Solution of Mid Term
ANS 1
MR HAMZA
COMPUTATION OF TOTAL & TAXABLE INCOME
TAX YEAR 2025
Income from salary (W-1) (1) 7,095,000
Total/Taxable income (1) 7,095,000
Tax liability (1) [700,000+35%X(7,095,000-4,100,000)] 1,748,250
Tax Payable (1) 1,748,250
(W-1) salary
Basic Salary (380,000 × 12) (0.5) 4,560,000
Medical allowance (15,000 × 12) (0.5) 180,000
Dearness allowance (12,000 × 12) (0.5) 144,000
Travel allowance (8,000 × 12) (0.5) 96,000
Provident fund contribution Lower of 600,000 450,000
(1) Rs. 150,000 (150,000)
(4,560,000+144,000)/10
Interest on P.F Higher of 297,000 -
(1) 297,000 (1,568,000)
(4,560,000+144,000)/3
Reimbursement of telephone (20,000 × 75%) (0.5) 15,000
and internet charges
Perquisite representing (3,000,000 × 5%) (0.5) 150,000
car
Benefit on purchase of car
(800,000-0) (0.5) 800,000
Employee Share Scheme (w1.1) (1) 700,000
Income under the head salary 7,095,000
(w1.1) Employee Share Scheme (2)
FMV on the date of exercise (65X20,000) 1,300,000
Cost of Option (100,000)
Cost of Shares (20,000X25) (500,000)
Amount taxable under the head Salary 700,000
Note 1: Car sold to his Neighbor is personal movable property so it is
not taxable. (1)
ANS 2:
(a)
Profit on Debt and Its Taxation:
Profit on Debt:
Profit on debt includes any profit, yield, interest, discount, premium, or other amount owed
under a debt, excluding the return of capital. It also encompasses any service fees or other
charges related to a debt, including fees for unused credit facilities.
Taxation on Profit on Debt:
1. Business Income:
- Profit on debt derived by a person whose business is to earn such income is charged under
"Income from Business" and not under "Income from Other Sources (IFOS)."
- Amounts paid or payable in connection with leased assets by lessors such as scheduled banks,
investment banks, development finance institutions, modarabas, or leasing companies are
treated as business income.
- Amounts received by banking or non-banking finance companies from mutual funds or
private equity funds, representing profit on debt, are charged under "Income from Business."
2. Taxation Regime for Individuals and AOPs:
- Profit on debt received from prescribed persons (e.g., banking companies, NBFCs,
Federal/Provincial Govts, etc.) is taxable as a separate block.
- Profit on debt up to PKR 5,000,000 is taxed under the special tax rate (SBI).
- Profit on debt exceeding PKR 5,000,000 is taxed at 15% (NTR).
- Withholding agents deduct tax at 15% from taxpayers.
- Interest on loans under a loan agreement is not subject to tax deduction and is taxed under
the normal tax regime as "Income from Other Sources" for all persons (individuals, AOPs,
companies).
- For individuals, profit on debt from Behbood Saving Certificates or Pensioners Benefit
Accounts is taxed at a maximum rate of 5% under the normal tax regime (NTR).
(b)
“Pre-Commencement Expenditure” means any expenditure incurred before the commencement
of a business wholly and exclusively to derive income chargeable to tax, including
- Cost of feasibility studies,
- Construction of prototypes,
- Trial production activities,
but shall not include any expenditure which is incurred in acquiring land, or which is
depreciated or amortized.
Tax Liability:
A person shall be allowed a deduction for any pre-commencement expenditure @ 20% per
annum on straight line basis.
The total deductions allowed in the current tax year and all previous tax years in respect of an
amount of pre-commencement expenditure shall not exceed the amount of the expenditure.
No deduction shall be allowed where a deduction has been allowed under another section for
the entire amount of the pre-commencement expenditure in the tax year in which it is incurred.
ANS 3:
(a)
Calculate the Fair Market Value (FMV):
Break-up value per share: PKR 180
Number of shares owned by Zara: 2,500
FMV of shares = Break-up value per share × Number of shares
FMV of shares = 180 × 2,500 = PKR450,000
Determine the Consideration Received:
Total amount received by Zara: PKR 449,000
According to the regulations:
If the amount received is less than the FMV, the FMV is used as the consideration
received.
If the amount received is higher, the amount received is used as the consideration
received.
In this case, the amount received (PKR 449,000) is less than the FMV (PKR 450,000).
Therefore, based on the regulation, the consideration received should be the FMV,
which is PKR 450,000.
(b)
Tax Considerations:
1. Mr. Ali’s service with the Pakistan Armed Forces qualifies him for special
exemptions and reductions on capital gains tax.
2. As the property has been held for more than three years (2015-2020), the
applicable tax payable on the capital gains will be significantly reduced.
Capital Gain Calculation:
1. Initial value (2015): PKR 3,000,000
2. Sale value (2020): PKR 7,000,000
3. Capital gain: PKR 7,000,000 - PKR 3,000,000 = PKR 4,000,000
Tax Benefits Applied:
Exemption: As Mr. Ali is a retired officer, he qualifies for a 50% reduction in
capital gains tax rates for the first sale of the property.
Time-based Reduction: Since more than three years have elapsed since the
property acquisition, the tax on the capital gain is reduced by 75%.
Conclusion: Given Mr. Ali's status as a retired officer and the duration for which the
property was held, he will benefit from a significant reduction in capital gains tax,
resulting in substantial financial savings, facilitating his daughter’s education abroad.
ANS 4:
(a)
To apportion the total consideration of Rs 1,000,000 among the assets based on their respective
fair market values (FMV), follow these steps:
Determine the Proportion of Each Asset's FMV to the Total FMV:
Total FMV of both assets: 600,000 + 400,000 = 1,000,000
Proportion for Asset 1 = 600,000 / 1,000,000 = 0.6
Proportion for Asset 2 = 400,000 / 1,000,000 = 0.4
Apportion the Total Consideration Based on These Proportions:
Consideration for Asset 1: 0.6 × 1,000,000 = Rs 600,000
Consideration for Asset 2: 0.4 ×1,000,000 = Rs 400,000
(b)
To calculate the consideration received by Mr. Bilal:
1. The total amount realized during the term of the lease is PKR 800,000.
2. The residual value received at the end of the lease is PKR 200,000.
3. The sum of the realized amount and residual value:
PKR800,000+PKR200,000=PKR1,000,000
4. Since this total is not less than the original cost of the asset (PKR 1,000,000), the
consideration received by Mr. Bilal is the residual value of PKR 200,000.
ANS 5.
Sarah
Computation of taxable income
For tax Year 2025
Income from Rent (200,000 x 12) 2,400,000(1)
Forfeited deposit 3,000,000(0.5)
Less: Deductions
Repair and maintenance (2,400,000*20%) (0.5) (480,000)
Property Tax (0.5) (20,000)
Insurance (0.5) (30,000) (530,000) (1)
Income from property 4,870,000(1)
Income from other source
Basic (600,000 x 6) 3,600,000 (0.5)
Repair and Maintenance (300,000+70,000) (370,000) (1)
Property Tax (40,000) (1)
Insurance (200,000) (1)
Interest on debt (3,000,000 x 15% x 6/12) (225,000) (1)
Depreciation (Note 1)
Building (10,000,000 x 10%) (1,000,000) (0.5)
Plant and machinery (2,000,000 x 15%) (300,000) (0.5)
1,465,000 (1)
Total/Taxable Income 6,335,000(0.5)
Note # 1 It is assumed that building, Plant and machinery was already in use by the other
person. (1)
Note # 2 Capital Gain on sale (40,000,000-20,000,000) = 20,000,000 As holding period is
more than 6 years therefore not taxable (1)
ANS 6:
Mr. Mehar
Taxable Income for the TY2025
Income from Business (w-1) 3,150,297
Total Income 3,150,297
Taxable Income 3,150,297
W-1
Accounting profit before taxation 2,809,297
Entertainment Expenditure N-1 -
Penalty N-2 25,000
Renewal of license fee 450,000
Amortization (450,000 ÷ 15) (30,000)
Building depreciation (1,040,000 x 10%) (104,000)
Taxable income 3,150,297
Note:01 As entertainment is incurred for business purposes, hence it is
allowed as deduction.
Note:02 Any penalty paid in respect of violations of state laws is not
admissible
