
122B. Revision by the Chief Commissioner 206
122C. Provisional assessment 206
123. Provisional assessment in certain cases 207
124. Assessment giving effect to an order 207
124A. Powers of tax authorities to modify orders, etc. 209
125. Assessment in relation to disputed property 209
126. Evidence of assessment 209

PART III
APPEALS
127. Appeal to the Commissioner (Appeals) 211
128. Procedure in appeal 213
129. Decision in appeal 214
130. Appointment of the Appellate Tribunal 215
131. Appeal to the Appellate Tribunal 218
132. Disposal of appeals by the Appellate Tribunal 219
133. Reference to High Court 221
134. Omitted by Finance Act, 2005 223
134A. Alternative Dispute Resolution 223
135. Omitted by the Finance Ordinance, 2002 226
136. Burden of proof 226

PART IV
COLLECTION AND RECOVERY OF TAX
137. Due date for payment of tax 227
138. Recovery of tax out of property and through arrest 228
of taxpayer
138A. Recovery of tax by District Officer (Revenue) 229
138B. Estate in bankruptcy 229
139. Collection of tax in the case of private companies 229
and associations of persons
140. Recovery of tax from persons holding money on 230
behalf of a taxpayer
141. Liquidators 232
142. Recovery of tax due by non-resident member of an 233
association of persons
143. Non-resident ship owner or charterer 233
144. Non-resident aircraft owner or charterer 234
145. Assessment of persons about to leave Pakistan 235
146. Recovery of tax from persons assessed in Azad 236
Jammu and Kashmir
146A. Initiation, validity, etc., of recovery proceedings. 236
146B. Tax arrears settlement incentives scheme 237

PART V
ADVANCE TAX AND DEDUCTION OF TAX AT
SOURCE
Division I
Advance Tax Paid by the Taxpayer
147. Advance tax paid by the taxpayer 238
147A. Advance tax from provincial sales tax registered 244
person

Division II
Advance Tax Paid to a Collection Agent

148. Imports 245
148A. Tax on local purchase of cooking oil or vegetable 248
ghee by certain persons

Division III
Deduction of Tax at Source
149. Salary 249
150. Dividends 250
150A Return on Investment in Sukuks 250
151. Profit on debt 250
152. Payments to non-residents 251
152A. Payment for foreign produced commercials 256
153. Payments for goods, services and contracts 256
153A. Omitted by Finance Act, 2013 263
154. Exports 263
155. Income from property 264
156. Prizes and winnings 265
156A. Petroleum products 266
156B. Withdrawal of balance under pension fund 266