THE PROFESSIONALS ACADEMY OF COMMERCE

FIRST TERM EXAM

TAXATION MODULE : C (Marks: 66) (TIME : 2 HOURS)

Q.1

Mr. Khan is an employee of Stars Limited Company and providing services as a finance manager. The details of emoluments received by him during the tax year 2010 are given below: Rs. Basic salary (per month) 70,500 Rent of furnished accommodation paid by the company (per month) 30,000 Utilities allowance (per month) 12,000 Medical allowance (per month) 10,000 Bonus for the year 50,000 The employer's contribution to his recognized provident fund account was Rs. 8,000 pm an equal amount being his own contribution. Interest at 20% p.a. on the accumulated balance in his provident fund account amounting to Rs. 56,000 was credited to his Account during the year. He had obtained an interest free loan of Rs. 200,000 on July 1, 2009 which was payable in lump sum on December31, 2010. 25% of the outstanding balance was waived and remaining amount of loan was deducted from his final settlement. He was given Rs. 40,000 for entertainment of which 75% related to official purpose. At the year end he was allowed to retain a company's 1600cc car at accounting WDV of Rs. 600,000. This car costing Rs. 1,000,000 was in his private use. The fair market value of the car at the time of settlement was Rs. 700,000. During the employment, he had exercised an option to acquire 200 shares under the employee share scheme announced by a foreign associated company of Stars Limited Company at the rate of US $ 5 per share. At the time when the option was exercised, the fair market value of the share was US $ 10 (Rs. 700) per share. As per agreement his 75% tax liability will be borne by the company. So company has deducted an amount equal to 25% of his tax liability as tax deducted at source. Required: You are required to compute the tax he is required to pay and salary which is exempt from tax.

(17)

Q.2

What do you understand by the term speculation business as referred to in the Income Tax Ordinance, 2001? Briefly discuss the rules relating to set off and carry forward of losses arising out of speculation business. (a) What are the situations in which payment to an employee in respect of gratuity will not be exempt from tax while computing salary income?

(06) (06)

Q.3

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(b) Q.4 (a)

A non-adjustable and non-refundable advance along with rent of a house is received from a tenant. How it will be taxed under Income Tax Ordinance, 2001? Identify the head of income under which the followings incomes will be taxed. Profit on debt Income of professional and non professional writer What accounting method should be adopted by a person to compute his Business Income for taxation? Define the following with reference to the Income Tax Ordinance, 2001? (a) A company. (b) An association of person. Mr. Ali is an accounts manager of Jalal textile mills and getting total salary Rs. 500,000 per month. The details of his other incomes for the tax year 2010 are as followed: (1) He purchased shares of private limited company on January 1, 2009 for Rs. 200,000 each of Rs. 20. He sold 8,000 shares for Rs. 800,000 on July 15, 2009 and remaining shares for Rs. 200,000 on May 25, 2010 and paid commission in cash Rs. 2,000 and Rs. 1000 to the broker for sale of shares respectively. (2) He has also disposed of shares of a public listed company for Rs. 300,000 which were acquired for Rs. 400,000. (3) He disposed of an antique for Rs. 500,000 which was acquired for Rs. 550,000 (4) He has completed an assignment of technical work and got income of Rs. 450,000, and in this regard he has incurred expenses of Rs. 200,000 which were paid through cash. Compute his taxable income.

(04) (01) (01) (03) (05) (03)

(b) Q.5

Q.6

(08)

Q.7

Mr. Sajid is a sole proprietor involved in the distribution of fans manufactured by a Pakistani Company. He is in the process of computing his business income for tax year 2010 but is not clear about the tax treatment of the following items: (i)

(ii) (iii)

(iv) (v)

Commission of Rs 20,000 was paid to his employee but no tax was deducted by him on the presumption that individuals are not required to deduct tax from commission payments. In his books of accounts, an expense of Rs 50,000 has been charged on account of various household expenses. During the year, he purchased a car at a cost of Rs 1,200,000 which has been used for personal as well as business purposes. Mr. Sajid wants to claim depreciation (including initial allowance) on the full amount of cost. Computer software was purchased on January 1, 2010 at a cost of Rs. 900,000. The software is likely to be used for twelve years. His business assets worth Rs. 500,000 were destroyed by the earthquake in October 2008. He claimed the loss in his return for tax year 2008 but an amount of Rs. 150,000 was disallowed by the Taxation Officer. In tax year 2010, the Government gave him a Page 2 of 3

(vi)

compensation of Rs. 400,000 on this account. Professional tax of Rs. 100,000 was paid to the Government of Punjab. Such tax is to be paid by every person who is engaged in the trading business in the territory of Punjab. He considers it inadmissible as it is a tax paid to a provincial government.
(12)

Explain the correct tax treatment of the above items under the Income Tax Ordinance, 2001.

TAX RATES
Salaried Individual 1 Where the taxable income does not exceed Rs.200,000, 2 Where the taxable income exceeds Rs.200,000 but does not exceed Rs.250,000, 3 Where the taxable income exceeds Rs.250,000 but does not exceed Rs.350,000, 4 Where the taxable income exceeds Rs.350,000 but does not exceed Rs.400,000, 5 Where the taxable income exceeds Rs.400,000 but does not exceed Rs.450,000, 6 Where the taxable income exceeds Rs.450,000 but does not exceed Rs.550,000, 7 Where the taxable income exceeds Rs.550,000 but does not exceed Rs.650,000, 8 Where the taxable income exceeds Rs.650,000 but does not exceed Rs.750,000, 9 Where the taxable income exceeds Rs.750,000 but does not exceed Rs.900,000, 10 Where the taxable income exceeds Rs.900,000 but does not exceed Rs.1,050,000, 0 0.50 0.75 1.50 2.50 3.50 4.50 6.00 7.50 9.00 11 12 13 14 15 16 17 18 19 20 Where the taxable income exceeds Rs.1,050,000 but does not exceed Rs.1,200,000, Where the taxable income exceeds Rs.1,200,000 but does not exceed Rs.1,450,000, Where the taxable income exceeds Rs.1,450,000 but does not exceed Rs.1,700,000, Where the taxable income exceeds Rs.1,700,000 but does not exceed Rs.1,950,000, Where the taxable income exceeds Rs.1,950,000 but does not exceed Rs.2,250,000, Where the taxable income exceeds Rs.2,250,000 but does not exceed Rs.2,850,000, Where the taxable income exceeds Rs.2,850,000 but does not exceed Rs.3,550,000, Where the taxable income exceeds Rs.3,550,000 but does not exceed Rs.4,550,000, Where the taxable income exceeds Rs.4,550,000 but does not exceed Rs.8,650,000, Where the taxable income exceeds Rs.8,650,000. 10.00 11.00 12.50 14.00 15.00 16.00 17.50 18.50 19.00 20.00

Marginal Relief 1 2 3 4 5 20% of the amount by which the total income exceeds the said limit where the total income does not exceed Rs. 550,000. 30% of the amount by which the total income exceeds in each slab but total income does not exceed Rs. 1,050,000. 40% of the amount by which the total income exceeds in each slab but total income does not exceed Rs. 2,250,000. 50% of the amount by which the total income exceeds in each slab but total income does not exceed Rs. 4,550,000. 60% of the amount by which the total income exceeds in each slab but the total income exceeds Rs. 4,550,000.

Property Income 1 2 3 4 Where the gross amount of rent does not exceed Rs.150,000. Where the gross amount of rent exceeds Rs.150,000 but does not exceed Rs.400,000. Where the gross amount of rent exceeds Rs.400,000 but does not exceed Rs.1,000,000. Where the gross amount of rent exceeds Rs.1,000,000. Nil. 5 per cent of the gross amount exceeding Rs.150,000. Rs.12,500 plus 7.5 per cent of the gross amount exceeding Rs.400,000. Rs.57,500 plus 10 per cent of the gross amount exceeding Rs.1,000,000.

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