Updated: Tuesday March 14, 2017/AthThulatha Jamada El Thaniah 16, 1438/Mangalavara Phalguna 23, 1938, at 09:31:03 PM

The Income Tax Ordinance, 2001

AN

ORDINANCE

to consolidate and amend the law relating to income tax

WHEREAS it is expedient to consolidate and amend the law relating to income tax and to provide for matters ancillary thereto or connected therewith;

WHEREAS the President is satisfied that circumstances exist which render it necessary to take immediate action;

NOW, THEREFORE, in pursuance of the Proclamation of Emergency of the fourteenth day of October, 1999, and the Provisional Constitution Order No. 1 of 1999, read with Provisional Constitutional Amendment Order No. 9 of 1999, and in exercise of all powers enabling him in that behalf, the President of the Islamic Republic of Pakistan is pleased to make and promulgate the following Ordinance:---

CHAPTER I

PRELIMINARY

1. Short title, extent and commencement.—  (1)  This Ordinance may be called the Income Tax Ordinance, 2001.

(2) It extends to the whole of Pakistan.

(3) It shall come into force on such date as the Federal Government may, by notification in official Gazette, appoint.1

2. Definitions.— In this Ordinance, unless there is anything repugnant in the subject or context,---

(1)  “accumulated profits” in relation to 2[distribution or payment of] a dividend, 3[include],---

(a) any reserve made up wholly or partly of any allowance, deduction, or exemption admissible under this Ordinance;

(b) for the purposes of 4[sub-clauses (a), (d) and (e) of clause  (19)”] all profits of the company including income and gains of a trust up to the date of such distribution or such payment, as the case may be; and

(c) for the purposes of 5[sub-clause (c) of clause (19)], includes all profits of the company including income and gains of a trust up to the date of its liquidation;

1 Vide notification S.R.O. 381(I)/2002, dated 15.06.2002 the Federal Government appointed the first day of July, 2002 on which the Ordinance shall come into force.

2 Inserted by the Finance Act, 2003, s.12 (1)(a).

3 The word “includes” substituted by the Finance Act, 2005, s.8(1)(a).

4 Clauses (a), (d) and (e) of sub-section (2) substituted by the Finance Act, 2002, s. 8(1)(a)(i).

5 Clause (c) of sub-section (2) substituted by the Finance Act, 2002, s. 8(1)(a)(ii).

1[(1A) ”amalgamation” means the merger of one or more banking companies or non-banking financial institutions, 2[or insurance companies,] 3[or companies owning and managing industrial undertakings] 4[or companies engaged in providing services and not being a trading company or companies] in either case 5[at least one of them] being a public company, or a company incorporated under any law, other than Companies Ordinance, 1984 (XLVII of 1984), for the time being in force, (the company or companies which so merge being referred to as the “amalgamating company” or companies and the company with which they merge or which is formed as a result of merger, as the “amalgamated company”) in such manner that,---

(a) the assets of the amalgamating company or companies immediately before the amalgamation become the assets of the amalgamated company by virtue of the amalgamation, otherwise than by purchase of such assets by the amalgamated company or as a result of distribution of such assets to the amalgamated company after the winding up of the amalgamating company or companies; 6[and]

(b) the liabilities of the amalgamating company or companies immediately before the amalgamation become the liabilities of the amalgamated company by virtue of the amalgamation 7[.] 

8*                *                   *              *                *          *         *

9[(2) ”Appellate Tribunal” means the Appellate Tribunal Inland Revenue established under section 130;]

(3) ”approved gratuity fund” means a gratuity fund approved by the Commissioner in accordance with Part III of the Sixth Schedule;

10[(3A) ”Approved Annuity Plan” means an Annuity Plan approved by Securities and Exchange Commission of Pakistan (SECP) under Voluntary Pension System Rules, 2005 and offered by a Life Insurance Company registered  with the SECP under Insurance Ordinance, 2000 (XXXIX of 2000);

(3B) ”Approved Income Payment Plan” means an Income Payment Plan approved by Securities and Exchange Commission of Pakistan (SECP) under Voluntary Pension System Rules, 2005 and offered by a Pension Fund Manager registered with the SECP under Voluntary Pension System Rules, 2005;

1 Ins. by the Finance Act, 2002, s. 8(1)(b).

2 Ins. by the Finance Act, 2004, s. 6(1)(a)(i).

3 Ins. by the Finance Act, 2005, s. 8(1)(b)(i). 

4 Ins. by the Finance Act, 2007, s. 20(1)(a).

5 Ins. by the Finance Act, 2005, s. 8(1)(b)(ii).

6 Added by the Finance Act, 2005, s. 8 (1)(b)(iii).

7 The semi-colon and word “and” subs., by the Finance Act, 2005, s. 8(1)(b)(iv).

8 Clause (c) omitted by the Finance Act, 2005, s. 8(b)(v).

9 Subs., by the Finance Act, 2010, s. 8(1)(a).

10 New clauses (3A), (3B) & (3C) ins. by the Finance Act, 2005, s. 8(1)(c).

(3C) ”Approved Pension Fund” means Pension Fund approved by Securities and Exchange Commission of Pakistan (SECP) under Voluntary Pension System Rules, 2005, and managed by a Pension Fund Manager registered with the SECP under Voluntary Pension System Rules, 2005;]

1[(3D) ”Approved Employment Pension or Annuity Scheme” means any employment related retirement scheme approved under this Ordinance, which makes periodical payment to a beneficiary i.e. pension or annuity such as approved superannuation fund, public sector pension scheme and Employees Old-Age Benefit Scheme;

(3E) ”Approved Occupational Savings Scheme” means any approved gratuity fund or recognized provident fund;]  

(4) ”approved superannuation fund” means a superannuation fund, or any part of a superannuation fund, approved by the Commissioner in accordance with Part II of the Sixth Schedule;

2[(5) ”assessment” includes 3[provisional assessment,] re-assessment and amended assessment and the cognate expressions shall be construed accordingly;]

4[(5A) ”assessment year” means assessment year as defined in the repealed Ordinance;]

5[(5B)  “asset management company” means an asset management company as defined in the Non-Banking Finance Companies and Notified Entities Regulations, 2007;]

(6) ”association of persons” means an association of persons as defined in section 80;

(7) ”banking company” means a banking company as defined in the Banking Companies Ordinance, 1962 (LVII of 1962) and includes any body corporate which transacts the business of banking in Pakistan;

1 Ins. by the Finance Act, 2006, s. 17(I)(a).

2 Clause (5) subs. by the Finance Act, 2002, s. 8(I)(c).

3 Ins. by the Finance Act, 2011, s. 6(I)(a).

4 Ins. by the Finance Act, 2002, s. 8(I)(d).

5 Clause (5B) subs. by the Finance Act, 2008, s. 8(I)(a).

1[(8)] ”Board” means the Central Board of Revenue established under the Central Board of Revenue Act, 1924 (IV of 1924), and on the commencement of Federal Board of Revenue Act, 2007, the Federal Board of Revenue established under section 3 thereof;

1[(9)] ”bonus shares” includes bonus units in a unit trust;

1[(10)] ”business” includes any trade, commerce, manufacture, profession, vocation or adventure or concern in the nature of trade, commerce, manufacture, profession or vocation, but does not include employment;

1[(11)] ”capital asset’ means a capital asset as defined in section 37;

2[(11A) ”charitable purpose” includes relief of the poor, education, medical relief and the advancement of any other object of general public utility;]

3[(11B) ”Chief Commissioner” means a person appointed as Chief Commissioner Inland Revenue under section 208 and includes a Regional Commissioner of Income Tax and a Director-General of Income Tax and Sales Tax;]

4[(11C) ”Collective Investment Scheme” shall have the same meanings as are assigned under the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003;]

(12) ”company” means a company as defined in section 80;

5[(13) ”Commissioner” means a person appointed as Commissioner Inland Revenue under section 208 and includes any other authority vested with all or any of the powers and functions of the Commissioner;]

1 Clauses (8), (9), (10) and (11) re-numbered as Cls. (9), (10), (11) and (8) respectively by the Finance Act, 2014, s.7(I)(a).

2 Ins. by the Finance Act, 2002, s.8(I)(e).

3 Subs. by the Finance Act, 2010, s.8(I)(b).

4 Ins. by the Finance Act, 2011, s.6(I)(b).

5 Subs., by the Finance Act, 2010, s.8(I)(c).

[(13A) ”Commissioner (Appeals)” means a person appointed as Commissioner Inland Revenue (Appeals) under section 208;]

2[(13AA ”consumer goods” means goods that are consumed by the end consumer rather than used in the production of another good;”;

3[(13B) ”Contribution to an Approved Pension Fund” means contribution as defined in rule 2(j) of the Voluntary Pension System Rules, 2005 4[***];]

(14) ”co-operative society” means a co-operative society registered under the Co-operative Societies Act, 1925 (VII of 1925) or under any other law for the time being in force in Pakistan for the registration of co-operative societies;

(15) ”debt” means any amount owing, including accounts payable and the amounts owing under promissory notes, bills of exchange, debentures, securities, bonds or other financial instruments;

(16) ”deductible allowance” means an allowance that is deductible from total income under Part IX of Chapter III;

(17) ”depreciable asset” means a depreciable asset as defined in section 22;

5[(17A. ”Developmental REIT Scheme” means Development REIT Scheme as defined under the Real Estate investment Trust Regulations, 2015”;]

(18) ”disposal” in relation to an asset, means a disposal as defined in section 75;

(19) ”dividend” includes,---

1 Subs. by the Finance Act, 2010, s.8(I)(d).

2 Ins. by the Finance Act, 2015, s. 9 (w.e.f. 1.7.2015), s.9(I)(a).

3 Ins. by the Finance Act, 2005, s.8(I)(d).

4 The comma and words “, but not exceeding five hundred thousand rupees in a tax year” omitted by the Finance Act, 2006, s.17, (I)(b).

5 Ins. by the Finance Act, 2015, s. 9 (w.e.f. 1.7.2015), s.9(I)(b).

(a) any distribution by a company of accumulated profits to its shareholders, whether capitalised or not, if such distribution entails the release by the company to its shareholders of all or any part of the assets including money of the company;

(b) any distribution by a company, to its shareholders of debentures, debenture-stock or deposit certificate in any form, whether with or without profit, 1[***] to the extent to which the company possesses accumulated profits whether capitalised or not;

(c) any distribution made to the shareholders of a company on its liquidation, to the extent to which the distribution is attributable to the accumulated profits of the company immediately before its liquidation, whether capitalised or not;

(d) any distribution by a company to its shareholders on the reduction of its capital, to the extent to which the company possesses accumulated profits, whether such accumulated profits have been capitalised or not; 2[***]

(e) any payment by a private company 3[as defined in the Companies Ordinance, 1984 (XLVII of 1984)] or trust of any sum (whether as representing a part of the assets of the company or trust, or otherwise) by way of advance or loan to a shareholder or any payment by any such company or trust on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company or trust, in either case, possesses accumulated profits; 4[or]

5[(f) 6[remittance of] after tax profit of a branch of a foreign company operating in Pakistan;]

1 The words “and any distribution to its shareholders of shares by way of bonus or bonus shares”, omitted by the Finance Act, 2002, s.8(I)(g).

2 The word ‘or’ omitted by Finance Act, 2008, s.18(I)(b)(i).

3 Ins. by the Finance Act, 2003, s.12(I)(c ).

4 The word ‘or’ added by the Finance Act, 2008, s.18(I)(b)(ii).

5 Ins. ibid, s.18(b)(iii).

6 The word “any” subs. by the Finance Act, 2009, s.5(I)(a)(i).

but does not include,---

(i) a distribution made in accordance with 1[sub-clause] (c) or (d) in respect of any share for full cash consideration, or redemption of debentures or debenture stock, where the holder of the share or debenture is not entitled in the event of liquidation to participate in the surplus assets;

(ii) any advance or loan made to a shareholder by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company; 2[***]

(iii) any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of 1[sub-clause] (e) to the extent to which it is so set off; 3[and]

4[(iv) remittance of after tax profit by a branch of Petroleum Exploration and Production (E&P) foreign company, operating in Pakistan.]

5[(19A) ”Eligible Person”, for the purpose of Voluntary Pension System Rules, 2005, means an individual Pakistani who6[holds] a valid National Tax Number 7[or Computerized National Identity Card 8[or National Identity Card for Overseas Pakistanis] issued by the National Database and Registration Authority] 9[***] 10[:]]

1 Subs. for “clause” by the Finance Act, 2002, s.8(1)(g)(ii).

2 The word “and” omitted by the Finance Act, 2009, s.3, (1)(a)(ii).

3 The word “and” added by the Finance Act, 2009, s.

4 Added by the Finance Act, 2009, s.5(1)(a)(iii).

5 Ins. by the Finance Act, 2005, s.8(1)(e).

6 The words “has obtained” subs., by the Finance Act, 2007, s.20(I)(b)(i).

7 Ins. ibid, s.20(I)(b)(ii).

8 Ins. by the Finance Act, 2008, s.18(1)(c).

9 Omitted by the Finance Act, 2006, s.17(1)(c)(i).

10 The “semicolon” subs.& ins. by the Finance Act, 2006, s.17(1)(c)(ii).

1[Provided that the total tax credit available for the contribution made to approved employment pension or annuity scheme and approved pension fund under Voluntary Pension System Rules, 2005, should not exceed the limit prescribed or specified in section 63.]

2[(19B) The expressions “addressee”, “automated”, “electronic”, “electronic signature, “information”, “information system”, “originator” and “transaction”, shall have the same meanings as are assigned to them in the Electronic Transactions Ordinance, 2002 (LI of 2002);

(19C) ”electronic record” includes the contents of communications, transactions and procedures under this Ordinance, including attachments, annexes, enclosures, accounts, returns, statements, certificates, applications, forms, receipts, acknowledgements, notices, orders, judgments, approvals, notifications, circulars, rulings, documents and any other information associated with such communications, transactions and procedures, created, sent, forwarded, replied to, transmitted, distributed, broadcast, stored, held, copied, downloaded, displayed, viewed, read, or printed, by one or several electronic resources and any other information in electronic form;

(19D) ”electronic resource” includes telecommunication systems, transmission devices, electronic video or audio equipment, encoding or decoding equipment, input, output or connecting devices, data processing or storage systems, computer systems, servers, networks and related computer programs, applications and software including databases, data warehouses and web portals as may be prescribed by the Board from time to time, for the purpose of creating electronic record;

(19E) ”telecommunication system” includes a system for the conveyance, through the agency of electric, magnetic, electro-magnetic, electro-chemical or electro-mechanical energy, of speech, music and other sounds, visual images and signals serving for the impartation of any matter otherwise than in the

3 Clauses (19B), (19C), (19D) & (19E) ins. by the Finance Act, 2008, s.18(1)(d).

form of sounds or visual images and also includes real time online sharing of any matter in manner and mode as may be prescribed by the Board from time to time.]

(20) ”employee” means any individual engaged in employment;

(21) ”employer” means any person who engages and remunerates an employee;

(22) ”employment” includes,---

(a) a directorship or any other office involved in the management of a company;

(b) a position entitling the holder to a fixed or ascertainable remuneration; or

(c) the holding or acting in any public office;

1[(22A) ”fast moving consumer goods” means consumer goods which are supplied in retail marketing as per daily demand of a consumer,]

(23) ”fee for technical services” means any consideration, whether periodical or lump sum, for the rendering of any managerial, technical or consultancy services including the services of technical or other personnel, but does not include —

(a) consideration for services rendered in relation to a construction, assembly or like project undertaken by the recipient; or

(b) consideration which would be income of the recipient chargeable under the head “salary”;

2[(23A) ”filer” means a taxpayer whose name appears in the active taxpayers’ list issued by the Board from time to time or is holder of a taxpayer’s card;]

1 Ins. by Finance Act, 2015, s.9(1)(c) (w.e.f. 1.7.2015).

2 Ins. by Finance Act, 2014, s.7(1)(b).

(24) ”financial institution” means an institution 1[as defined] under the Companies Ordinance, 2[1984 (XLVII of 1984)] 3[***];

(25) ”finance society” includes a co-operative society which accepts money on deposit or otherwise for the purposes of advancing loans or making investments in the ordinary course of business;

(26) ”firm” means a firm as defined in section 80;

(27) ”foreign-source income” means foreign-source income as defined in sub-section (16) of section 101.

(28) ”House Building Finance Corporation” means the Corporation constituted under the House Building Finance Corporation Act, 1952 (XVIII of 1952);

4[(28A) ”imputable income” in relation to an amount subject to final tax means the income which would have resulted in the same tax, had this amount not been subject to final tax;”].

5[(29) ”income” includes any amount chargeable to tax under this Ordinance, any amount subject to collection 6[or deduction] of tax under section 148, 7[150, 152(1), 153, 154, 156A, 233, 233A,] 8[,] sub-section (5) of section 234 9[236M and 236N]10[any amount treated as income under any provision of this Ordinance] and any loss of income 11[***];

1 The word “notified” subs., by Finance Act, 2005, s.8(1)(f).

2 The figures, brackets and words “1980 (XXXI of 1980)” subs., by F.A. 2002,s.8(1)(i).

3 The words “by the Federal Government in the official Gazette as a financial institution” omitted by Finance Act, 2003, s. 12(1)(d).

4 Ins. by Finance Act, 2015, s.9(1)(d) (w.e.f. 1.7.2015).

5 Cl., (29) subs., by Finance Act, 2002, s.8(1)(i).

6 Ins. by Finance Act, 2003, s.12(1)(e)(i).

7 The figures, commas and word “153, 154 & 156,” subs., by Finance Act, 2005, s.8(1)(g).

8 The word “and” subs., by a comma by the Finance Act, 2014, s.7(1)(c)(i).

9 Subs., by Finance Act, 2015, s.9 (1)(e) (w.e.f. 1.7.2015).

10 Ins. by Finance Act, 2003, s.12(1)(e)(ii).

11 Omitted by Finance Act, 2014, s.7(1)(c)(iii).

1[(29A) ”income year” means income year as defined in the repealed Ordinance;]

2[(29B) ”individual Pension Account” means an account maintained by an eligible person with a Pension Fund Manager approved under the Voluntary Pension System Rules, 2005;]

3[(29C) ”Industrial undertaking” means,---

(a) an undertaking which is set up in Pakistan and which employs,

(i) ten or more persons in Pakistan and involves the use of electrical energy or any other form of energy  which is mechanically transmitted and is not generated by human or animal energy; or

(ii) twenty or more persons in Pakistan and does not involve the use of electrical energy or any other form of energy which is mechanically transmitted and is not generated by human or animal energy and which is engaged in,---

 (i) the manufacture of goods or materials or the subjection of goods or materials to any process which substantially changes their original condition; or

 (ii) ship-building; or

(iii) generation, conversion, transmission or distribution of electrical energy, or the supply of hydraulic power; or

 (iv) the working of any mine, oil-well or any other source of mineral deposits; and   

1 Ins. by Finance Act, 2002, s. 8(1)(j).

2 Ins., by Finance Act, 2005, s.8(1)(h).

3 Cl. (29C) subs., by Finance Act, 2010, s.8(1)(e). 

-----------------------------------------------

(b) any other industrial undertaking which the Board may by notification in the official Gazette, specify.]

(30) ”intangible” means an intangible as defined in section 24;

1[(30A) ”investment company” means an investment company as defined in the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003;]

2[(30AA) ”KIBOR” means Karachi Inter Bank Offered Rate prevalent on the first day of each quarter of the financial year;]                       

3[(30B) ”leasing company” means a leasing company as defined  in the Non-Banking Finance Companies and Notified Entities Regulation, 2007;]

(31) ”liquidation” in relation to a company, includes the termination of a trust;

4[(31A) ”Local Government” shall have the same meaning as defined in the Punjab Local Government Ordinance, 2001 (XIII of 2001), the Sindh Local Government Ordinance, 2001 (XXVII of 2001), the NWFP Local Government Ordinance, 2001 (XIV of 2001) and the Balochistan Local Government Ordinance, 2001 (XVIII of 2001);]

(32) ”member” in relation to an association of persons, includes a partner in a firm;

(33) ”minor child” means an  individual who  is under  the age of eighteen years at the end of a tax year;

(34) ”modaraba” means a modaraba as defined in the Modaraba Companies and Modarabas (Floatation and Control) Ordinance, 1980 (XXXI of 1980);


1 Cl. (30A) subs., by Finance Act, 2008, s.8(1)(e). 
2 Ins., by Finance Act, 2009, s.5(1)(b). 
3 Cl. (30B) subs., by Finance Act, 2008, s.18(1)(f). 
4 Ins., ibid. s.18(1)(g).


(35) ”modaraba certificate” means a modaraba certificate as defined in the Modaraba Companies and Modarabas (Floatation and Control) Ordinance, 1980 (XXXI of 1980);

1[(35A) ”Mutual Fund” means a mutual fund 2[registered or approved by the Securities and Exchange Commission of Pakistan];]

3[(35AA) ”NCCPL” means National Clearing Company of Pakistan Limited, which is a company incorporated under the Companies Ordinance, 1984 (XLVII of 1984) and licensed as “Clearing House” by the Securities and Exchange Commission of Pakistan;]

4[(35B) ”non-banking finance company” means an NBFC as defined in the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003;]

5[(35C) ”non-filer” means a person who is not a filer;]

6[(36) ”non-profit organization” means any person other than an individual, which is —

(a) established for religious, educational, charitable, welfare or development purposes, or for the promotion of an amateur sport;

(b) formed and registered under any law as a non-profit organization;

(c) approved by the Commissioner for specified period, on an application made by such person in the prescribed form and manner, accompanied by the prescribed documents and, on requisition, such other documents as may be required by the Commissioner;


1 Ins., by Finance Act, 2002, s.8. 
2 Subs., by Finance Act, 2003, s.12(I)(f). 
3 Ins., by Finance Act, 2012, s.15(I). 
4 Cl. (35B) subs., by Finance Act, 2008, s.18(I)(h) 
5 Ins., by Finance Act, 2014, s.7(I)(d). 
6 Cl. (36) subs., by Finance Act, 2002, s.8(I)(n).


and none of the assets of such person confers, or may confer, a private benefit to any other person;]

(37) ”non-resident person” means a non-resident person as defined in Section 81;

(38) ”non-resident taxpayer” means a taxpayer who is a non-resident person;

1[(38A) ”Officer of Inland Revenue” means any Additional Commissioner Inland Revenue, Deputy Commissioner Inland Revenue, Assistant Commissioner Inland Revenue, Inland Revenue Officer, Inland Revenue Audit Officer or any other officer however designated or appointed by the Board for the purposes of this Ordinance;]

(39) ”Originator” means Originator as defined in the Asset Backed Securitization Rules, 1999;

(40) ”Pakistan-source income” means Pakistan-source income as defined in section 101;

2[(40A) ”Pension Fund Manager” means an asset management company registered under the Non-Banking Finance Companies (Establishment and Regulations) Rules, 2003, or a life insurance company registered under Insurance Ordinance, 2000 (XXXIX of 2000), duly authorized by the Securities and Exchange Commission of Pakistan and approved under the Voluntary Pension System Rules, 2005, to manage the Approved Pension Fund;]

(41) ”permanent establishment” in relation to a person, means a 3[fixed] place of business through which the business of the person is wholly or partly carried on, and includes –

(a) a place of management, branch, office, factory or workshop, [premises for soliciting orders, warehouse, permanent sales exhibition or sales outlet,] other than a


1 Subs., by Finance Act, 2010, s. 8(I)(f). 
2 Ins., by Finance Act, 2005, s. 8(I)(j). 
3 Ins. by the Finance Act, 2006, s. 17(1)(d)(i).


liaison office except where the office engages in the negotiation of contracts (other than contracts of purchase);

(b) a mine, oil or gas well, quarry or any other place of extraction of natural resources;

1[(ba) an agricultural, pastoral or forestry property;]

(c) a building site, a construction, assembly or installation project or supervisory activities 2[connected] with such site or project2[but only where such site, project and its 2[connected] supervisory activities continue for a period or periods aggregating more than ninety days within any twelve-months period];

(d) the furnishing of services, including consultancy services, by any person through employees or other personnel engaged by the person for such purpose 3[***];

(e) a person acting in Pakistan on behalf of the person (hereinafter referred to as the “agent 4[“),] other than an agent of independent status acting in the ordinary course of business as such, if the agent –

(i) has and habitually exercises an authority to conclude contracts on behalf of the other person;

(ii) has no such authority, but habitually maintains a stock-in-trade or other merchandise from which the agent regularly delivers goods or merchandise on behalf of the other person; or

(f) any substantial equipment installed, or other asset or property capable of activity giving rise to income;


1 Ins., by Finance Act, 2003, s. 12(1)(g)(ii). 
2 Ins., by Finance Act, 2006, s. 17(1)(d)(ii). 
3 The words omitted by Finance Act, 2003, s. 12(1)(g)(iii). 
4 The “comma” subs., by Finance Act, 2002, s. 18(1)(n).


(42) ”person” means a person as defined in section 80;

1[(42A) ”PMEX” means Pakistan Mercantile Exchange Limited a futures commodity exchange company incorporated under the Companies Ordinance, 1984 (XLVII of 1984) and is licensed and regulated by the Securities and Exchange Commission of Pakistan;];

(43) ”pre-commencement expenditure” means a pre-commencement expenditure as defined in section 25;

(44) ”prescribed” means prescribed by rules made under this Ordinance;

2[(44A) ”principal officer” used with reference to a company or association of persons includes –

(a) a director, a manager, secretary, agent, accountant or any similar officer; and

(b) any person connected with the management or administration of the company or association of persons upon whom the Commissioner has served a notice of treating him as the principal officer thereof;]

(45) ”private company” means a company that is not a public company;

3* * * * * * *

1* * * * * * *

(46) ”profit on a debt” 4[whether payable or receivable, means] —


1 Ins., by Finance Act, 2015, s. 9 (1)(f) (w.e.f. 1.7.2015). 
2 Ins., by Finance Act, 2003, s. 12(1)(h). 
3 Clauses (45A) & (45B) omitted by Finance Act, 2008, s. 18(1)(i). 
4 The word “means” subs., by Finance Act, 2003, s. 12(1)(i).


(a) any profit, yield, interest, discount, premium or other amount 1[,] owing under a debt, other than a return of capital; or

(b) any service fee or other charge in respect of a debt, including any fee or charge incurred in respect of a credit facility which has not been utilized;

(47) ”public company” means —

(a) a company in which not less than fifty per cent of the shares are held by the Federal Government 2[or Provincial Government];

3[(ab) a company in which 4[not less than fifty per cent of the] shares are held by a foreign Government, or a foreign company owned by a foreign Government 5[;]]

(b) a company whose shares were traded on a registered stock exchange in Pakistan at any time in the tax year and which remained listed on that exchange 6[***] at the end of that year; or

7[(c) a unit trust whose units are widely available to the public and any other trust as defined in the Trusts Act, 1882 (II of 1882);]

8[(47A) ”Real Estate Investment Trust (REIT) Scheme” means a REIT Scheme as defined in the Real Estate Investment Trust Regulations, 2008;]


1 Comma ins., by Finance Act, 2002, s. 8(1)(o). 
2 Ins., by Finance Act, 2003, s. 12(1)(j)(a). 
3 Ins., by Finance Act, 2003, s. 12(1)(j)(b). 
4 Ins., by Finance Act, 2005, s. 8(1)(k)(i). 
5 The full stop subs., by Finance Act, 2005, s. 8(1)(k)(ii). 
6 The words “and was on the Central Depository System,” omitted by Finance Act, 2002, s.8(1)(p). 
7 Clause (c) subs., by Finance Act, 2003, s. 12(1)(j)(c). 
8 Clause (47A) subs., by Finance Act, 2015, s. 9(1)(g).


1[(47B) ”Real Estate Investment Trust Management Company (REITMC)” means REITMC as defined under the Real Estate Investment Trust Regulations, 2008;]

2[“(47C) ”Rental REIT Scheme” means a Rental REIT Scheme as defined under the Real Estate Investment Trust Regulation, 2015];

(48) ”recognized provident fund” means a provident fund recognized by the Commissioner in accordance with Part I of the Sixth Schedule;

3* * * * * * *

(49) ”rent” means rent as defined in sub-section (2) of section 15 and includes an amount treated as rent under section 16;

[(49A) ”repealed Ordinance” means Income Tax Ordinance, 1979 (XXXI of 1979);]

(50) ”resident company” means a resident company as defined in section 83;

(51) ”resident individual” means a resident individual as defined in section 82;

(52) ”resident person” means a resident person as defined in section 81;

(53) ”resident taxpayer” means a taxpayer who is a resident person;

(54) 4[“royalty”] means any amount paid or payable, however described or computed, whether periodical or a lump sum, as consideration for —


1 Clause (47B) subs., by Finance Act, 2008, s. 18. 
2 Subs., and ins., by Finance Act, 2015, s. 9 (1)(h)(i) & (ii) (w.e.f. 1.7.2015). 
3 Clause (48A) omitted by Finance Act, 2010, s. 8(1)(h). 
4 The word “royalties” subs., by Finance Act, 2002, s. 8(1)(s)(i).


(a) the use of, or right to use any patent, invention, design or model, secret formula or process, trademark or other like property or right;

(b) the use of, or right to use any copyright of a literary, artistic or scientific work, including films or video tapes for use in connection with television or tapes in connection with radio broadcasting, but shall not include consideration for the sale, distribution or exhibition of cinematograph films;

(c) the receipt of, or right to receive, any visual images or sounds, or both, transmitted by satellite, cable, optic fiber or similar technology in connection with television, radio or internet broadcasting;

(d) the supply of any technical, industrial, commercial or scientific knowledge, experience or skill;

(e) the use of or right to use any industrial, commercial or scientific equipment;

(f) the supply of any assistance that is ancillary and subsidiary to, and is furnished as a means of enabling the application or enjoyment of, any such property or right as mentioned in 1[sub-clauses] (a) through (e); 2[and]

(g) the disposal of any property or right referred to in 2[sub-clauses] (a) through (e);

(55) ”salary” means salary as defined in section 12;

(56) ”Schedule” means a Schedule to this Ordinance;

(57) ”securitization” means securitization as defined in the Asset Backed Securitization Rules, 1999;


1 The word “clauses” subs., by Finance Act, 2002, s. 8(1)(s)(ii). 
2 Added by Finance Act, 2005, s. 8(1)(e).


(58) ”share” in relation to a company, includes a modaraba certificate and the interest of a beneficiary in a trust (including units in a trust);

(59) ”shareholder” in relation to a company, includes a modaraba certificate holder, 1[a unit holder of a unit trust] and a beneficiary of a trust;

2[(59A) ”Small Company” means a company registered on or after the first day of July, 2005, under the Companies Ordinance, 1984 (XLVII) of 1984, which,—

(i) has paid up capital plus undistributed reserves not exceeding 3[fifty] million rupees;

4[(ia) has employees not exceeding two hundred and fifty any time during the year;]

(ii) has annual turnover not exceeding two hundred 5[and fifty] million rupees; and

(iii) is not formed by the splitting up or the reconstitution of company already in existence;]

6[(59B) ”Special Judge” means the Special Judge appointed under section 203;]

(60) ”Special Purpose Vehicle” means a Special Purpose Vehicle as defined in the Asset Backed Securitization Rules, 1999;

(61) ”speculation business” means a speculation business as defined in section 19;

7[(61A) ”stock fund” means a collective investment scheme or a mutual fund where the investible funds are invested by way of


1 Ins., by Finance Act, 2002, for words “a unit holder of a unit trust”, s.8(I)(t). 
2 Ins., by Finance Act, 2005, s.8(1)(m). 
3 Subs., by Finance Act, 2015, for words “twenty-five”s.9(1)(j). 
4 Ins., by Finance Act, 2007, s.20(1)(d)(i). 
5 Ins., ibid., s.20(i)(d)(ii). 
6 Ins., by Finance Act, 2014, s.7(1)(e). 
7 Ins., by the Finance Act, 2014, s.7(1)(f).


equity shares in companies, to the extent of more than seventy per cent of the investment;]

(62) ”stock-in-trade” means stock-in-trade as defined in section 35;

(63) ”tax” means any tax imposed under Chapter II, and includes any penalty, fee or other charge or any sum or amount leviable or payable under this Ordinance;

(64) ”taxable income” means taxable income as defined in section 9;

1* * * * * * *

(66) ”taxpayer” means any person who derives an amount chargeable to tax under this Ordinance, and includes —

(a) any representative of a person who derives an amount chargeable to tax under this Ordinance;

(b) any person who is required to deduct or collect tax under Part V of Chapter X 2[and Chapter XII;] or

(c) any person required to furnish a return of income or pay tax under this Ordinance;

(67) ”tax treaty” means an agreement referred to in section 107;

(68) ”tax year” means the tax year as defined in sub-section (1) of section 74 and, in relation to a person, includes a special year or a transitional year that the person is permitted to use under section 74;

(69) ”total income” means total income as defined in section 10;

(70) ”trust” means a “trust” as defined in section 80;

3[(70A) ”turnover” means turnover as defined in sub-section (3) of section 113;]


1 Clause (65) omitted by Finance Act, 2010, s.8(I)(h). 
2 Ins., by Finance Act, 2002, s.8(1)(v). 
3 Ins., by Finance Act, 2009, s.5(1)(c).


(71) ”underlying ownership” means an underlying ownership as defined in section 98;

(72) ”units” means units in a unit trust;

(73) ”unit trust” means a unit trust as defined in section 80; and

1[(74) ”Venture Capital Company” and “Venture Capital Fund” shall have the same meanings as are assigned to them under the 2[Non-Banking Finance 3[Companies] (Establishment and Regulation) Rules, 2003];

4[(75) ”whistleblower” means whistleblower as defined in section 227B;]

3. Ordinance to override other laws.—The provisions of this Ordinance shall apply notwithstanding anything to the contrary contained in any other law for the time being in force.

CHAPTER II

CHARGE OF TAX

4. Tax on taxable income.— (1) Subject to this Ordinance, income tax shall be imposed for each tax year, at the rate or rates specified in 5[Division I, IB or II] of Part I of the First Schedule, as the case may be, on every person who has taxable income for the year.


1 Added by Finance Act, 2002, s.8(1)(w). 
2 Subs., by Finance Act, 2004 for words “venture Capital Company and Venture Capital Fund Rules, 2001”, s.6(1)(c ). 
3 Subs., by Finance Act, 2005 for word “company”.s.8(1)(n). 
4 Added by Finance Act, 2015, s. 9(1)(k) (w.e.f. 1.7.2015). 
1. The words and letters “Division 1 or II” subs., by Finance Act, 2010, s. 8(2)(a).


(2) The income tax payable by a taxpayer for a tax year shall be computed by applying the rate or rates of tax applicable to the taxpayer under this Ordinance to the taxable income of the taxpayer for the year, and from the resulting amount shall be subtracted any tax credits allowed to the taxpayer for the year.

(3) Where a taxpayer is allowed more than one tax credit for a tax year, the credits shall be applied in the following order –

(a) any foreign tax credit allowed under section 103; then

(b) any tax credit allowed under Part X of Chapter III; and then

(c) any tax credit allowed under sections 1[***] 147 and 168.

(4) Certain classes of income (including the income of certain classes of persons) may be subject to –

(a) separate taxation as provided in sections 5, 6 and 7; or

(b) collection of tax under Division II of Part V of Chapter X or deduction of tax under Division III of Part V of Chapter X as a final tax on the income 2[of] the person.

(5) Income referred to in sub-section (4) shall be subject to tax as provided for in section 5, 6 or 7, or Part V of Chapter X, as the case may be, and shall not be included in the computation of taxable income in accordance with section 8 or 169, as the case may be.

3[(6) Where, by virtue of any provision of this Ordinance, income tax is to be deducted at source or collected or paid in advance, it shall, as the case may be, be so deducted, collected or paid, accordingly 4[.] ]

5[4A.] * * * * * *


1 The figure and comma “140,” omitted by Finance Act, 2003, s. 12(2)(a). 
2 The word “or” subs., by Finance Act, 2010, s. 8(2)(b). 
3 Added by Finance Act, 2003, s. 12(2)(b). 
4 The word “semicolon” subs., by Finance Act, 2005, s. 8(2). 
5 Section (4A) omitted by Finance Act, 2014, s.7(s). Section (4A) was added by Income Tax (Amdt.) Ord., 2011 dated 30.05.2011.


1[4B. Super tax for rehabilitation of temporarily displaced persons.- (1) A super tax shall be imposed for rehabilitation of temporarily displaced persons, for tax year 2015, at the rates specified in Division IIA of Part I of the First Schedule, on income of every persons specified in the said Division.

(2) For the purposes of this section, “income” shall be the sum of the following:-

(i) profit on debt, dividend, capital gains, brokerage and commission;

(ii) taxable income under section (9) of this Ordinance, if not included in clause (i);

(iii) imputable income as defined in clause (28A) of section 2 excluding amounts specified in clause (i); and

(iv) income computed under Fourth, Fifth, Seventh and Eighth Schedules.

(3) The super tax payable under sub-section (1) shall be paid, collected and deposited on the date and in the manner as specified in sub-section (1) of section 137 and all provisions of Chapter X of the Ordinance shall apply.

(4) Where the super tax is not paid by a person liable to pay it, the Commissioner shall by an order in writing, determine the super tax payable, and shall serve upon the person, a notice of demand specifying the super tax payable and within the time specified under section 137 of the Ordinance.

(5) Where the super tax is not paid by a person liable to pay it, the Commissioner shall recover the super tax payable under sub-section (1) and the provisions of Part IV, X, XI and XII of Chapter X and Part5 I of Chapter XI of the Ordinance shall, so far as may be, apply to the collection of super tax as these apply to the collection of tax under the Ordinance.


1 Ins. by Finance Act, 2015, s.9(2) (w.e.f. 1.7.2015)


(6) The Board may, by notification in the official Gazette, make rules for carrying out the purposes of this section.];

5. Tax on dividends.— (1) Subject to this Ordinance, a tax shall be imposed, at the rate specified in Division III of Part I of the First Schedule, on every person who receives a dividend from a 1[*] company 2[or treated as dividend under clause (19) of section 2].

(2) The tax imposed under sub-section (1) on a person who receives a dividend shall be computed by applying the relevant rate of tax to the gross amount of the dividend.

(3) This section shall not apply to a dividend that is exempt from tax under this Ordinance.

3[“5A. Tax on undistributed reserves.- (1) Subject to this Ordinance, a tax shall be imposed at the rate of ten percent, on every public company other than a scheduled bank or a modaraba, that derives profits for a tax year but does not distribute cash dividends within six months of the end of the said tax year or distributes dividends to such an extent that its reserves, after such distribution, are in excess of hundred percent of its paid up capital, so much of its reserves as exceed hundred percent of its paid up capital shall be treated as income of the said company:

Provided that for tax year 2015, cash dividends may be distributed before the due date mentioned in sub-section (2) of section 118, for filing of return for tax year 2015.

(2) The provisions of sub-section (1) shall not apply to-

(a) a public company which distributes profit equal to either forty per cent of its after tax profits or fifty per cent of its paid up capital, whichever is less, within six months of the end of the tax year;

(b) a company qualifying for exemption under clause (132) of Part I of the Second Schedule; and


1 The word “resident” omitted by Finance Act, 2003, s. 12(3). 
2 Added by Finance Act, 2009, s.5 (2). 
3 Ins., by Finance Act, 2015, s. 9 (3) (w.e.f. 1.7.2015).


(c) a company in which not less than fifty percent shares are held by the Government.

(3) For the purpose of this section, ‘reserve’ includes amounts set-aside out of revenue or other surpluses excluding capital reserves, share premium reserves and reserves required to be created under any law, rules or regulations.”;

6. Tax on certain payments to non-residents.—(1) Subject to this Ordinance, a tax shall be imposed, at the rate specified in Division IV of Part I of the First Schedule, on every non-resident person who receives any Pakistan-source royalty or fee for technical services.

(2) The tax imposed under sub-section (1) on a non-resident person shall be computed by applying the relevant rate of tax to the gross amount of the royalty or fee for technical services.

(3) This section shall not apply to —

(a) any royalty where the property or right giving rise to the royalty is effectively connected with a permanent establishment in Pakistan of the non-resident person;

(b) any fee for technical services where the services giving rise to the fee are rendered through a permanent establishment in Pakistan of the non-resident person; or

(c) any royalty or fee for technical services that is exempt from tax under this Ordinance.

(4) Any Pakistani-source royalty or fee for technical services received by a non-resident person to which this section does not apply by virtue of clause (a) or (b) of sub-section (3) shall be treated as income from business attributable to the permanent establishment in Pakistan of the person.

7. Tax on shipping and air transport income of a non-resident person.— (1) Subject to this Ordinance, a tax shall be imposed, at the rate specified in Division V of Part I of the First Schedule, on every non-resident person carrying on the business of operating ships or aircrafts as the owner or charterer thereof in respect of –


(a) the gross amount received or receivable (whether in or out of Pakistan) for the carriage of passengers, livestock, mail or goods embarked in Pakistan; and

(b) the gross amount received or receivable in Pakistan for the carriage of passengers, livestock, mail or goods embarked outside Pakistan.

(2) The tax imposed under sub-section (1) on a non-resident person shall be computed by applying the relevant rate of tax to the gross amount referred to in sub-section (1).

(3) This section shall not apply to any amounts exempt from tax under this Ordinance.

1[“7A. Tax on shipping of a resident person.- (1) in the case of any person engaged in the business of shipping, a presumption income tax shall be charged in the following manner, namely:-

(a) ships and all floating crafts including tugs, dredgers, survey vessels and other specialized craft purchased or bare-boat chartered and flying Pakistan flag shall pay tonnage tax of an amount equivalent to one US $ per gross registered tonnage per annum; and

(b) ships, vessels and all floating crafts including tugs, dredgers, survey vessels and other specialized craft not registered in Pakistan and hired under any charter other than bare-boat charter shall pay tonnage tax of an amount equivalent to fifteen US cents per ton of gross registered tonnage per chartered voyage provided that such tax shall not exceed one US $ per ton of gross registered tonnage per annum.

Explanation.- For the purpose of this section, the expression “equivalent amount” means the rupee equivalent of a US dollar according to the exchange rate prevalent on the first day of December in the case of a company and the first day of September in other cases in the relevant assessment year.


1 Ins by Finance Act, 2015, s.9 (4) (w.e.f. 01.07.2015)


(2)        The provisions of this section shall not be applicable after the 30th June, 2020;]

1[7B. Tax on profit on debt.- (1) Subject to this Ordinance, a tax shall be imposed, at the rate specified in Division IIIA of Part I of the First Schedule, on every person, other than a company, who receives a profit on debt from any person mentioned in clauses (a) to (d) of sub-section (1) of section 151.

(2)        The tax imposed under sub-section (1) on a person, other than a company, who receives a profit on debt shall be computed by applying the relevant rate of tax to the gross amount of the profit on debt.

(3)        This section shall not apply to a profit on debt that is exempt from tax under this Ordinance.”]

8. General provisions relating to taxes imposed under sections 5, 6 and (1)- Subject to this Ordinance, the tax imposed under Sections 5, 2[5A, 6, 7, 7A and 7B] shall be a final tax on the amount in respect of which the tax is imposed and—

(a) such amount shall not be chargeable to tax under any head of income in computing the taxable income of the person who derives it for any tax year;

(b) no deduction shall be allowable under this Ordinance for any expenditure incurred in deriving the amount; 

(c) the amount shall not be reduced by —

(i)  any deductible allowance; or

(ii)  the set off of any loss;

(d) the tax payable by a person under 3[section]5, 4[5A, 6, 7, 7A and 7B] shall not be reduced by any tax credits allowed under this Ordinance; and

(e) the liability of a person under 5[section]  5, 6 or 7 shall be discharged to the extent that —

(i) in the case of shipping and air transport income, the tax has been paid in accordance with section 143 or 144, as the case may be; or

(ii) in any other case, the tax payable has been deducted at source under Division III of Part V of Chapter X 5[.]      

 6*           *                *               *               *                *                     *


1 Ins. by Finance Act, 2015, s. 9(5). 
2 Ins by Finance Act, 2015, s.9 (6) (a) & (b) (w.e.f. 01.07.2015) 
3 The word “sections” subs by the word “section” by the Finance Act, 2014, s.7(3). 
4 Ins by Finance Act, 2015, s.9 (6) (a) & (b) (w.e.f. 01.07.2015) 
5 Colon subs., and thereafter the proviso omitted by Finance Act, 2013, s.7(1).


CHAPTER III

TAX ON TAXABLE INCOME

PART I

COMPUTATION OF TAXABLE INCOME

9. Taxable income.—The taxable income of a person for a tax year shall be the total income 1[under clause (a) of section 10] of the person for the year reduced (but not below zero) by the total of any deductible allowances under Part IX of this Chapter of the person for the year.

10. Total Income.— The total income of a person for a tax year shall be the sum of the 2[—]

3[(a) person’s income under all heads of income for the year; and

(b) person’s income exempt from tax under any of the provisions of this Ordinance.]

11. Heads of income.— (1) For the purposes of the imposition of tax and the computation of total income, all income shall be classified under the following heads, namely: —

(a) Salary;

4[(b) Income from Property;

(c) Income from Business;

(d) Capital Gains; and

(e) Income from Other Sources.]


1 Ins by Finance Act, 2012, s.15(2). 
2 Subs., ibid, s.15(3). 
3 Added ibid, s.15(3). 
4 Clauses (b), (c), (d) & (e) subs by the Finance Act, 2002, s.8(2). 
nguage:EN-US;mso-fareast-language:EN-US; mso-bidi-language:AR-SA’>[4] The “comma” subs., by Finance Act, 2002, s. 18(1)(n).


(2) Subject to this Ordinance, the income of a person under a head of income for a tax year shall be the total of the amounts derived by the person in that year that are chargeable to tax under the head as reduced by the total deductions, if any, allowed under this Ordinance to the person for the year under that head.

(3) Subject to this Ordinance, where the total deductions allowed under this Ordinance to a person for a tax year under a head of income exceed the total of the amounts derived by the person in that year that are chargeable to tax under that head, the person shall be treated as sustaining a loss for that head for that year of an amount equal to the excess.

(4) A loss for a head of income for a tax year shall be dealt with in accordance with Part VIII of this Chapter.

(5) The income of a resident person under a head of income shall be computed by taking into account amounts that are Pakistan-source income and amounts that are foreign-source income.

(6) The income of a non-resident person under a head of income shall be computed by taking into account only amounts that are Pakistan-source income.

PART II

HEAD OF INCOME: SALARY

12. Salary.— (1) Any salary received by an employee in a tax year, other than salary that is exempt from tax under this Ordinance, shall be chargeable to tax in that year under the head “salary”.

(2) Salary means any amount received by an employee from any employment, whether of a revenue or capital nature, including —

(a) any pay, wages or other remuneration provided to an employee, including leave pay, payment in lieu of leave, overtime payment, bonus, commission, fees, gratuity or work condition supplements (such as for unpleasant or dangerous working conditions) 1[:]


1 Semi-colon subs by the Finance Act,2015, s.9(7).


1* * * * * * *

(b) any perquisite, whether convertible to money or not;

(c) the amount of any allowance provided by an employer to an employee including a cost of living, subsistence, rent, utilities, education, entertainment or travel allowance, but shall not include any allowance solely expended in the performance of the employee’s duties of employment;

(d) the amount of any expenditure incurred by an employee that is paid or reimbursed by the employer, other than expenditure incurred on behalf of the employer in the performance of the employee’s duties of employment;

(e) the amount of any profits in lieu of, or in addition to, salary or wages, including any amount received —

(i) as consideration for a person’s agreement to enter into an employment relationship;

(ii) as consideration for an employee’s agreement to any conditions of employment or any changes to the employee’s conditions of employment;

(iii) on termination of employment, whether paid voluntarily or under an agreement, including any compensation for redundancy or loss of employment and golden handshake payments;

(iv) from a provident or other fund, to the extent to which the amount is not a repayment of contributions made by the employee to the fund in respect of which the employee was not entitled to a deduction; and


1 Proviso omitted by the Finance Act, 2015, s.9 (7) (w.e.f. 01.07.2015)


(v) as consideration for an employee’s agreement to a restrictive covenant in respect of any past, present or prospective employment;

(f) any pension or annuity, or any supplement to a pension or annuity; and

(g) any amount chargeable to tax as “salary” under section 14.

(3) Where an employer agrees to pay the tax chargeable on an employee’s salary, the amount of the employee’s income chargeable under the head “salary” shall be grossed up by the amount of tax payable by the employer.

(4) No deduction shall be allowed for any expenditure incurred by an employee in deriving amounts chargeable to tax under the head “salary”.

(5) For the purposes of this Ordinance, an amount or perquisite shall be treated as received by an employee from any employment regardless of whether the amount or perquisite is paid or provided —

(a) by the employee’s employer, an associate of the employer, or by a third party under an arrangement with the employer or an associate of the employer;

(b) by a past employer or a prospective employer; or

(c) to the employee or to an associate of the employee 1[or to a third party under an agreement with the employee or an associate of the employee.]

(6) An employee who has received an amount referred to in sub-clause (iii) of clause (e) of sub-section (2) in a tax year may, by notice in writing to the Commissioner, elect for the amount to be taxed at the rate computed in accordance with the following formula, namely: —

A/B%


1 Ins. by the Finance Act, 2002, s. 8(3).


where —

A         is the total tax paid or payable by the employee on the employee’s total taxable income for the three preceding tax years; and 

B          is the employee’s total taxable income for the three preceding tax years. 

(7)  Where —

(a) any amount chargeable under the head  “salary”  is paid  to an employee in arrears; and

(b) as a result the employee is chargeable at higher rates of tax than would have been applicable if the amount had been paid to the employee in the tax year in which the services were rendered,

the employee may, by notice in writing to the Commissioner, elect for the amount to be taxed at the rates of tax that would have been applicable if the salary had been paid to the employee in the tax year in which the services were rendered.

(8)        An election under sub-section (6) or (7) shall be made by the due date for furnishing the employee’s return of income or employer certificate, as the case may be, for the tax year in which the amount was received or by such later date as the Commissioner may allow. 

13.  Value of perquisites.— (1)  For the purposes of computing the income of an employee for a tax year chargeable  to tax under the head “salary”, the value of any perquisite provided by an employer to the employee in that year that is included in the employee’s salary under section  12 shall be determined in accordance with this section.

(2)        This section shall not apply to any amount referred to in clause (c) or (d) of sub-section (2) of section 12. 

1[(3)     Where, in a tax year, a motor vehicle is provided by an employer to an employee wholly or partly for the private use of the employee,

 

 


1 Subs by the Finance Act, 2002, s. 8(3).


the amount chargeable to tax to the employee under the head “salary” for that year shall include an amount computed as may be prescribed.]

1(4) * * * * * *

(5) Where, in a tax year, the services of a housekeeper, driver, gardener or other domestic assistant is provided by an employer to an employee, the amount chargeable to tax to the employee under the head “Salary” for that year shall include the total salary paid to the domestic assistant 2[such house keeper, driver, gardener or other domestic assistant] in that year for services rendered to the employee, as reduced by any payment made 3[to the employer] for such services.

(6) Where, in a tax year, utilities are provided by an employer to an employee, the amount chargeable to tax to the employee under the head “Salary” for that year shall include the fair market value of the utilities provided, as reduced by any payment made by the employee for the utilities.

4[(7) Where a loan is made, on or after the 1st day of July, 2002, by an employer to an employee and either no profit on loan is payable by the employee or the rate of profit on loan is less than the benchmark rate, the amount chargeable to tax to the employee under the head “salary” for a tax year shall include an amount equal to—

(a) the profit on loan computed at the benchmark rate, where no profit on loan is payable by the employee, or

(b) the difference between the amount of profit on loan paid by the employee in that tax year and the amount of profit on loan computed at the benchmark rate, as the case may be 5[:] ]

6[Provided that this sub-section shall not apply to such benefit arising to an employee due to waiver of interest by such employee on his account with the employer 7[:] ]


1 Sub-section (4) omitted by the Finance Act, 2002, s. 8(4)(b). 
2 The word “domestic assistant” subs by the Finance Act, 2002, s. 8(4)(c)(i). 
3 The word “by the employee” subs by the Finance Act, 2002, s. 8(4)(c)(ii). 
4 Sub-section (7) subs by the Finance Act, 2002, s. 8(4)(d). 
5 Full stop subs by the Finance Act, 2010, s.8(3). 
6 Added by Finance Act, 2010, s. 8(3). 
7 Full stop subs by the Finance Act, 2012, s. 15(4)(a).


1[Provided further that this sub-section shall not apply to loans not exceeding five hundred thousand rupees.]

(8) For the purposes of this Ordinance not including sub-section (7), where the employee uses a loan referred to in sub-section (7) wholly or partly for the acquisition of 2[any asset or property] producing income chargeable to tax under any head of income, the employee shall be treated as having paid an amount as profit equal to the benchmark rate on the loan or that part of the loan used to acquire 3[*]4[any asset or property.]

(9) Where, in a tax year, an obligation of an employee to pay or repay an amount owing by the employee to the employer is waived by the employer, the amount chargeable to tax to the employee under the head “salary” for that year shall include the amount so waived.

(10) Where, in a tax year, an obligation of an employee to pay or repay an amount 4[owing] by the employee to another person is paid by the employer, the amount chargeable to tax to the employee under the head “salary” for that year shall include the amount so paid.

(11) Where, in a tax year, property is transferred or services are provided by an employer to an employee, the amount chargeable to tax to the employee under the head “salary” for that year shall include the fair market value of the property or services determined at the time the property is transferred or the services are provided, as reduced by any payment made by the employee for the property or services.

5[(12) Where, in the tax year, accommodation or housing is provided by an employer to an employee, the amount chargeable to tax to the employee under the head “salary” for that year shall include an amount computed as may be prescribed.]

(13) Where, in a tax year, an employer has provided an employee with a perquisite which is not covered by sub-sections (3) through (12), the amount chargeable to tax to the employee under the head “salary” for that


1 Added ibid, s. 15 (4)(a). 
2 The word “property” subs., by the Finance Act, 2002, s. 8(4)(e). 
3 The word “the” omitted by the Finance Act, 2014, s. 7(4). 
4 The word “owed” subs., by word “owing” by the Finance Act, 2002, s. 8(4)(f). 
5 Sub-section (12) subs ibid, s. 8(4)(g).


year shall include the fair market value of the perquisite, 1[except where the rules, if any, provide otherwise,] determined at the time it is provided, as reduced by any payment made by the employee for the perquisite.

2[(14)  In this section,— 

(a) ”benchmark rate” means —-

(i) for the tax year commencing on the first day of July, 2002, a rate of five per cent per annum; and 

(ii) for the tax years next following the tax year referred to in sub-clause (i), the rate for each successive year taken at one per cent  above the rate applicable for the immediately preceding tax year, but not exceeding [ten per cent per annum]  in respect of any tax year; 

(b) ”services” includes the provision of any facility; and 

(c) ”utilities” includes electricity, gas, water and telephone.]                       

14.       Employee share schemes.— (1) The value of a right or option to acquire shares under an employee share scheme granted to an employee shall not be chargeable to tax.

(2)        Subject to sub-section (3), where, in a tax year, an employee is issued with shares under an employee share scheme including as a result of the exercise of an option or right to acquire the shares, the amount chargeable to tax to the employee under the head “salary” for that year shall include the fair market value of the shares determined at the date of issue, as  reduced by any consideration given by the employee for the shares including any amount given as consideration for the grant of a right or option to acquire the shares.

(3)        Where shares issued to an employee under an employee share scheme are subject to a restriction on the transfer of the shares —

(a) no amount shall be chargeable to tax to the employee under the head “salary” until the earlier of —

(i)  the time the employee has a free right to transfer the shares; or

(ii) the time the employee disposes of the shares; and 

(b) the amount chargeable to tax to the employee shall be the fair market value of the shares at the time the employee has a free right to transfer the shares or disposes of the shares, as the case may be, as reduced by any consideration given by the employee for the shares including any amount given as consideration for the grant of a right or option to acquire the shares.

(4)        For purposes of this Ordinance, where sub-section (2) or (3) applies, the cost of the shares to the employee shall be the sum of —


1 Ins., by Finance Act, 2002, s. 8(4)(h). 
2 The word “such rate, if any, as the Federal Government may, by notification, specify” subs by the Finance Act, 2012, s. 15(4)(b).


(a) the consideration, if any, given by the employee for the shares;

(b) the consideration, if any, given by the employee for the grant of any right or option to acquire the shares; and

(c) the  amount  chargeable  to  tax  under  the  head  “salary”  under those sub-sections.

(5)        Where, in a tax year, an employee disposes of a right or option to acquire shares under an employee share scheme, the amount chargeable to tax to the employee under the head “salary” for that year shall include the amount of 36 any gain made on the disposal computed in accordance with the following formula, namely:—

A—B

where —

A         is the consideration received for the disposal of the right or option; and

B          is the employee’s cost in respect of the right or option.

(6)        In this sub-section, “employee share scheme” means any agreement or arrangement under which a company may issue shares in the company to —

(a) an employee of the company or an employee of an associated company; or

(b) the trustee of a trust and under the trust deed the trustee may transfer the shares to an employee of the company or an employee of an associated company.

PART III

HEAD OF INCOME: INCOME FROM PROPERTY

15.       Income from property.— (1)  The rent received or receivable by a person 1[for] a tax year, other than rent exempt from tax under this Ordinance, shall be chargeable to tax in that year under the head “Income from Property”.

(2)         Subject to sub-section (3), “rent” means any amount received or receivable by the owner of land or a building as consideration for the use or occupation of, or the right to use or occupy, the land or building, and includes any forfeited deposit paid under a contract for the sale of land or a building.

(3)         This section shall not apply to any rent received or receivable by any person in respect of the lease of a building together with plant and machinery and such rent shall be chargeable to tax under the head “Income from Other Sources”.

2[(3A) Where any amount is included in rent received or receivable by any person for the provision of amenities, utilities or any other service connected with the renting of the building, such amount shall be chargeable to tax under the head “Income from other sources”.]


1 Subs for the word “In” by the Finance Act, 2003, s. 12(4)(a). 
2 Ins., by Finance Act, 2003, s. 12(4)(b).


(4) Subject to sub-section (5), where the rent received or receivable by a person is less than the fair market rent for the property, the person shall be treated as having derived the fair market rent for the period the property is let on rent in the tax year.

(5) Sub-section (4) shall not apply where the fair market rent is included in the income of the lessee chargeable to tax under the head “salary”.

1* * * * * * *

2* * * * * * *

2[15A. Deductions in computing income chargeable under the head “Income from Property”.— (1) In computing the income of a person chargeable to tax under the head “income from property” for a tax year, a deduction shall be allowed for the following expenditures or allowances, namely:-

(a) respect of repairs to a building, an allowance equal to one-fifth of the rent chargeable to tax in respect of the building for the year, computed before any deduction allowed under this section;

(b) any premium paid or payable by the person in the year to insure the building against the risk of damage or destruction;

(c) any local rate, tax, charge or cess in respect of the property or the rent from the property paid or payable by the person to any local authority or government in the year, not being any tax payable under this Ordinance;

(d) any ground rent paid or payable by the person in the year in respect of the property;

(e) any profit paid or payable by the person in the year on any money borrowed including by way of mortgage, to acquire, construct, renovate, extend or reconstruct the property;

(f) where the property has been acquired, constructed, renovated, extended, or reconstructed by the person with capital contributed by the House Building Finance Corporation or a


1 Sub-sections (6) and (7) omitted by the Finance Act, 2013, s. 7(2). 
2 Ins., ibid, s. 7(3).


scheduled bank under a scheme of investment in property on the basis of sharing the rent made by the Corporation or bank, the share in rent and share towards appreciation in the value of property (excluding the return of capital, if any) from the property paid or payable by the person to the said Corporation or the bank in the year under that scheme;

(g) where the property is subject to mortgage or other capital charge, the amount of profit or interest paid on such mortgage or charge;

1[(h) any expenditure, not exceeding six per cent of the rent chargeable to tax in respect of the property for the year computed before any deduction allowed under this section, paid or payable by the person in the year wholly and exclusively for the purpose of deriving rent chargeable to tax under the head, “income from property” including administration and collection charges;];

(i) any expenditure paid or payable by the person in the tax year for legal services acquired to defend the person’s title to the property or any suit connected with the property in a court; and

(j) where there are reasonable grounds for believing that any unpaid rent in respect of the property is irrecoverable, an allowance equal to the unpaid rent where —

(i) the tenancy was bona fide, the defaulting tenant has vacated the property or steps have been taken to compel the tenant to vacate the property and the defaulting tenant is not in occupation of any other property of the person;

(ii) the person has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or has reasonable grounds to believe that legal proceedings would be useless; and

(iii) the unpaid rent has been included in the income of the person chargeable to tax under the head “Income


1 Subs by the Finance Act, 2015, s.9(8) (w.e.f. 01.07.2015)


from Property” for the tax year in which the rent was due and tax has been duly paid on such income.

(2) Where any unpaid rent allowed as a deduction under clause (j) of sub-section (1) is wholly or partly recovered, the amount recovered shall be chargeable to tax in the tax year in which it is recovered.

(3) Where a person has been allowed a deduction for any expenditure incurred in deriving rent chargeable to tax under the head “Income from property” and the person has not paid the liability or a part of the liability to which the deduction relates within three years of the end of the tax year in which the deduction was allowed, the unpaid amount of the liability shall be chargeable to tax under the head “Income from Property” in the first tax year following the end of the three years.

(4) Where an unpaid liability is chargeable to tax as a result of the application of sub-section (3) and the person subsequently pays the liability or a part of the liability, the person shall be allowed a deduction for the amount paid in the tax year in which the payment is made.

(5) Any expenditure allowed to a person under this section as a deduction shall not be allowed as a deduction in computing the income of the person chargeable to tax under any other head of income.

(6) The provisions of section 21 shall apply in determining the deductions allowed to a person under this section in the same manner as they apply in determining the deductions allowed in computing the income of a person chargeable to tax under the head “Income from business”.]

16. Non-adjustable amounts received in relation to buildings.— (1) Where the owner of a building receives from a tenant an amount which is not adjustable against the rent payable by the tenant, the amount shall be treated as rent chargeable to tax under the head “income from property” in the tax year in which it was received and the following nine tax years in equal proportion.

(2) Where an amount (hereinafter referred to as the “earlier amount”) referred to in sub-section (1) is refunded by the owner to the tenant on termination of the tenancy before the expiry of ten years, no portion of the amount shall be allocated to the tax year in which it is refunded or to any subsequent tax year except as provided for in sub-section (3).

(3) Where the circumstances specified in sub-section (2) occur and the owner lets out the building or part thereof to another person (hereinafter referred to as the “succeeding tenant”) and receives from the succeeding tenant any amount (hereinafter referred to as the “succeeding amount”) which is not adjustable against the rent payable by the succeeding tenant, the succeeding amount as reduced by such portion of the earlier amount as was charged to tax shall be treated as rent chargeable to tax under the head “Income from Property” as specified in sub-section (1).

1* * * * * * *


PART IV

HEAD OF INCOME: INCOME FROM BUSINESS

Division I

Income from Business

18. Income from business.— (1) The following incomes of a person for a tax year, other than income exempt from tax under this Ordinance, shall be chargeable to tax under the head “income from business”—

(a) the profits and gains of any business carried on by a person at any time in the year;

(b) any income derived by any trade, professional or similar association from the sale of goods or provision of services to its members;

(c) any income from the hire or lease of tangible movable property;

(d) the fair market value of any benefit or perquisite, whether convertible into money or not, derived by a person in the course of, or by virtue of, a past, present, or prospective business relationship 1[.]

2[Explanation.—For the purposes of this clause, it is declared that the word “benefit” includes any benefit derived by way of waiver of profit on debt or the debt itself under the State Bank of Pakistan Banking Policy Department’s Circular No.29 of 2002 or in any other scheme issued by the State Bank of Pakistan;]

(e) any management fee derived by a management company (including a modaraba 3[management company] ). ]

(2) Any profit on debt derived by a person where the person’s business is to derive such income shall be chargeable to tax under the head “Income from Business” and not under the head “Income from Other Sources”.


1 The semi-colon and the word “and” subs by the Finance Act, 2011, s. 6(2). 
2 Ins ibid, s. 6(2). 
3 Ins by the Finance Act, 2002, s. 8 (6).


1[(3) Where a 2[lessor], being a scheduled bank or an investment bank or a development finance institution or a modaraba or a leasing company has leased out any asset, whether owned by it or not, to another person, any amount paid or payable by the said person in connection with the lease of said asset shall be treated as the income of the said 5[lessor] and shall be chargeable to tax under the head “Income from business”.]

3[(4) Any amount received by a banking company or a non-banking finance company, where such amount represents distribution by a mutual fund 4[or a Private Equity and Venture Capital Fund] out of its income from profit on debt, shall be chargeable to tax under the head “Income from Business” and not under the head “Income from other sources”.]

19. Speculation business. —(1) Where a person carries on a speculation business –

(a) that business shall be treated as distinct and separate from any other business carried on 5[by] the person;

(b) this Part shall apply separately to the speculation business and the other business of the person; b head “Income from Business” for that year; and

(e) any loss of the person arising from the speculation business sustained for a tax year computed in accordance with this Part shall be dealt with under section 58.

(2) In this section, “speculation business” means any business in which a contract for the purchase and sale of any commodity (including 6[stocks] and shares) is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity, but does not include a business in which —


1 Added by the Finance Act, 2003, s. 12(6). 
2 The word “lesser” subs by the word “lessor” by the Finance Act, 2014, s.7(5). 
3 Added by Finance Act, 2003, s.12(6). 
4 Ins by the Finance Act, 2007, s.20(2). 
5 Ins by the Finance Act, 2002 
6 The word “stock” subs by the Finance Act, 2005


(a) a contract in respect of raw materials or merchandise is entered into by a person in the course of a manufacturing or mercantile business to guard against loss through future price fluctuations for the purpose of fulfilling the person’s other contracts for the actual delivery of the goods to be manufactured or merchandise to be sold;

(b) a contract in respect of stocks and shares is entered into by a dealer or investor therein to guard against loss in the person’s holding of stocks and shares through price fluctuations; or

(c) a contract is entered into by a member of a forward market or stock exchange in the course of any transaction in the nature of jobbing 1[arbitrage] to guard against any loss which may arise in the ordinary course of the person’s business as such member.

Division II

Deductions: General Principles

20. Deductions in computing income chargeable under the head “Income from business”.— (1) Subject to this Ordinance, in computing the income of a person chargeable to tax under the head “Income from business” for a tax year, a deduction shall be allowed for any expenditure incurred by the person in the year 2[wholly and exclusively for the purposes of business].

3[(1A) Subject to this Ordinance, where animals which have been used for the purposes of the business or profession otherwise than as stock-in-trade and have died or become permanently useless for such purposes, the difference between the actual cost to the taxpayer of the animals and the amount, if any, realized in respect of the carcasses or animals.]

(2) Subject to this Ordinance, where the expenditure referred to in sub-section (1) is incurred in acquiring a depreciable asset or an intangible


1 The word “arbitrate” subs ibid 
2 The word “to the extent the expenditure is incurred in deriving income from business chargeable to tax” subs by the Finance Act, 2004, s. 6(2). 
3 Ins., by the Finance Act, 2009, 5(4).


with a useful life of more than one year or is pre-commencement expenditure, the person must depreciate or amortise the expenditure in accordance with sections 22, 23, 24 and 25.

1[(3) Subject to this Ordinance, where any expenditure is incurred by an amalgamated company on legal and financial advisory services and other administrative cost relating to planning and implementation of amalgamation, deduction shall be allowed for such expenditure.]

21. Deductions not allowed.—Except as otherwise provided in this Ordinance, no deduction shall be allowed in computing the income of a person under the head “Income from business” for —

(a) any cess, rate or tax paid or payable by the person in Pakistan or a foreign country that is levied on the profits or gains of the business or assessed as a percentage or otherwise on the basis of such profits or gains;

(b) any amount of tax deducted under Division III of Part V of Chapter X from an amount derived by the person;

(c) any salary, rent, brokerage or commission, profit on debt, payment to non-resident, payment for services or fee paid by the person from which the person is required to deduct tax under Division III of Part V of Chapter X or section 233 of chapter XII, 2[unless] the person has 3[paid or] deducted and paid the tax as required by Division IV of Part V of Chapter X;

(d) any entertainment expenditure in excess of such limits 4[or in violation of such conditions] as may be prescribed;

(e) any contribution made by the person to a fund that is not a recognized provident fund 5[,] 6[approved pension


1 Added by the Finance Act, 2002, s.8(8). 
2 The word “until’ subs by the Finance Act, 2003, s.12(7)(a)(i). 
3 Ins by the Finance Act, 2003, s.12(7)(a)(ii). 
4 Ins ibid, s. 12(7)(b). 
5 Ins by Finance Act, 2014, s.7(6). 
6 Ins by Finance Act, 2005, s.8(4).


fund], approved superannuation fund or approved gratuity fund;

(f) any contribution made by the person to any provident or other fund established for the benefit of employees of the person, unless the person has made effective arrangements to secure that tax is deducted under section 149 from any payments made by the fund in respect of which the recipient is chargeable to tax under the head “salary”;

(g) any fine or penalty paid or payable by the person for the violation of any law, rule or regulation;

(h) any personal expenditures incurred by the person;

(i) any amount carried to a reserve fund or capitalised in any way;

(j) any profit on debt, brokerage, commission, salary or other remuneration paid by an association of persons to a member of the association;

1* * * * * * *

2[(l) any expenditure for a transaction, paid or payable under a single account head which, in aggregate, exceeds fifty thousand rupees, made other than by a crossed cheque drawn on a bank or by crossed bank draft or crossed pay order or any other crossed banking instrument showing transfer of amount from the business bank account of the taxpayer:

Provided that online transfer of payment from the business account of the payer to the business account of payee as well as payments through credit card shall be treated as transactions through the banking channel, subject to the condition that such


1 Clause (k) omitted by the Finance Act, 2006, s. 17(4)(i). 
2 Clause (I) subs ibid, s. 17(4)(ii).


transactions are verifiable from the bank statements of the respective payer and the payee:

Provided further that this clause shall not apply in the case of—

(a) expenditures not exceeding ten thousand rupees;

(b) expenditures on account of —

(i) utility bills;

(ii) freight charges;

(iii) travel fare;

(iv) postage; and

(v) payment of taxes, duties, fee, fines or any other statutory obligation;]

(m) any salary paid or payable exceeding 1[fifteen] thousand rupees per month other than by a crossed cheque or direct transfer of funds to the employee’s bank account; and

(n) except as provided in Division III of this Part, any expenditure paid or payable of a capital nature.

Division III

Deductions: Special Provisions

22. Depreciation.— (1) Subject to this section, a person shall be allowed a deduction for the depreciation of the person’s depreciable assets used in the person’s business in the tax year.

(2) Subject to 2[sub-section] (3) 3[**], the depreciation deduction for a tax year shall be computed by applying the rate specified in Part I of the


1 The word “ten” subs by the Finance Act, 2008, s. 18(2). 
2 The word “sub-section” subs by the Finance Act, 2005, 8(5)(a). 
3 The word, brackets and figures “and (4)” omitted by the Finance Act, 2004, s.6(4)(a).


Third Schedule against the written down value of the asset at the beginning of the year.

(3) Where a depreciable asset is used in a tax year partly in deriving income from business chargeable to tax and partly for another use, the deduction allowed under this section for that year shall be restricted to the fair proportional part of the amount that would be allowed if the asset 1[was] wholly used to 2[derive] income from business chargeable to tax.

3* * * * * * *

(5) The written down value of a depreciable asset of a person at the beginning of the tax year shall be –—

(a) where the asset was acquired in the tax year, the cost of the asset to the person as reduced by any initial allowance in respect of the asset under section 23; or

(b) in any other case, the cost of the asset to the person as reduced by the total depreciation deductions (including any initial allowance under section 23) allowed to the person in respect of the asset in previous tax years.

(6) Where sub-section (3) applies to a depreciable asset for a tax year, the written down value of the asset shall be computed on the basis that the asset has been solely used to derive income from business chargeable to tax.

(7) The total deductions allowed to a person during the period of ownership of a depreciable asset under this section and section 23 shall not exceed the cost of the asset.

(8) Where, in any tax year, a person disposes of a depreciable asset, no depreciation deduction shall be allowed under this section for that year and —

(a) if the consideration received exceeds the written down value of the asset at the time of disposal, the excess


1 The word “were” subs by the Finance Act, 2010, s. 8(4). 
2 The word “derived” subs by the Finance Act, 2003, s. 12(8). 
3 Sub-section (4) omitted by the Finance Act, 2004, s. 6(4)(b).


shall be chargeable to tax in that year under the head “Income from business”; or

(b) if the consideration received is less than the written down value of the asset at the time of disposal, the difference shall be allowed as a deduction in computing the person’s income chargeable under the head “Income from business” for that year.

(9) Where sub-section (3) applies, the written down value of the asset for the purposes of sub-section (8) shall be increased by the amount that is not allowed as a deduction as a result of the application of sub-section (3).

(10) Where clause (a) of sub-section (13) applies, the 1[consideration received on disposal] of the passenger transport vehicle for the purposes of sub-section (8) shall be computed according to the following formula —

A x B/C

where –

A is the 2[amount] received on disposal of the vehicle;

B is the amount referred to in clause (a) of sub-section (13); and

C is the actual cost of acquiring the vehicle.

(11) Subject to sub-sections (13) and (14), the rules in Part III of Chapter IV shall apply in determining the cost and consideration received in respect of a depreciable asset for the purposes of this section.

3[(12) The depreciation deductions allowed to a leasing company or an investment bank or a modaraba or a scheduled bank or a development finance institution in respect of assets owned by the leasing company or an investment bank or a modaraba or a scheduled bank or a development finance institution and leased to another person shall be deductible only against the lease rental income derived in respect of such assets.]

(13) For the purposes of this section, —


1 The words “written down value’ subs by the Finance Act, 2004, s. 6(4)(c)(i). 
2 The word “consideration” subs by the Finance Act, 2004, s. 6(4)(c)(ii). 
3 Sub-section (12) subs by the Finance Act, 2002, s. 8(10)(a).


(a) the cost of a depreciable asset being a passenger transport vehicle not plying for hire shall not exceed 1[two] 2[and half] million rupees;

3* * * * * * *

(b) the cost of immovable property or a structural improvement to immovable property shall not include the cost of the land;

4[(c) any asset owned by a leasing company or an investment bank or a modaraba or a scheduled bank or a development finance institution and leased to another person is treated as used in the leasing company or the investment bank or the modaraba or the scheduled bank or the development finance institution’s business; and]

(d) where the consideration received on the disposal of immovable property exceeds the cost of the property, the consideration received shall be treated as the cost of the property.

(14) Where a depreciable asset that has been used by a person in Pakistan is exported or transferred out of Pakistan, the person shall be treated as having disposed of the asset at the time of the export or transfer for a consideration received equal to the cost of the asset.

(15) In this section, —

“depreciable asset” means any tangible movable property, immovable property (other than unimproved land), or structural improvement to immovable property, owned by a person that —

(a) has a normal useful life exceeding one year;


1 The word “one” subs by the Finance Act, 2012, s.15 (5). 
2 Ins., by Finance Act, 2009, s. 5(5)(a). 
3 Proviso omitted ibid., s. 5(5)(a). 
4 Clause ( c) subs by the Finance Act, 2002, s. 8(10)(b)(ii).


(b) is likely to lose value as a result of normal wear and tear, or obsolescence; and

(c) is used wholly or partly by the person in deriving income from business chargeable to tax,

but shall not include any tangible movable property, immovable property, or structural improvement to immovable property in relation to which a deduction has been allowed under another section of this Ordinance for the entire cost of the property or improvement in the tax year in which the property is acquired or improvement made by the person; and

“structural improvement” in relation to immovable property, includes any building, road, driveway, car park, railway line, pipeline, bridge, tunnel, airport runway, canal, dock, wharf, retaining wall, fence, power lines, water or sewerage pipes, drainage, landscaping or dam.

23. Initial allowance.— (1) A person who places an eligible depreciable asset into service in Pakistan for the first time in a tax year shall be allowed a deduction (hereinafter referred to as an “initial allowance”) computed in accordance with sub-section (2), provided the asset is 1[used by the person for the purposes of his business for the first time or the tax year in which commercial production is commenced, whichever is later].

(2) The amount of the initial allowance of a person shall be computed by applying the rate specified in Part II of the Third Schedule against the cost of the asset.

(3) The rules in section 76 shall apply in determining the cost of an eligible depreciable asset for the purposes of this section.

2[(4) A deduction allowed under this section to a leasing company or an investment bank or a modaraba or a scheduled bank or a development finance institution in respect of assets owned by the leasing company or the investment bank or the modaraba or the scheduled bank or the development


1 Subs for “wholly and exclusively used by the person in deriving income from business chargeable to tax” by the Finance Act, 2004, s.6(5). 
2 Sub-section (4) subs by the Finance Act, 2002, s.8(11).


finance institution and leased to another person shall be deducted only against the leased rental income derived in respect of such assets.]

(5) In this section, “eligible depreciable asset” means a depreciable asset 1[***] other than —

(a) any road transport vehicle unless the vehicle is plying for hire;

(b) any furniture, including fittings;

(c) any plant or machinery 2[that has been used previously in Pakistan]; or

(d) any plant or machinery in relation to which a deduction has been allowed under another section of this Ordinance for the entire cost of the asset in the tax year in which the asset is acquired.

3[23A. First Year Allowance.— (1) Plant, machinery and equipment installed by any industrial undertaking set up in specified rural and under developed areas, 4[or engage in the manufacturing of cellular phones and qualifying for exemption under clause (126N) of Part I of the Second Schedule] and owned and managed by a company shall be allowed first year allowance in lieu of initial allowance under section 23 at the rate specified in Part II of the Third Schedule against the cost of the “eligible depreciable assets” put to use after July 1, 2008.

(2) The provisions of section 23 except sub-sections (1) and (2) thereof, shall mutatis mutandis apply.

(3) The Federal Government may notify “specified areas” for the purposes of sub-section (1).]\

5[23B. Accelerated depreciation to alternate energy projects.— (1) Any plant, machinery and equipments installed for generation of alternate energy


1 The words and comma “that is plant and machinery,” omitted by the Finance Act, 2003, s.12(9)(a). 
2 The words “that is acquired second hand” subs., by the Finance Act, 2003, s. 12(9)(b). 
3 Ins., by the Finance Act, 2008, s. 18(3). 
4 Ins., by the Finance Act, 2015, s.9, (9) (w.e.f. 01.07.2015) 
5 Ins., by the Finance Act, 2009, s. 5(6).


by an industrial undertaking set up anywhere in Pakistan and owned and managed by a company shall be allowed first year allowance in lieu of initial allowance under section 23, at the rate specified in Part II of the Third Schedule against the cost of the eligible depreciation assets put to use after first day of July, 2009.

(2) The provisions of section 23 except sub-sections (1) and (2) thereof, shall mutatis mutandis apply.]

24. Intangibles.— (1) A person shall be allowed an amortisation deduction in accordance with this section in a tax year for the cost of the person’s intangibles–

(a) that are wholly or partly used by the person in the tax year in deriving income from business chargeable to tax; and

(b) that have a normal useful life exceeding one year.

(2) No deduction shall be allowed under this section where a deduction has been allowed under another section of this Ordinance for the entire cost of the intangible in the tax year in which the intangible is acquired.

(3) Subject to sub-section (7), the amortization deduction of a person for a tax year shall be computed according to the following formula, namely:—

A

B

where —

A is the cost of the intangible; and

B is the normal useful life of the intangible in whole years.

(4) An intangible —

(a) with a normal useful life of more than ten years; or

(b) that does not have an ascertainable useful life,

shall be treated as if it had a normal useful life of ten years.


(5) Where an intangible is used in a tax year partly in deriving income from business chargeable to tax and partly for another use, the deduction allowed under this section for that year shall be restricted to the fair proportional part of the amount that would be allowed if the intangible were wholly used to derive income from business chargeable to tax.

(6) Where an intangible is not used for the whole of the tax year in deriving income from business chargeable to tax, the deduction allowed under this section shall be computed according to the following formula, namely: —

A x B/C

where —

A is the amount of 1[amortization] computed under sub-section (3) or (5), as the case may be;

B is the number of days in the tax year the intangible is used in deriving income from business chargeable to tax; and

C is the number of days in the tax year.

(7) The total deductions allowed to a person under this section in the current tax year and all previous tax years in respect of an intangible shall not exceed the cost of the intangible.

(8) Where, in any tax year, a person disposes of an intangible, no amortisation deduction shall be allowed under this section for that year and —

(a) if the consideration received by the person exceeds the written down value of the intangible at the time of disposal, the excess shall be income of the person chargeable to tax in that year under the head “Income from business”; or

(b) if the consideration received is less than the written down value of the intangible at the time of disposal, the difference shall be allowed as a deduction in computing the person’s income chargeable under the head “Income from business” in that year.


1 The word “deprecation’ subs by the Finance Act, 2002, s. 8(12).


(9) For the purposes of sub-section (8) —

(a) the written down value of an intangible at the time of disposal shall be the cost of the intangible reduced by the total deductions allowed to the person under this section in respect of the intangible or, where the intangible is not wholly used to derive income chargeable to tax, the amount that would be allowed under this section if the intangible were wholly so used; and

(b) the consideration received on disposal of an intangible shall be determined in accordance with section 77.

(10) For the purposes of this section, an intangible that is available for use on a day (including a non-working day) is treated as used on that day.

(11) In this section, —

“cost” in relation to an intangible, means any expenditure incurred in acquiring or creating the intangible, including any expenditure incurred in improving or renewing the intangible; and

“intangible” means any patent, invention, design or model, secret formula or process, copyright 1[, trade mark, scientific or technical knowledge, computer software, motion picture film, export quotas, franchise, licence, intellectual property], or other like property or right, contractual rights and any expenditure that provides an advantage or benefit for a period of more than one year (other than expenditure incurred to acquire a depreciable asset or unimproved land).

25. Pre-commencement expenditure.—(1) A person shall be allowed a deduction for any pre-commencement expenditure in accordance with this section.

(2) Pre-commencement expenditure shall be amortized on a straight-line basis at the rate specified in Part III of the Third Schedule.


1 Ins by the Finance Act, 2003, s. 12(10).


(3) The total deductions allowed under this section 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.

(4) No deduction shall be allowed under this section where a deduction has been allowed under another section of this Ordinance for the entire amount of the pre-commencement expenditure in the tax year in which it is incurred.

(5) In this section, “pre-commencement expenditure” means any expenditure incurred before the commencement of a business wholly and exclusively to derive income chargeable to tax, including the cost of feasibility studies, construction of prototypes, and trial production activities, but shall not include any expenditure which is incurred in acquiring land, or which is depreciated or amortised under section 22 or 24.

26. Scientific research expenditure.— (1) A person shall be allowed a deduction for scientific research expenditure incurred in Pakistan in a tax year wholly and exclusively for the purpose of deriving income from business chargeable to tax.

(2) In this section —

“scientific research” means any 1[activity] 2[undertaken in Pakistan] in the fields of natural or applied science for the development of human knowledge;

“scientific research expenditure” means any expenditure incurred by a person on scientific research 3[undertaken in Pakistan] for the purposes of developing the person’s business, including any contribution to a scientific research institution to undertake scientific research for the purposes of the person’s business, other than expenditure incurred –

(a) in the acquisition of any depreciable asset or intangible;

(b) in the acquisition of immovable property; or


1 The word “activity” subs by the Finance Act, 2002, s. 8(13). 
2 Ins by the Finance Act, 2003, s. 12(11)(a). 
3 Ins ibid, s. 12(11)(a).


(c) for the purpose of ascertaining the existence, location, extent or quality of a natural deposit; and

“scientific research institution” means any institution certified by the 1[Board] as conducting scientific research in Pakistan.

27. Employee training and facilities.—A person shall be allowed a deduction for any expenditure (other than capital expenditure) incurred in a tax year in respect of—

(a) any educational institution or hospital in Pakistan established for the benefit of the person’s employees and their dependents;

(b) any institute in Pakistan established for the training of industrial workers recognized, aided, or run by the Federal Government 2[or a Provincial Government] or a 3[Local Government]; or

(c) the training of any person, being a citizen of Pakistan, in connection with a scheme approved by the 4[Board] for the purposes of this section.

28. Profit on debt, financial costs and lease payments.— (1) Subject to this Ordinance, a deduction shall be allowed for a tax year for —

(a) any profit on debt incurred by a person in the tax year to the extent that the proceeds or benefit of the debt have been used by the person 4[for the purposes of business];

(b) any lease rental incurred by a person in the tax year to a scheduled bank, financial institution, an approved modaraba, an approved leasing company or a Special Purpose Vehicle on behalf of the Originator for an asset used by the person 1[for the purposes of business];


1 The words “Central Board of Revenue” subs., by the Finance Act, 2007, s.20(1)(d)(1B). 
2 Ins by the Finance Act, 2003, s.12(12). 
3 The word “local authority “ subs by the Finance Act, 2008, s.20(1)(d)(IB). 
4 The words “in deriving income chargeable to tax under the head “Income from Business” subs by the Finance Act, 2004, s.6(6)(a), (b) and (c).


(c) any amount incurred by a person in the tax year to a modaraba or a participation term certificate holder for any funds borrowed and used by the person 1[for the purposes of business];

(d) any amount incurred by a scheduled bank in the tax year to a person maintaining a profit or loss sharing account or a deposit with the bank as a distribution of profits by the bank in respect of the account or deposit;

(e) any amount incurred by the House Building Finance Corporation (hereinafter referred to as “the Corporation”) constituted under the House Building Finance Corporation Act, 1952 (XVIII of 1952), in the tax year to the State Bank of Pakistan (hereinafter referred to as “the Bank”) as the share of the Bank in the profits derived by the Corporation on its investment in property made under a scheme of partnership in profit and loss, where the investment is provided by the Bank under the House Building Finance Corporation (Issue and Redemption of Certificates) Regulations, 1982;

(f) any amount incurred by the National Development Leasing Corporation Limited (hereinafter referred to as “the Corporation”) in the tax year to the State Bank of Pakistan (hereinafter referred to as “the Bank”) as the share of the Bank in the profits derived by the Corporation on its leasing operations financed out of a credit line provided by the Bank on a profit and loss sharing basis;

(g) any amount incurred by the 1[Small and Medium Enterprises Bank (hereinafter referred to as “the SME Bank”)] in the tax year to the State Bank of Pakistan (hereinafter referred to as the “Bank”) as the share of the Bank in the profits derived by the 2[SME Bank] on investments made in small business out of a credit line provided by the Bank on a profit and loss sharing basis;


1 The words “small business Corporation (hereinafter referred to as “the Corporation”)subs by the Finance Act, 2009, s.5(7). 
2 The word “Corporation” subs by the Finance Act, 2011, s.6(3). 
age:AR-SA’>[1] The word “deprecation’ subs by the Finance Act, 2002, s. 8(12).


(h) any amount incurred by a person in the tax year to a banking company under a scheme of musharika representing the bank’s share in the profits of the musharika;

(i) any amount incurred by a person in the tax year to a certificate holder under a musharika scheme approved by the Securities and Exchange Commission and Religious Board formed under the Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980 (XXXI of 1980) representing the certificate holder’s share in the profits of the musharika; or

(j) the financial cost of the securitization of receivables incurred by an Originator in the tax year from a Special Purpose Vehicle being the difference between the amount received by the Originator and the amount of receivables securitized from a Special Purpose Vehicle.

(2) Notwithstanding any other provision in this Ordinance, where any assets are transferred by an Originator, as a consequence of securitisation, to a Special Purpose Vehicle, it shall be treated as a financing transaction irrespective of the method of accounting adopted by the Originator.

(3) In this section, —

“approved leasing company” means a leasing company approved by the 1[Board] for the purposes of clause (b) of sub-section (1); and

“approved modaraba” means a modaraba approved by the 1[Board] for the purposes of clause (b) of sub-section (1).

29. Bad debts.—(1) A person shall be allowed a deduction for a bad debt in a tax year if the following conditions are satisfied, namely:—

(a) the amount of the debt was –

(i) included in the person’s income from business chargeable to tax; or

(ii) in respect of money lent by a financial institution in deriving income from business chargeable to tax;


1 The words “Central Board of revenue” subs by the Finance Act, 2007, s.20(1)(d)(1B).


(b) the debt or part of the debt is written off in the accounts of the person in the tax year; and

(c) there are reasonable grounds for believing that the debt is irrecoverable.

(2)         The amount of the deduction allowed to a person under this section for a tax year shall not exceed the amount of the debt written off in the accounts of the person in the tax year.

(3)         Where a person has been allowed a deduction in a tax year for a bad debt and in a subsequent tax year the person receives in cash or kind any amount in respect of that debt, the following rules shall apply, namely:–

(a) where the amount received exceeds the difference between the whole of  bad debt and the amount previously allowed as a deduction under this section, the excess shall be included in the person’s income under the head “Income from Business” for the tax year in which it was received; or

(b) where the amount received is less than the difference between the whole of such bad debt and the amount allowed as a deduction under this section, the shortfall shall be allowed as a bad debt deduction in computing the person’s income under the  head  “Income  from Business”  for  the  tax  year  in which  it was received.

1[29A.  Provision regarding consumer loans.—  (1) A 2[***] 3[non-banking finance company or the House Building Finance Corporation] shall be allowed a deduction, not exceeding three per cent of the income for the tax year, arising out of consumer loans for creation of a reserve to off-set bad debts arising out of such loans.

 (2) Where bad debt can not be wholly set off against reserve, any amount of bad debt, exceeding the reserves shall be carried forward for adjustment against the reserve for the following years.]

 

 


1 Ins by the Finance Act, 2003, s.12(13). 
2 The words “banking company or” omitted by the Finance Act, 2009, s.5(8)(a). 
3 Ins by the Finance Act, 2004, s.6(7)(a).


1[Explanation.— In this section, “consumer loan” means a loan of money or its equivalent made by 2[***] a non-banking finance company or the House Building Finance Corporation to a debtor (consumer) and the loan is entered primarily for personal, family or household purposes and includes debts created by the use of a lender credit card or similar arrangement as well as insurance premium financing.]

30. Profit on non-performing debts of a banking company or development finance institution.— (1) A banking company or development finance institution 2[or Non-Banking Finance Company (NBFC) or modaraba] shall be allowed a deduction for any profit accruing on a non-performing debt of the banking company or institution 5[or Non-Banking Finance Company (NBFC) or modaraba] where the profit is credited to a suspense account in accordance with the Prudential Regulations for Banks or 5[Non-Banking Finance Company or modaraba] Non-bank Financial Institutions, as the case may be, issued by the State Bank of Pakistan 3[or the Securities and Exchange Commission of Pakistan].

(2) Any profit deducted under sub-section (1) that is subsequently recovered by the banking company or development finance institution 5[or Non-Banking Finance Company (NBFC) or modaraba] shall be included in the income of the company or institution 4[or Non-Banking Finance Company (NBFC) or modaraba] chargeable under the head “Income from Business” for the tax year in which it is recovered.

31. Transfer to participatory reserve.— (1) Subject to this section, a company shall be allowed a deduction for a tax year for any amount transferred by the company in the year to a participatory reserve created under section 120 of the Companies Ordinance, 1984 (XLVII of 1984) in accordance with an agreement relating to participatory redeemable capital entered into between the company and a banking company as defined in the 5[Institutions (Recovery Of Finances) Ordinance,2001 (XLVI of 2001).]


1 Added ibid, s.6(7)(b). 
2 The words “a banking company or” omitted by the Finance Act, 2009, s.5(8)(b). 
3 Ins by the Finance Act, 2003, s.12((14)(iii). 
4 The words “ Non-Bank Financial Institutions” subs by the Finance Act, 2003, s.12(14)(b). 
5 The words “banking Tribunals Ordinance, 1984” subs by the words “Financial Institutions (Recovery of Finances) ordinance, 2001(XLVI of 2001) by the Finance Act, 2014”, s.7(7).


(2) The deduction allowed under subsection (1) for a tax year shall be limited to five per cent of the value of the company’s participatory redeemable capital.

(3) No deduction shall be allowed under subsection (1) if the amount of the tax exempted accumulation in the participatory reserve exceeds ten per cent of the amount of the participatory redeemable capital.

(4) Where any amount accumulated in the participatory reserve of a company has been allowed as a deduction under this section is applied by the company towards any purpose other than payment of share of profit on the participatory redeemable capital or towards any purpose not allowable for deduction or exemption under this Ordinance the amount so applied shall be included in the income from business of the company in the tax year in which it is so applied.

Division IV

Tax Accounting

32. Method of accounting.— 1[(1) Subject to this Ordinance, a person’s income chargeable to tax shall be computed in accordance with the method of accounting regularly employed by such person.]

(2) Subject to sub-section (3), a company shall account for income chargeable to tax under the head “Income from Business” on an accrual basis, while other persons may account for such income on a cash or accrual basis.

(3) The 2[Board] may prescribe that any class of persons shall account for income chargeable to tax under the head “Income from Business’ on a cash or accrual basis.

(4) A person may apply, in writing, for a change in the person’s method of accounting and the Commissioner may, by 3[order] in writing, approve such an application but only if satisfied that the change is necessary to clearly reflect the person’s income chargeable to tax under the head “Income from Business”.


1 Sub-section (1) subs by the Finance Act, 2003, s.12(15)(a). 
2 The words “Central Board of Revenue” subs by the Finance Act, 2007,s.20(1)(d)(1B). 

3 Subs for the word “notice” by the Finance Act, 2003, s.12(15)(b).


(5) If a person’s method of accounting has changed, the person shall make adjustments to items of income, deduction, or credit, or to any other items affected by the change so that no item is omitted and no item is taken into account more than once.

33. Cash-basis accounting.—A person accounting for income chargeable to tax under the head “Income from Business” on a cash basis shall derive income when it is received and shall incur expenditure when it is paid.

34. Accrual-basis accounting.— (1) A person accounting for income chargeable to tax under the head “Income from Business” on an accrual basis shall derive income when it is due to the person and shall incur expenditure when it is payable by the person.

(2) Subject to this Ordinance, an amount shall be due to a person when the person becomes entitled to receive it even if the time for discharge of the entitlement is postponed or the amount is payable by installments.

(3) Subject to this Ordinance, an amount shall be payable by a person when all the events that determine liability have occurred and the amount of the liability can be determined with reasonable accuracy 1[***].

2(4) * * * * * * *

(5) Where a person has been allowed a deduction for any expenditure incurred in deriving income chargeable to tax under the head “Income from Business” and the person has not paid the liability or a part of the liability to which the deduction relates within three years of the end of the tax year in which the deduction was allowed, the unpaid amount of the liability shall be chargeable to tax under the head “Income from Business’ in the first tax year following the end of the three years.

3[(5A) Where a person has been allowed a deduction in respect of a trading liability and such person has derived any benefit in respect of such trading liability, the value of such benefit shall be chargeable to tax under


1 Omitted by the Finance Act, 2004, s.6(8)(a). 
2 Sub-Section (4) omitted ibid, s.6(8)(b). 
3 Ins by the Finance Act, 2003, s.12(16).


1[the] head “Income from Business” for the tax year in which such benefit is received.]

(6) Where an unpaid liability is chargeable to tax as a result of the application of sub-section (5) and the person subsequently pays the liability or a part of the liability, the person shall be allowed a deduction for the amount paid in the tax year in which the payment is made.

35. Stock-in-trade.— (1) For the purposes of determining a person’s income chargeable to tax under the head “Income from Business” for a tax year, the cost of stock-in-trade disposed of by the person in the year shall be computed in accordance with the following formula, namely:—

(A + B) – C

where —

A is the opening value of the person’s stock-in-trade for the year;

B is cost of stock-in-trade acquired by the person in the year; and

C is the closing value of stock-in-trade for the year.

(2) The opening value of stock-in-trade of a person for a tax year shall be —

(a) the closing value of the person’s stock-in-trade at the end of the previous year; or

(b) where the person commenced to carry on business in the year, the fair market value of any stock-in-trade acquired by the person prior to the commencement of the business.

(3) The fair market value of stock-in-trade referred to in clause (b) of sub-section (2) shall be determined at the time the stock-in-trade is ventured in the business.


1 Ins by the Finance Act, 2005, s.8(6).


(4) The closing value of a person’s stock-in-trade for a tax year shall be the lower of cost or 1[net realisable] value of the person’s stock-in-trade on hand at the end of the year.

(5) A person accounting for income chargeable to tax under the head ‘Income from Business” on a cash basis may compute the person’s cost of stock-in-trade on the prime-cost method or absorption-cost method, and a person accounting for such income on an accrual basis shall compute the person’s cost of stock-in-trade on the absorption-cost method.

(6) Where particular items of stock-in-trade are not readily identifiable, a person may account for that stock on the first-in-first-out method or the average-cost method but, once chosen, a stock valuation method may be changed only with the written permission of the Commissioner and in accordance with any conditions that the Commissioner may impose.

(7) In this section, —

“absorption-cost method” means the generally accepted accounting principle under which the cost of an item of stock-in-trade is the sum of direct material costs, direct labour costs, and factory overhead costs;

“average-cost method” means the generally accepted accounting principle under which the valuation of stock-in-trade is based on a weighted average cost of units on hand;

“direct labour costs” means labour costs directly related to the manufacture or production of stock-in-trade;

“direct material costs” means the cost of materials that become an integral part of the stock-in-trade manufactured or produced, or which are consumed in the manufacturing or production process;

“factory overhead costs” means the total costs of manufacturing or producing stock-in-trade, other than direct labour and direct material costs;


1 Subs for the words “fair market”‘ by the Finance Act, 2002, s.8(14).


“first-in-first-out method” means the generally accepted accounting principle under which the valuation of stock-in-trade is based on the assumption that stock is sold in the order of its acquisition;

“prime-cost method”  means the generally accepted accounting principle under which the cost of stock-in-trade is the sum of direct material costs, direct labour costs, and variable factory overhead costs;

“stock-in-trade” means anything produced, manufactured, purchased, or otherwise acquired for manufacture, sale or exchange, and any materials or supplies to be consumed in the production or manufacturing process, but does not include stocks or shares; and 

“variable factory overhead costs” means those factory overhead costs  which vary directly with changes in volume of stock-in-trade manufactured or produced.

36. Long-term contracts.—(1) A person accounting for income chargeable to tax under the head “Income from Business” on an accrual basis shall compute such income arising for a tax year under a long-term contract on the basis of the percentage of completion method. 

(2) The percentage of completion of a long-term contract in a tax year shall be determined by comparing the total costs allocated to the contract and incurred before the end of the year with the estimated total contract costs as determined at the commencement of the contract.

(3) In this section, —-

“long-term  contract” means  a  contract  for manufacture,  installation, or construction, or, in relation  to each, the performance of related services, which is not completed within the tax year in which work under the contract commenced, other than a contract estimated to be completed within six months of the date on which work under the contract commenced; and 

“percentage of completion method” means the generally accepted accounting principle under which revenue and expenses arising under a long-term contract are recognised by reference to the stage of completion of the contract, as modified by sub-section (2). 


PART V

HEAD OF INCOME: CAPITAL GAINS

37. Capital gains.—(1) Subject to this Ordinance, a gain arising on the disposal of a capital asset by a person in a tax year, other than a gain that is exempt from tax under this Ordinance, shall be chargeable to tax in that year under the head “Capital Gains”.

1[(1A) Notwithstanding anything contained in sub-sections (1) and (3) gain arising on the disposal of immovable property 2[* * *] by a person in a tax year, shall be chargeable to tax in that year under the head Capital Gains at the rates specified in Division VIII of Part I of the First Schedule.]

(2) Subject to sub-sections (3) and (4), the gain arising on the disposal of a capital asset by a person shall be computed in accordance with the following formula, namely:–

A – B

where —

A is the consideration received by the person on disposal of the asset; and

B is the cost of the asset.

(3) Where a capital asset has been held by a person for more than one year, 3[other than shares of public companies including the vouchers of Pakistan Telecommunication Corporation, modaraba certificates or any instrument of redeemable capital as defined in the Companies Ordinance, 1984 (XLVII of 1984),] the amount of any gain arising on disposal of the asset shall be computed in accordance with the following formula, namely: —

A x ¾

where A is the amount of the gain determined under sub-section (2).


1 Ins by the Finance Act,2012, s.15(6). 
2 The words and comma “held for a period upto two years” omitted by the Finance Act, 2014, s.7(8). 
3 Ins by the Finance Act, 2010, s.8(5).


(4) For the purposes of determining component B of the formula in sub-section (2), no amount shall be included in the cost of a capital asset for any expenditure incurred by a person –

(a) that is or may be deducted under another provision of this Chapter; or

(b) that is referred to in section 21.

1[(4A) Where the capital asset becomes the property of the person —

(a) under a gift, bequest or will;

(b) by succession, inheritance or devolution;

(c) a distribution of assets on dissolution of an association of persons; or

(d) on distribution of assets on liquidation of a company, the fair market value of the asset, on the date of its transfer or acquisition by the person shall be treated to be the cost of the asset.]

(5) In this section, “capital asset” means property of any kind held by a person, whether or not connected with a business, but does not include —

2[(a) any stock-in-trade 3[***], consumable stores or raw materials held for the purpose of business;]

(b) any property with respect to which the person is entitled to a depreciation deduction under section 22 or amortisation deduction under section 24; 4[or]

5(c)* * * * * * *


1 Ins by the Finance Act, 2003, s.12(17)(a). 
2 The brackets and words “(a) any stock-in-trade;” substituted by the Finance Act, 2002, s.8(15)(a). 
3 The brackets and words “not being stocks and shares” omitted by the Finance Act, 2010, s.8(5)(b). 
4 Ins by the Finance Act, 2012, s.15(6)(b)(i). 
5 Clause (C) omitted ibid , s.15(6)(b)(ii).


(d) any movable property 1[excluding capital assets specified in sub-section (5) of section 38] held for personal use by the person or any member of the person’s family dependent on the person 2[.]

3(e)* * * * * * *

4[37A. Capital gain on disposal of securities.— (1) The capital gain arising on or after the first day of July 2010, from disposal of securities 5[***] 6[, other than a gain that is exempt from tax under this Ordinance], shall be chargeable to tax at the rates specified in Division VII of Part I of the First Schedule:

7* * * * * * *

Provided 8[*] that this section shall not apply to a banking company and an insurance company.

9[(1A) The gain arising on the disposal of a security by a person shall be computed in accordance with the following formula, namely: —


1The brackets, commas and words “(including wearing apparel, jewellery, or furniture)”substituted by the Finance Act, 2003, s.12(17)(b). 
2 The comma and word “; or” substituted by the Finance Act, 2002, s.8(15)(c ). 
3 Clause (e) omitted ibid, s.(15)(e). 
4 Ins., by Finance Act, 2010, s.8(6). 
5 The words “held for a period of less than a year” omitted by the Finance Act, 2015, s.9(10). 
6 Ins by the Finance Act, 2012, s.15(7)(a). 
7 The first proviso omitted by Finance Act, 2014,s. 7(9)(a). 
8 The word “further” omitted by the Finance Act, 2014, s.7(9)(b). 
9 Ins by the Finance Act,2012, s.15(7)(b).


A – B

Where —

(i) ’A’ is the consideration received by the person on disposal of the security; and

(ii) ’B’ is the cost of acquisition of the security.]

(2) The holding period of a security, for the purposes of this section, shall be reckoned from the date of acquisition (whether before, on or after the thirtieth day of June, 2010) to the date of disposal of such security falling after the thirtieth day of June, 2010.

(3) For the purposes of this section “security” means share of a public company, voucher of Pakistan Telecommunication Corporation, Modaraba Certificate, an instrument of redeemable capital 1[,debt Securities] and derivative products.

2[(3A) For the purpose of this section, “debt securities” means -

(a) Corporate Debt Securities such as Term Finance Certificates (TFCs), Sukuk Certificates (Sharia Compliant Bonds), Registered Bonds, Commercial Papers, Participation Term Certificates (PTCs) and all kinds of debt instruments issued by any Pakistani or foreign company or corporation registered in Pakistan; and

(b) Government Debt Securities such as Treasury Bills (T-bills), Federal Investment Bonds (FIBs), Pakistan Investment Bonds (PIBs), Foreign Currency Bonds, Government Papers, Municipal Bonds, Infrastructure Bonds and all kinds of debt instruments issued by Federal Government, Provincial Governments, Local Authorities and other statutory bodies.]


1 Ins by the Finance Act,2014, s.(7(9)(c ). 
2 The sub-section (3A) inserted ibid, s.7(9)(d).


(4) Gain under this section shall be treated as a separate block of income.

(5) Notwithstanding anything contained in this Ordinance, where a person sustains a loss on disposal of securities in a tax year, the loss shall be set off only against the gain of the person from any other securities chargeable to tax under this section and no loss shall be carried forward to the subsequent tax year.]

38.Deduction of losses in computing the amount chargeable under the head “Capital Gains”.—(1) Subject to this Ordinance, in computing the amount of a person chargeable to tax under the head “Capital Gains” for a tax year, a deduction shall be allowed for any loss on the disposal of a capital asset by the person in the year.

(2) No loss shall be deducted under this section on the disposal of a capital asset where a gain on the disposal of such asset would not be chargeable to tax.

(3) The loss arising on the disposal of a capital asset by a person shall be computed in accordance with the following formula, namely: —

A – B

where —

A is the cost of the asset; and

B is the consideration received by the person on disposal of the asset.

(4) The provisions of sub-section (4) of section 37 shall apply in determining component A of the formula in sub-section (3).

(5) No loss shall be recognized under this Ordinance on the disposal of the following capital assets, namely:—

(a) A painting, sculpture, drawing or other work of art;

(b) jewellery;

(c) a rare manuscript, folio or book;

(d) a postage stamp or first day cover;

(e) a coin or medallion; or

(f) an antique.


PART VI

HEAD OF INCOME: INCOME FROM OTHER SOURCES

39. Income from other sources. —(1) Income of every kind received by a person in a tax year, 1[if it is not included in any other head,] other than income exempt from tax under this Ordinance, shall be chargeable to tax in that year under the head “Income from other sources”, including the following namely: —

(a) 2[Dividend;]

(b) 3[royalty;]

(c) profit on debt;

4[(cc) additional payment on delayed refund under any tax law;]

(d) ground rent;

(e) rent from the sub-lease of land or a building;

(f) income from the lease of any building together with plant or machinery;

5[(fa) income from provision of amenities, utilities or any other service connected with renting of building;]

(g) any annuity or pension;

(h) any prize bond, or winnings from a raffle, lottery 5[, prize on winning a quiz, prize offered by companies for promotion of sale] or cross-word puzzle;

(i) any other amount received as consideration for the provision, use or exploitation of property, including from the grant of a right to explore for, or exploit, natural resources;


1 Ins by the Finance Act, 2002, s.8(16)(i). 
2 The word “Dividends” subs ibid, s.8(16)(ii). 
3 The word “royalties” sub ibid, s.8(16)(iii). 
4 Ins by the Finance Act, 2012, s.15(9). 
5 Ins. by Finance Act, 2003, s. 12(18)(a)(i).


(j) the fair market value of any benefit, whether convertible to money or not, received in connection with the provision, use or exploitation of property; 1[* * *]

(k) any amount received by a person as consideration for vacating the possession of a building or part thereof, reduced  by any amount paid by the person to acquire possession of such building or part thereof.

2[(l) any amount received by a person from Approved Income Payment Plan or Approved Annuity Plan under Voluntary Pension System Rules, 2005; 3[and]

4[(m) income arising to the shareholder of a company, from the issuance of bonus shares.]

(2)  Where a person receives an amount referred to in clause (k) of sub-section (1), the amount shall be chargeable to tax under the head “Income from Other Sources” in the tax year in which it was received and the following nine tax years in equal proportion. 

(3)  Subject to sub-section (4), any amount received as a loan, advance, deposit 5[for issuance of shares] or gift by a person in 6[a tax year] from another person (not being a banking company or financial institution) otherwise than by a crossed cheque drawn on a bank or through a banking channel from a person holding a National Tax Number 7[* * *] shall be treated as income chargeable to tax under the head “Income from Other Sources” for the tax year in which it was received.

(4)  Sub-section (3) shall not apply to an advance payment for the sale of goods or supply of services. 

8[(4A)  Where — 

(a) any profit on debt derived from investment in National Savings Deposit Certificates including Defence

Savings Certificate paid to a person in arrears or the amount received includes profit chargeable to tax in the tax year or years preceding the tax year in which it is received; and

(b) as a result the person is chargeable at higher rate of tax than would have been applicable if the profit had been paid to the person in the tax year to which it relates, the person may, by notice in writing to the Commissioner, elect for the profit to be taxed at the rate of tax that would have been applicable if the profit had been paid to the person in the tax year to which it relates.] 

7 [(4B)   An election under sub-section (4A) shall be made by the due date for furnishing the person’s return of income for the tax year in which  the amount was received or by such later date as the Commissioner may allow by an order in writing.] 


1 The word “and” omitted by the Finance Act,2014, s.7(10)(i). 
3 Added ibid, s.7(10)(ii). 
4 Added by Finance Act, 2014, s.7(10)(iii). 
6 The words “an income year” substituted by the Finance Act, 2002, s.8(16)(b). 
7 The word “Card” omitted by the Finance Act, 2006, s.17(5). 
8 Ins by the Finance Act, 2003, s.12(18)(c ).


(5)  This section shall not apply to any income received by a person in a tax year that is chargeable to tax under any other head of income or subject to tax under section 5, 6 or 7. 

1(6)*             *             *            *               *                *                *

40.       Deductions in computing income chargeable under the head “Income from Other Sources”.—(1)  Subject to this Ordinance, in computing the income of a person chargeable to tax under the head “Income from Other Sources” for a tax year, a deduction shall be allowed for any expenditure paid by the person in the year to the extent to which the expenditure is paid in deriving income chargeable to tax under that head, other than expenditure of a capital nature.

(2)  A person receiving any profit on debt chargeable to tax under the head “Income from Other Sources”  shall  be  allowed  a deduction  for any Zakat paid by the person 2[* * *] under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980), at the time the profit is paid to the person.

(3)  A person receiving income referred to in clause 3[* *] (f) of sub-section section (1) of section 39 chargeable to tax under the head “Income from other sources” shall be allowed — 

(a) a deduction for the depreciation of any plant, machinery or building used to derive that income in accordance with section 22; and

(b) an initial allowance for any plant or machinery used to derive that income in accordance with section 23.

(4)        No deduction shall be allowed to a person under this section to the extent that the expenditure is deductible in computing the income of the person under another head of income. 

(5)        The provisions of section 21 shall apply in determining the deductions allowed to a person under this section in the same manner as they apply in determining the deductions allowed in computing the income of the person chargeable to tax under the head “Income from Business”.

4[(6)   Expenditure is of a capital nature if it has a normal useful life of more than one year.]

PART VII
EXEMPTIONS AND TAX CONCESSIONS

41.       Agricultural income. — (1) Agricultural income derived by a person shall be exempt from tax under this Ordinance.

(2)  In this section, “agricultural income” means, —

(a) any rent or revenue derived by a person from land which is situated in Pakistan and is used for agricultural purposes;

(b) any income derived by a person from land situated in Pakistan from --


1 Sub-section (6) omitted by the Finance Act, 2002, s.8(16)(c ).  
2 The words “on the profit” omitted by the Finance Act, 2003, s.12(19)(a). 
3 The brackets, letter and word “(e) or” omitted ibid, s.12(19)(b). 
4 Added by the Finance Act, 2002, s.8(17).


(i) agriculture;

(ii) the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by such person to render the produce raised or received by the person fit to be taken to market; or

(iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by such person, in respect of which no process has been performed other than a process of the nature described in sub-clause (ii); or 

 (c) any income derived by a person from —

(i) any building owned and occupied by the receiver of the rent or revenue of any land described in clause (a) or (b);

(ii) any building occupied by the cultivator, or the receiver of rent-in-kind, of any land in respect of which, or the produce of which, any operation specified in sub-clauses (ii) or (iii) of clause (b) is carried on, but only where the building is on, or in the immediate vicinity of the land and is a building which the receiver of the rent or revenue, or the cultivator, or the receiver of the rent-in-kind by reason of the person”s connection with  the  land, requires as a dwelling-house, a store-house, or other out-building.

42.       Diplomatic and United Nations exemptions. — (1) The income of an individual entitled to privileges under the Diplomatic and Consular Privileges Act, 1972 (IX of 1972) shall be exempt from tax under this Ordinance to the extent provided for in that Act.

(2)  The income of an individual entitled to privileges under the United Nations (Privileges and Immunities) Act, 1948 (XX of 1948), shall be exempt from tax under this Ordinance to the extent provided for in that Act.

(3)  Any pension received by a person, being a citizen of Pakistan, by virtue of the person’s former employment in the United Nations or its specialised agencies (including the International Court of Justice) provided the person’s salary from such employment was exempt under this Ordinance.

43.       Foreign government officials.— Any salary received by an employee of a foreign government as remuneration for services rendered to such government shall be exempt from tax under this Ordinance provided —

(a) the employee is a citizen of the foreign country and not a citizen of Pakistan;

(b) the services performed by the employee are of a character similar to those performed by employees of the Federal Government in foreign countries; 1[and] 

(c) the foreign government grants a similar exemption to employees of the Federal Government performing similar services in such foreign country 2[.]


1 Added by the Finance Act, 2002, s.8(18)(a). 
2 The words “a non-resident” substituted by the Finance Act, 2003, s.12(20).


1(d) * * * * * * *

44. Exemptions under international agreements.—(1) Any Pakistan source income which Pakistan is not permitted to tax under a tax treaty shall be exempt from tax under this Ordinance.

(2) Any salary received by an individual (not being a citizen of Pakistan) shall be exempt from tax under this Ordinance to the extent provided for in an Aid Agreement between the Federal Government and a foreign government or public international organization, where –

(a) the individual is either 2[not a resident] individual or a resident individual solely by reason of the performance of services under the Aid Agreement;

(b) if the Aid Agreement is with a foreign country, the individual is a citizen of that country; and

(c) the salary is paid by the foreign government or public international organisation out of funds or grants released as aid to Pakistan in pursuance of such Agreement.

(3) Any income received by a person (not being a citizen of Pakistan) engaged as a contractor, consultant, or expert on a project in Pakistan shall be exempt from tax under this Ordinance to the extent provided for in a bilateral or multilateral technical assistance agreement between the Federal Government and a foreign government or public international organisation, where —

(a) the project is financed out of grant funds in accordance with the agreement;

(b) the person is either a non-resident person or a resident person solely by reason of the performance of services under the agreement; and

(c) the income is paid out of the funds of the grant in pursuance of the agreement.

45. President’s honours.— (1) Any allowance attached to any Honour, Award, or Medal awarded to a person by the President of Pakistan shall be exempt from tax under this Ordinance.


1Clause (d) omitted by the Finance Act, 2002, s.8(18)(c ). 
2 Subs by the Finance Act, 2003, s.12(20).


(2) Any monetary award granted to a person by the President of Pakistan shall be exempt from tax under this Ordinance.

46. Profit on debt.— Any profit received by a non-resident person on a security issued by a resident person shall be exempt from tax under this Ordinance where—

(a) the persons are not associates;

(b) the security was widely issued by the resident person outside Pakistan for the purposes of raising a loan outside Pakistan for use in a business carried on by the person in Pakistan;

(c) the profit was paid outside Pakistan; and

(d) the security is approved by the 1[Board] for the purposes of this section.

47. Scholarships.— Any scholarship granted to a person to meet the cost of the person’s education shall be exempt from tax under this Ordinance, other than where the scholarship is paid directly or indirectly by an associate.

48. Support payments under an agreement to live apart.— 2[Any income received by a spouse as support payment under an agreement to live apart] shall be exempt from tax under this Ordinance.

49. Federal 3[Government,] Provincial Government, and 4[Local Government] income.— (1) The income of the Federal Government shall be exempt from tax under this Ordinance.

(2) The income of a Provincial Government or a 4[Local Government] in Pakistan shall be exempt from tax under this Ordinance, other than income chargeable under the head “Income from Business” derived by a Provincial Government or 4[Local Government] from a business carried on outside its jurisdictional area.


1 The words “Central Board of Revenue” substituted by the Finance Act, 2007, s.20(1)(d)(IB). 
2 The words “Any support payment received by a spouse under an agreement to live apart” subs by the Finance Act,2002, s.8(19). 
3 The words “and” subs by the Finance Act, 2009, s.5(9). 
4 The words “local authority” subs. by the Finance Act,2008, s.18(34).


1[(3) Subject to sub-section (2), any payment received by the Federal Government, a Provincial Government or a 2[Local Government] shall not be liable to any collection or deduction of advance tax.]

3[(4) Exemption under this section shall not be available in the case of corporation, company, a regulatory authority, a development authority, other body or institution established by or under a Federal law or a Provincial law or an existing law or a corporation, company, a regulatory authority, a development authority or other body or institution set up, owned and controlled, either directly or indirectly, by the Federal Government or a Provincial Government, regardless of the ultimate destination of such income as laid down in Article 165A of the Constitution of the Islamic Republic of Pakistan 4[:]

4[Provided that the income from sale of spectrum licenses by Pakistan Telecommunication Authority on behalf of the Federal Government after the first day of March 2014 shall be treated as income of the Federal Government and not of the Pakistan Telecommunication Authority.]

50. Foreign-source income of short-term resident individuals.— (1) Subject to sub-section (2), the foreign-source income of an individual 5[***] —

(a) who is a resident individual solely by reason of the individual’s employment; and

(b) who is present in Pakistan for a period or periods not exceeding three years, shall be exempt from tax under this Ordinance.

(2) This section shall not apply to —

(a) any income derived from a business of the person established in Pakistan; or


1 Added by Finance Act, 2006, s.17(6). 
2 The words “local authority” subs by the Finance Act,2008, s.18(34). 
3 Added by Finance Act, 2007, s.20(3). 
4 Full stop subs by a colon and thereafter a proviso added by the Finance Act, 2014, s.7(11). 
5 The brackets and words “other than a citizen of Pakistan” omitted by the Finance Act,2003, s.12(21).


(b) any foreign-source income brought into or received in Pakistan by the person.

51. Foreign-source income of returning expatriates.— 1[(1)] Any foreign-source income derived by a citizen of Pakistan in a tax year who was not a resident individual in any of the four tax years preceding the tax year in which the individual became a resident shall be exempt from tax under this Ordinance in the tax year in which the individual became a resident individual and in the following tax year.

2[(2) Where a citizen of Pakistan leaves Pakistan during a tax year and remains abroad during that tax year, any income chargeable under the head “salary” earned by him outside Pakistan during that year shall be exempt from tax under this Ordinance.]

352. * * * * * *

53. Exemptions and tax concessions in the Second Schedule.— (1)The income or classes of income, or persons or classes of persons specified in the Second Schedule shall be —

(a) exempt from tax under this Ordinance, subject to any conditions and to the extent specified therein;

(b) subject to tax under this Ordinance at such rates, which are less than the rates specified in the First Schedule, as are specified therein;

(c) allowed a reduction in tax liability under this Ordinance, subject to any conditions and to the extent specified therein; or

(d) exempted from the operation of any provision of this Ordinance, subject to any conditions and to the extent specified therein.

4(1A)* * * * * * *


1 Section 51 numbered as sub-section (1) of section 51 by the Finance Act, 2003, s.12(22). 
2 Added ibid, s.12(22). 
3 Section (52) omitted by the FinanceAct,2002, s.8(20). 
4 Sub-section (1A) omitted by the Finance Act,2012,s.15(9).


(2)  The Federal Government may, from time to time, 1[pursuant of the Economic Coordination Committee of Cabinet, whenever circumstances exist to take immediate action for the purposes of national security, natural disaster, national food security in emergency situations, arising out of abnormal fluctuation in international commodity prices, removal of anomalies in taxes, development of backward areas and implementation of bilateral and multilateral agreements]  by notification in the official Gazette, make such amendment in the Second Schedule by —

(a) adding any clause or condition therein;

(b) omitting any clause or condition therein; or

(c) making any change in any clause or condition therein,

as the Government may think fit, and all such amendments shall have effect in respect of any tax year beginning on any date before or after the commencement of the financial year in which the notification is issued.

(3)        The Federal Government shall place before the National Assembly all amendments made by it to the Second Schedule in a financial year.

2[(4)     Any notification issued under sub-section (2) after the commencement of the Finance Act,2015, shall, if not earlier rescinded on the expiry of the financial year in which is was issued.]

54.       Exemptions and tax provisions in other laws.—No provision in any other law providing for —

(a) an exemption from any tax imposed under this Ordinance;

(b) a reduction in the rate of tax imposed under this Ordinance;

(c) a reduction in tax liability of any person under this Ordinance; or

(d) an exemption from the operation of any provision of this Ordinance,  shall have legal effect unless also provided for in this Ordinance 3[.] 

   3*            *             *             *                  *                    *                     *

55.  Limitation of exemption.—  (1)  Where any income is exempt from tax under this Ordinance, the exemption shall be, in the absence of a specific provision to the contrary contained in this Ordinance, limited to the original recipient of that income and shall not extend to any person receiving any payment wholly or in part out of that income.

4(2)  *         *            *              *                *                *               *   


1 Ins added by the Finance Act,2015,s.9(11)(a) (w.e.f.01.07.2015). 
2 Added ibid, s.9(11)(b)(w.e.f.01.07.2015) 
3 The colon subs by a full stop and thereafter the proviso omitted by the Finance Act, 2008 
4 Sub-section (2) omitted by the Finance Act, 2003, s.12(25).


PART VIII

LOSSES

56. Set off of losses.— (1) Subject to sections 58 and 59, where a person sustains a loss for any tax year under any head of income specified in section 11, the person shall be entitled to have the amount of the loss set off against the person’s income, if any, chargeable to tax under any other head of income 1[except income under the head salary or income from property] for the year.

(2) Except as provided in this Part, where a person sustains a loss under a head of income for a tax year that cannot be set off under sub-section (1), the person shall not be permitted to carry the loss forward to the next tax year.

(3) Where, 2[in a tax year,] a person sustains a loss under the head “Income from Business” and a loss under another head of income, the loss under the head “Income from Business” shall be set off last.

3[56A. Set off of losses of companies operating hotels.— Subject to sections 56 and 57, where a company registered in Pakistan or Azad Jammu and Kashmir (AJ&K), operating hotels in Pakistan or AJ&K, sustains a loss in Pakistan or AJ&K for any tax year under the head “income from business” shall be entitled to have the amount of the loss set off against the company’s income in Pakistan or AJ&K, as the case may be, from the tax year 2007 4[onward].

57. Carry forward of business losses.— (1) Where a person sustains a loss for a tax year under the head “Income from Business” (other than a loss to which section 58 applies) and the loss cannot be wholly set off under section 56, so much of the loss that has not been set off shall be carried forward to the following tax year and set off against the person’s income chargeable under the head “Income from Business” for that year.

(2) If a loss sustained by a person for a tax year under the head “Income from Business” is not wholly set off under sub-section (1), then the


1 Ins by the Finance Act, 2013, s.7(4). 
2 Ins by the Finance Act, 2002 , s.8(21). 
3 Ins by the Finance Act, 2007, s.20(4). 
4 The word “onward’ substituted by the word “onward” by the Finance Act, 2014, s.7(12).


amount of the loss not set off shall be carried forward to the following tax year and applied as specified in sub-section (1) in that year, and so on, but no loss can be carried forward to more than six tax years immediately succeeding the tax year for which the loss was first computed.

1[(2A) Where a loss, referred to in sub-section (2), relating to any assessment year commencing on or after 1st day of July, 1995, and ending on the 30th day of June 2001, is sustained by a banking company wholly owned by the Federal Government as on first day of June, 2002, which is approved by the State Bank of Pakistan for the purpose of this sub-section, the said loss shall be carried forward for a period of ten years.]

(3) Where a person has a loss carried forward under this section for more than one tax year, the loss of the earliest tax year shall be set off first.

(4) Where the loss referred to in sub-section (1) includes deductions allowed under sections 22, 23 2[23A, 23B] and 24 that have not been set off against income, the amount not set off shall be added to the deductions allowed under those sections in the following tax year, and so on until completely set off.

(5) In determining whether a person’s deductions under sections 22, 23 2[23A, 23B] and 24 have been set off against income, the deductions allowed under those sections shall be taken into account last.

3[57A. Set off of business loss consequent to amalgamation.—4[(1) The assessed loss (excluding capital loss) for the tax year, other than brought forward and capital loss, of the amalgamating company or companies shall be set off against business profits and gains of the amalgamated company, and vice versa, in the year of amalgamation and where the loss is not adjusted against the profits and gains for the tax year the unadjusted loss shall be carried forward for adjustment upto a period of six tax years succeeding the year of amalgamation.]

(2) The provisions of sub-section (4) and (5) of section 57 shall, mutatis mutandis, apply for the purposes of allowing unabsorbed depreciation


1 Ins by the Finance Act, 2002, s.8(22). 
2 Ins ibid, s.5(10)(a) and (b). 
3 Added ibid, s.8(23). 
4 Sub-section (1) substituted by the Finance Act, 2007, s.20(5).


of amalgamating company or companies in the assessment of amalgamated company 1[and vice versa] 2[:]

2[Provided that the losses referred to in sub-section (1) and unabsorbed depreciation referred to in sub-section (2) shall be allowed set off subject to the condition that the amalgamated company continues the business of the amalgamating company for a minimum period of five years from the date of amalgamation.]

3[(2A).In case of amalgamation of Banking Company or Non-banking Finance Company, modarabas or insurance company, the accumulated loss under the head “Income from Business” (not being speculation business losses) of an amalgamating company or companies shall be set off or carried forward against the business profits and gains of the amalgamated company and vice versa, up to a period of six tax years immediately succeeding the tax year in which the loss was first computed in the case of amalgamated company or amalgamating company or companies:

Provided that the provisions of this sub-section shall in the case of Banking companies be applicable from July 1, 2007.]

(3) Where any of the conditions as laid down by the State Bank of Pakistan or the Securities and Exchange Commission of Pakistan4[or any court], court], as the case may be, in the scheme of amalgamation, are not fulfilled, the set off of loss or allowance for depreciation made in any tax year of the amalgamated company 5[or the amalgamating company or companies] shall be deemed to be the income of that amalgamated company 2[or the amalgamating company or companies, as the case may be,] for the year in which such default is discovered by the Commissioner or taxation officer, and all the provisions of this Ordinance shall apply accordingly.]

58. Carry forward of speculation business losses.— (1) Where a person sustains a loss for a tax year in respect of a speculation business carried on by the person (hereinafter referred to as a “speculation loss”), the


1 Ins by the Finance Act, 2005, s.8(7)(b)(i). 
2 Full stop subs and thereafter proviso added by the Finance Act, 2005, s.8(7)(b)(ii). 
3 Ins ibid, s.18(5). 
4 Ins by the Finance Act, 2005, s.8(7)(c ). 
5 Ins ibid, s.8(7)(c ) (ii).


loss shall be set off only against the income of the person from any other speculation business of the person chargeable to tax for that year.

(2) If a speculation loss sustained by a person for a tax year is not wholly set off under sub-section (1), then the amount of the loss not set off shall be carried forward to the following tax year and applied against the income of any speculation business of the person in that year and applied as specified in sub-section (1) in that year, and so on, but no speculation loss shall be carried

(3) Where a person has a loss carried forward under this section for more than one tax year, the loss of the earliest tax year shall be set off first.

59. Carry forward of capital losses.— (1) Where a person sustains a loss for a tax year under the head “Capital Gains” (hereinafter referred to as a “capital loss”), the loss shall not be set off against the person’s income, if any, chargeable under any other head of income for the year, but shall be carried forward to the next tax year and set off against the capital gain, if any, chargeable under the head “Capital Gains” for that year.

(2) If a capital loss sustained by a person for a tax year under the head “Capital Gains” is not wholly set off under sub-section (1), then the amount of the loss not set off shall be carried forward to the following tax year, and so on, but no loss shall be carried forward to more than six tax years immediately succeeding the tax year for which the loss was first computed.

(3) Where a person has a loss carried forward under this section for more than one tax year, the loss of the earliest tax year shall be set off first.

1[59A. Limitations on set off and carry forward of losses.—

2(1) * * * * * * *

2(2) * * * * * * *


1 Added by the Finance Act, 2003, s.12(26). 
2 Sub-section (1)and (2) omitted by the Finance Act, 2012, S.15(10)(c ).


(3) In case of association of persons 1[any loss] shall be set off or carried forward and set off only against the income of the association.

(4) Nothing contained in section 56, 57, 58 or 59 shall entitle —

(a) any member of an association of persons 2[* * *] to set off any loss sustained by such association of persons, as the case may be, or have it carried forward and set off, against his income; or

(b) any person who has succeeded, in such capacity, any other person carrying on any business or profession, otherwise than by inheritance, to carry forward and set off against his income, any loss sustained by such other person.

(5) Where in computing the taxable income for any tax year, full effect cannot be given to a deduction mentioned in section 22, 23, 24 or 25 owing to there being no profits or gains chargeable for that year or such profits or gains being less than the deduction, then, subject to sub-section (12) of section 22, and sub-section (6), the deduction or part of the deduction to which effect has not been given, as the case may be, shall be added to the amount of such deduction for the following year and be treated to be part of that deduction, or if there is no such deduction for that year, be treated to be the deduction for that year and so on for succeeding years.

(6) Where, under sub-section (5), deduction is also to be carried forward, effect shall first be given to the provisions of section 56 and sub-section (2) of section 58.

(7) Notwithstanding anything contained in this Ordinance, no loss which has not been assessed or determined in pursuance of an order made under section 59, 59A, 62, 63 or 65 of the repealed Ordinance or an order made or treated as made under section 120, 121 or 122 shall be carried forward and set off under section 57, sub-section (2) of section 58 or section 59.]


1 The words, figures, commas and brackets,” to which sub-section (3) of section 92 does not apply,” any loss of such association substituted by the Finance Act, 2012, s.15(10)(b). 
2 The words, figures, commas and brackets,”to which sub-section (3) of section 92 does not apply,” any loss of such association omitted ibid, s.15(10)(c ).


1[59AA. Group taxation.— (1) Holding companies and subsidiary companies of 100% owned group may opt to be taxed as one fiscal unit. In such cases, besides consolidated group accounts as required under the Companies Ordinance, 1984 (XLVII of 1984), computation of income and tax payable shall be made for tax purposes.

(2) The companies in the group shall give irrevocable option for taxation under this section as one fiscal unit.

(3) The group taxation shall be restricted to companies locally incorporated under the Companies Ordinance, 1984 (XLVII of 1984).

(4) The relief under group taxation would not be available to losses prior to the formation of the group.

(5) The option of group taxation shall be available to those group companies which comply with such corporate governance requirements 2[and group designation rules or regulations] as may be specified by the Securities and Exchange Commission of Pakistan from time to time and are designated as companies entitled to avail group taxation.

(6) Group taxation may be regulated through rules as may be made by the 3[Board].

4[59B. Group relief.— (1) Subject to sub-section (2), any company, being a subsidiary of a holding company, may surrender its assessed loss (excluding capital loss) for the tax year (other than brought forward losses and capital losses), in favour of its holding company or its subsidiary or between another subsidiary of the holding company:

Provided that where one of the company in the group is a public company listed on a registered stock exchange in Pakistan, the holding company shall directly hold fifty-five per cent or more of the share capital of the subsidiary company. Where none of the company listed on a registered stock exchange in Pakistan, owning and managing an industrial undertaking or an undertaking engaged in providing services, may surrender its assessed loss for the tax year other than brought forward losses, in favour of its holding company provided such holding company owns or acquires seventy-five per cent or more of the share capital of the subsidiary company.

(2) The loss surrendered by the subsidiary company may be claimed by the holding company for set off against its income under the head “income from Business” in the tax year and the following two tax years subject to the following conditions, namely:-

(a) there is continued ownership for five years, of share capital of the subsidiary company to the extent of fifty-five per cent in the case of a listed company, or seventy-five per cent or more, in the case of other companies;

(b) a company within the group engaged in the business of trading shall not be entitled to avail group relief;


1 Ins by the Finance Act, 2007, s.20(6). 
2 Ins by the Finance Act,2013, s.7(5). 
3 The words “Central Board of Revenue” substituted by the word “Board” by the Finance Act. 2014 , s.7(13). 
4 Section (59B) subs by the Finance Act, 2007, s.20(7).


(c) holding company, being a private limited company with seventy-five per cent of ownership of share capital gets itself listed within three years from the year in which loss is claimed;

(d) the group companies are locally incorporated companies under the Companies Ordinance, 1984 (XLVII of 1984);

(e) the loss surrendered and loss claimed under this section shall have approval of the Board of Directors of the respective companies;

(f) the subsidiary company continues the same business during the said period of three years;

(g) all the companies in the group shall comply with such corporate governance requirements 1[and group designation rules or regulations] as may be specified by the Securities and Exchange Commission of Pakistan from time to time, and are designated as companies entitled to avail group relief; and

(h) any other condition as may be prescribed.

(3) The subsidiary company shall not be allowed to surrender its assessed losses for set off against income of the holding company for more than three tax years.

(4) Where the losses surrendered by a subsidiary company are not adjusted against income of the holding company in the said three tax years, the subsidiary company shall carry forward the unadjusted losses in accordance with the provision of section 57.

(5) If there has been any disposal of shares by the holding company during the aforesaid period of five years to bring the ownership of the holding company to less than seventy-five per cent, the holding company shall, in the year of disposal, offer the amount of profit on which taxes have not companies in the group is a listed company, the holding company shall hold directly seventy-five per cent or more of the share capital of the subsidiary company.

(6) Loss claiming company shall, with the approval of the Board of Directors, transfer cash to the loss surrendering company equal to the amount of tax payable on the profits to be set off against the acquired loss at the applicable tax rate. The transfer of cash would not be taken as a taxable event in the case of either of the two companies.

(7) The transfer of shares between companies and the share holders, in one direction, would not be taken as a taxable event provided the transfer is to acquire share capital for formation of the group and approval of the Security and Exchange Commission of Pakistan or State Bank of Pakistan, as the case may be, has been obtained in this effect. Sale and purchase from third party would be taken as taxable event.]


1 Ins by the Finance Act, 2013, s.7(6).


PART IX

DEDUCTIBLE ALLOWANCES

60. Zakat.— (1)A person shall be entitled to a deductible allowance for the amount of any Zakat paid by the person in a tax year under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980).

(2) Sub-section (1) does not apply to any Zakat taken into account under sub-section (2) of section 40.

(3)Any allowance or part of an allowance under this section for a tax year that is not able to be deducted under section 9 for the year shall not be refunded, carried forward to a subsequent tax year, or carried back to a preceding tax year.

1[60A. Workers’ Welfare Fund.— A person shall be entitled to a deductible allowance for the amount of any Workers’ Welfare Fund paid by the person in tax year under Workers’ Welfare Fund Ordinance, 1971 (XXXVI of 1971)] 2[.]

3[60B. Workers’ Participation Fund.— A person shall be entitled to a deductible allowance for the amount of any Workers’ Participation Fund paid by the person in a tax year in accordance with the provisions of the Companies Profit (Workers’ Participation) Act, 1968 (XII of 1968).]


1 Added by the Finance Act, 2003, s.12(27). 
2 Ins by the Finance Act, 2005, s.8(9). 
3 Added by the Finance Act, 2004, s.6(11).


PART X

TAX CREDITS

61. Charitable donations.— 1[(1) A person shall be entitled to a tax credit in respect of any sum paid, or any property given by the person in the tax year as a donation to —

(a) any board of education or any university in Pakistan established by, or under, a Federal or a Provincial law;

(b) any educational institution, hospital or relief fund established or run in Pakistan by Federal Government or a Provincial Government or a 2[Local Government]; or

(c) any non-profit organization.]

(2) The amount of a person’s tax credit allowed under sub-section (1) for a tax year shall be computed according to the following formula, namely:—

(A/B) x C

where —

A is the amount of tax assessed to the person for the tax year before allowance of any tax credit under this Part;

B is the person’s taxable income for the tax year; and

C is the lesser of —

(a) the total amount of the person’s donations referred to in sub-section (1) in the year, including the fair market value of any property given; or

(b) where the person is —


1 Sub-section (1) substituted by the Finance Act, 2003, s.12(28)(a). 
2 The words “local authority” substituted by the Finance Act, 2008, s.18(34).


(i) an individual or association of persons, thirty per cent of the taxable income of the person for the year; or

(ii) a company, 1[twenty] per cent of the taxable income of the person for the year.

(3) For the purposes of clause (a) of component C of the formula in sub-section (2), the fair market value of any property given shall be determined at the time it is given.

(4) A cash amount paid by a person as a donation shall be taken into account under clause (a) of component C 2[of] sub-section (2) only if it was paid by a crossed cheque drawn on a bank.

3[(5) The 4[Board] may make rules regulating the procedure of the grant of approval under sub-clause (c) of clause (36) of section 2 and any other matter connected with, or incidental to, the operation of this section.]

5[62. Tax credit for investment in shares and insurance.— 1) A resident person other than a company shall be entitled to a tax credit for a tax year either—

(i) in respect of the cost of acquiring in the year new shares offered to the public by a public company listed on a stock exchange in Pakistan, provided the resident person is the original allottee of the shares or the shares are acquired from the Privatization Commission of Pakistan; or

(ii) in respect of any life insurance premium paid on a policy to a life insurance company registered by the Securities and Exchange Commission of Pakistan under the Insurance Ordinance, 2000 (XXXIX of 2000), provided the resident person is deriving income


1The word “fifteen” substituted by the Finance Act, 2009, s.5(11). 
2 Ins by the Finance Act, 2002, s.8(24). 
3 Added by the Finance Act, 2003, s.12(28)(b). 
4 The words “Central Board of Revenue” substituted by the Finance Act, 2007, s.20(1)(d)(IB). 
5 Section 62 substituted by the Finance Act, 2011, s.6(4).


chargeable to tax under the head “salary” or “income from business”.

(2) The amount of a person’s tax credit allowed under sub-section (1) for a tax year shall be computed according to the following formula, namely: —

(A/B) x C

where—

A is the amount of tax assessed to the person for the tax year before allowance of any tax credit under this Part;

B is the person’s taxable income for the tax year; and

C is the lesser of —

(a) the total cost of acquiring the shares, or the total contribution or premium paid by the person referred to in sub-section (1) in the year;

(b) 1[twenty] per cent of the person’s taxable income for the year; or

(c) 2[one 3[and a half ]million rupees].

(3) Where —

(a) a person has been allowed a tax credit under sub-section (1) in a tax year in respect of the purchase of a share; and

(b) the person has made a disposal of the share within 4[twenty-four] months of the date of acquisition, the amount of tax payable by the person for the tax year in which the shares were disposed of shall be increased by the amount of the credit allowed.]


1 Subs by the Finance Act, 2012, s.15(11)(a)(i). 
2 The words “five hundred thousand rupees” subs ibid, s.15(11)(a)(ii). 
3 Ins by the Finance Act, 2015, s.9(12)(w.e.f..01.07.2015) 
4 The word “thirty-six” substituted by the Finance Act, 2012, s.15(11)(b).


1[63. Contribution to an Approved Pension Fund.—(1) An eligible person as defined in sub-section (19A) of section 2 deriving income chargeable to tax under the head “Salary” or the head “Income from Business” shall be entitled to a tax credit for a tax year in respect of any contribution or premium paid in the year by the person in approved pension fund under the Voluntary Pension System Rules, 2005.

(2) The amount of a person’s tax credit allowed under sub-section (1) for a tax year shall be computed according to the following formula, namely: —

(A/B) x C

Where.-

A is the amount of tax assessed to the person for the tax year, before allowance of any tax credit under this Part;

B is the person’s taxable income for the tax year; and

C is the lesser of –

(i) the total contribution or premium referred to in sub-section (1) paid by the person in the year; or

(ii) twenty per cent of the 2[eligible] person’s taxable income for the relevant tax year; Provided that 3[an eligible person] joining the pension fund at the age of forty-one years or above, during the first ten years 4[starting from July 1, 2006] shall be allowed additional contribution of 2% per annum for each year of age exceeding forty years. Provided further that the total contribution allowed to such person shall not exceed 50% of the total taxable income of the preceding year 5[.]]

6* * * * * * *


1 Section 63 substituted by the Finance Act, 2005, s.8(11). 
2 Ins by the Finance Act, 2006, s.17(8)(a). 
3 The words “a person” subs ibid, s.17(8)(b). 
4 The words, figure and commas “of the notification of the Voluntary Pension System Rules, 2005,” subs ibid, s.17(8)(c ). 
5 The semi-colon and the word “or” substituted by the Finance Act, 2011, s.6(5)(a). 
6 Clause (iii) omitted ibid, s.6(5)(b).


1[(3) The transfer by the members of approved employment pension or annuity scheme or approved occupational saving scheme of their existing balance to their individual pension accounts maintained with one or more pension fund managers shall not qualify for tax credit under this section.]

2* * * * * * *

3[64A. Deduction allowance for profit on debt. — (1) Every individual shall be entitled to a deductible allowance for the amount of any profit or share in rent and share in appreciation for value of house paid by the individual in a tax year on a loan by a scheduled bank or non-banking finance institution regulated by the Securities and Exchange Commission of Pakistan or advanced by Government or the Local Government, Provincial Government or a statutory body or a public company listed on a registered stock exchange in Pakistan where the individual utilizes the loan for the construction of a new house or the acquisition of a house.

(2) The amount of an individual’s deductible allowance allowed under sub-section (1) for a tax year shall not exceed fifty percent of taxable income or one million rupees, whichever is lower.

(3) Any allowance or part of an allowance under this section for a tax year that is not able to be deducted for the year shall not be carried toward to a subsequent tax year.

64B. Tax credit for employment generation by manufacturers.- (1) Where a taxpayer being a company formed for establishing and operating a new manufacturing unit sets up a new manufacturing unit between the 1st day of July,2015 and the 30th day of June, 2018, (both days inclusive) it shall be given a tax credit for a period often years.

(2) The tax credit under sub-section (1) for a tax year shall be equal tone percent of the tax payable for every fifty employees registered with The Employees Old Age Benefits Institution or the Employees Social Security Institutions of Governments during the tax year, subject to a maximum of ten percent of the tax payable.


1 Added by the Finance Act, 2006, s.17(8)(d). 
2 Omitted by the Finance Act, 2015, s.9(13)(w.e.f.01.07.2015) 
3 Ins ibid, s.9(13).


(3) Tax credit under this section shall be admissible where—

(a) the company is incorporate and manufacturing unit is setup between the fist day of July, 2015 and the 30th day of June, 2018, both days inclusive;

(b) employs more than fifty employees in a tax year registered with the Employees Old Age Benefits Institution and the Employees Social Security Institutions of Provincial Governments;

(c) manufacturing unit is managed by a company formed for operating the said manufacturing unit and registered under the Companies Ordinance, 1984 (XLVII of 1984) and having its registered office in Pakistan; and

(d) the manufacturing unit is not established by the splitting up or reconstruction or reconstitution of an undertaking already in existence or by transfer of machinery or plant from an undertaking established in Pakistan at any time before the 1st July, 2015.

(4) Where any credit is allowed under this section and subsequently it is discovered, on the basis of documents or otherwise, by the Commissioner that any of the conditions specified in this section were not fulfilled, the credit originally allowed shall be deemed to have been wrongly allowed and the Commissioner may, notwithstanding anything contained in this Ordinance, re-compute the tax payable by the taxpayer for the relevant year and the provisions of this Ordinance shall, so far as may be, apply accordingly.

(5) For the purposes of this section, a manufacturing unit shall be treated to have been set up on the date on which the manufacturing unit is ready to go into production, where trial production or commercial production.]

65. Miscellaneous provisions relating to tax credits.— (1) Where the person entitled to a tax credit under [this] Part is a member of an association of persons to which sub-section (1) of section 92 applies, the following shall apply—


(a) component A of the formula in sub-section (2) of section 61, sub-section (2) of section 62, sub-section (2) of section 63 and sub-section (2) of section 64 shall be the amount of tax that would be assessed to the individual if any amount derived in the year that is exempt from tax under sub-section (1) of section 92 were chargeable to tax; and

(b) component B of the formula in sub-section (2) of section 61, sub-section (2) of section 62, sub-section (2) of section 63 and sub-section (2) of section 64 shall be the taxable income of the individual for the year if any amount derived in the year that is exempt from tax under sub-section (1) of section 92 were chargeable to tax.

(2) Any tax credit allowed under this Part shall be applied in accordance with sub-section (3) of section 4.

(3) Subject to sub-section (4), any tax credit or part of a tax credit allowed to a person under this Part for a tax year that is not able to be credited under sub-section (3) of section 4 for the year shall not be refunded, carried forward to a subsequent tax year, or carried back to a preceding tax year.

(4) Where the person to whom sub-section (3) applies is a member of an association of persons to which sub-section (1) of section 92 applies, the amount of any excess credit under sub-section (3) for a tax year may be claimed as a tax credit by the association for that year.

(5) Sub-section (4) applies only where the member and the association agree in writing for the sub-section to apply and such agreement in writing must be furnished with the association’s return of income for that year.

1[(6) Where the person is entitle to a tax credit under section 65B, 65D or 65E, provisions of clause (d) of sub-section (2) of section 169 and clause (d) of sub-section (1) of section 113 shall not apply.].

2[65A. Tax credit to a person registered under the Sales Tax Act, 1990. — (1) Every manufacturer, registered under the Sales Tax Act, 1990, shall be


1Added by the Finance Act, 2015, s.9(14)(w.e.f.01.07.2015) 
2Ins by the Finance Act, 2009, s.5(13).


entitled to a tax credit of two and a half per cent of tax payable for a tax year, if ninety per cent of his sales are to the person who is registered under the aforesaid Act during the said tax year.

(2) For claiming of the credit, the person shall provide complete details of the persons to whom the sales were made.

(3) No credit will be allowed to a person whose income is covered under final tax or minimum tax.

(4) Carry forward of any amount where full credit may not be allowed against the tax liability for the tax year, shall not be allowed.]

1[65B. Tax credit for investment.— (1) Where a taxpayer being a company invests any amount in the purchase of plant and machinery, for the purposes of 2[extension, expansion,] balancing, modernization and replacement of the plant and machinery, already installed therein, in an industrial undertaking set up in Pakistan and owned by it, credit equal to ten per cent of the amount so invested shall be allowed against the tax payable 3[, including on account of minimum tax and final taxes payable under any of the provisions of this Ordinance,] by it in the manner hereinafter provided.

(2) The provisions of sub-section (1) shall apply if the plant and machinery is purchased and installed at any time between the first day of July, 2010, and the 30th day of June, 4[2016].

(3) The amount of credit admissible under this section shall be deducted from the tax payable by the taxpayer in respect of the tax year in which the plant or machinery in the purchase of which the amount referred to in sub-section (1) is invested and installed.

5[(4) The provisions of this section shall mutatis mutandis apply to a company setup in Pakistan before the first day of July, 2011, which makes investment, through hundred per cent new equity, during first day of July,


1 Ins by the Finance Act, 2010, s.8(7). 
2 Ins by the Finance Act, 2012, s.15(12)(a). 
3 Ins ibid, s.15(12)(b). 
4 Subs by the Finance Act, 2015, s.9(15)(w.e.f.01.07.2015) 
5 Sub-section (4) and (5) subs by the Finance Act, 2012, s.15(12)(c ).


2011 and 30th day of June, 2016, for the purposes of balancing, modernization and replacement of the plant and machinery already installed in an industrial undertaking owned by the company. However, credit equal to twenty per cent of the amount so invested shall be allowed against the tax payable, including on account of minimum tax and final taxes payable under any of the provisions of this Ordinance. The credit shall be allowed in the year in which the plant and machinery in the purchase of which the investment as aforesaid is made, is installed therein.

“Explanation.— For the purpose of this section the term “new equity” shall, have the same meaning as defined in sub-section (7) of section 65E.]

1[(5) Where no tax is payable by the taxpayer in respect of the tax year in which such plant or machinery is installed, or where the tax payable is less than the amount of credit as aforesaid, the amount of the credit or so much of it as is in excess thereof, as the case may be, shall be carried forward and deducted from the tax payable by the taxpayer in respect of the following tax year and so on, but no such amount shall be carried forward for more than two tax years in the case of investment referred to in sub-section (1) and for more than five tax years in respect of investment referred to in sub-section (4), however, the deduction made under this section shall not exceed in aggregate the limit specified in sub-section (1) or sub-section (4), as the case may be.]

1[(6) Where any credit is allowed under this section and subsequently it is discovered by the Commissioner Inland Revenue that any one or more of the conditions specified in this section was, or were, not fulfilled, as the case may be, the credit originally allowed shall be deemed to have been wrongly allowed and the Commissioner, notwithstanding anything contained in this Ordinance, shall re-compute the tax payable by the taxpayer for the relevant year and the provisions of this Ordinance shall, so far as may be, apply accordingly.]

2[65C. Tax credit for enlistment. — (1) Where a taxpayer being a company opts for enlistment in any registered stock exchange in Pakistan, a tax credit equal to 3[twenty] per cent of the tax payable shall be allowed for the tax year in which the said company is enlisted.]


1 Sub-section (6) added by the Finance Act, 2012, s.­­­­­­­­­­­­15 (12)(c) 
2 Section 65C inserted by the Finance Act, 2010, 
3 Subs., by the Finance Act,2015, s.9(16)


1[65D. Tax credit for newly established industrial undertakings. — (1) Where a taxpayer being a company formed for establishing and operating a new industrial undertaking 2[including corporate dairy farming] sets up a new industrial undertaking [including a corporate dairy farm], it shall be given a tax credit equal to hundred per cent of the tax payable 3[, including on account of minimum tax and final taxes payable under any of the provisions of this Ordinance,] on the taxable income arising from such industrial undertaking for a period of five years beginning from the date of setting up or commencement of commercial production, whichever is later.

(2) Tax credit under this section shall be admissible where—

(a) the company is incorporated and industrial undertaking is setup between the first day of July, 2011 and 30th day of June, 2016;

(b) industrial undertaking is managed by a company formed for operating the said industrial undertaking and registered under the Companies Ordinance, 1984 (XLVII of 1984) and having its registered office in Pakistan;

(c) the industrial undertaking is not established by the splitting up or reconstruction or reconstitution of an undertaking already in existence or by transfer of machinery or plant from an industrial undertaking established in Pakistan at any time before 1st July 2011; and

(d) the industrial undertaking is set up with hundred per cent equity 4[raised through issuance of new shares for cash consideration:]


1 Section 65D inserted by the Finance Act, 2011, s. 6, (7). 
2 The words “for manufacturing in Pakistan” substituted by the Finance Act, 2012, s. 15(13)(i)(a)&(b). 
3 Ins by the Finance Act, 2012, s.15(13)(i)(c). 
4 The words and full stop “owned by the company.” substituted by the Finance Act, 2012, s.15(13)(ii).


1[Provided that short term loans and finances obtained from banking companies or non-banking financial institutions for the purposes of meeting working capital requirements shall not disqualify the taxpayer from claiming tax credit under this section.]

2(3) * * * * * *

(4) Where any credit is allowed under this section and subsequently it is discovered, on the basis of documents or otherwise, by the Commissioner Inland Revenue that any of the 3[conditions] specified in this section 4[were] not fulfilled, fulfilled, the credit originally allowed shall be deemed to have been wrongly allowed and the Commissioner Inland Revenue may, notwithstanding anything contained in this Ordinance, re-compute the tax payable by the taxpayer for the relevant year and the provisions of this Ordinance shall, so far as may be, apply accordingly.]

5[(5) For the purposes of this section and sections 65B and 65E, an industrial undertaking shall be treated to have been setup on the date on which the industrial undertaking is ready to go into production, whether trial production or commercial production.]

6[65E. Tax credit for industrial undertakings established before the first day of July, 2011.— 7[(1) Where a taxpayer being a company, setup in Pakistan before the first day of July, 2011, invests any amount, with hundred per cent new equity raised through issuance of new shares, in the purchase and installation of plant and machinery for an industrial undertaking, including corporate dairy farming, for the purposes of-

(i) expansion of the plant and machinery already installed therein; or

(ii) undertaking a new project,


1 Added by the Finance Act, 2012, s.15(13)(ii)(b). 
2 Sub-section (3) omitted ibid, s.15(13)(iii). 
3 The word “condition” substituted ibid., s.15(13)(iv)(a). 
4 The word “was” substituted ibid., s.15(13)(iv)(b). 
5 Added ibid., s.15(13)(v) 
6 Added by the Finance Act, 2011, s.6(7)(4). 
7 Sub-section (1) substituted by the Finance Act, 2012, s. 15(14)(a).


a tax credit shall be allowed against the tax payable in the manner provided in sub-section (2) and sub-section (3), as the case may be, for a period of five years beginning from the date of setting up or commencement of commercial production from the new plant or expansion project, whichever is later.]

1[(2) Where a taxpayer maintains separate accounts of an expansion project or a new project, as the case may be, the taxpayer shall be allowed a tax credit equal to one hundred per cent of the tax payable, including minimum tax and final taxes payable under any of the provisions of this Ordinance, attributable to such expansion project or new project.

(3) In all other cases, the credit under this section shall be such proportion of the tax payable, including minimum tax and final taxes payable under any of the provisions of this Ordinance, as is the proportion between the new equity and the total equity including new equity.

(4) The provisions of sub-section (1) shall apply if the plant and machinery is installed at any time between the first day of July, 2011 and the 30th day of June, 2016.]

(5) The amount of credit admissible under this section shall be deducted from the tax payable, including minimum tax and final taxes payable under any of the provisions of this Ordinance, by the taxpayer 2[for a period of five years beginning from the date of setting upon commencement of commercial production from the new plant or expansion of project, whichever is later”]

3[(6)] Where any credit is allowed under this section and subsequently it is discovered, on the basis of documents or otherwise, by the Commissioner Inland Revenue that any of the condition specified in this section was not fulfilled, the credit originally allowed shall be deemed to have been wrongly allowed and the Commissioner Inland Revenue may, notwithstanding anything contained in this Ordinance, re-compute the tax payable by the taxpayer for the relevant year and the provisions of this Ordinance shall apply accordingly.


1 Sub-section (2) ,(3),(4) and (5) subs., ibid s. 15(14)(b). 
2 In sub-section (5) subs., by Finance Act, 2015, s. 9(17). 
3 Sub-section (5) renumbered by the Finance Act, 2012, s.15(14)(c).


1[(7) For the purposes of this section, “new equity” means equity raised through fresh issue of shares against cash by the company and shall not include loans obtained from shareholders or directors:

Provided that short term loans and finances obtained from banking companies or non-banking financial institutions for the purposes of meeting working capital requirements shall not disqualify the taxpayer from claiming tax credit under this section.]

CHAPTER IV

COMMON RULES

PART I

GENERAL

66. Income of joint owners.— (1) For the purposes of this Ordinance and subject to sub-section (2), where any property is owned by two or more persons and their respective shares are definite and ascertainable –

(a) the persons shall not be assessed as an association of persons in respect of the property; and

(b) the share of each person in the income from the property for a tax year shall be taken into account in the computation of the person’s taxable income for that year.

(2) This section shall not apply in computing income chargeable under the head “Income from Business”.

67. Apportionment of deductions.— (1) Subject to this Ordinance, where an expenditure relates to –

(a) the derivation of more than one head of income; or

2[(ab) derivation of income comprising of taxable income and any class of income to which sub-sections (4) and (5) of section 4 apply, or;]


1 Added by the Finance Act, 2012, s.15 (14)(c). 
2 Ins., by the Finance Act, 2002, s.8(28)(a).


(b) the derivation of income chargeable to tax under a head of income and to some other purpose, the expenditure shall be apportioned on any reasonable basis taking account of the relative nature and size of the activities to which the amount relates.

(2) The 1[Board] may make rules under section 2[237] for the purposes of apportioning deductions.

68. Fair market value.— (1) For the purposes of this Ordinance, the fair market value of any property 3[or rent], asset, service, benefit or perquisite at a particular 3[or rent], asset, service, benefit or perquisite would ordinarily fetch on sale or supply in the open market at that time.

(2) The fair market value of any property 3[or rent], asset, service, benefit or perquisite shall be determined without regard to any restriction on transfer or to the fact that it is not otherwise convertible to cash.

4[(3) Where the price referred to in sub-section (1) is not ordinarily ascertainable, such price may be determined by the Commissioner.]

69. Receipt of income.— For. the purposes of this Ordinance, a person shall be treated as having received an amount, benefit, or perquisite if it is —

(a) actually received by the person;

(b) applied on behalf of the person, at the instruction of the person or under any law; or

(c) made available to the person.

70. Recouped expenditure. — Where a person has been allowed a deduction for any expenditure or loss incurred in a tax year in the computation of the person’s income chargeable to tax under a head of income and, subsequently, the person has received, in cash or in kind, any amount in respect of such


1 The words “Central Board of Revenue” substituted by the Finance Act, 2007, s.20(1)(d)(IB). 
2 The figure “232” subs by the Finance Act, 2002, s.8(28)(b). 
3 Ins., by the Finance Act, 2003, s.12(32)(a)and (b). 
4 Ins ibid, s.12(32)(c ).


expenditure or loss, the amount so received shall be included in the income chargeable under that head for the tax year in which it is received.

71. Currency conversion.— (1) Every amount taken into account under this Ordinance shall be in Rupees.

(2) Where an amount is in a currency other than rupees, the amount shall be converted to the Rupee at the State Bank of Pakistan 1[* * ] rate applying between the foreign currency and the Rupee on the date the amount is taken into account for the purposes of this Ordinance.

72. Cessation of source of income.— Where —

(a) any income is derived by a person in a tax year from any business, activity, investment or other source that has ceased either before the commencement of the year or during the year; and

(b) if the income had been derived before the business, activity, investment or other source ceased it would have been chargeable to tax under this Ordinance, this Ordinance shall apply to the income on the basis that the business, activity, investment or other source had not ceased at the time the income was derived.

73. Rules to prevent double derivation and double deductions.— (1) For the purposes of this Ordinance, where –

(a) any amount is chargeable to tax under this Ordinance on the basis that it is receivable, the amount shall not be chargeable again on the basis that it is received; or

(b) any amount is chargeable to tax under this Ordinance on the basis that it is received, the amount shall not be chargeable again on the basis that it is receivable.

(2) For the purposes of this Ordinance, where —

(a) any expenditure is deductible under this Ordinance on the basis that it is payable, the expenditure shall not be deductible again on the basis that it is paid; or

(b) any expenditure is deductible under this Ordinance on the basis that it is paid, the expenditure shall not be deductible again on the basis that it is payable.


The word “mid-exchange” omitted by the Finance Act, 2003, s.12(33).


PART II

TAX YEAR

1[74. Tax year.— (1) For the purpose of this Ordinance and subject to this section, the tax year shall be a period of twelve months ending on the 30th day of June (hereinafter referred to as ‘normal tax year’) and shall, subject to sub-section (3), be denoted by the calendar year in which the said date falls.

(2) Where a person’s income year, under the repealed Ordinance, is different from the normal tax year, or where a person is allowed, by an order under sub-section (3), to use a twelve months’ period different from normal tax year, such income year or such period shall be that person’s tax year (hereinafter referred to as special tax year’) and shall, subject to sub-section (3), be denoted by the calendar year relevant to normal tax year in which the closing date of the special tax year falls.

2[(2A) The 3[Board], —

(i) in the case of a class of persons having a special tax year different from a normal tax year may permit, by a notification in the official Gazette, to use a normal tax year; and

(ii) in the case of a class of persons having a normal tax year may permit, by a notification in the official Gazette, to use a special tax year.]

(3) A person may apply, in writing, to the Commissioner to allow him to use a twelve months’ period, other than normal tax year, as special tax year and the Commissioner may, subject to sub-section (5), by an order, allow him to use such special tax year.

(4) A person using a special tax year, under sub-section (2), may apply in writing, to the Commissioner to allow him to use normal tax year


1 Section 74 substituted by the Finance Act, 2002, s.8(29). 
2 Added by the Finance Act, 2004, s.6(13). 
3 The words “Central Board of Revenue” substituted by the Finance Act, 2007, s.20(1)(d)(1B).


and the Commissioner may, subject to sub-section (5), by an order, allow him to use normal tax year.

(5) The Commissioner shall grant permission under sub-section (3) or (4) only if the person has shown a compelling need to use special tax year or normal tax year, as the case may be, and the permission shall be subject to such conditions, if any, as the Commissioner may impose.

(6) An order under sub-section (3) or (4) shall be made after providing to the applicant an opportunity of being heard and where his application is rejected the Commissioner shall record in the order the reasons for rejection.

(7) The Commissioner may, after providing to the person concerned an opportunity of being heard, by an order, withdraw the permission granted under sub-section (3) or (4).

(8) An order under sub-section (3) or (4) shall take effect from such date, being the first day of the special tax year or the normal tax year, as the case may be, as may be specified in the order.

(9) Where the tax year of a person changes as a result of an order under sub-section (3) or sub-section (4), the period between the end of the last tax year prior to change and the date on which the changed tax year commences shall be treated as a separate tax year, to be known as the “transitional tax year”.

(10) In this Ordinance, a reference to a particular financial year shall, unless the context otherwise requires, include a special tax year or a transitional tax year commencing during the financial year.

(11) A person dissatisfied with an order under sub-section (3), (4) or (7) may file a review application to the 1[Board], and the decision by the 1[Board] on such application shall be final.]


1The words “Central Board of Revenue” substituted by the Finance Act, 2007, s.20(1)(d)(1B).


PART III

ASSETS

75. Disposal and acquisition of assets.— (1) A person who holds an asset shall be treated as having made a disposal of the asset at the time the person parts with the ownership of the asset, including when the asset is —

(a) sold, exchanged, transferred or distributed; or

(b) cancelled, redeemed, relinquished, destroyed, lost, expired or surrendered.

(2) The transmission of an asset by succession or under a will shall be treated as a disposal of the asset by the deceased at the time asset is transmitted.

(3) The application of a business asset to personal use shall be treated as a disposal of the asset by the owner of the asset at the time the asset is so applied.

1[(3A) Where a business asset is discarded or ceases to be used in business, it shall be treated to have been disposed of.]

(4) A disposal shall include the disposal of a part of an asset.

(5) A person shall be treated as having acquired an asset at the time the person begins to own the asset, including at the time the person is granted any right.

(6) The application of a personal asset to business use shall be treated as an acquisition of the asset by the owner at the time the asset is so applied.

(7) In this section, -

“business asset” means an asset held wholly or partly for use in a business, including stock-in-trade and a depreciable asset; and


1 Ins by the Finance Act, 2003, s.12(34).


“personal asset” means an asset held wholly for personal use.

76. Cost.— (1) Except as otherwise provided in this Ordinance, this section shall establish the cost of an asset for the purposes of this Ordinance.

(2) Subject to sub-section (3), the cost of an asset purchased by a person shall be the sum of the following amounts, namely: —

(a) The total consideration given by the person for the asset, including the fair market value of any consideration in kind determined at the time the asset is acquired;

(b) any incidental expenditure incurred by the person in acquiring and disposing of the asset; and

(c) any expenditure incurred by the person to alter or improve the asset, but shall not include any expenditure under clauses (b) and (c) that has been fully allowed as a deduction under this Ordinance.

(3) The cost of an asset treated as acquired under sub-section (6) of section 75 shall be the fair market value of the asset determined at the date it is applied to business use.

(4) The cost of an asset produced or constructed by a person shall be the total costs incurred by the person in producing or constructing the asset plus any expenditure referred to 1[in] clauses (b) and (c) of sub-section (2) incurred by the person.

(5) Where an asset has been acquired by a person with a loan denominated in a foreign currency and, before full and final repayment of the loan, there is an increase or decrease in the liability of the person under the loan as expressed in Rupees, the amount by which the liability is increased or reduced shall be added to or deducted from the cost of the asset, as the case may be.


1 Ins by the Finance Act, 2003, s.12(35).


1[Explanation.- Difference, if any, on account of foreign currency fluctuation, shall be taken into account in the year of occurrence for the purposes of depreciation.]

(6) In determining whether the liability of a person has increased or decreased for the purposes of sub-section (5), account shall be taken of the person’s position under any hedging agreement relating to the loan.

(7) Where a part of an asset is disposed of by a person, the cost of the asset shall be apportioned between the part of the asset retained and the par disposed of in accordance with their respective fair market values determined at the time the person acquired the asset.

(8) Where the acquisition of an asset by a person is the derivation of an amount chargeable to tax, the cost of the asset shall be the amount so charged plus any amount paid by the person for the asset.

(9) Where the acquisition of an asset by a person is the derivation of an amount exempt from tax, the cost of the asset shall be the exempt amount plus any amount paid by the person for the asset.

(10) The cost of an asset does not include the amount of any grant, subsidy, rebate, commission or any other assistance (other than a loan repayable with or without profit) received or receivable by a person in respect of the acquisition of the asset, except to the extent to which the amount is chargeable to tax under this Ordinance.

2[(11) Notwithstanding anything contained in this section, the Board may prescribe rules for determination of cost for any asset.]

77. Consideration received.— (1) The consideration received by a person on disposal of an asset shall be the total amount received by the person for the asset 3[or the fair market value thereof, whichever is the higher], including the fair market value of any consideration received in kind determined at the time of disposal.


1 Added by the Finance Act, 2009, s.5(14). 
2 Ins by the Finance Act, 2012, s.15(15). 
3 Ins by the Finance Act, 2003, s.12(36)(a).


(2)  Where an asset has been lost or destroyed by a person, the consideration received for the asset shall include any compensation, indemnity or damages received by the person under — 

(a) an insurance policy, indemnity or other agreement;

(b) a settlement; or

(c) a judicial decision.

(3) The consideration received for an asset treated as disposed of under sub-section (3) 1[or (3A)] of section 75 shall be the fair market value of the asset determined at the time it is applied to personal use 2[or discarded or ceased to be used in business, as the case may be].

(4) The consideration received by a scheduled bank, financial institution, modaraba, or leasing company approved by the Commissioner (hereinafter referred to as a “leasing company”) in respect of an asset leased by the company to another person shall be the residual value received by the leasing company on maturity of the lease agreement subject to the condition that the residual value plus the amount realized during the term of the lease towards the cost of the asset is not less than the original cost of the asset.

(5) Where two or more assets are disposed of by a person in a single transaction and the consideration received for each asset is not specified, the total consideration received by the person shall be apportioned among the assets disposed of in proportion to their respective fair market values determined at the time of the transaction.

3[(6)  Notwithstanding anything contained in this section, the Board may prescribe rules for determination of consideration received for any asset.]

78. Non-arm”s length transactions.— Where an asset is disposed of in a non-arm”s length transaction —

(a) the person disposing of the asset shall be treated as having received consideration equal to the fair market

value of the asset determined at the time the asset is disposed; and

(b) the person acquiring the asset shall be treated as having a cost equal to the amount determined under clause (a). 

 79.      Non-recognition rules.—  (1)  For the purposes of this Ordinance and subject to sub-section (2), no gain or loss shall be taken to arise on the disposal of an asset -

(a) between spouses under an agreement to live apart;

(b) by reason of the transmission of the asset to an executor or beneficiary on the death of a person; 


1 Ins by the Finance Act, 2003, s.12(36)(b)(i). 
2 Ins ibid, s.12(36)(b)(ii). 
3 Added by the Finance Act, 2012, s.5(16).


(c) by reason of a gift of the asset;

(d) by reason of the compulsory acquisition of the asset under any law where the consideration received for the disposal is reinvested by the recipient in an asset of a like kind within one year of the disposal; 

(e) by a company to its shareholders on liquidation of the company; or

(f) by an association of persons to its members on dissolution of the association where the assets are distributed to members in accordance with their interests in the capital of the association.

(2)        Sub-section (1) shall not apply where the person acquiring the asset is a non-resident person at the time of the acquisition.

(3)        Where clause (a), (b), (c), (e) or (f) of sub-section (1) applies, the person acquiring the asset shall be treated as —

(a) acquiring an asset of the same character as the person disposing of the asset; and

(b) acquiring the asset for a cost equal to the cost of the asset for the person disposing of the asset at the time of the disposal.

(4) The person”s cost of a replacement asset referred to in clause (d) of sub-section (1) shall be the cost of the asset disposed of plus the amount by which any consideration given by the person for the replacement asset exceeds the consideration received by the person for the asset disposed of.

CHAPTER V
PROVISIONS GOVERNING PERSONS

PART I
CENTRAL CONCEPTS

Division I

Persons

80. Person. — (1)       The following shall be treated as persons for the purposes of this Ordinance, namely: —

(a) An individual;

(b) a company or association of persons incorporated, formed, organized or established in Pakistan or elsewhere; 

(c) the Federal Government, a foreign government, a political sub-Division  of a foreign government, or public international organization.  

(2) For the purposes of this Ordinance —


(a) ”association of persons” includes a firm, a Hindu undivided family, any artificial juridical person and any body of persons formed under a foreign law, but does not include a company; 

(b) ”company” means —

(i) a company as defined in the Companies Ordinance, 1984 (XLVII of 1984); 

(ii) a body corporate formed by or under any law in force in Pakistan

(iii) a modaraba; 

(iv) a body incorporated by or under the law of a country outside Pakistan relating to incorporation of companies; 

1[(v) a co-operative society, a finance society or any other society;]

2[(va) a non-profit organization;

(vb) a trust, an entity or a body of persons established or constituted by or under any law for the time being in force;]

(vi) a foreign association, whether incorporated or not, which the 3[Board] has, by general or special order, declared to be a company for the purposes of this Ordinance;

(vii) a Provincial Government; 4[ * ] 

(viii) a 5[Local Government] in Pakistan6[or]

7[(ix) a Small Company as defined in section 2;]

(c) ”firm” means the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all; 

(d) ”trust” means an obligation annexed to  the ownership of property and arising out of the confidence reposed in and accepted by the owner, or declared and accepted by the owner for the benefit of another, or of another and the owner, and includes a unit trust; and

(e) ”unit trust” means any trust under which beneficial interests are divided into units such that the entitlements of the beneficiaries to income or capital are determined by the number of units held.


1 Clause (v) substituted by the Finance Act, 2013, s.7(7)(a). 
2 Ins ibid, s.7(7)(b). 
3 The words “Central Board of Revenue” substituted by the Finance Act, 2007 s.20(1)(d)(1B). 
4 The word “or” omitted by the Finance Act, 2005, s.8(12)(i). 
5 The words “local authority” substituted by the Finance Act, 2008, s.18(34). 
6 Ins by the Finance Act, 2005, s.8(12)(ii). 
7 Ins ibid, s.8(12)(iii).


Division II

Resident and Non-Resident Persons

81. Resident and non-resident persons.— (1) A person shall be a resident person for a tax year if the person is —

(a) a resident individual, resident company or resident association of persons for the year; or

(b) the Federal Government.

(2) A person shall be a non-resident person for a tax year if the person is not a resident person for that year.

82. Resident individual. — An individual shall be a resident individual for a tax year if the individual —

(a) is present in Pakistan for a period of, or periods amounting in aggregate to, one hundred and 1[eighty-three] days or more in the tax year; 2[or]

3(b) * * * * * * *

(c) is an employee or official of the Federal Government or a Provincial Government posted abroad in the tax year.

83. Resident company.— A company shall be a resident company for a tax year if —

(a) it is incorporated or formed by or under any law in force in Pakistan;

(b) the control and management of the affairs of the company is situated wholly 4[***] in Pakistan at any time in the year; or

(c) it is a Provincial Government or 5[Local Government] in Pakistan.

84. Resident association of persons. — An association of persons shall be a resident association of persons for a tax year if the control and management of the affairs of the association is situated wholly or partly in Pakistan at any time in the year.


1 The words “eighty-two” substituted by the Finance Act, 2006, s.17(9). 
2 Ins by the Finance Act, 2005, s.8(13). 
3 Clause (b) omitted by the Finance Act, 2003, s.12(37). 
4 The words “or almost wholly” omitted by the Finance Act, 2003, s.12(38). 
5 The words “local authority” substituted by the Finance Act, 2008, s.18(34).


Division III

Associates

85.  Associates.—  (1)  Subject to sub-section (2), two persons shall be associates where the relationship between the  two is such that one may reasonably be expected to act in accordance with the intentions of the other, or both persons may reasonably be expected to act in accordance with the intentions of a third person.

(2)        Two persons shall not be associates solely by reason of the fact that one person is an employee of the other or both persons are employees of a third person. 

(3)        Without limiting the generality of sub-section (1) and subject to sub-section (4), the following shall be treated as associates —

(a) an individual and a relative of the individual;

(b) members of an association of persons;

(c) a member of an association of persons and the association, where the member, either alone or together with an associate or associates under another application  of this section, controls fifty per cent or more of the rights to income or capital of the association;

(d) a trust and any person who benefits or may benefit under the trust;

(e) a shareholder in a company and the company, where the shareholder, either  alone or together with an associate or associates under another application of this section, controls either directly or through one or more interposed persons —

(i) fifty per cent or more of the voting power in the company;

(ii) fifty per cent or more of the rights to dividends; or

(iii) fifty per cent or more of the rights to capital; and

(f) two companies, where a person, either alone or together with an associate or associates under another application of this section, controls either directly or through one or more interposed persons —

(i) fifty per cent or more of the voting power in both companies;

(ii) fifty per cent or more of the rights to dividends in both companies; or

(iii) fifty per cent or more of the rights to capital in both companies.

(4)        Two persons shall not be associates under clause (a) or (b) of sub-section (3) where the Commissioner is satisfied that neither person may reasonably be expected to act in accordance with the intentions of the other.


(5) In this section, “relative” in relation to an individual, means —

(a) an ancestor, a descendant of any of the grandparents, or an adopted child, of the individual, or of a spouse of the individual; or

(b) a spouse of the individual or of any person specified in clause (a).

PART II

INDIVIDUALS

Division I

Taxation of Individuals

86. Principle of taxation of individuals.— Subject to this Ordinance, the taxable income of each individual shall be determined separately.

87. Deceased individuals.— (1) The legal representative of a deceased individual shall be liable for —

(a) any tax that the individual would have become liable for if the individual had not died; and

(b) any tax payable in respect of the income of the deceased’s estate.

(2) The liability of a legal representative under this section shall be limited to the extent to which the deceased’s estate is capable of meeting the liability.

1[(2A) The liability under this Ordinance shall be the first charge on the deceased’s estate.]

(3) For the purpose of this Ordinance, —

(a) any proceeding taken under this Ordinance against the deceased before his or her death shall be treated as taken against the legal representative and may be continued against the legal representative from the stage at which the proceeding stood on the date of the deceased’s death; and

(b) any proceeding which could have been taken under this Ordinance against the deceased if the deceased had survived may be taken against the legal representative of the deceased.

(4) In this section, “legal representative” means a person who in law represents the estate of a deceased person, and includes any person who intermeddles with the estate of the deceased and where a party sues or is sued in representative character the person on whom the estate devolves on the death of the party so suing or sued.


1 Ins by the Finance Act, 2010, s.8(8).


Division II

Provisions Relating to Averaging

88. An individual as a member of an association of persons.— If, for a tax year, an individual has taxable income and derives an amount or amounts exempt from tax under sub-section (1) of section 92, the amount of tax payable on the taxable income of the individual shall be computed in accordance with the following formula, namely: —

(A/B) x C

where —

A is the amount of tax that would be assessed to the individual for the year if the amount or amounts exempt from tax under sub-section (1) of section 92 were chargeable to tax;

B is the taxable income of the individual for the year if the amount or amounts exempt from tax under sub-section (1) of section 92 were chargeable to tax; and

C is the individual’s actual taxable income for the year.

1* * * * * * *

89. Authors.— Where the time taken by an author of a literary or artistic work to complete the work exceeds twenty-four months, the author may elect to treat any lump sum amount received by the author in a tax year on account of royalties in respect of the work as having been received in that tax year and the preceding two tax years in equal proportions.


1 Section 88A omitted by Finance Act, 2014, s.7(14).


Division III

Income Splitting

90. Transfers of assets.— (1) For the purposes of this Ordinance and subject to sub-section (2), where there has been a revocable transfer of an asset, any income arising from the asset shall be treated as the income of the transferor and not of the transferee.

(2) Sub-section (1) shall not apply to any income derived by a person by virtue of a transfer that is not revocable during the lifetime of the person and the transferor derives no direct or indirect benefit from such income.

(3) For the purposes of this Ordinance, where there has been a transfer of an asset but the asset remains the property of the transferor, any income arising from the asset shall be treated as the income of the transferor.

(4) For the purposes of this Ordinance and subject to sub-section (5), any income arising from any asset transferred by a person directly or indirectly to—

(a) the person’s spouse or minor child; or

(b) any other person for the benefit of a person or persons referred to in clause (a), shall be treated as the income of the transferor.

(5) Sub-section (4) shall not apply to any transfer made —

(a) for adequate consideration; or

(b) in connection with an agreement to live apart.

(6) For the purposes of clause (a) of sub-section (5), a transfer shall not be treated as made for adequate consideration if the transferor has provided, by way of loan or otherwise, to the transferee, directly or indirectly, with the funds for the acquisition of the asset.

(7) Sub-section (5) does not apply where the transferor fails to produce evidence of the transfer of the asset by way of its registration or


mutation in the relevant record and the income arising from the asset shall be treated as the income of the transferor for the purposes of this Ordinance.

(8)        For the purposes of this section, —

(a) a transfer of an asset shall be treated as revocable if —  

(i) there is any provision for the  re-transfer, directly or indirectly, of the whole or any part of the asset to the transferor; or

(ii) the transferor has, in any way, the right to resume power, directly or indirectly, over the whole or any part of the asset; 

(b) ”minor child” shall not include a married daughter; and

(c) ”transfer” includes any disposition, settlement,  trust, covenant, agreement or arrangement.

 91.  Income of a minor child.— (1)  Any income of a minor child for a tax year chargeable under the head “Income from Business” shall be chargeable to tax as the income of the parent of the child with the highest taxable income for that year. 

(2)        Sub-section (1) shall not apply to the income of a minor child from a business acquired by the child through an inheritance.

PART III

ASSOCIATIONS OF PERSONS

92. Principles of taxation of associations of persons.—(1) 1[* * *] An association of persons shall be liable to tax separately from the members of the association and 2[where the association of persons has paid tax the] amount received by a member of the association in the capacity as member out of the income of the association shall be exempt from tax 3[:]

3[Provided that if at least one member of the association of persons is a company, the share of such company or companies shall be excluded for the purpose of computing the total income of the association of persons and the company or the companies shall be taxed separately, at the rate applicable to the companies, according to their share.]

4*            *              *                  *             *                  *                  *

5*             *             *                  *             *                  *                  *    


1 The words, brackets, figure and comma “Subject to sub-section (2)” omitted by the Finance Act, 2007 , s.20(9)(i). 
2 Ins by the Finance Act, 2003, s.12(40)(a). 
3 Full stop substituted by a colon and thereafter a proviso assed by the Finance Act, 2014, s.7(15). 
4 Sub-sections (2), (3), (4) and (5) omitted by the Finance Act, 2007, s.20(9)(ii). 
5 Section 93 omitted ibid, s.20(10).


PART IV

COMPANIES

94. Principles of taxation of companies.-(1) A company shall be liable to tax separately from its shareholders.

(2) A dividend paid by a 1[*] company shall be taxable in accordance with section 5.

(3) A dividend paid by a non-resident company to a resident person shall be chargeable to tax under the head “Income from Business” or “Income from Other Sources”, as the case may be, unless the dividend is exempt from tax.

95. Disposal of business by individual to wholly-owned company.-(1) Where a resident individual (hereinafter referred to as the “transferor”) disposes of all the assets of a business of the transferor to a resident company, no gain or loss shall be taken to arise on the disposal if the following conditions are satisfied, namely:—

(a) The consideration received by the transferor for the disposal is a share or shares in the company (other than redeemable shares);

(b) the transferor must beneficially own all the issued shares in the company immediately after the disposal;

(c) the company must undertake to discharge any liability in respect of the assets disposed of to the company;

(d) any liability in respect of the assets disposed of to the company must not exceed the transferor’s cost of the assets at the time of the disposal;

(e) the fair market value of the share or shares received by the transferor for the disposal must be substantially the same as the fair market value of the assets disposed of to the company, less any liability that the company has undertaken to discharge in respect of the assets; and


1 The word “resident”omitted by the FinanceAct,2015,s.9(18) (w.e.f. 01.07.2015)


(f) the company must not be exempt from tax for the tax year in which the disposal takes place.

(2) Where sub-section (1) applies —

(a) each of the assets acquired by the company shall be treated as having the same character as it had in the hands of the transferor;

(b) the company’s cost in respect of the acquisition of the assets shall be —

(i) in the case of a depreciable asset or amortised intangible, the written down value of the asset or intangible immediately before the disposal;

(ii) in the case of stock-in-trade valued for tax purposes under sub-section (4) of section 35 1[* * *], that value; or

(iii) in any other case, the transferor’s cost at the time of the disposal;

(c) if, immediately before the disposal, the transferor has deductions allowed under sections 22, 23 and 24 in respect of the assets transferred which have not been set off against the transferor’s income, the amount not set off shall be added to the deductions allowed under those sections to the company in the tax year in which the transfer is made; and

(d) the transferor’s cost in respect of the share or shares received as consideration for the disposal shall be —

(i) in the case of a consideration of one share, the transferor’s cost of the assets transferred as determined under clause (b), less the amount of any liability that the company has undertaken to discharge in respect of the assets; or


1 The words “at fair market value” omitted by the Finance Act, 2007, s.20(11).


(ii) in the case of a  consideration of more than one share, the amount determined under sub-clause (i) divided by the number of shares received.

(3) In determining whether the transferor’s deductions under sections 22, 23 or 24 have been set off against income for the purposes of clause (c) of sub-section (2), those deductions shall be taken into account last. 

96. Disposal of business by association of persons to wholly-owned company.—  (1)  Where a resident association of persons disposes of all the assets of a business of the association to a resident company, no gain or loss shall be taken to arise on the disposal if the following conditions are satisfied, namely: —

(a) The consideration received by the association for the disposal is a share or shares in the company (other than redeemable shares);

(b) the association must own all the issued shares in the company immediately after the disposal;

(c) each member of the association must have an interest in the shares in the same proportion to the member”s interest in the business assets immediately before the disposal;

(d) the company must undertake to discharge any liability in respect of the assets disposed of to the company;

(e) any liability in respect of the assets disposed of to the company must not exceed the association’s cost of the asset at the time of the disposal;

(f) the fair market value of the share or shares received by the association for the disposal must be substantially the same as the fair market value of the assets disposed of to the company, as reduced by any liability that the company has undertaken to discharge in respect of the assets; and  

(g) the company must not be exempt from tax for the tax year in which the disposal takes place.

(2) Where sub-section (1) applies —

(a) each of the assets acquired by the company shall be treated as having the same character as it had in the hands of the association;

(b) the company”s cost  in  respect of  the acquisition of  the assets shall be —

(i) in the case of a depreciable asset or amortised intangible, the written down value of the asset or intangible immediately before the disposal; 

(ii) in the case of stock-in-trade valued for tax purposes under sub-section (4) of section 35 1[* * *], that value; or 

(iii) in any other case, the association”s  cost  at the time of the disposal;


1 The words “at fair market value” omitted by the Finance Act, 2007, s.20(12).


(c) if, immediately before the disposal, the association is subject to tax in accordance with sub-section (1) of section 92 and the association has deductions allowed under sections 22, 23 and 24 in respect of the assets transferred which have not been set off against the association’s income, the amount not set off shall be added to the deductions allowed under those sections to the company in the tax year in which the transfer is made; and

(d) the association’s cost in respect of the share or shares received as consideration for the disposal shall be —

(i) in the case of a consideration of one share, the association’s cost of the assets transferred as determined under clause (b), as reduced by the amount of any liability that the company has undertaken to discharge in respect of the assets; or

(ii) in the case of a consideration of more than one share, the amount determined under sub-clause (i) divided by the number of shares received.

(3) In determining whether the association’s deductions under Sections 22, 23 or 24 have been set off against income for the purposes of clause (c) of sub-section (2), those deductions are taken into account last.

97. Disposal of asset between wholly-owned companies.—(1) Where a resident company (hereinafter referred to as the “transferor”) disposes of an asset to another resident company (hereinafter referred to as the “transferee’), no gain or loss shall be taken to arise on the disposal if the following conditions are satisfied, namely:-

(a) Both companies belong to a wholly-owned group of 1[resident] companies at the time of the disposal;

(b) the transferee must undertake to discharge any liability in respect of the asset acquired;

(c) any liability in respect of the asset must not exceed the transferor’s cost of the asset at the time of the disposal; and

(d) the transferee must not be exempt from tax for the tax year in which the disposal takes place.

(2) Where sub-section (1) applies —

(a) the asset acquired by the transferee shall be treated as having the same character as it had in the hands of the transferor;


1 Ins by the Finance Act, 2003, s.12(42).


(b) the transferee’s cost in respect of the acquisition of the asset shall be —

(i) in the case of a depreciable asset or amortized intangible, the written down value of the asset or intangible immediately before the disposal;

(ii) in the case of stock-in-trade valued for tax purposes under sub-section (4) of section 35 1[* * *], that value; or

(iii) in any other case, the transferor’s cost at the time of the disposal;

(c) if, immediately before the disposal, the transferor has deductions allowed under sections 22, 23 and 24 in respect of the asset transferred which have not been set off against the transferor’s income, the amount not set off shall be added to the deductions allowed under those sections to the transferee in the tax year in which the transfer is made; and

(d) the transferor’s cost in respect of any consideration in kind received for the asset shall be the transferor’s cost of the asset transferred as determined under clause (b), as reduced by the amount of any liability that the transferee has undertaken to discharge in respect of the asset.

(3) In determining whether the transferor’s deductions under sections 22, 23 or 24 in respect of the asset transferred have been set off against income for the purposes of clause (c) of sub-section (2), those deductions shall be taken into account last.

(4) The transferor and transferee companies belong to a wholly-owned group if —

(a) one company beneficially holds all the issued shares of the other company; or


1 The words “at fair market value” omitted by the Finance Act, 2007, s.20 (13).


(b) a third company beneficially holds all the issued shares in both companies.

1[97A. Disposal of asset under a scheme of arrangement and reconstruction.—(1) No gain or loss shall be taken to arise on disposal of asset from one company (hereinafter referred to as the ‘transferor”) to another company (hereinafter referred to as the ‘transferee”) by virtue of operation of a Scheme of Arrangement and Reconstruction under sections 282L and 284 to 287 of the Companies Ordinance, 1984 (XLVII of 1984) or section 48 of the Banking Companies Ordinance, 1962 (LVII of 1962), if the following conditions are satisfied, namely:—

(a) the transferee must undertake to discharge any liability in respect of the asset acquired; 

(b) any liability in respect of the asset must not exceed the transferor”s cost of the asset at the time of the disposal;

(c) the transferee must not be exempt from tax for the tax year in which the disposal takes place; and 

(d) scheme is approved by the High Court, State Bank of Pakistan or Securities and Exchange Commission of Pakistan, as the case may be, on or after first day of July, 2007.

(2) No gain or loss shall be taken to arise on issue, cancellation, exchange or receipt of shares as a result of  Scheme of  Arrangement and Reconstruction under sections 282L and 284 to 287 of the companies Ordinance, 1984 (XLVII of 1984) or section 48 of the Banking Companies Ordinance, 1962 (LVII of 1962) and approved by:—

(a) the High Court;

(b) State Bank of Pakistan; or

(c) Securities and Exchange Commission of Pakistan, as the case may be, on or after first day of July, 2007.

(3) Where sub-section (1) applies—

(a) the asset acquired by the transferee shall be treated as having the same character as it had in the hands of the transferor;

(b) the transferee”s cost in respect of acquisition of the asset shall be—

(i) in the case of a depreciable asset or amortised intangible, the written down value of the asset or intangible immediately before the disposal;

(ii) in the case of stock-in-trade valued for tax purposes under sub-section (4) of section 35, that value; or

(iii) in any other case, the transferor’s cost at the time of the disposal;


1 Ins by the Finance Act, 2007, s.20(14).


(c) if, immediately before the disposal, the transferor has deductions allowed under sections 22, 23 and 24 in respect of the asset transferred which have not been set off against the transferor”s income, the amount not set off shall be added to the deduction allowed under those sections to the transferee in the tax year in which the transfer is made.

(4) In determining whether the transferor’s deductions under sections 22, 23 or 24 in respect of the asset transferred have been set off against income for the purposes of clause (c) of sub-section (2), those deductions shall be taken into account last.  

(5) Where sub-section (2) applies and the shares issued vested by virtue of the Scheme of Arrangement and Reconstruction under sections 282L and 284 to 287 of the Companies Ordinance, 1984 (XLVII of 1984) or section 48 of the Banking Companies Ordinance, 1962 (LVII of 1962) and approved by the Court or State Bank of Pakistan or Securities and Exchange  Commission of Pakistan as the case may be, are disposed of, the cost of shares shall be the cost prior to the operation of the said scheme.]

PART V

COMMON PROVISIONS APPLICABLE TO

ASSOCIATIONS OF PERSONS AND COMPANIES

98. Change in control of an entity.-(1)  Where there is a change of fifty  per cent or more in the underlying ownership of an entity, any loss incurred for a tax year before the change shall not be allowed as a deduction in a tax year after the change, unless the entity —

(a) continues to conduct the same business after the change as it conducted before the change until the loss has been fully set off; and

(b) does not, until the loss has been fully set off, engage in any new business or investment after the change where the principal purpose of the entity or the beneficial owners of the entity is to utilise the loss so as to reduce the income tax payable on the income arising from the new business or investment.

(2) In this section,—

“entity” means a company or association of persons to which sub-section (1) of section 92 applies;

“ownership interest” means a share in a company or the interest of a member in an association of persons; and

“underlying ownership”  in  relation  to an entity, means an ownership interest in the entity held, directly or indirectly through an interposed entity or entities, by an individual or by a person not ultimately owned by individuals.


1[PART VA

TAX LIABILITY IN CERTAIN CASES

98A. Change in the constitution of an association of persons. Where, during the course of a tax year, a change occurs in the constitution of an association of persons, liability of filing the return on behalf of the association of persons for the tax year shall be on the association of persons as constituted at the time of filing of such return but the income of the association of persons shall be apportioned among the members who were entitled to receive it and, where the tax assessed on a member cannot be recovered from him it shall be recovered from the association of persons as constituted at the time of filing the return. 

98B. Discontinuance of business or dissolution of an association of persons.—(1) Subject to the provisions of section 117, where any business or profession carried on by an association of persons has been discontinued, or where an association of persons is dissolved, all the provisions of this Ordinance, shall, so far as may be, apply as if no such discontinuance or dissolution had taken place.

(2) Every person, who was, at the time of such discontinuance or dissolution, a member of such association of persons and the legal representative of any such person who is deceased, shall be jointly and severally liable for the amount of tax payable by the association of persons.

98C.  Succession to business, otherwise than on death.—(1) Where a person carrying on any business or profession has been succeeded in any tax year by any other person (hereafter in this section referred to as the “predecessor” and “successor” respectively), otherwise  than on  the death of the predecessor, and the successor continues to carry on that business or profession,- 

(a) the predecessor shall be liable to pay tax in respect of the income of the tax year in which the succession took place upto the date of succession and of the tax year or years preceding that year; and 

(b) the successor shall be liable to pay tax in respect of the income of such tax year after the date of succession. 

(2) Notwithstanding anything contained in sub-section (1), where the predecessor cannot be found, the tax liability in respect of the tax year in which the succession took place upto the date of succession and of the tax year or years preceding that year shall be that of the successor in like manner and to the same extent as it would have been that of the predecessor, and all the provisions of this Ordinance shall, so far as may be, apply accordingly.

(3) Where any tax payable under this section in respect of such business or profession cannot be recovered from the predecessor, it shall be recoverable from the successor, who shall be entitled to recover it from the predecessor.]


1 Ins by the Finance Act, 2003, s.12(43).


CHAPTER VI
SPECIAL INDUSTRIES

PART I
INSURANCE BUSINESS

99. Special provisions relating to insurance business. The profits and gains of any insurance business shall be computed in accordance with the rules in the Fourth Schedule.

1[99A.Special Provisions relation to traders.—(1) Subject to sub-section (3), tax payable on the profits and gains of a trader as defined in sub-section(4) who upto thirsty first day of December, 2015 has not filed the return for any of the preceding ten tax years shall be computed in accordance with the rules laid down in Part I of the Ninth Schedule.

(2) Subject to sub-section (3), tax payable on the profits and gains of any trader as defined in sub-section 94), who —

(a) is a filer; or

(b) is NTN holder and a non-filer but has filed return or returns of any of the last ten preceding years, shall be computed in accordance with the rules laid down in Part II of the Ninth Schedule.

(3) Sub-section (1) and (2) shall apply, if—

(a) the return filed by the traders qualifies for acceptance in accordance with the rules laid down in the Ninth Schedule;

(b) return relates to the tax year 2015 to 2018; and

(c) income from business consists of profits and gains from trading activity only.

(4) For the purpose of this section and the Ninth Schedule, “trader” means an individual or an association of persons (AOP) by goods or merchandise and selling the same without purposes and providing, business-related after sale, services by doing repair jobs.

Explanation I. if — For the removal of doubt it is clarified that any person engaged in—

(a) rendering of, or providing, services as defined in clause (ii) of sub-section (7) of section 153 ;or

(b) business of retailer falling under rule (5) of Chapter II of the Sales Tax Special Procedure Rules, 2007, shall not be treated as a trader for the purposes of this section.

Explanation 2. —It is also clarified that this section shall not apply to this section who is a Member of the Senate of Pakistan, the national Assembly of Pakistan or a Provincial Assembly.”]


1 Ins., by the Income Tax (Amendment) Act, 2016, s.2.


PART II
OIL, NATURAL GAS AND OTHER MINERAL DEPOSITS

100. Special provisions relating to the production of oil and natural gas, and exploration and extraction of other mineral deposits.—(1)  Subject to sub-section (2), the profits and gains from—

(a) the exploration and production of petroleum including natural gas and from refineries set up at the Dhodak and Bobi fields;

(b) the pipeline operations of exploration and production companies; or

(c) the manufacture and sale of liquified petroleum gas or compressed natural gas, and the tax payable thereon shall be computed in accordance with the rules in Part I of the Fifth Schedule.

(2) Sub-section (1) shall not apply to the profits and gains attributable to the production of petroleum including natural gas discovered before the 24th day of September, 1954.

(3) The profits and gains of any business which consists of, or includes, the exploration and extraction of such mineral deposits of a wasting nature (not being petroleum or natural gas) as may be specified in this behalf by the Federal Government carried on by a person in Pakistan shall be computed in accordance with the rules in Part II of the Fifth Schedule.

1[100A. Special provisions relating to banking business.—(1) Subject to sub-section (2), the income, profits and gains of any banking company as defined in clause (7) of section 2 and tax payable thereon shall be computed in accordance with the rules in the Seventh Schedule.

(2) Sub-section (1) shall apply to the profits and gains of the banking companies relevant to tax year 2009 and onwards.]

2[100B. Special provision relating to capital gain tax.—(1)   Capital gains on disposal of listed securities and tax thereon, subject to section 37A, shall be computed, determined, collected and deposited in accordance with the rules laid down in the Eighth Schedule.

(2) The provisions of sub–section (1) shall not apply to the following persons or class of persons, namely:-

(a) a mutual fund;

(b) banking company, a non-banking finance company and an  insurance company subject to tax under the Fourth Schedule;

(c) a modaraba; 

3[(d) a company, in respect of debt securities only; and] 


1 Ins by the Finance Act, 2007, s.20(15). 
2 Ins by the Finance Act, 2012, s.15(7). 
3 Clause (d) substituted by the Finance Act, 2014, s.7(16).


(e) any other person or class of persons notified by the Board.]

1[100C. Tax credit for certain persons.-(1) 2[The income of] Non-profit organizations, trusts or welfare institutions, as mentioned in sub-section (2)

shall be allowed a tax credit equal to one hundred per cent of the tax payable, including minimum tax and final taxes payable under any of the provisions of this Ordinance, subject to the following conditions, namely:-

(a) return has been filed;

(b) tax required to be deducted or collected has been deducted or collected and paid; and

(c) withholding tax statements for the immediately preceding tax year have been filed.

(2) Persons eligible 3[and incomes] for tax credit under this section include-

(a) any income of a trust or welfare institution or non-profit organization from donations, voluntary contributions, subscriptions, house property, investments in the securities of the Federal Government and so much of the income chargeable under the head “income from business” as is expended in Pakistan for the purposes of carrying out welfare activities:

Provided that in the case of income under the head “income from business”, the exemption in respect of income under the said head shall not exceed an amount which bears to the income, under the said head, the same proportion as the said amount bears to the aggregate of the incomes from the aforesaid sources of income.

(b) a trust administered under a scheme approved by the Federal Government in this behalf and established in Pakistan exclusively for the purposes of carrying out such activities as are for the benefit and welfare of—


1 Ins by the Finance Act, 2014, s.7(17). 
2 Ins by the Finance Act, 2015, s.9(19)(a). 
3 Ins ibid, s.9(16)(b)(i).


(i) ex-servicemen and serving personnel, including civilian employees of the Armed Forces, and their dependents; or

(ii) ex-employees and serving personnel of the Federal Government or a Provincial Government and their dependents, where the said trust is administered by a committee nominated by the Federal Government or, as the case may be, a Provincial Government;

(c) a trust or welfare institution or non-profit organization approved by Chief Commissioner for the purposes of this 1[*]clause;

(d) income of a university or other educational institution being run by a non-profit organization existing solely for educational purposes and not for purposes of profit;  

(e) any income which is derived from investments in securities of the Federal Government, profit on debt from scheduled banks, grant received from Federal Government or Provincial Government or District Governments, foreign grants and house property held under trust or other legal obligations wholly, or in part only, for religious or charitable purposes and is actually applied or finally set apart for application thereto:

Provided that nothing in this clause shall apply to so much of the income as is not expended within Pakistan:

Provided further that if any sum out of the amount so set apart is expended outside Pakistan, it shall be included in the total income of the tax year in which it is so expended or of the year in which it was set apart, whichever is the greater, and the provisions of section 122 shall not apply to any assessment made or to be made in pursuance of this proviso. 

Explanation.—Notwithstanding anything contained in the Mussalman Wakf Validating Act, 1913 (VI of 1913), or any other law for the time being in force or in the instrument relating to the trust or the institution, if any amount is set apart, expended or disbursed for the maintenance and support wholly or partially of the family, children or descendents of the author of the trust or the   donor or, the maker of the institution or for his own maintenance and support during his life time or payment to himself or his family, children, relations or descendents or for the payment of his or their debts out of the income from house property  dedicated, or if any expenditure is made other than for charitable purposes, in each case such expenditure, provision, setting apart, payment or disbursement shall not be deemed, for the purposes of this clause, to be for religious or charitable purposes; or

(f) any income of a religious or charitable institution derived from voluntary  contributions applicable solely to religious or charitable purposes of the institution:

Provided that nothing contained in this clause shall apply to the income of a private religious trust which does not ensure for the benefit of the public.”;] 


1 Omitted by the FinanceAct,2015, s. 9(19)(b)(ii).


CHAPTER VII

INTERNATIONAL

PART I

GEOGRAPHICAL SOURCE OF INCOME

101. Geographical source of income.—(1) Salary shall be Pakistan-source income to the extent to which the salary —

(a) is received from any employment exercised in Pakistan, wherever paid; or

(b) is paid by, or on behalf of, the Federal Government, a Provincial Government, or a 1[Local Government] in Pakistan, wherever the employment is exercised.

(2) Business income of a resident person shall be Pakistan-source income to the extent to which the income is derived from any business carried on in Pakistan.

(3) Business income of a non-resident person shall be Pakistan-source income to the extent to which it is directly or indirectly attributable to –

(a) a permanent establishment of the non-resident person in Pakistan;

(b) sales in Pakistan of goods merchandise of the same or similar kind as those sold by the person through a permanent establishment in Pakistan2[*]

(c) other business activities carried on in Pakistan of the same or similar kind as those effected by the non-resident through a permanent establishment in Pakistan 3[; or]


1 The words “local authority” subs by the Finance Act, 2008, s.18(34). 
2 The word “or” omitted by the Finance Act, 2003, s.12(44)(a)(i). 
3 Full stop subs ibid, s.12(44)(a)(ii).


1[(d) any business connection in Pakistan.]

2[(4) Where the business of a non-resident person comprises the rendering of independent services (including professional services and services of entertainers and sports persons), the Pakistan-source business income of the person shall include [in addition to any amounts treated as Pakistan-source income under sub-section (3)] any remuneration derived by the person where the remuneration is paid by a resident person or borne by a permanent establishment in Pakistan of a non-resident person.]

(5) Any gain from the disposal of any asset or property used in deriving any business income referred to in sub-section (2), (3) or (4) shall be Pakistan-source income.

(6) A dividend shall be Pakistan-source income if it is 3[—]

4[(a) paid by a resident company; or

(b) dividend as per provisions of sub-clause (f) of clause (19) of section 2.]

(7) Profit on debt shall be Pakistan-source income if it is —

(a) paid by a resident person, except where the profit is payable in respect of any debt used for the purposes of a business carried on by the resident outside Pakistan through a permanent establishment; or

(b) borne by a permanent establishment in Pakistan of a non-resident person.

(8) A royalty shall be Pakistan-source income if it is —

(a) paid by a resident person, except where the royalty is payable in respect of any right, property, or information used, or services utilized for the purposes of a business carried on by the resident outside Pakistan through a permanent establishment; or


1 Ins by the Finance Act, 2003, s.12(44)(a)(iii). 
2 Sub-section (4) subs ibid, s.12(44)(b). 
3 The words and full stop “paid by a resident company” subs a hyphen by the Finance Act, 2012, s.15(18). 
4 Added ibid, s.15(18).


(b) borne by a permanent establishment in Pakistan of a non-resident person.

(9) Rental income shall be Pakistan-source income if it is derived from the lease of immovable property in Pakistan whether improved or not, or from any other interest in or over immovable property, including a right to explore for, or exploit, natural resources in Pakistan

(10) Any gain from the alienation of any property or right referred to in sub-section (9) or from the alienation of any share in a company the assets of which consist wholly or principally, directly or indirectly, of property or rights referred to in sub-section (9) shall be Pakistan-source income.

(11) A pension or annuity shall be Pakistan-source income if it is paid by a resident or borne by a permanent establishment in Pakistan of a non-resident person.

(12) A technical fee shall be Pakistan-source income if it is –

(a) paid by a resident person, except where the fee is payable in respect of services utilized in a business carried on by the resident outside Pakistan through a permanent establishment; or

(b) borne by a permanent establishment in Pakistan of a non-resident person.

(13) Any gain arising on the disposal of shares in a resident company shall be Pakistan-source income.

1[(13A) Any amount paid on account of insurance or re-insurance premium by an insurance company to an overseas insurance or re-insurance company shall be deemed to be Pakistan source income.]

(14) Any amount not mentioned in the preceding sub-sections shall be Pakistan-source income if it is paid by a resident person or borne by a permanent establishment in Pakistan of a non-resident person. 

(15) Where an amount may be dealt with under sub-section (3) and under another sub-section (other than sub-section 14)), this section shall apply—

(a) by first determining whether the amount is Pakistan-source income under that other sub-section; and

(b) if the amount is not Pakistan-source income under that sub-section, then determining whether it is Pakistan-source income under sub-section (3). 

(16) An amount shall be foreign-source income to the extent to which it is not Pakistan-source income.


1 Ins by the Finance Act, 2008, s.18(6).


PART II

TAXATION OF FOREIGN-SOURCE INCOME OF RESIDENTS

102. Foreign source salary of resident individuals.—(1) Any foreign-source salary received by a resident individual shall be exempt from tax if the individual has paid foreign income tax in respect of the salary.

(2) A resident individual shall be treated as having paid foreign income tax in respect of foreign-source salary if tax has been withheld from the salary by the individual’s employer and paid to the revenue authority of the foreign country in which the employment was exercised.

103. Foreign tax credit.—(1) Where a resident taxpayer derives foreign source income chargeable to tax under this Ordinance in respect of which the taxpayer has paid foreign income tax, the taxpayer shall be allowed a tax credit of an amount equal to the lesser of –

(a) the foreign income tax paid; or

(b) the Pakistan tax payable in respect of the income.

(2) For the purposes of clause (b) of sub-section (1), the Pakistan tax payable in respect of foreign source income derived by a taxpayer in a tax year shall be computed by applying the average rate of Pakistan income tax applicable to the taxpayer for the year against the taxpayer’s net foreign-source income for the year.

(3) Where, in a tax year, a taxpayer has foreign income under more than one head of income, this section shall apply separately to each head of income.

(4) For the purposes of sub-section (3), income derived by a taxpayer from carrying on a speculation business shall be treated as a separate head of income.

(5) The tax credit allowed under this section shall be applied in accordance with sub-section (3) of section 4.

(6) Any tax credit or part of a tax credit allowed under this section for a tax year that is not credited under sub-section (3) of section 4 shall not be refunded, carried back to the preceding tax year, or carried forward to the following tax year.


(7) A credit shall be allowed under this section only if the foreign income tax is paid within two years after the end of the tax year in which the foreign income to which the tax relates was derived by the resident taxpayer.

(8) In this section,—

“average rate of Pakistan income tax” in relation to a taxpayer for a tax year, means the percentage that the Pakistani income tax (before allowance of the tax credit under this section) is of the taxable income of the taxpayer for the year;

“foreign income tax” includes a foreign withholding tax; and

“net foreign-source income” in relation to a taxpayer for a tax year, means the total foreign-source income of the taxpayer charged to tax in the year, as reduced by any deductions allowed to the taxpayer under this Ordinance for the year that –

(a) relate exclusively to the derivation of the foreign-source income; and

(b) are reasonably related to the derivation of foreign-source income in accordance with sub-section (1) of section 67 and any rules made for the purposes of that section.

104. Foreign losses.—(1) Deductible expenditures incurred by a person in deriving foreign-source income chargeable to tax under a head of income shall be deductible only against that income.

(2) If the total deductible expenditures referred to in sub-section (1) exceed the total foreign source income for a tax year chargeable to tax under a head of income (hereinafter referred to as a “foreign loss”), the foreign loss shall be carried forward to the following tax year and set off against the foreign source income chargeable to tax under that head in that year, and so on, but no foreign loss shall be carried forward to more than six tax years immediately succeeding the tax year for which the loss was computed.

(3) Where a taxpayer has a foreign loss carried forward for more than one tax year, the loss for the earliest year shall be set off first.

(4) Section 67 shall apply for the purposes of this section on the basis that —

(a) income from carrying on a speculation business is a separate head of income; and

(b) foreign source income chargeable under a head of income (including the head specified in clause (a) shall be a separate head of income.


PART III

TAXATION OF NON-RESIDENTS

105.   Taxation of a permanent establishment in Pakistan of a non-resident person.—(1) The following principles shall apply in determining the income of a permanent establishment in Pakistan of a non-resident person chargeable to tax under the head “Income from Business”, namely: —

(a) The profit of the permanent establishment shall be computed on the basis that it is a distinct and separate person engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the non-resident person of which it is a permanent establishment;

(b) subject to this Ordinance, there shall be allowed as deductions any expenses incurred for the purposes of the business activities of the permanent establishment including executive and administrative expenses so incurred, whether in Pakistan or elsewhere;

(c) no deduction shall be allowed for amounts paid or payable by the permanent establishment to its head office or to another permanent establishment of the non-resident person (other than towards reimbursement of actual expenses incurred by the non-resident person to third parties) by way of:

(i) royalties, fees or other similar payments for the use of any tangible or intangible asset by the permanent establishment;

(ii) compensation for any services including management services performed for the permanent establishment; or

(iii) profit on debt on moneys lent to the permanent establishment, except in connection with a banking business; and

(d) no account shall be taken in the determination of the income of a permanent establishment of amounts charged  by the permanent establishment to the head office or to another permanent establishment of the non-resident person (other than towards reimbursement of actual expenses incurred by the permanent establishment to third parties) by way of:-

(i) royalties,  fees or other similar payments for the use of any tangible or intangible asset;  

(ii) compensation for any services including management services performed by the permanent establishment; or

(iii) profit on debt on moneys lent by the permanent establishment, except in connection with a banking business.

(2) No deduction shall be allowed in computing the income of a permanent establishment in Pakistan of a non-resident person chargeable to tax under the head “Income from Business” for a tax year for head office expenditure in excess of the amount as bears to the turnover of the permanent establishment in Pakistan the same proportion as the non-resident’s total head office expenditure bears to its worldwide turnover.


(3) In this section, “head office expenditure” means any executive or general administration expenditure incurred by the non-resident person outside Pakistan for the purposes of the business of the Pakistan permanent establishment of the person, including —

(a) any rent, local rates and taxes excluding any foreign income tax, current repairs, or insurance against risks of damage or destruction outside Pakistan;

(b) any salary paid to an employee employed by the head office outside Pakistan;

(c) any traveling expenditures of such employee; and

(d) any other expenditures which may be prescribed.

(4) No deduction shall be allowed in computing the income of a permanent establishment in Pakistan of a non-resident person chargeable under the head “Income from Business” for —

(a) any profit paid or payable by the non-resident person on debt to finance the operations of the permanent establishment; or

(b) any insurance premium paid or payable by the non-resident person in respect of such debt.

106. Thin capitalization.—(1) Where a foreign-controlled resident company (other than a financial institution 1[or a banking company)] 2[or a branch of a foreign company operating in Pakistan,] has a foreign debt-to-foreign equity ratio in excess of three to one at any time during a tax year, a deduction shall be disallowed for the profit on debt paid by the company in that year on that part of the debt which exceeds the three to one ratio. 

(2) In this section, — 

“foreign-controlled resident company” means a resident company in which fifty per cent or more of the underlying ownership of the company is held by a non-resident person (hereinafter referred to as the “foreign controller”) either alone or together with an associate or associates;

“foreign debt” in relation to a foreign-controlled resident company, means the greatest amount, at any time in a tax year, of the sum of the following amounts, namely: —

(a) The balance outstanding at that time on any debt obligation owed by the foreign-controlled resident company to a foreign controller or non-resident associate of the foreign controller on which profit on debt is payable which profit on debt is deductible to the foreign-controlled resident company and is not taxed under this Ordinance or is taxable at a rate lower than the 3[corporate rate] of tax applicable on assessment to the foreign controller or associate; and


1 Ins by the Finance Act, 2002, s.8(31)(a). 
2 Ins by the Finance Act, 2008, s.18(7). 
3 The words “corporate tax” substituted by the Finance Act, 2002, s.8(31)(b).   


(b) the balance outstanding at that time on any debt obligation owed by the foreign-controlled resident company to a person other than the foreign controller or an associate of the foreign controller where that person has a balance outstanding of a similar amount on a debt obligation owed by the person to the foreign controller or a non-resident associate of the foreign controller; and

“foreign equity” in relation to a foreign-controlled resident company and for a tax year, means the sum of the following amounts, namely: —

(a) The paid-up value of all shares in the company owned by the foreign controller or a non-resident associate of the foreign controller at the beginning of the tax year; 

(b) so much of the amount standing to the credit of the share premium account of the company at the beginning of the tax year as the foreign controller or a non-resident associate would be entitled to if the company were wound up at that time; and

(c) so much of the accumulated profits and asset revaluation reserves of the company at the beginning of the tax year as the foreign controller or a non-resident associate of the foreign controller would be entitled to if the company were wound up at that time; reduced by the sum of the following amounts, namely: —

(i) the balance outstanding at the beginning of the tax year on any debt obligation owed to the foreign-controlled resident company by the foreign controller or a non-resident associate of the foreign controller; and

(ii) where the foreign-controlled resident company has accumulated losses at the beginning of the tax year, the amount by which the return of capital to the foreign controller or non-resident associate of the foreign controller would be reduced by virtue of the losses if the company were wound up at that time.

PART IV

AGREEMENTS FOR THE AVOIDANCE OF DOUBLE TAXATION AND PREVENTION OF FISCAL EVASION

107. Agreements for the avoidance of double taxation and prevention of fiscal evasion.—1[(1)  The Federal Government may enter into an agreement, bilateral or multilateral    with the government or governments of foreign countries or tax jurisdictions for the avoidance of double taxation and the prevention of  fiscal evasion and exchange of information including automatic exchange of information with respect to taxes on income imposed under this Ordinance and under the corresponding laws in force in that country, and may, by notification in the official Gazette make such provisions as may be necessary for implementing the agreement].

2[“(1A) Notwithstanding anything contained in any other law to the country, the Board shall have the powers to obtain and collect information when solicited by another country under a tax treaty, a tax information exchange agreement, a multilateral convention, an inter-governmental agreement, a similar arrangement or mechanism.  


1 Subs by the Finance Act, 2015, s.9(20)(a). 
2 Ins ibid, s.9(20)(b).


(1B) Notwithstanding the provisions of the Freedom of Information Ordinance, 2002 (XCVI of 2002),any information received or supplied, and any concomitant communication or correspondence made, under a tax treaty, a tax information exchange agreement, a multilateral convention, a similar arrangement or mechanism, shall be confidential subject to sub-section (3) of section 216.”]

(2) Where any agreement is made in accordance with sub-section (1), the agreement and the provisions made by notification for implementing the agreement shall, notwithstanding anything contained in any law for the time being in force, have effect in so far as they provide for –

(a) relief from the tax payable under this Ordinance;

(b) the determination of the Pakistan-source income of non-resident persons;

(c) where all the operations of a business are not carried on within Pakistan, the determination  of the income attributable to operations carried on within and outside Pakistan, or the income chargeable to tax in Pakistan in the hands of non-resident persons, including their agents, branches, and permanent establishments in Pakistan;

(d) the determination of the income to be attributed to any resident person having a special relationship with a non-resident person; and

(e) the exchange of information for the prevention of fiscal evasion or avoidance of taxes on income chargeable under this Ordinance  and under the corresponding laws in force in that other country.

(3) Notwithstanding anything in sub-sections (1) or (2), any agreement referred to in sub-section (1) may include provisions for the relief from tax for any period before the commencement of this Ordinance or before the making of the agreement. 

CHAPTER VIII

ANTI-AVOIDANCE

108. Transactions between associates.—(1)  The Commissioner may, in respect of any transaction between persons who are associates, distribute, apportion or allocate income, deductions or tax credits between the persons as is necessary to reflect the income that the persons would have realized in an arm”s length transaction.

(2) In making any adjustment under sub-section (1), the Commissioner may determine the source of income and the nature of any payment or loss as revenue, capital or otherwise.

109. Recharacterisation of income and deductions.—(1) For the purposes of determining liability to tax under this Ordinance, the Commissioner may–

(a) recharacterise a transaction or an element of a transaction that was entered into as part of a tax avoidance scheme; 

(b) disregard a transaction that does not have substantial economic effect; or


(c) recharacterise a transaction where the form of the transaction does not reflect the substance.

(2)  In this section, “tax avoidance scheme” means any transaction where one of the main purposes of a person in entering into the transaction is the avoidance or reduction of any person’s liability to tax under this Ordinance.

110. Salary paid by private companies. Where, in any tax year, salary is paid by a private company to an employee of the company for services rendered by the employee in an earlier tax year and the salary has not been included in the employee”s salary chargeable to tax in that earlier year, the Commissioner may, if there are reasonable grounds to believe that payment of the salary was deferred, include the amount in the employee”s income under the head “Salary” in that earlier year.

111. Unexplained income or assets.—(1) Where— 

(a) any amount is credited in a person”s books of account;

(b) a person has made any investment  or is the owner of any money or valuable article; 1[*]

(c) a person has incurred any expenditure 2[; or]

3[(d) any person has concealed income or furnished inaccurate particulars of income including —

(i) the suppression of any production, sales or any amount chargeable to tax; or 

(ii) the suppression of any item of receipt liable to tax in whole or in part,]

and the person offers no explanation about the nature and source of the amount credited or the  investment, money, valuable article, or funds from which the expenditure was made  4[suppression of any production, sales, any amount chargeable to tax and of any item of receipt liable to tax]  or the explanation offered by the person is not, in the Commissioner’s  opinion,  satisfactory,  the amount credited, value of the investment, money, value of the article, or amount of expenditure 4[suppressed amount of production, sales or any amount chargeable to tax or of any item of receipt liable to tax]  shall be included in the person’s income chargeable to tax under head “Income from 5[other sources”] to the extent it is not adequately explained 6[:]

6[Provided that where a taxpayer explains the nature and source of the amount credited or the investment made, money or valuable article owned or funds from which the expenditure was made, by way of agricultural income, such explanation shall be accepted to the extent of agricultural income worked back on the basis of agricultural income tax paid under the relevant provincial law.]


1 The word “or” omitted by the Finance Act, 2011, s.6(8)(a). 
2 Comma subs ibid, s.6(8)(b). 
3 New clause (d) added ibid,s.6(8)(c ). 
4 Ins ibis, s.6(8)(d). 
5 The word “Business” substituted by the Finance Act, 2002, s.8(32)(a). 
6 Full stop substituted and thereafter a proviso added by the Finance Act, 2013, s.7(8).


(2) The amount referred to in sub-section (1) shall be included in the person’s income chargeable to tax in the tax year 1[to which such amount relates].

2[(3) Where the declared cost of any investment or valuable article or the declared amount of expenditure of a person is less than reasonable cost of the investment or the valuable article, or the reasonable amount of the expenditure, the Commissioner may, having regard to all the circumstances, include the difference in the person’s income chargeable to tax under the head “Income from other sources” in the tax year 3[to which the investment, valuable article or the expenditure relates].]

4[(4) Sub-section (1) does not apply, —

(a) to any amount of foreign exchange remitted from outside Pakistan through normal banking channels that is encashed into rupees by a scheduled bank and a certificate from such bank is produced to that effect 5[.]

6(b)* * * * * * *

(5) The 7[Board] may make rules under section 8[237] for the purposes of this section.

112. Liability in respect of certain security transactions.—(1) Where the owner of any security disposes of the security and thereafter re-acquires the security and the result of the transaction is that any income payable in respect of the security is receivable by any person other than the owner, the income shall be treated, for all purposes of the Ordinance, as the income of the owner and not of the other person.

(2) In this section, “security” includes 9[bonds, certificates, debentures,] stocks and shares.


1 subs by the Finance Act, 2010, s.8(9)(a). 
2 Sub-section (3) substituted by the Finance Act, 2003, s.12(45)(a). 
3 subs by the Finance Act, 2010, s.8(9)(b). 
4 Sub-section (4) substituted by the Finance Act, 2004, s.6(14)(b). 
5 The semicolon and the word “and” substituted by the Finance Act, 2010, s.8(9)(c )(i). 
6 Clause (b) omitted ibid, s.8(9)(c ) (ii). 
7 The words “Central Board of Revenue” substituted by the Finance Act, 2007,s.20(1)(d)(1B). 
8 The figure “232” substituted by the Finance Act, 2002, s.8(32)(b). 9Ins by the Finance Act, 2003, s.12(46).


CHAPTER IX

MINIMUM TAX

1[113. Minimum tax on the income of certain persons.- (1) This section shall apply to a resident company 2[, an individual (having turnover of fifty million rupees or above in the tax year 2009 or in any subsequent tax year) and an association of persons (having turnover of fifty million rupees or above in the tax year 2007 or in any subsequent tax year)] where, for any reason whatsoever allowed under this Ordinance, including any other law for the time being in force—

(a) loss for the year;

(b) the setting off of a loss of an earlier year;

(c) exemption from tax;

(d) the application of credits or rebates; or

(e) the claiming of allowances or deductions (including depreciation and amortization deductions) no tax is payable or paid by the person for a tax year or the tax payable or paid by the person for a tax year is less than 3[one] per cent of the amount representing the person’s turnover from all sources for that year:

Provided that this sub-section shall not apply in the case of a company, which has declared gross loss before set off of depreciation and other inadmissible expenses under the Ordinance. If the loss is arrived at by setting off the aforesaid or changing accounting pattern, the Commissioner may ignore such claim and proceed to compute the tax as per historical accounting pattern and provision of this Ordinance and all other provisions of the Ordinance shall apply accordingly.


1 Inserted by the Finance Act, 2009, s.5(15). 
2 Inserted by the Finance Act, 2010, s.8(10)(a)(i). 
3 The word “one-half” substituted by the Finance Act, 2013, s.7(9)(a).


1[Explanation.- For the purpose of this sub-section, the expression “tax payable or paid” does not include tax already paid or payable in respect of deemed income which is assessed as final discharge of the tax liability under section 169 or under any other provision of this Ordinance.]

(2) Where this section applies:

(a) the aggregate of the person’s turnover as defined in sub-section (3) for the tax year shall be treated as the income of the person for the year chargeable to tax;

(b) the person shall pay as income tax for the tax year (instead of the actual tax payable under this Ordinance),2[minimum tax computed on the basis of rates as specified in Division IX of Part I of First Schedule];

(c) where tax paid under sub-section (1) exceeds the actual tax payable under Part I, 3[clause (1) of Division I, or] Division II of the First Schedule, the excess amount of tax paid shall be carried forward for adjustment against tax liability under the aforesaid Part of the subsequent tax year:

Provided that the amount under this clause shall be carried forward and adjusted against tax liability for 4[five] tax ears immediately succeeding the tax year for which the amount was paid.

(3) “turnover” means,-

(a) the 5[gross sales or] gross receipts, exclusive of Sales Tax and Federal Excise duty or any trade discounts shown on invoices, or bills, derived from the sale of goods, and also excluding any amount taken as deemed


1 Added by the Finance Act, 2012, s.15(19)(b). 
2 subs by the Finance Act, 2014, s.7(18)(ii). 
3 Ins by the Finance Act, 2013, s.7(9)(b)(ii). 
4 Subs by the Finance Act, 2011, s.6(9)(a). 
5Ins ibid, s.6(9)(b).


income and is assessed as final discharge of the tax liability for which tax is already paid or payable;

(b) the gross fees for the rendering of services for giving benefits including commissions; except covered by final discharge of tax liability for which tax is separately paid or payable;

(c) the gross receipts from the execution of contracts; except covered by final discharge of tax liability for which tax is separately paid or payable; and

(d) the company’s share of the amounts stated above of any association of persons of which the company is a member.]

1[113A. Minimum tax on builders.— (1) Subject to this Ordinance, where a person derives income from the business of construction and sale of residential, commercial or other buildings, he shall pay minimum tax at the rates as the Federal Government may notify in the official Gazette. The Federal Government may also specify the mode, manner and time of payment of such amount of tax.

(2) The tax paid under this section shall be minimum tax on the income of the builder from the sale of such residential, commercial or other building.]

2[“(3) This section shall not have effect till the 30th June, 2018.”]

3[113B. Minimum tax on land developers.—(1) Subject to this Ordinance, where a person derives income from the business of development and sale of residential, commercial or other plots, he shall pay minimum tax 4[at the rates of two per cent of the value of land notified by any authority for the purpose of stamp duty] as the Federal Government may notify in the official Gazette]. The Federal Government may also specify the mode, manner and time of payment of such amount of tax.


1 Section 113A substituted by the Finance Act, 2013, s.7(10). 
2 Added by the Finance Act, 2015, s.9(21)(w.e.f.01.07.2015). 
3 Section 113B substituted by the Finance Act, 2013, s.7(11). 
4 Subs by the Finance Act, 2015, s.9(22)(w.e.f.01.07.2015).


(2) The tax paid under this section shall be minimum tax on the income of the developer from the sale of such residential, commercial or other plots sold or booked.]

1[113C. Alternative Corporate Tax.-(1) Notwithstanding anything contained in this Ordinance, for tax year 2014 and onwards, tax payable by a company 2[in respect of income which is subject to tax under Division II of Part I of the First Schedule or minimum tax under any of the provisions of this Ordinance] shall be higher of the Corporate Tax or Alternative Corporate Tax.

(2) For the purposes of this section.-

(a) ”Accounting Income” means the accounting profit before tax for the tax year, as disclosed in the financial statements or as adjusted under sub-section (7) or sub-section (11) excluding share from the associate recognized under equity method of accounting;

(b) ”Alternative Corporate Tax” means the tax at a rate of seventeen per cent of a sum equal to accounting income less the amounts, as specified in sub-section (8), and determined in accordance with provisions of sub-section (7) hereinafter;

3[(c) ”Corporate Tax” means total tax payable by the company under Division II of Part I of the First Schedule and minimum tax payable under any of the provisions of this Ordinance.]

(3) The sum equal to accounting income, less any amount to be excluded therefrom under sub-section (8), shall be treated as taxable income for the purpose of this section.

(4) The excess of Alternative Corporate Tax paid over the Corporate Tax payable for the tax year shall be carried forward and adjusted against the tax payable under Division II of Part I of the First Schedule, for following year.


1 Section 113C ins by the Finance Act, 2014, s.7(19). 
2 Ins by the Finance Act, 2015, s.9(23)(a)(w.e.f. 01.07.2015). 
3 Subs ibid, s.9(23)(b).


(5) If the excess tax, as mentioned in sub-section (4), is not wholly adjusted, the amount not adjusted shall be carried forward to the following tax year and adjusted as specified in sub-section (4) in that year, and so on, but the said excess cannot be carried forward to more than ten tax years immediately succeeding the tax year for which the excess was first computed.

Explanation.-  For the purpose of this sub-section the mechanism for adjustment of excess of Alternative Corporate Tax over Corporate Tax, specified in this section, shall not prejudice or affect the entitlement of the taxpayer regarding carrying forward and adjustment of minimum tax referred to in section 113 of this Ordinance.

(6) If Corporate Tax or Alternative Corporate Tax is enhanced or reduced as a result of any amendment, or as a result of any order under the Ordinance, the excess amount to be carried forward shall be reduced or enhanced accordingly.

(7)  For the purposes of determining the “Accounting Income”, expenses shall be apportioned between the amount to be excluded from accounting income under sub-section (8) and the amount to be treated as taxable income under sub-section (2). 

(8) The following amounts shall be excluded from accounting income for the purposes of computing Alternative Corporate Tax:-

(i) exempt income;

1[(ii) income which is subject to tax under Division II of Part I of the First Schedule and minimum tax payable under any of the provisions of this Ordinance.]  

(iii) income subject to tax credit under section 65D and 2[65E; and 100cc]

3*          *            *              *             *                *               *

(9) The provisions of this section shall not apply to taxpayers chargeable to tax in accordance with the provisions contained in the Fourth, Fifth and Seventh Schedules.

(10) Tax credit under 4[sections 64B and] 65B shall be allowed against Alternative Corporate Tax.

(11) The Commissioner may make adjustments and proceed to compute accounting income as per historical accounting pattern after providing an opportunity of being heard.”;]  

5[“Explanation.- For the removal of doubt, it is clarified that the taxes paid or payable other than payable in II of Part I of the First Schedule shall remain payable in accordance with the mode or manner prescribed under the respective provisions of this Ordinance.”]


1 Subs by the Finance Act, 2015, s.9(23)(c )(i). 
2 Added ibid, , s.9(23)(c )(ii). 
3Clauses (iv) and (v) omitted by the Finance Act, 2015, s.9(23)(c )(iii). 
4 Subs ibid, s.9(23)(d). 
5 Added ibid, s.9(23)(c ).


CHAPTER X

PROCEDURE

PART I

RETURNS

114. Return of income. — (1) Subject to this Ordinance, the following persons are required to furnish a return of income for a tax year, namely:–

1[(a) every company;]

2[(ab) every person (other than a company) whose taxable income for the year exceeds the maximum amount that is not chargeable to tax under this Ordinance for the year; 3[or]]

4[(ac) any non-profit organization as defined in clause (36) of section 2; 5[*]

(ad) any welfare institution approved under clause (58) of Part I of the Second Schedule;]

6[(b) any person not covered by clause 7[(a), (ab), (ac) or (ad)] who,—

(i) has been charged to tax in respect of any of the two preceding tax years;

(ii) claims a loss carried forward under this Ordinance for a tax year;


1 Clause (a) substituted by the Finance Act, 2003, s.12(47)(a). 
2 Ins ibid, s.12(47)(a). 
3 Ins by the Finance Act, 2011, s.6(11)(a)(i). 
4 Ins by the Finance Act, 2006, s.17(11)(a). 
5 The word “and” omitted by the Finance Act, 2011, s.6(11)(a)(ii). 
6 Clause (b) substituted by the Finance Act, 2005, s.8(17). 
7 The letters and word “(a) or (ab)” substituted by the Finance Act, 2006, s.17(11)(b).


(iii) owns immovable property with a land area of two hundred and fifty square yards or more or owns any flat located in areas falling within the municipal limits existing immediately before the commencement of Local Government laws in the provinces; or areas in a Cantonment; or the Islamabad Capital Territory 1[;] ]

2[(iv) owns immoveable property with a land area of five hundred square yards or more located in a rating area;

(v) owns a flat having covered area of two thousand square feet or more located in a rating area;

(vi) owns a motor vehicle having engine capacity above 1000 CC; 3[*]

(vii) has obtained National Tax Number [; or]

4[(viii) is the holder of commercial or industrial connection of connection of electricity where the amount of annual bill exceeds rupees 5[five hundred thousand] 6[; or] ]

7[(ix) is 8[a resident person] registered with any chamber of commerce and industry or any trade or business association or any market committee or any professional body including Pakistan Engineering Council, Pakistan Medical and Dental Council, Pakistan Bar Council or any Provincial Bar Council, Institute of Chartered Accountants of Pakistan or Institute of Cost and Management Accountants of Pakistan.]


1 Full stop substituted by the Finance Act, 2009, s.5(17)(a)(i). 
2 Ins ibid, s.5(17)(a)(ii). 
3 The word “and” omitted by the Finance Act, 2011, s.6(11)(a)(iii)(a). 
4 Added ibid, s.6(11)(a)(iii)(c). 
5 The words “one million” substituted by the Finance Act, 2013, s.7(12)(A)(i)(a). 
6 Full stop subs ibid, s.7(12)(A)(i)(b). 
7 Added ibid, s.7(12)(A)(ii). 
8 The words “a resident person” inserted by the Finance Act, 2014, s.7(20).


1[(1A) Every individual whose income under the head “Income from business” exceeds rupees three hundred thousand but does not exceed rupees 2[four hundred thousand] in a tax year is also required to furnish return of income from the tax year.]

3[(2) A return of income -

(a) shall be in the prescribed form and shall be accompanied by such annexures, statements or documents as may be prescribed;

(b) shall fully state all the relevant particulars or information as specified in the form of return, including a declaration of the records kept by the taxpayer; 4[*]

(c) shall be signed by the person, being an individual, or the person’s representative where section 172 applies 5[;] ]

6[(d) shall be accompanied with evidence of payment of due tax as per return of income; and

(e) shall be accompanied with a wealth statement as required under section 116.]

7[(2A) A return of income filed electronically on the web or any magnetic media or any other computer readable media as may be specified by the Board shall also be deemed to be a return for the purpose of sub-section (1); and the Board may, by notification in the official Gazette, make rules for determining eligibility of the data of such returns and e-intermediaries who will digitize the data of such returns and transmit the same electronically to


1 Inserted by the Finance Act, 2011, s.11(a)(iii)(b). 
2 subs by the Finance Act, 2013, s.7(12)(B). 
3 Sub-section (2) substituted by the Finance Act, 2011, s.6(11)(B). 
4 The word “and” omitted ibid, s. 6(11)(c )(i). 
5 Full stop substituted by the Finance Act, 2011, s. 6(11)(C )(ii). 
6 Ins ibid, s. 6(11)(C )(iii). 
7 Ins by the Finance Act, 2005, s.8(17)(C ).


the Income Tax Department under their digital signatures 1[and other matters relating to electronic filing of returns, statements or documents, etc.] ]

(3) The Commissioner may, by notice in writing, require a person, or a person’s representative, as the case may be, to furnish a return of income by the date specified in the notice for a period of less than twelve months, where -

(a) the person has died;

(b) the person has become bankrupt or gone into liquidation;

(c) the person is about to leave Pakistan permanently;

2(d) * * * * * * *

(e) the Commissioner otherwise considers it appropriate to require such a return to be furnished.

(4) Subject to sub-section (5), the Commissioner may, by notice in writing, require any person who, in the Commissioner’s opinion, is required to file a return of income under this section for a tax year 3[or assessment year] but who has failed to do so to furnish a return of income for that year within thirty days from the date of service of such notice or such longer 4[or shorter] period as may be specified in such notice or as the Commissioner may allow.

(5) A notice under sub-section (4) may be issued 5[in respect of one or more] 6[of the] last five completed tax years 7[or assessment years].

8[(6) Subject to sub-section (6A), any person who, having furnished a return, discovers any omission or wrong statement therein, may file revised return subject to the following conditions, namely: —


1 Ins by the Finance Act, 2007, s.20(18). 
2 Clause (d) omitted by the Finance Act, 2003, s.12(47)(c ). 
3 Ins ibid, s.12(47)(d). 
4 Ins by the Finance Act, 2013, s.7(c ). 
5 Subs by the Finance Act, 2003, s.12(47)(e). 
6 Ins by the Finance Act, 2005, s.8(17)(d). 
7 Subs by the Finance Act, 2004, s.6(17). 
8 Sub-section (6) substituted by the Finance Act, 2010, s.8(11)(a).


(a) it is accompanied by the revised accounts or revised audited accounts, as the case may be; 1[*]

(b) the reasons for revision of return, in writing, duly signed, by the taxpayers are filed with the return 2[; 3[*] ]

4[(ba) it is accompanied by approval of the Commissioner in writing for revision of return; and]

5[(c) taxable income declared is not less than and loss declared is not more than income or loss, as the case may be, determined by an order issued under sections 121, 122, 122A, 122C, 129, 132, 133 or 221:-

Provided that if any of the above conditions is not fulfilled, the return furnished shall be treated as an invalid return as if it had not been furnished 6[:]

7[“Provided further that the condition specified in clause (ba) shall not apply if revised return is filed within sixty days of filling of return:

Provided also that where the commissioner has not made an order of approval in writing, for revision of return, before the expiration of thirty days from the date when the revision of return sought, the approval required under clause (ba) shall be deemed to be granted by the commissioner, and condition specified in clause (ba) shall not apply:

Provided further that the mode and the manner for seeking the revision shall be as prescribed by the Board.”]


1 The word “and” omitted by the Finance Act, 2012, s.15(20)(a). 
2 Subs ibid, s.15(20)(a). 
3 The word “and” omitted by the Finance Act, 2013, s.7(12)(d). 
4 Ins ibid, s.7(12)(D). 
5 Added by the Finance Act, 2012, s.15(20)(b). 
6 Subs by the Finance Act, 2015, s.9(24)(w.e.f.01.074.2015). 
7 Added ibid, s.9(24).(w.e.f. 01.07.2015).


1[(6A) If a taxpayer 2[files] a revised return voluntarily along with deposit of the amount of tax short paid or amount of tax sought to be evaded along with the default surcharge, whenever it comes to his notice, before receipt of notice under sections 177 or sub-section (9) of 122, no penalty shall be recovered from him:

Provided that in case the taxpayer 3[deposits] the amount of tax as pointed out by the Commissioner during the audit or before the issuance of notice under sub-section (9) of section 122, he shall deposit the amount of tax sought to be evaded, the default surcharge and twenty-five per cent of the penalties leviable under the Ordinance along with the revised return:

Provided further that in case the taxpayer 4[revises] the return after the issuance of a show cause notice under sub-section (9) of section 122, he shall deposit the amount of tax sought to be evaded, default surcharge and fifty per cent of the leviable penalties under the Ordinance along with the revised return and thereafter, the show cause notice shall stand abated.]

(7) Every return purporting to be made or signed by, or on behalf of a person shall be treated as having been duly made by the person or with the person’s authority until the person proves the contrary.

115. Persons not required to furnish a return of income. — 5[* * *]

6* * * * * * *

(3) The following persons shall not be required to furnish a return of income for a tax year solely by reason of 7[sub-clause (iii)] of clause (b) of sub-section (1) of section 114 –


1 Ins by the Finance Act, 2010,s. 8(11)(b). 
2 The words “wishes to file” substituted by the Finance Act, 2011, s.6(11)(d)(i). 
3 The words “wishes to deposit” subs ibid, s.6(11)(d)(ii). 
4 The words “wishes to revise” subs ibid, s.6(11)(d)(iii). 
5 Sub-section (1) and the proviso there under omitted by the Finance Act, 2013,s.7(13)(a). 
6 Sub-section (2) omitted by the Finance Act, 2004, s.6(18)(ii). 
7 The words, brackets and figures substituted by the Finance Act, 2008, s.18(9)(b).


(a) A widow;

(b) an orphan below the age of twenty-five years;

(c) a disabled person; or

(d) in the case of ownership of immovable property, a non-resident person.

1[(4) Any person who is not obliged to furnish a return for a tax year because all the person’s income is subject to final taxation under sections 5, 6, 7, 148, 151 and 152, sub-section (3) of section 153, sections 154, 156 and 156A, sub-section (3) of section 233 or sub-section (3) of section 234A shall furnish to the Commissioner a statement showing such particulars relating to the person’s income for the tax year in such form and verified in such manner as may be prescribed.]

2[(4A) Any person who, having furnished a statement, discovers any omission or wrong statement therein, he may, without prejudice to any other liability which he may incur under this Ordinance, furnish a revised statement for that tax year, at any time within five years from the end of the financial year in which the original statement was furnished.]

3* * * * * * *

4[(5) Subject to sub-section (6), the Commissioner may, by notice in writing, require any person who, in his opinion, is required to file a prescribed statement under this section for a tax year but who has failed to do so, to furnish a prescribed statement for that year within thirty days from the date of service of such notice or such longer period as may be specified in such notice or as he may, allow.

(6) A notice under sub-section (5) may be issued in respect of one or more of the last five completed tax years.]


1 Sub-section (4) substituted by the Finance Act, 2013, s.7(13)(b). 
2 Inserted by the Finance Act, 2009, s.5(18)(c ). 
3 Sub-section (4B) omitted by the Finance Act, 2010, s.8(12). 
4 Ins by the Finance Act, 2007, s.20(18A).


116. Wealth statement.— (1) 1[The] Commissioner may, by notice in writing, require any person 2[being an individual] to furnish, on the date specified in the notice, a statement (hereinafter referred to as the “wealth statement”) in the prescribed form and verified in the prescribed manner giving particulars of —

(a) the person’s total assets and liabilities as on the date or dates specified in such notice;

(b) the total assets and liabilities of the person’s spouse, minor children, and other dependents as on the date or dates specified in such notice;

(c) any assets transferred by the person to any other person during the period or periods specified in such notice and the consideration for the transfer; 3[*]

(d) the total expenditures incurred by the person, and the person’s spouse, minor children, and other dependents during the period or periods specified in the notice and the details of such expenditures 4[; and]

4[(e) the reconciliation statement of wealth.]

(2) Every resident taxpayer 5[being an individual] filing a return of income for any tax year 6[***] shall furnish a wealth statement 7[and wealth reconciliation statement] for that year along with such return 8[:]

9[Provided that every member of an association of persons 10[***] shall also furnish wealth statement and wealth reconciliation statement for the year along with return of income of the association.]


1 Substituted by the Finance Act, 2007, s.20(19)(a). 
2 Ins by the Finance Act, 2013, s.7(14)(a). 
3 The word “and” omitted by the Finance Act, 2009, s.5(19)(a)(i). 
4 Full stop subs and thereafter a new clause inserted ibid, s.5(19)(a)(ii). 
5 Ins by the Finance Act, 2011, s. 6(13)(a)(i). 
6 Omitted by the Finance Act, 2013, s. 7(14)(b)(i), (w.e.f.. 2013 and onwards). 
7 Ins by the Finance Act, 2009, s.5(19)(b). 
8 Ins by the Finance Act, 2011, s.6(13)(a)(iii). 
9 Ins by the Finance Act, 2011, s6(13)(a)(iii). 
10 omitted by the Finance Act, 2013, s. .7(14)(b)(ii), (w.e.f.. 2013 and onwards).


1[(2A) Where a person, being an individual or an association of persons, files a return in response to a provisional assessment order under section 122C, such return shall be accompanied by wealth statement along with a wealth reconciliation statement and an explanation of source of acquisition of assets specified therein in the case of an individual and wealth statements of all members in the case of an association of persons and such wealth statements shall be accompanied by wealth reconciliation statements and explanation of source of acquisition of assets specified therein.]

2[(3) Where a person, who has furnished a wealth statement, discovers any omission or wrong statement therein, he may, without prejudice to any liability incurred by him under any provision of this Ordinance, furnish a revised wealth statement 3[along with the revised wealth reconciliation and the reasons for filing revised wealth statement,] at any time before an assessment, for the tax year to which it relates, is made under sub-section (1) or sub-section (4) of section 122.]

4[(4) Every person (other than a company 5[or an association of persons]) persons]) filing statement under sub-section (4) of section 115, falling under final tax regime (FTR) 6[* * *] shall file a wealth statement along with reconciliation of wealth statement.]

117. Notice of discontinued business. — (1) Any person discontinuing a business shall give the Commissioner a notice in writing to that effect within fifteen days of the discontinuance.

(2) The person discontinuing a business shall, under the provisions of this Ordinance or on being required by the Commissioner by notice, in writing, furnish a return of income for the period commencing on the first day of the tax year in which the discontinuance occurred and ending on the date of discontinuance and this period shall be treated as a separate tax year for the purposes of this Ordinance.


1 Sub-section (2A) substituted by the Finance Act, 2011, s.6(13)(b). 
2 Added by the Finance Act, 2003, s.12(49). 
3 Ins by the Finance Act,2013, s.7(14)(c ). 
4 Added by the Finance Act,2010, s. 8(13)(b). 
5 Ins by the Finance Act,2013, s. .7(14)(d)(i). 
6 Omitted by the Finance Act,2013, s.7(15)(d)(ii) (w.e.f.. 2013 and onwards).


(3) Where no notice has been given under sub-section (1) but the Commissioner has reasonable grounds to believe that a business has discontinued or is likely to discontinue, the Commissioner may serve a notice on the person who has discontinued the business or is likely to discontinue the business to furnish to the Commissioner within the time specified in the notice a return of income for the period specified in the notice.

(4) A return furnished under this section shall be treated for all purposes of this Ordinance as a return of income, including the application of Section 120.

118. Method of furnishing returns and other documents. — (1) A return of income under section 114, 1[***] a statement required under sub-section (4) of section 115 or a wealth statement under section 116 shall be furnished in the prescribed manner.

(2) A return of income 2[under section 114 or a statement under sub-section (4) of section 115] of a company shall be furnished —

(a) in the case of a company with a tax year ending any time between the first day of January and the thirtieth day of June, on or before the thirty-first day of December next following the end of the tax year to which the return relates; or

(b) in any other case, on or before the thirtieth day of September next following the end of the tax year to which the return relates.

3[(2A) Where salary income for the tax year is five hundred thousand rupees or more, the taxpayer shall file return of income electronically in the prescribed form and it shall be accompanied by the proof of deduction or payment of tax and wealth statement as required under section 116 4[:]


1 Omitted by the Finance Act, 2013, s.7(15)(a). 
2 Ins by the Finance Act, 2003, s.12(50). 
3 Ins by the Finance Act, 2013, s.7(15)(b). 
4 Subs by the Finance Act, 2015, s.9(25)(w.e.f. 01.07.2015). 
n> Ins by the Finance Act, 2007, s.20(18A).


1[Provided that the Board may amend the condition specified in this sub-section or direct that the said condition shall not apply for a tax year.”]

2[(3)     A return of income for any person (other than a company),    3[* * *] or a statement required under sub-section (4) of section 115 shall be furnished as per the following schedule, namely:—

4[(a) in the case of a statement required under sub-section (4) of section 115 or a return required to be filed through e-portal in the case of a salaried individual, on or before the 31st day of August next following the end of the tax year to which the statement or return relates; or]

(b) in the case of a return of income for any person (other than a company), as described under clause (a), on or before the 30th day of September next following the end of the tax year to which the return relates.]  

(4) A wealth statement shall be furnished by the due date specified in the notice requiring the person to furnish such statement or, where the person is required to furnish the wealth statement for a tax year under sub-section (2) of section 116, by the due date for furnishing the return of income for that year.

(5) A return required to be furnished by a notice issued under section 117 shall be furnished by the due date specified in the notice.

(6) Where a taxpayer is not borne on the National Tax Number Register and fails to file an application in the prescribed form and manner with the taxpayer”s return of income 5[***], such return 6[**] shall not be treated as a return 6[* *] furnished under this section.

119.  Extension of time for furnishing returns and other documents.—  (1)  A person required to furnish —

 

 


1 Proviso added by Finance Act, 2015, s.9(25) (w.e.f. 01.07.2015). 
2 Sub-section (3) substituted by the Finance Act, 2010, s.8(14). 
3 Omitted by the Finance Act, 2013, s.7(15)(c )(i).           
4 Clause (a) substituted by the Finance Act, 2013, s.7(15)(c ) (ii). 
5 The words “or employer”s certificate” omitted by the Finance Act,2013, s.7(15)(d)(i). 
6 The words “or certificate” omitted ibid, s.7(15)(d)(ii).


(a) a return of income under section 114 or 117;

1(b)*          *           *             *             *             *          *      

(c) a statement required under sub-section (4) of section 115; or

(d) a wealth statement under section 116,

may apply, in writing, to the Commissioner for an extension of time to furnish the return, 2[*] or statement, as the case may be.

(2) An application under sub-section (1) shall be made by the due date for furnishing the return of income, 3[**] or 4[*] statement to which the application relates.

(3) Where an application has been made under sub-section (1) and the Commissioner is satisfied that the applicant is unable to furnish the return of income, 5[* * *] or 6[* * *] statement to which the application relates by the due date because of —

(a) absence from Pakistan; 

(b) sickness or other misadventure; or

(c) any other reasonable cause,

the Commissioner may, by 7[order], in writing, grant the applicant an extension of time for furnishing the return, 8[* * * ] or statement, as the case may be.

(4) An extension of time under sub-section (3) should not exceed fifteen days from the due date for furnishing the return of income, employer”s

certificate, or 9[*] statement, as the case may be, unless there are exceptional circumstances justifying a longer extension of time. 

10(5) *          *           *            *                *              *                *

(6) An extension of time granted under sub-section (3) shall not 11[, for the purpose of charge of 12[default surcharge] under sub-section (1) of section 205,] change the due date for payment of income tax under section 137.


1 Clause (b) omitted by the Finance Act, 2013, s.7(16)(a)(i). 
2 The word “certificate” omitted ibid, s.7(16)(a)(ii). 
3 The words “employer certificate” omitted ibid, s.7(16)(b). 
4 The word “wealth” omitted by the Finance Act, 2002, s.8(35)(a). 
5 Omitted by the Finance Act,2013, s.7(16)(c )(i). 
6 The word “wealth” omitted by the Finance Act, 2002, s.8(35)(b)(i). 
7 Subs by the Finance Act, 2002, s.8(35)(b)(ii). 
8 Omitted by the Finance Act,2013, s.7(16)(c )(iii). 
9 The word “wealth” omitted by the Finance Act, 2002, s.8(35)(C ). 
10 Sub-section (5) omitted ibid, s.8(35)(d). 
11 Ins ibid, s.8(35)(e). 
12 Subs by the Finance Act,2010, s.8(15).


PART II

ASSESSMENTS

1[120. Assessments.— (1) Where a taxpayer has furnished a complete return of income (other than a revised return under sub-section (6) of section 114) for a tax year ending on or after the 1st day of July, 2002,—

(a) the Commissioner shall be taken to have made an assessment of taxable income for that tax year, and the tax due thereon, equal to those respective amounts specified in the return; and

(b) the return shall be taken for all purposes of this Ordinance to be an assessment order issued to the taxpayer by the Commissioner on the day the return was furnished.

2[(1A) Notwithstanding the provisions of sub-section (1), the Commissioner may 3[conduct audit of the income tax affairs of a person] under section 177 and all the provisions of that section shall apply accordingly.]

(2) A return of income shall be taken to be complete if it is in accordance with the provisions of sub-section (2) of section 114.

(3) Where the return of income furnished is not complete, the Commissioner shall issue a notice to the taxpayer informing him of the deficiencies (other than incorrect amount of tax payable on taxable income, as specified in the return, or short payment of tax payable) and directing him to provide such information, particulars, statement or documents by such date specified in the notice.

(4) Where a taxpayer fails to fully comply, by the due date, with the requirements of the notice under sub-section (3), the return furnished shall be treated as an invalid return as if it had not been furnished.

(5) Where, in response to a notice under sub-section (3), the taxpayer has, by the due date, fully complied with the requirements of the notice, the return furnished shall be treated to be complete on the day it was furnished and the provisions of sub-section (1) shall apply accordingly.


1 Section 120 substituted by the Finance Act, 2003, s.12(51). 
2 Ins by the Finance Act, 2005, s.8(19). 
3 Subs by the Finance Act, 2010, s.8(16).


(6) No notice under sub-section (3) shall be issued after the 1[expiry of one hundred and eighty days from the end of the financial year in which return was furnished], and the provisions of sub-section (1) shall apply accordingly.]

2120A. * * * * * * *

3121. Best judgment assessment.— (1) Where a person fails to —

4(a) * * * * * *

[(aa) furnish a statement as required by a notice under sub-section (5) of section 115; or]

(b) furnish a return as required under section 143 or section 144; or

(c) furnish the statement as required under section 116; or

(d) produce before the Commissioner, or 5[a special audit penal appointed under sub-section (11) of section 177 or”] any person employed by a firm of chartered accountants 6[or a firm of cost and management accountants] under section 177, accounts, documents and records required to be maintained under section 174, or any other relevant document or evidence that may be required by him for the purpose of making assessment of income and determination of tax due thereon,

the Commissioner may, based on any available information or material and to the best of his judgment, make an assessment of the taxable income 7[or income] of the person and the tax due thereon 8[and the assessment, if any,


1 Subs by the Finance Act, 2012, s.15(21). 
2 Section 120A omitted by the Finance Act, 2013, s.7(17). 
3 Section 121 subs by the Finance Act, 2003, s. 12(52). 
4 Omitted by the Finance Act, 2010, s.8(17)(a). 
5 Subs by the Finance Act, 2015, s.9(26) (w.e.f. 01.07.2015) 
6 Ins by the Finance Act, 2010, s.5(17)(c ). 
7 Ins by the Finance Act, 2010, s.8(17)(b). 
8 Ins by the Finance Act, 2011, s.15(22).


treated to have been made on the basis of return or revised return filed by the taxpayer shall be of no legal effect].

(2) As soon as possible after making an assessment under this section, the Commissioner shall issue the assessment order to the taxpayer stating—

(a) the taxable income;

(b) the amount of tax due;

(c) the amount of tax paid, if any; and

(d) the time, place and manner of appealing the assessment order.

(3) An assessment order under this section shall only be issued within five years after the end of the tax year or the income year to which it relates.]

122. Amendment of assessments.— (1) Subject to this section, the Commissioner may amend an assessment order treated as issued under section 120 or issued under section 12111[, or issued under section 122C], 2[or 3[***],] by making such alterations or additions as the Commissioner considers necessary 4[***].

5[(2) No order under sub-section (1) shall be amended by the Commissioner after the expiry of five years from the end of the financial year in which the Commissioner has issued or treated to have issued the assessment order to the taxpayer.]

(3) Where a taxpayer furnishes a revised return under sub-section (6) 6[or (6A)] of section 114 —


1 Ins by the Finance Act, 2012, s.15(23)(a)(i). 
2 Ins by the Finance Act, 2002, s.8(38)(a). 
3 Omitted by the Finance Act, 2012, s.15(23)(a)(ii). 
4 Omitted by the Finance Act, 2003, s.12(53)(a). 
5 Sub-section (2) substituted by the Finance Act, 2009, s.5(21)(a). 
6 Subs by the Finance Act, 2010, s.8(18)(a).


(a) The Commissioner shall be treated as having made an amended assessment of the taxable income and tax payable thereon as set out in the revised return; and

(b) the taxpayer’s revised return shall be taken for all purposes of this Ordinance to be an amended assessment order issued to the taxpayer by the Commissioner on the day on which the revised return was furnished.

(4) Where an assessment order (hereinafter referred to as the “original assessment”) has been amended under sub-section (1) 1[,] (3) 2[or (5A)], the Commissioner may further amend, 3[as many times as may be necessary,] the original assessment within the later of —

(a) five years 4[from the end of the financial year in which] the Commissioner has issued or is treated as having issued the original assessment order to the taxpayer; or

(b) one year 4[from the end of the financial year in which] the Commissioner has issued or is treated as having issued the amended assessment order to the taxpayer.

5[(4A) In respect of an assessment made under the repealed Ordinance, nothing contained in sub-section (2) or, as the case may be, sub-section (4) shall be so construed as to have extended or curtailed the time limit specified in section 65 of the aforesaid Ordinance in respect of an assessment order passed under that section and the time-limit specified in that section shall apply accordingly.]

6[(5) An assessment order in respect of tax year, or an assessment year, shall only be amended under sub-section (1) and an amended assessment for that year shall only be further amended under sub-section (4) where, on the basis of definite information acquired from an audit or otherwise, the Commissioner is satisfied that —


1 Subs by the Finance Act, 2010, s.8(18)(b). 
2 Ins ibid, s.8(18)(b). 
3 Ins by the Finance Act, 2002, s.8(38)(b). 
4 Subs by the Finance Act, 2009, s.5(21)(b)(i) & (ii). 
5 Ins by the Finance Act, 2003, s.12(53)(b). 
6 Sub-section (5) subs ibid, s.12(53)(c ).


(i) any income chargeable to tax has escaped assessment; or

(ii) total income has been under-assessed, or assessed at too low a rate, or has been the subject of excessive relief or refund; or

(iii) any amount under a head of income has been mis-classified.]

1[(5A) Subject to sub-section (9), the Commissioner may 2[, after making, or causing to be made, such enquiries as he deems necessary,] amend, or further amend, an assessment order, if he considers that the assessment order is erroneous in so far it is prejudicial to the interest of revenue.]

3[(5AA) In respect of any subject matter which was not in dispute in an appeal the Commissioner shall have and shall be deemed always to have had the powers to amend or further amend an assessment order under sub-section (5A).]

4[(5B) Any amended assessment order under sub-section (5A) may be passed within the time-limit specified in sub-section (2) or sub-section (4), as the case may be.]

(6) As soon as possible after making an amended assessment under 5[sub-section (1), sub-section (4) or sub-section (5A)], the Commissioner shall issue an amended assessment order to the taxpayer stating –

(a) the amended taxable income of the taxpayer;

(b) the amended amount of tax due;

(c) the amount of tax paid, if any; and


1 Ins by the Finance Act, 2003, s.12(53)(d). 
2 Added by Finance Act, 2012, s.15(23)(b). 
3 Ins by Finance Act, 2010, s.8(18)(c ). 
4 Ins by the Finance Act, 2003, s.12(53)(d). 
5 subs ibid, s.12(53)(e).


(d) the time, place, and manner of appealing the amended assessment.

(7) An amended assessment order shall be treated in all respects as an assessment order for the purposes of this Ordinance, other than for the purposes of sub-section (1).

(8) For the purposes of this section, “definite information” includes information on sales or purchases of any goods made by the taxpayer, 1[receipts of the taxpayer from services rendered or any other receipts that may be chargeable to tax under this Ordinance,] and on the acquisition, possession or disposal of any money, asset, valuable article or investment made or expenditure incurred by the taxpayer.

2[(9) No assessment shall be amended, or further amended, under this section unless the taxpayer has been provided with an opportunity of being heard.]

3[122A.Revision by the Commissioner.— (1) The Commissioner may 45[, suo motu,] ] call for the record of any proceeding under this Ordinance or under the repealed Ordinance in which an order has been passed by any 6[Officer of Inland Inland Revenue] other than the Commissioner (Appeals).

(2) Subject to sub-section (3), where, after making such inquiry as is necessary, Commissioner considers that the order requires revision, the Commissioner may 7[suo motu] make such revision to the order as the Commissioner deems fit.

(3) An order under sub-section (2) shall not be prejudicial to the person to whom the order relates.

(4) The Commissioner shall not revise any order under sub-section (2) if—


1 Ins by the Finance Act, 2002, s.8(38)(d). 
2 Added ibid, s.8(38)(e). 
3 Added by the Finance Act, 2003, s.12(54). 
4 Inserted by the Finance Act, 2004, s.6(20). 
5 subs by the Finance Act, 2005, s.8(20). 
6 subs by the Finance Act, 2010, s.8(19). 
7 Words “suo motu” ins., by Finance Act, 2004, s.6(20).


(a) an appeal against the order lies to the Commissioner (Appeals) or to the Appellate Tribunal, the time within which such appeal may be made has not expired; or

(b) the order is pending in appeal before the Commissioner (Appeals) or has been made the subject of an appeal to the Appellate Tribunal.]

1[122B. Revision by the 2[Chief Commissioner].—(1) The 2[Chief Commissioner] may, either of his own motion or on an application made by the taxpayer for revision, call for the record of any proceedings relating to issuance of an exemption or lower rate certificate with regard to collection or deduction of tax at source under this Ordinance, in which an order has been passed by any authority subordinate to him.

(2) Where, after making such inquiry as is necessary, 2[Chief Commissioner] considers that the order requires revision, the 2[Chief Commissioner] may, after providing reasonable opportunity of being heard to the taxpayer, make such order as he may deem fit in the circumstances of the case.]

3[122C. Provisional assessment.— (1) Where in response to a notice under sub-section (3) or sub-section (4) of section 114 a person fails to furnish return of income for any tax year, the Commissioner may, based on any available information or material and to the best of his judgment, make a provisional assessment of the taxable income or income of the person and issue a provisional assessment order specifying the taxable income or income assessed and the tax due thereon.

(2) Notwithstanding anything contained in this Ordinance, the provisional assessment order completed under sub-section (1) shall be treated as the final assessment order after the expiry of 4[forty-five] days from the date of service of order of provisional assessment and the provisions of this Ordinance shall apply accordingly:


1 Added by the Finance Act, 2006, s.17(13). 
2 Subs by the Finance Act,2014, s.7(21). 
3 Ins by the Finance Act, 2010, s.8(20). 
4 Subs by the Finance Act, 2013, s.7(18).


Provided that the provisions of sub-section (2) shall not apply if return of income along with wealth statement, wealth reconciliation statement and other documents required under sub-section (2A) of section 116 are filed by the person 1[being an individual or an association of persons] for the relevant tax year during the said period of 1[forty-five] days 2[:] ]

3[Provided further that the provisions of sub-section (2) shall not apply to a company if return of income tax alongwith audited accounts or final accounts, as the case may be, for the relevant tax year are filed by the company electronically during the said period of 1[forty-five] days.]

123. Provisional assessment in certain cases.— (1) Where a concealed asset of any person is impounded by any department or agency of the Federal Government or a Provincial Government, the Commissioner may, at any time before issuing any assessment order under section 121 or any amended assessment order under section 122, issue to the person a provisional assessment order or provisional amended assessment order, as the case may be, for the last completed tax year of the person taking into account the concealed asset.

(2) The Commissioner shall finalize a provisional assessment order or a provisional amended assessment order as soon as practicable 4[* * *].

(3) In this section, “concealed asset” means any property or asset which, in the opinion of the Commissioner, was acquired from any income subject to tax under this Ordinance.

124. Assessment giving effect to an order. —(1) Except where sub-section (2) applies, where, in consequence of, or to give effect to, any finding or direction in any order made under Part III of this Chapter by the Commissioner (Appeals), Appellate Tribunal, High Court, or Supreme Court an assessment order or amended assessment order is to be issued to any person, the Commissioner shall issue the order within two years from the end of the financial year in which the order of the Commissioner (Appeals), Appellate Tribunal, High Court or Supreme Court, as the case may be, was served on the Commissioner.


1 Ins by the Finance Act, 2012, s.15(24)(a)(i). 
2 Subs ibid, s.15(24)(a)(ii). 
3 Added by the Finance Act, 2012, s.15(24)(b). 
4 The words “after making it” omitted by the Finance Act, 2003, s.12(55).


(2) Where, by an order made under Part III of this Chapter by the 1[* *] Appellate Tribunal, High Court, or Supreme Court, an assessment order is set aside 2[wholly or partly,] and the Commissioner 3[or Commissioner (Appeals), as the case may be,] is directed to4[pass] a new assessment order, the Commissioner 5[or Commissioner (Appeals), as the case may be,] shall 1[pass] the new order within6[one year from the end of the financial year in which] the Commissioner 2[or Commissioner (Appeals), as the case may be,] is served with the order 7[:]

4[Provided that limitation under this sub-section shall not apply, if an appeal or reference has been preferred, against the order 8[* * *], passed by 9[* * *] Appellate Tribunal or a High Court.]

(3) Where an assessment order has been set aside or modified, the proceedings may commence from the stage next preceding the stage at which such setting aside or modification took place and nothing contained in this Ordinance shall render necessary the re-issue of any notice which had already been issued or the re-furnishing or re-filing of any return, statement, or other particulars which had already been furnished or filed.

(4) Where direct relief is provided in an order under section 129 or 132, the Commissioner shall issue appeal effect orders within two months of the date the Commissioner is served with the order.

(5) Where, by any order referred to in sub-section (1), any income is excluded —

(a) from the computation of the taxable income of a taxpayer for any year and held to be included in the computation of the taxable income of the taxpayer for another year; or


1 The words “Commissioner (Appeals)” omitted by the Finance Act, 2010, s.8(21)(a). 
2 Ins by the Finance Act, 2003, s.12(56). 
3 Ins by the Finance Act, 2008, s.18(11). 
4 Subs by the Finance Act, 2010, s.8(21)(b). 
5 Ins by the Finance Act, 2008, s.18(11). 
6 Subs by the Finance Act, 2002, s.8(39). 
7 Full stop subs by a colon and thereafter a proviso added by the Finance Act, 2005, s.8(21). 
8 The Words “setting aside the assessment” omitted by the Finance Act, 2010, s.8(21)(c )(i). 
9 The words “a Commissioner (Appeals)” omitted ibid, s.8(21)(c )(ii).


(b) from the computation of the taxable income of one taxpayer and held to be included in the computation of the taxable income of another taxpayer,

the assessment or amended assessment relating to that other tax year or other taxpayer, as the case may be, shall be treated as an assessment or amended assessment to be made in consequence of, or to give effect to, a finding or direction contained in such order.

(6) Nothing in this Part shall prevent the issuing of an assessment order or an amended assessment order to give effect to an order made under Part III of this Chapter by the Commissioner (Appeals), Appellate Tribunal, High Court, or Supreme Court.

1[(7) The provisions of this section shall in like manner apply to any order issued by any High Court or the Supreme Court in exercise of original or appellate jurisdiction.]

2[124A. Powers of tax authorities to modify orders, etc.— (1) Where a question of law has been decided by a High Court or the Appellate Tribunal in the case of a taxpayer, on or after first day of July 2002, the Commissioner may, notwithstanding that he has preferred an appeal against the decision of the High Court or made an application for reference against the order of the Appellate Tribunal, as the case may be, follow the said decision in the case of the said taxpayer in so far as it applies to said question of law arising in any assessment pending before the Commissioner until the decision of the High Court or of the Appellate Tribunal is reversed or modified.

(2) In case the decision of High Court or the Appellate Tribunal, referred to in sub-section (1), is reversed or modified, the Commissioner may, notwithstanding the expiry of period of limitation prescribed for making any assessment or order, within a period of one year from the date of receipt of decision, modify the assessment or order in which the said decision was applied so that it conforms to the final decision.]

125. Assessment in relation to disputed property.— Where the ownership of any property the income from which is chargeable to tax under this


1 Added by the Finance Act, 2003, s.12(56)(B). 
2 Ins by the Finance Act, 2002, S.8(40).


Ordinance is in dispute in any Civil Court in Pakistan, an assessment order or amended assessment order in respect of such income may be issued at any time within one year after the end of the financial year in which the decision of the Court is made.

126. Evidence of assessment.— (1) The production of an assessment order or a certified copy of an assessment order shall be conclusive evidence of the due making of the assessment and, except in proceedings under Part III of this Chapter relating to the assessment, that the amount and all particulars of the assessment are correct.

(2) Any 1[order] of assessment or other document purporting to be made, issued, or executed under this Ordinance may not be –

(a) quashed or deemed to be void or voidable for want of form; or

(b) affected by reason of any mistake, defect, or omission therein,

if it is, in substance and effect, in conformity with this Ordinance and the person assessed, or intended to be assessed or affected by the document, is designated in it according to common understanding.


1 Subs by the Finance Act, 2003, s.12(57).


PART III

APPEALS

127. Appeal to the Commissioner (Appeals).— 1[(1) Any person dissatisfied with any order passed by a Commissioner or an2[Officer of Inland Revenue] under section 121, 122, 143, 144, 3[162,] 170, 182, 4[* * * ] 5[189 or 205], or an order under sub-section (1) of section 161 holding a person to be personally liable to pay an amount of tax, or an order under clause (f) of sub-section (3) of section 1726[declaring] a person to be the representative of a non-resident person 7[or an order giving effect to any finding or directions in any order made under this Part by the Commissioner (Appeals), Appellate Tribunal, High Court or Supreme Court], or an order under section 221 refusing to rectify the mistake, either in full or in part, as claimed by the taxpayer or an order having the effect of enhancing the assessment or reducing a refund or otherwise increasing the liability of the person 8[, except 9[an] assessment order under section 122C,] may prefer an appeal to the Commissioner (Appeals) against the order.]

10[(2) No appeal under sub-section (1), shall be made by a taxpayer against an order of assessment unless the taxpayer has paid, —

(a) the amount of tax due under sub-section (1) of section 137 and

11[(b) no appeal under sub-section (1) shall be made by a taxpayer 12[against] an order of assessment unless the taxpayer has paid the amount of tax due under sub-section (1) of section 137.]


1 Sub-section (1) substituted by the Finance Act, 2002, s.8(41)(a). 
2 Subs by the Finance Act, 2014, s.7(22)(a). 
3 Inserted by the Finance Act, 2004, s.6(21)(a). 
4 Omitted by the Finance Act, 2010, s.8(22)(a). 
5 Subs by the Finance Act, 2009, s.5(22(a)(i). 
6 Subs by the Finance Act, 2003, s.12(58). 
7 Ins by the Finance Act, 2009, s.5(22)(a)(ii). 
8 Ins by the Finance Act,2011, s.6(14). 
9 Subs by the Finance Act, 2012, s.15(25). 
10 Sub-section (2) substituted by the Finance Act, 2002, s.8(41)(b). 
11 Clause (b) substituted by the Finance Act, 2004, s.6(21)(b). 
12 Subs by the Finance Act,2014, s.7(22)(b).


(3) An appeal under sub-section (1) shall —

(a) be in the prescribed form;

(b) be verified in the prescribed manner;

(c) state precisely the grounds upon which the appeal is made;

(d) be accompanied by the prescribed fee specified in sub-section (4); and

(e) be lodged with the Commissioner (Appeals) within the time set out in sub-section (5).

(4) The prescribed fee 1[shall be] —

(a) in the case of an appeal against an assessment, 2[one thousand rupees] 3[* * *]; or

(b) in any other case —

(i) where the appellant is a company, one thousand rupees; or

(ii) where the appellant is not a company, two hundred rupees.

4[(5) An appeal shall be preferred to the Commissioner (Appeals) within thirty days of the following—

(a) where the appeal relates to any assessment or penalty, the date of service of the notice of demand relating to the said assessment or penalty, as the case may be; and

(b) in any other case, the date on which the order to be appealed against is served.]


1 Subs by the Finance Act, 2002, s.8(41)(c ). 
2 Subs by the Finance Act, 2009, s.5(22)(b). 
3 The words “ten per cent of the tax assessed” omitted by the Finance Act, 2010, s.8(22)(b). 
4 Sub-section (5) subs by the Finance Act, 2002, s.8(41)(d).


(6) The Commissioner (Appeals) may, upon application in writing by the appellant, admit an appeal after the expiration of the period specified in sub-section (5) if the Commissioner (Appeals) is satisfied that the appellant was prevented by sufficient cause from lodging the appeal within that period.

128. Procedure in appeal.— (1) The Commissioner (Appeals) shall give notice of the day fixed for the hearing of the appeal to the appellant and to the Commissioner against whose order the appeal has been made.

1[(1A) Where in a particular case, the Commissioner (Appeals) is of the opinion that the recovery of tax levied under this Ordinance, shall cause undue hardship to the taxpayer, he, after affording opportunity of being heard to the Commissioner against whose order appeal has been made, may stay the recovery of such tax for a period not exceeding thirty days in aggregate.]

2[(1AA) The commissioner (Appeals) may, after affording an opportunity of being heard to the Commissioner against order appeal has been made, may stay the recovery of such tax for a further period of thirty days, provided that the order on appeal shall be passed within the said period of thirty days.”]

(2) The Commissioner (Appeals) may adjourn the hearing of the appeal from time to time.

(3) The Commissioner (Appeals) may, before the hearing of an appeal, allow an appellant to file any new ground of appeal not specified in the grounds of appeal already filed by the appellant where the Commissioner (Appeals) is satisfied that the omission of the ground from the form of the appeal was not wilful or unreasonable.

(4) The Commissioner (Appeals) may, before disposing of an appeal, call for such particulars as the Commissioner (Appeals) may require respecting the matters arising in the appeal or cause further enquiry to be made by the Commissioner.

(5) The Commissioner (Appeals) shall not admit any documentary material or evidence which was not produced before the Commissioner unless the Commissioner (Appeals) is satisfied that the appellant was prevented by


1 Ins by the Finance Act, 2012, s.15(26). 
2 Ins by the Finance Act, 2015, s.9(27)(w.e.f. 01.07.2015).


sufficient cause from producing such material or evidence before the Commissioner.

129. Decision in appeal.— (1) In disposing of an appeal lodged under section 127, the Commissioner (Appeals) may –

1[(a) make an order to confirm, modify or annul the assessment order after examining such evidence as required by him respecting the matters arising in appeal or causing such further enquires to be made as he deems fit; or]

(b) in any other case, make such order as the Commissioner (Appeals) thinks fit.

(2) The Commissioner (Appeals) shall not increase the amount of any assessment order or decrease the amount of any refund unless the appellant has been given a reasonable opportunity of showing cause against such increase or decrease, as the case may be.

(3) Where, as the result of an appeal, any change is made in the assessment of an association of persons or a new assessment of an association of persons is ordered to be made, the Commissioner (Appeals) may authorise the Commissioner to amend accordingly any assessment order made on a member of the association and the time limit in sub-section (2) of section 122 shall not apply to the making such amended assessment.

(4) As soon as practicable after deciding an appeal, the Commissioner (Appeals) shall serve 2[* *] his order on the appellant and the Commissioner 3[:]

3[Provided that such order shall be passed not later than one hundred and twenty days from the date of filing of appeal or within an extended period of sixty days, for reasons to be recorded in writing by the Commissioner (Appeals):

Provided further that any period during which the hearing of an appeal is adjourned at the request of the appellant or is postponed due to any appeal or proceedings or


1 Clause (a) substituted by the Finance Act, 2005, s.8(22). 
2The words “notice of” omitted by the Finance Act, 2002, s.8(42). 
3 Full stop substituted and thereafter a proviso inserted by the Finance Act, 2009, s.5(23).


stay order, remanmd or alternative dispute resolution proceedings or for any other reason, shall be excluded in the computation of the aforementioned periods.]

1(5)* * * * * * *

1(6)* * * * * * *

1(7)* * * * * * *

130. Appointment of the Appellate Tribunal.— (1) There shall be established an Appellate Tribunal to exercise the functions conferred on the Tribunal by this Ordinance.

(2) The Appellate Tribunal shall consist of a chairperson and such other judicial and accountant members as are appointed by the Federal Government having regard to the needs of the Tribunal.

(3) A person may be appointed as a judicial member of the Appellate Tribunal if the person –

(a) has exercised the powers of a District Judge and is qualified to be a Judge of the High Court; 2[ * ]

(b) is or has been an advocate of a High Court and is qualified to be a Judge of the High Court 3[; or]

4[(c) is an officer of Inland Revenue Service in BS-20 or above and is a law graduate.]

5[(4) A person may be appointed as an accountant member of an appellate tribunal if,—

(a) he is an officer of Inland Revenue 6[Service] equivalent to the rank of Regional Commissioner;7[* ]


1 Sub-sections (5), (6) and (7) omitted by the Finance Act, 2012, s.15(27). 
2 The word “or” omitted by the Finance Act, 2013,s.7(19)(d)(i). 
3 Subs ibid, ,s.7(19)(d)(ii). 
4 Added ibid,s.7(19)(d)(iii). 
5 Subs by the Finance Act, 2010, s.8(23). 
6 Ins by the Finance Act, 2012, s.8(28)(a)(i). 
7 The word “or” omitted by the Finance Act, 2013, s.7(19)(d)(i).


(b) a Commissioner Inland Revenue or Commissioner Inland Revenue (Appeals) having at least 1[three] years experience as Commissioner or Collector 2[;3[ *] ]

4[(c) a person who has, for a period of not less than ten years, practiced professionally as a chartered accountant within the meaning of the Chartered Accountants Ordinance, 1961 (X of 1961) 5[;or]

7[(d) a person who has, for a period of not less than ten years, practiced professionally as a cost and management accountant within the meaning of Cost and Management Accountants Act,1966 (XIV of 1966).]

(5) The Federal Government shall appoint a member of the Appellate Tribunal as Chairperson of the Tribunal 6[and, except in special circumstances, the person appointed should be a judicial member] 7[* * *].

(6)The powers and functions of the Appellate Tribunal shall be exercised and discharged by Benches constituted from members of the Tribunal by the Chairperson of the Tribunal.

(7) Subject to sub-section (8), a Bench shall consist of not less than two members of the Appellate Tribunal and shall be constituted so as to contain an equal number of judicial and accountant members, or so that the number of members of one class does not exceed the number of members of the other class by more than one.

(8) The Federal Government may direct that all or any of the powers of the Appellate Tribunal shall be exercised by —

(a) any one member; or


1Subs by the Finance Act, 20112, s.5(28)(a)(ii). 
2Subs by he Finance Act, 2013, s.7(19)(d)(ii). 
3 The word “or” omitted by the Finance Act, 2014, s.7(23)(i). 
4 Added by the Finance Act, 2013, s.7(19)(d)(iii). 
5 Full stop is substituted by semi colon and the word “or” inserted and thereafter clause (d) added by the Finance Act, 2014, s.7(23)(ii). 
6 Ins by the Finance Act, 2013, s.7(19)(e). 
7 Omitted by the Finance Act, 2012, s.5(28)(b).


(b) more members than one, jointly or severally.

1[(8A) Notwithstanding anything contained in sub-sections (7) and (8), the 2[Chairperson] may constitute as many benches consisting of a single member as he may deem necessary to hear such cases or class of cases as the Federal Government may by order in writing, specify.

(8AA) The 2[Chairperson] or other member of the Appellate Tribunal authorized, in this behalf by the 2[Chairperson] may, sitting singly, dispose of any case where the amount of tax or penalty involved does not exceed 3[one] million rupees.]

(9) Subject to sub-section (10), if the members of a Bench differ in opinion on any point, the point shall be decided according to the opinion of the majority.

(10) If the members of a 4[Bench] are equally divided on a point, they shall state the point on which they differ and the case shall be referred by the Chairperson for hearing on that point by one or more other members of the Appellate Tribunal, and the point shall be decided according to the opinion of the majority of the members of the Tribunal who have heard the case including those who first heard it.

(11) If there are an equal number of members of the Appellate Tribunal, the Federal Government may appoint an additional member for the purpose of deciding the case on which there is a difference of opinion.

(12) Subject to this Ordinance, the Appellate Tribunal shall have the power to regulate its own procedure, and the procedure of Benches of the Tribunal in all matters arising out of the discharge of its functions including the places at which the Benches shall hold their sittings.

131. Appeal to the Appellate Tribunal.— (1) Where the 5[taxpayer] or Commissioner objects to an order passed by the Commissioner (Appeals), the 1[taxpayer] or Commissioner may appeal to the Appellate Tribunal against such order.


1 Ins by the Finance Act,2009, s.5(24). 
2 Subs by the Finance Act, 2011, s.6(15)(a) and (b)(i). 
3 Subs by the Finance Act, 2011,s.6(15)(b)(ii). 
4 Subs by the Finance Act, 2002, s.8(42)(b). 
5 Subs by the Finance Act, 2002, s.8(44)(a).


(2) An appeal under sub-section (1) shall be –—

(a) in the prescribed form;

(b) verified in the prescribed manner;

(c) accompanied 1[, except in case of an appeal preferred by the Commissioner,] by the prescribed fee specified in sub-section (3); and

2[(d) preferred to the Appellate Tribunal within sixty days of the date of service of order of the Commissioner (Appeals) on the taxpayer or the Commissioner, as the case may be.]

3[(3) The prescribed fee shall be two thousand rupees.]

(4) The Appellate Tribunal may, upon application in writing, admit an appeal after the expiration of the period specified in clause (d) of sub-section (2) if it is satisfied that the person appealing was prevented by sufficient cause from filing the appeal within that period.

4[(5) Notwithstanding that an appeal has been filed under this section, tax shall, unless recovery thereof has been stayed by the Appellate Tribunal, be payable in accordance with the assessment made in the case:

5[Provided that if on filing of application in a particular case, the Appellate Tribunal is of the opinion that the recovery of tax levied under this Ordinance and upheld by the Commissioner (Appeals), shall cause undue hardship to the taxpayer, the Tribunal, after affording opportunity of being heard to the Commissioner, may stay the recovery of such tax for a period not exceeding one hundred and eighty days in aggregate:-


1 Subs ibid, s.8(44)(b)(i). 
2 Subs ibid, s.8(44)(b)(ii). 
3 Sub-section (3) substituted by the Finance Act, 2009, s.5(25)(a). 
4 Added by the Finance Act, 2003, s.12(59). 
5 Proviso subs by the Finance Act, 2012, s.15(29).


Provided further that in computing the aforesaid period of one hundred and eighty days, the period, if any, for which the recovery of tax was stayed by a High Court, shall be excluded.]]

132. Disposal of appeals by the Appellate Tribunal.— (1) The Appellate Tribunal may, before disposing of an appeal, call for such particulars as it may require in respect of the matters arising on the appeal or cause further enquiry to be made by the Commissioner.

1[(2) The Appellate Tribunal shall afford an opportunity of being heard to the parties to the appeal and, in case of default by any of the party on the date of hearing, the Tribunal 2[* * *] may proceed ex parte to decide the appeal on the basis of the available record.]

3[(2A) The Appellate Tribunal shall decide the appeal within six months of its filing;]

(3) Where the appeal relates to an assessment order, the Appellate Tribunal may, 4[without prejudice to the powers specified in sub-section (2),] make an order to —

(a) affirm, modify or annul the assessment order; or

5(b)* * * * * * *

6[(c) remand the case to the Commissioner or the Commissioner (Appeals) for making such enquiry or taking such action as the Tribunal may direct.]

(4) The Appellate Tribunal shall not increase the amount of any assessment 7[or penalty] or decrease the amount of any refund unless the taxpayer has been given a reasonable opportunity of showing cause against such increase or decrease, as the case may be.


1 Sub-section (2) substituted by the Finance Act, 2002, s.8(45)(a). 
2 Subs by the finance Act, 2011, s.6(16). 
3 Ins by the Finance Act, 2005, s.8(22a). 
4 Ins by the Finance Act, 2002, s.8(45)(b)(i). 
5 Clause (b) omitted by the Finance Act, 2007, s.20(20A). 
6 Added by the Finance Act, 2002, s.8(45)(b)(iii). 
7 Ins by the Finance Act, 2003,s. 12(60).


(5) Where, as the result of an appeal, any change is made in the assessment of an association of persons or a new assessment of an association of persons is ordered to be made, the Appellate Tribunal may authorise the Commissioner to amend accordingly any assessment order made on a member of the association and the time limit in sub-section (2) of section 122 shall not apply to the making of such amended assessment.

(6) Where the appeal relates to a decision other than in respect of an assessment, the Appellate Tribunal may make an order to affirm, vary or annul the decision, and issue such consequential directions as the case may require.

1[(7) The Appellate Tribunal shall communicate its order to the taxpayer and the Commissioner.]

2(8)* * * * * * *

3(9)* * * * * * *

(10) Save as provided in section 133, the decision of the Appellate Tribunal on an appeal shall be final.

3[133. Reference to High Court.— (1) Within ninety days of the communication of the order of the Appellate Tribunal under sub-section (7) of section 132, the aggrieved person or the Commissioner may prefer an application, in the prescribed form along with a statement of the case, to the High Court, stating any question of law arising out of such order.

(2) The statement to the High Court referred to in sub-section (1), shall set out the facts, the determination of the Appellate Tribunal and the question of law which arises out of its order.

(3) Where, on an application made under sub-section (1), the High Court is satisfied that a question of law arises out of the order referred to in sub-section (1), it may proceed to hear the case.


1 Sub-section (7) substituted by the Finance Act, 2002, s.8(45)(c ). 
2 Sub-sections (8) and (9) omitted ibid, s.8(45)(d). 
3 Section 133 substituted by the Finance Act, 2005, s.8(23).


(4) A reference to the High Court under this section shall be heard by a Bench of not less than two judges of the High Court and, in respect of the reference, the provisions of section 98 of the Code of Civil Procedure, 1908 (Act V of 1908), shall apply, so far as may be, notwithstanding anything contained in any other law for the time being in force.

(5) The High Court upon hearing a reference under this section shall decide the question of law raised by the reference and pass judgment thereon specifying the grounds on which such judgment is based and the Tribunal”s order shall stand modified accordingly. The Court shall send a copy of the judgment under the seal of the Court to the Appellate Tribunal.

(6) Notwithstanding that a reference has been made to the High Court, the tax shall be payable in accordance with the order of the Appellate Tribunal:

Provided that, if the amount of tax is reduced as a result of the judgment in the reference by the High Court and the amount of tax found refundable, the High Court may, on application by the Commissioner within thirty days of the receipt of the judgment of the High Court that he wants to prefer petition for leave to appeal to the Supreme Court, make an order authorizing the Commissioner to postpone the refund until the disposal of the appeal by the Supreme Court.

(7) Where recovery of tax has been stayed by the High Court by an order, such order shall cease to have effect on the expiration of a period of six months following the day on which it was made unless the appeal is decided or such order is withdrawn by the High Court earlier.

(8) Section 5 of the Limitation Act, 1908 (IX of 1908), shall apply to an application made to the High Court under sub-section (1).

(9) An application under sub-section (1) by a person other than the Commissioner shall be accompanied by a fee of one hundred rupees.]

 1(134.)*            *                  *               *                 *               *               *

 


1 Section 134 omitted by the Finance Act, 2005, s.8(24).


1[134A. 2[Alternative] Dispute Resolution.— 3[(1) Notwithstanding any other provision of this Ordinance, or the rules made thereunder an aggrieved person, in connection with any matter pending before an Appellate Authority, may apply to Board for the appointment of a committee for the resolution of any hardship or dispute mentioned in detail in the application 4[except where prosecution proceedings have been initiated or where interpretation of question of law having effect on identical other cases].]

(2) The 5[Board] after examination of the application of an aggrieved person, shall 7 6[within sixty days of receipt of such application in the Board] appoint a committee consisting of an officer of 7[Inland Revenue] and two persons from a 8[panel comprising] of Chartered or Cost Accountants, Advocates, Income Tax Practitioners or reputable taxpayers for the resolution of the hardship or dispute.

9[(3) The Committee constituted under sub-section (2) shall examine the issue and may if it deem fit necessary conduct inquiry seek expert opinion, direct any officer of the 10[Inland Revenue] or any other person to conduct an audit and shall make recommendations within ninety days of its constitution in respect of the resolution of the dispute. If the committee fails to make recommendations within the said period the Board shall dissolve the committee and constitute a new committee which shall decide the matter within a further period of ninety days. If after the expiry of that period the dispute is not resolved the matter shall be taken up by the appropriate forum for decision.]

(4) The 11[Board] may, on the recommendation of the committee, pass such order, as it may deem appropriate 12[within forty five days of the receipt of recommendations of the Committee].


1 Added by the Finance Act, 2004, s.6(22). 
2 Subs by the Finance Act, 2006, s.17(14(a). 
3 Sub-section (1) subs ibid, s.17(14)(a). 
4 Ins by the Finance Act, 2009, s.6(26)(a). 
5 Subs by the Finance Act., 2007, s.20(1)(d)(IB). 
6 Ins by the Finance Act, 2009, s.5(26)(b). 
7 Subs by the Finance Act, 2010, s.8(24)(a). 
8 Subs by the Finance Act, 2005, s.8(25)(a). 
9 Sub-section (3) subs by the Finance Act, 2009, s.5(26)(c ). 
10 Subs by the Finance Act, 2010, s.8(24)(b). 
11 Subs by the Finance Act, 2007, s.20(1)(d)(IB). 
12 Ins by the Finance Act, 2009, s.5(26)(d).


1[(4A) Notwithstanding anything contained in sub-section (4), the Chairman Federal Board of Revenue may, on the application of an aggrieved person, for reasons to be recorded in writing, and on being satisfied that there is an error in order or decision, pass such order as may be deemed just and equitable.]

(5) The aggrieved person may make the payment of income tax and other taxes as determined by the 3[Board] in its order under sub-section (4) and all decisions, orders and judgments made or passed shall stand modified to that extent and all proceedings under this Ordinance or the rules made thereunder by any authority shall abate:

Provided that 2[* * *] an 3[order passed by] the Board in the light of recommendations of the committee shall be submitted before that authority, tribunal or the court 4[where the matter is subjudice] for consideration and orders as deemed appropriate 5[:]

6[Provided further that if the taxpayer is not satisfied with the said order, he may continue to pursue his remedy before the relevant authority, tribunal or court as if no such order had been made by the Board.]

7(6) * * * * * * *

(7) The Board may, by notification in the official Gazette, make rules for carrying out the purposes of this section.]

8(135.)* * * * * * *

136. Burden of proof.— In any appeal 9[by a taxpayer] under this Part, the burden shall be on the taxpayer to prove, on the balance of probabilities —

(a) in the case of an assessment order, the extent to which the order does not correctly reflect the taxpayer’s tax liability for the tax year; or

(b) in the case of any other decision, that the decision is erroneous.


1 Ins by the Finance Act, 2008, s.18(13). 
2 Omitted by the Finance Act, 2006, s.17(14)(c )(i). 
3 Subs by the Finance Act, 2005, s.8(25)(b)(i). 
4 Ins by the Finance Act, 2006, s.17(14)(c )(ii). 
5 Subs by the Finance Act, 2005, s.8(25)(b)(ii). 
6 Added by the Finance Act, 2005, s.8(25)(b)(ii). 
7 Sub-section (6) omitted by the Finance Act, 2005, s.8(25)(c ). 
8 Section 135 omitted by the Finance Act, 2002, s.8(47). 
9 Ins by the Finance Act, 2003, s.12(63).


PART IV

COLLECTION AND RECOVERY OF TAX

137. Due date for payment of tax.— (1) The tax payable by a taxpayer on the taxable income of the taxpayer 1[including the tax payable under 2[***]] 3[section 4[113 or] 113A] for a tax year shall be due on the due date for furnishing the taxpayer’s return of income for that year.

5[(2) Where any tax is payable under an assessment order or an amended assessment order or any other order issued by the Commissioner under this Ordinance, a notice shall be served upon the taxpayer in the prescribed form specifying the amount payable and thereupon the sum so specified shall be paid within 6[thirty] days from the date of service of the notice:]7[;]

8[Provided that the tax payable as a result of provisional assessment 9[order] under section 122C, as specified in the notice under sub-section (2) shall be payable 10[immediately] after a period of 11[forty five] days from the date of service of the notice 12[:]]

13[Provided further that the taxpayer may pay the tax payable prior to expiry of the period of 11[forty five] days specified in the first proviso.]

(3) Nothing in sub-section (2) 14[or (4)] shall affect the operation of sub-section (1).


1 Ins by the Finance Act, 2003, s.12(64). 
2 The words “section 133 or” omitted by the Finance Act, 2008, s.18(14)(a). 
3 Ins by the Finance Act, 2004, s.6(23). 
4 Ins by the Finance Act, 2009, s.5(27). 
5 Subs by the Finance Act, 2003, s.12(64)(b). 
6 Subs by the Finance Act, 2015, s.9(28)(a)(w.e.f. 01.07.2015). 
7 Subs and added by the Finance Act, 2012, s.15(30). 
8 Added by Finance act, 2010, s.8(25)(a). 
9 Ins by the Finance Act, 2011, s.6(17)(a). 
10 Ins ibid, s.6(17)(b). 
11 Subs by the Finance Act, 2015, s.9(28)(b)and (c ) )(w.e.f. 01.07.2015). 
13 Added by Finance act, 2012, s.15(30). 
14 Inserted by the Finance Act, 2003, s.12(64)(d)(ii).


(4) Upon written application by a taxpayer, the Commissioner may, where good cause is shown, grant the taxpayer an extension of time for payment of tax due 1[under sub-section (2)] or allow the taxpayer to pay 2[such tax] in installments of equal or varying amounts as the Commissioner may determine having regard to the circumstances of the case.

(5) Where a taxpayer is permitted to pay tax by installments and the taxpayer defaults in payment of any installments, the whole balance of the tax outstanding shall become immediately payable.

(6) The grant of an extension of time to pay tax due or the grant of permission to pay tax due by installments shall not preclude the liability for 3[default surcharge] arising under section 205 from the due date of the tax under sub-section 4[(2)].

5(7)* * * * * * *

6[138. Recovery of tax out of property and through arrest of taxpayer.— (1) For the purpose of recovering any tax due by a taxpayer, the Commissioner may serve upon the taxpayer a notice in the prescribed form requiring him to pay the said amount within such time as may be specified in the notice.

(2) If the amount referred to in the notice issued under sub-section (1) is not paid within the time specified therein or within the further time, if any, allowed by the Commissioner, the Commissioner may proceed to recover from the taxpayer the said amount by one or more of the following modes, namely:—

(a) attachment and sale of any movable or immovable property of the taxpayer;

(b) appointment of a receiver for the management of the movable or immovable property of the taxpayer; and


1 Ins by the Finance Act, 2003, s.12(64)(d)(i). 
2 Subs ibid, s.12(64)9d)(ii). 
3 Subs by the Finance Act, 2010, s.8(25)(b). 
4 Subs by the Finance Act, 2003, s.12(64)(l). 
5 Sub-section (7) omitted by the Finance Act, 2002, 8(48). 
6 Section 138 subs ibid, s.(49).


(c) arrest of the taxpayer and his detention in prison for a period not exceeding six months.

(3) For the purposes of recovery of tax under sub-section (2), the Commissioner shall have the same powers as a Civil Court has under the Code of Civil Procedure, 1908 (Act V of 1908), for the purposes of the recovery of any amount due under a decree.

(4) The 1[Board] may make rules regulating the procedure for the recovery of tax under this section and any other matter connected with, or incidental to, the operation of this section.]

2[138A. Recovery of tax by District Officer (Revenue).— (1) The Commissioner may forward to the District Officer (Revenue) of the district in which the taxpayer resides or carries on business or in which any property belonging to the taxpayer is situated, a certificate specifying the amount of any tax due from the taxpayer, and, on receipt of such certificate, the District Officer (Revenue) shall proceed to recover from the taxpayer the amount so specified as, it were an arrear of land revenue.

(2) Without prejudice to any other power of the District Officer (Revenue) in this behalf, he shall have the same powers as a Civil Court has under the Code of Civil Procedure, 1908 (Act V of 1908), for the purpose of the recovery of the amount due under a decree.]

3[138B. Estate in bankruptcy.— (1) If a taxpayer is declared bankrupt, the tax liability under this Ordinance shall pass on to the estate in bankruptcy.

(2) If tax liability is incurred by an estate in bankruptcy, the tax shall be deemed to be a current expenditure in the operations of the estate in bankruptcy and shall be paid before the claims preferred by other creditors are settled.]

139. Collection of tax in the case of private companies and associations of persons.— (1) Notwithstanding anything in the Companies Ordinance, 1984 (XLVII of 1984), where any tax payable by a private company (including a private company that has been wound up or gone into


1 Subs by the Finance Act, 2007, s.20(1)(d)(IB). 
2 Ins by the Finance Act, 2002, s.8(50). 
3 Added by the Finance Act, 2010, s.8(26).


liquidation) in respect of any tax year cannot be recovered from the company, every person who was, at any time in that tax year —

(a) a director of the company, other than an employed director; or

(b) a shareholder in the company owning not less than ten per cent of the paid-up capital of the company,

shall be jointly and severally liable for payment of the tax due by the company.

(2) Any director who pays tax under sub-section (1) shall be entitled to recover the tax paid from the company or a share of the tax from any other director.

(3) A shareholder who pays tax under sub-section (1) shall be entitled to recover the tax paid from the company or from any other shareholder to whom clause (b) of sub-section (1) applies in proportion to the shares owned by that other shareholder.

(4) Notwithstanding anything in any law, where any tax payable by a member of an association of persons in respect of the member’s share of the income of the association in respect of any tax year cannot be recovered from the member, the association shall be liable for the tax due by the member.

(5) The provisions of this Ordinance shall apply to any amount due under this section as if it were tax due under an assessment order.

140. Recovery of tax from persons holding money on behalf of a taxpayer.— (1) For the purpose of recovering any tax due by a taxpayer, the Commissioner may, by notice, in writing, require any person –

(a) owing or who may owe money to the taxpayer; or

(b) holding or who may hold money for, or on account of the taxpayer;

(c) holding or who may hold money on account of some other person for payment to the taxpayer; or


(d) having authority of some other person to pay money to the taxpayer, to pay to the Commissioner so much of the money as set out in the notice by the date set out in the notice.

(2) Subject to sub-section (3), the amount set out in a notice under sub-section (1) —

(a) where the amount of the money is equal to or less than the amount of tax due by the taxpayer, shall not exceed the amount of the money; or

(b) in any other case, shall be so much of the money as is sufficient to pay the amount of tax due by the taxpayer.

(3) Where a person is liable to make a series of payments (such as salary) to a taxpayer, a notice under sub-section (1) may specify an amount to be paid out of each payment until the amount of tax due by the taxpayer has been paid.

(4) The date for payment specified in a notice under sub-section (1) shall not be a date before the money becomes payable to the taxpayer or held on the taxpayer’s behalf.

(5) The provisions of sections 160, 161, 162 and 163, so far as may be, shall apply to an amount due under this section as if the amount were required to be deducted from a payment under Division III of Part V of this Chapter.

(6) Any person who has paid any amount in compliance with a notice under sub-section (1) shall be treated as having paid such amount under the authority of the taxpayer and the receipt of the Commissioner constitutes a good and sufficient discharge of the liability of such person to the taxpayer to the extent of the amount referred to in such receipt.

1(7)* * * * * * *

1(8)* * * * * * *

1(9)* * * * * * *


1 Sub-sections (7), (8) and (9) omitted by the Finance Act, 2003, s.12(65).


(10) In this section, “person” includes any Court, Tribunal or any other authority.

141. Liquidators.— (1) Every person (hereinafter referred to as a “liquidator”) who is –

(a) a liquidator of a company;

(b) a receiver appointed by a Court or appointed out of Court;

(c) a trustee for a bankrupt; or

(d) mortgagee in possession,

shall, within fourteen days of being appointed or taking possession of an asset in Pakistan, whichever occurs first, give written notice thereof to the Commissioner.

(2) The Commissioner shall, within three months of being notified under sub-section (1), notify the liquidator in writing of the amount which appears to the Commissioner to be sufficient to provide for any tax which is or will become payable by the person whose assets are in the possession of the liquidator.

(3) A liquidator shall not, without leave of the Commissioner, part with any asset held as liquidator until the liquidator has been notified under sub-section (2).

(4) A liquidator —

(a) shall set aside, out of the proceeds of sale of any asset by the liquidator, the amount notified by the Commissioner under sub-section (2), or such lesser amount as is subsequently agreed to by the Commissioner;

(b) shall be liable to the extent of the amount set aside for the tax of the person who owned the asset; and


(c) may pay any debt that has priority over the tax referred to in this section notwithstanding any provision of this section.

(5) A liquidator shall be personally liable to the extent of any amount required to be set aside under sub-section (4) for the tax referred to in sub-section (2) if, and to the extent that, the liquidator fails to comply with the requirements of this section.

(6) Where the proceeds of sale of any asset are less than the amount notified by the Commissioner under sub-section (2), the application of sub-sections (4) and (5) shall be limited to the proceeds of sale.

(7) This section shall have effect notwithstanding anything contained in any other law for the time being in force.

(8) The provisions of this Ordinance shall apply to any amount due under this section as if it were tax due under an assessment order.

142. Recovery of tax due by non-resident member of an association of persons.— (1) The tax due by a non-resident member of an association of persons in respect of the member’s share of the profits of the association shall be 202 assessable in the name of the association or of any resident member of the association and may be recovered out of the assets of the association or from the resident member personally.

(2) A person making a payment under this section shall be treated as acting under the authority of the non-resident member and is hereby indemnified in respect of the payment against all proceedings, civil or criminal, and all processes, judicial or extra-judicial, notwithstanding any provisions to the contrary in any written law, contract or agreement.

(3) The provisions of this Ordinance shall apply to any amount due under this section as if it were tax due under an assessment order.

143. Non-resident ship owner or charterer.— (1) Before the departure of a ship owned or chartered by a non-resident person from any port in Pakistan, the master of the ship shall furnish to the Commissioner a return showing the gross amount specified in sub-section (1) of section 7 in respect of the ship.


(2) Where the master of a ship has furnished a return under sub-section (1), the Commissioner shall 1[, after calling for such particulars, accounts or documents as he may require,] determine the amount of tax due under section 7 in respect of the ship and, as soon as possible, notify the master, in writing, of the amount payable.

(3) The master of a ship shall be liable for the tax notified under sub-section (2) and the provisions of this Ordinance shall apply to such tax as if it were tax due under an assessment order.

(4) Where the Commissioner is satisfied that the master of a ship or non-resident owner or charterer of the ship is unable to furnish the return required under sub-section (1) before the departure of the ship from a port in Pakistan, the Commissioner may allow the return to be furnished within thirty days of departure of the ship provided the non-resident owner or charterer has made satisfactory arrangements for the payment of the tax due under section 7 in respect of the ship.

(5) The Collector of Customs or other authorised officer shall not grant a port clearance for a ship owned or chartered by a non-resident person until the Collector or officer is satisfied that any tax due under section 7 in respect of the ship has been paid or that arrangements for its payment have been made to the satisfaction of the Commissioner.

(6) This section shall not relieve the non-resident owner or charterer of the ship from liability to pay any tax due under this section that is not paid by the master of the ship.

144. Non-resident aircraft owner or charterer. — (1) A non-resident owner or charterer of an aircraft 2[* *] liable for tax under section 7, or an agent authorised by the non-resident person for this purpose, shall furnish to the Commissioner, within forty-five days from the last day of each quarter of the financial year, a return, in respect of the quarter, showing the gross amount specified in sub-section (1) of section 7 of the non-resident person for the quarter.

(2) Where a return has been furnished under sub-section (1), the Commissioner shall 1[,after calling for such particulars, accounts or documents as he may require,] determine the amount of tax due under section


1 Ins by the Finance Act, 2002, s.5(51) and (52). 
2The words “shall be” omitted by the Finance Act, 2003, s.12 (66)


7 by the non-resident person for the quarter and notify the non-resident person, in writing, of the amount payable.

(3) The non-resident person shall be liable to pay the tax notified under sub-section (2) within the time specified in the notice and the provisions of this Ordinance shall apply to such tax as if it were tax due under an assessment order.

(4) Where the tax referred to in sub-section (3) is not paid within three months of service of the notice, the Commissioner may issue to the authority by whom clearance may be granted to the aircraft operated by the non-resident person a certificate specifying the name of the non-resident person and the amount of tax due.

(5) The authority to whom a certificate is issued under sub-section (4) shall refuse clearance from any airport in Pakistan to any aircraft owned or chartered by the non-resident until the tax due has been paid.

1[145. Assessment of persons about to leave Pakistan. — (1) Where any person is likely to leave Pakistan during the currency of tax year or shortly after its expiry with no intention of returning to Pakistan, he shall give to the Commissioner a notice to that effect not less than fifteen days before the probable date of his departure (hereinafter in this section referred to as the said date’).

(2) The notice under sub-section (1) shall be accompanied by a return or returns of taxable income in respect of the period commencing from the end of the latest tax year for which an assessment has been or, where no such assessment has been made, a return has been made, as the case may be, and ending on the said date, or where no such assessment or return has been made, the tax year or tax years comprising the period ending on the said date; and the period commencing from the end of the latest tax year to the said date shall, for the purposes of this section, be deemed to be a tax year (distinct and separate from any other tax year) in which the said date falls.

(3) Notwithstanding anything contained in sub-sections (1) and (2), the Commissioner may serve a notice on any person who, in his opinion, is likely to leave Pakistan during the current tax year or shortly after its expiry and has no intention of returning to Pakistan, to furnish within such time as may be specified in such notice, a return or returns of taxable income for the


1 Section 145 subs by the Finance Act, 2003, s.12(67).


tax year or tax years for which the taxpayer is required to furnish such return or returns under sub-section (2).

(4) The taxable income shall be charged to tax at the rates applicable to the relevant tax year and all the provisions of this Ordinance shall, so far as may be, apply accordingly.]

146. Recovery of tax from persons assessed in Azad Jammu and Kashmir.— (1) Where any person assessed to tax for any tax year under the law relating to income tax in the Azad Jammu and Kashmir has failed to pay the tax and the income tax authorities of the Azad Jammu and Kashmir cannot recover the tax because —

(a) the person’s residence is in Pakistan; or

(b) the person has no movable or immovable property in the Azad Jammu and Kashmir, the Deputy Commissioner in the Azad Jammu and Kashmir may forward a certificate of recovery to the Commissioner and, on receipt of such certificate, the Commissioner shall recover the tax referred to in the certificate in accordance with this Part.

(2) A certificate of recovery under sub-section (1) shall be in the prescribed form specifying —

(a) the place of residence of the person in Pakistan;

(b) the description and location of movable or immovable property of the person in Pakistan; and

(c) the amount of tax payable by the person.

1[146A. Initiation, validity, etc., of recovery proceedings.— (1) Any proceedings for the recovery of tax under this Part may be initiated at any time.


1 Ins by the Finance Act, 2002, s.8(53).


(2) The Commissioner may, at any time, amend the certificate issued under section 138A, or recall such certificate and issue fresh certificate, as he thinks fit.

(3) It shall not be open to a taxpayer to question before the District Officer (Revenue) the validity or correctness of any certificate issued under section 138A, or any such certificate as amended, or any fresh certificate issued, under sub-section (2).

(4) The several modes of recovery provided in this Part shall be deemed to be neither mutually exclusive nor affect in any way any other law for the time being in force relating to the recovery of debts due to the Government and the Commissioner may have recourse to any such mode of recovery notwithstanding that the tax due is being recovered from a taxpayer by any other mode.]

1[146B. Tax arrears settlement incentives scheme.— (1) Subject to provisions of this Ordinance, the Board may make scheme in respect of recovery of tax arrears or withholding taxes and waiver of 2[default surcharge] or penalty levied thereon.

(2) The Board may make rules under section 237 for implementation of such scheme.]


1 Ins by the Finance Act, 2008, s.18(15). 
2 Subs by the Finance Act, 2010, s.8(27).


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.— (1) Subject to sub-section (2), every taxpayer 1[whose income was charged to tax for the latest tax year under this Ordinance or latest assessment year under the repealed Ordinance] other than –

2(a) * * * * * * *

(b) income chargeable to tax under sections 5, 6 and 7;

3(ba) * * * * * * *

(c) income subject to deduction of tax at source under section 149; 4[and]

5(ca) * * * * * * *

(d) income from which tax has been collected under Division II or deducted under Division III 6[or deducted or collected under Chapter XII] and for which no tax credit is allowed as a result of sub-section (3) of section 168,

shall be liable to pay advance tax for the year in accordance with this section.

(2) This section does not apply to an individual where the individual’s 7[* * *] latest assessed taxable income excluding income referred to in clauses (a), (b), 8[(ba),] (c) and (d) of sub-section (1) is less than 910[five] hundred thousand] rupees.


1 Subs by the Finance Act, 2003, s.12(68)(a). 
2 Clause (a) omitted by the Finance Act, 2010, s.8(28)(a). 
3 Clause (ba) omitted by the Finance Act, 2013, s.7(20)(a). 
4 Subs by the Finance Act, 2009, s.5(28)(a)(i). 
5 Clause (ca) omitted ibid, s.5(28)(a)(ii). 
6 Ins ibid, s.5(28)(a)(iii). 
7 The words “or associations of persons” omitted by the Finance Act, 2010, s.8(28)(b)(i). 
8 Ins by the Finance Act, 2002, s.8(54)(b). 
9 Subs by the Finance Act, 2003, s.12(68)(aa). 
10 Subs by the Finance Act, 2010, s.8(28)(b)(ii).


1(3) * * * * * * *

2[(4) Where the taxpayer is 3[an association of persons or] a company, the amount of advance tax due for a quarter shall be computed according to the following formula, namely:-

(A x B/C) –D

Where –

A is the taxpayer’s turnover for the quarter;

B is the tax assessed to the taxpayer for the latest tax year;

C is the taxpayer’s turnover for the latest tax year; and

D is the tax paid in the quarter for which a tax credit is allowed under section 168 4[* * *] .]

5[(4A) Any taxpayer who is required to make payment of advance tax in accordance with sub-section (4), shall estimate the tax payable by him for the relevant tax year, at any time before the second installment is due. In case the tax payable is likely to be more than the amount he is required to pay under sub-section (4), the taxpayer shall furnish to the Commissioner on or before the due date of the second quarter an estimate of the amount of tax payable by the taxpayer and thereafter pay fifty per cent of such amount by the due date of the second quarter of the tax year after making adjustment for the amount,if any, already paid in terms of sub-section (4).The remaining fifty per cent of the estimate shall be paid after the second quarter in two equal installments payable by the due date of the third and forth quarter of the tax year.”]


1 Sub-section (3) omitted by the Finance Act, 2004, s.6(24)(b). 
2 Sub-section (4) omitted by the Finance Act, 2009, s.5(28)(b). 
3 Ins by the Finance Act, 2010, s.8(28)(c ). 
4 The words “other than tax deducted under section 155” omitted by the Finance Act, 2013, s.7(20)(b). 
5 Subs by the Finance Act, 2015, s.9(29)(w.e.f.01.07.2015).


1[(4AA) Tax liability under section 113 shall also be taken into account while working out payment of advance tax liability under this section.]

2[(3[4B]) Where the taxpayer is an individual 4[* * *] having latest assessed income of 5[five] hundred thousand rupees or more as determined under sub-section (2), the amount of advance tax due for a quarter shall be computed according to the following formula, namely: -

―(A/4) - B

Where –

A is the tax assessed to the taxpayer for the latest tax year or latest assessment year under the repealed Ordinance; and

B is the tax paid in the quarter for which a tax credit is allowed under section 168, other than tax deducted under section 149 6[* *]. ]

(5) Advance tax is payable by 7[an individual 8[* * *]] to the Commissioner—

(a) in respect of the September quarter, on or 9[before] the 10[15th day of September];

(b) in respect of the December quarter, on or before the 10[15th day of December];

(c) in respect of the March quarter, on or before the 11[15th day of March]; and


1 Ins by the Finance Act, 2009, s.5(28)(c ). 
2 Ins by the Finance Act, 2003, s.12(68)(b)(iv). 
3 Sub-section (4A) re-numbered by the Finance Act, 2006, s.17(15)(b). 
4 The words “or an association of persons” omitted by the Finance Act, 2010, s.8(28)(d)(i). 
5 Subs by the Finance Act, 2010, s.8(28)(d)(ii). 
6 Subs by the Finance Act, 2013, s.7(20)(c). 
7 Subs by the Finance Act, 2009, s.5(28)(d). 
8 The words “or an association of persons” omitted by the finance Act,2010, s.8(28)(e). 
9 Subs by the Finance Act, 2005, s.8(26)(c ). 
10 Subs by the Finance Act, 2004, s.6(24)(d)(i) and (ii). 
11 Subs by the Finance Act, 2004,s.6(24)(d)(iii)and (iv).


(d) in respect of the June quarter, on or before the 1[15th day of June].

1[(5A) Advance tax shall be payable by an association of persons or a company to the Commissioner —

(a) in respect of the September quarter, on or before the 25th day of September;

(b) in respect of the December quarter, on or before the 25th day of December;

(c) in respect of the March quarter, on or before the 25th day of March; and

(d) in respect of the June quarter, on or before the 15th day of June.]

2[(5B) Adjustable advance tax on capital gain from sale of securities shall shall be chargeable as under, namely:—

TABLE

S.No. Period Rate of Advance Tax

--------------------------------------------------------------------------------------------

1 2 3

--------------------------------------------------------------------------------------------

1. Where holding period of a 2% of the capital gains derived security is less than six months. derived during the quarter.

2. Where holding period of a 1.5% of the capital gains derived [[[[

security is more than six months during the quarter.

but less than twelve months.

--------------------------------------------------------------------------------------------

Provided that such advance tax shall be payable to the Commissioner within a period of 3[twenty-one] days after the close of each quarter:


1 Sub-section (5A) subs by the Finance Act, 2010, s.8(28)(f). 
2 Ins by the Finance Act, 2010, s.8(28)(g). 
3 Subs by the Finance Act, 2011, s.6(18).


Provided further that the provisions of this sub-section shall not be applicable to individual investors.]

1[(6) If any taxpayer who is required to make payment of advance tax under sub-section (1) estimates at any time before the last installment is due, that the tax payable by him for the relevant tax year is likely to be less than the amount he is required to pay under sub-section (1), the taxpayer may furnish to the Commissioner an estimate of the amount of the tax payable by him, and thereafter pay such estimated amount, as reduced by the amount, if any, already paid under sub-section (1), in equal installments on such dates as have not expired.]

2[(6A) Notwithstanding anything contained in this section, where the taxpayer is a company or an association of persons, advance tax shall be payable by it in the absence of last assessed income or declared turnover also. The taxpayer shall estimate the amount of advance tax payable on the basis of quarterly turnover of the company or an association of persons, as the case may be, and thereafter pay such amount after, —

(a) taking into account tax payable under section 113 as provided in sub-section (4AA); and

(b) making adjustment for the amount (if any) already paid.]

(7) The provisions of this Ordinance shall apply to any advance tax due under this section as if the amount due were tax due under an assessment order.

(8) A taxpayer who has paid advance tax under this section for a tax year shall be allowed a tax credit for that tax in computing the tax due by the taxpayer on the taxable income of the taxpayer for that year.

(9) A tax credit allowed for advance tax paid under this section shall be applied in accordance with sub-section (3) of section 4.

(10) A tax credit or part of a tax credit allowed under this section for a tax year that is not able to be credited under sub-section (3) of section 4 for the year shall be refunded to the taxpayer in accordance with section 170.

3(11)* * * * * * *


1 Sub-section (6) subs by the Finance Act, 2004, s.6(24)(e). 
2 Sub-section (6A) subs by the Finance Act, 2009, s.5(28)(f). 
3 Sub-section (11) omitted by the Finance Act, 2004, s.6(24)(f).


Division II

Advance Tax Paid to a Collection Agent

148. Imports.— (1) The Collector of Customs shall collect advance tax from every importer of goods on the value of the goods at the rate specified in Part II of the First Schedule.

1(2)* * * * * * *

2[“(2A) Notwithstanding omission of sub-section (2), any notification issued under the said sub-section and for the time being in force, shall continue to remain in force, unless rescinded by the Board through notification in the official Gazette.”]

3(3)* * * * * * *

3(4)* * * * * * *

(5) Advance tax shall be collected in the same manner and at the same time as the customs-duty payable in respect of the import or, if the goods are exempt from customs-duty, at the time customs-duty would be payable if the goods were dutiable.

(6) The provisions of the Customs Act, 1969 (IV of 1969), in so far as relevant, shall apply to the collection of tax under this section.

4[(7) The tax 5[required to be] collected under this section shall be a final tax 6[except as provided under sub-section (8)] on the income of the importer arising from the imports subject to sub-section (1) and this sub-section shall not apply in the case of import of—

(a) raw material, plant, machinery, equipment and parts by an industrial undertaking for its own use;

(b) fertilizer by manufacturer of fertilizer; and


1 Sub-section (2) omitted by the Finance Act, 2015, s.9(30)(w.e.f .01.07.2015) 
2 Ins ibid, s.9(30). 
3 Sub-sections (3) and (4) omitted by the Finance Act, 2007, s.20(22)(b). 
4 Sub-section (7) substituted by the Finance Act, 2006, 17(16)(b). 
5 Ins by the Finance Act, 2012, s.15(31)(a). 
6 Ins by the Finance Act, 2010, s.(29).


(c) 1[motor vehicles] in CBU condition by manufacturer of 1[motor vehicles]. ]

2[(d) large import houses, who,—

(i) have paid-up capital of exceeding Rs.3[250] million;

(ii) have imports exceeding Rs.500 million during the tax year;

(iii) own total assets exceeding Rs.4[350] million at the close of the tax year;

(iv) is single object company;

(v) maintain computerized records of imports and sale of goods;

(vi) maintain a system for issuance of 100% cash receipts on sales;

(vii) present accounts for tax audit every year;

(viii) is registered [under the Sales Tax Act, 1990] and

(ix) make sales of industrial raw material of manufacturer registered 5[ Under the Sales Tax Act,1990] 6[; and] ]

7[(e) a foreign produced film imported for the purposes of screening and viewing.]


1 Subs by the Finance Act, 2007, s.20(22)(d)(i). 
2Ins ibid, s.20(22)(d)(ii). 
3 Subs by the Finance Act,2009, s.5(29)(a)(i). 
4 Subs ibid, s.5(29)(a)(ii). 
5 Subs by the Finance Act,2014, s.7(24)(a)(i)( and (ii). 
6 Subs by the Finance Act, 2013, s.7(21)(a). 
7 Subs ibid, s.7(21)(b).


1[(8) The tax 2[required to be] collected from a person under this section on the import of edible oil 3[and packing material] for a tax year shall be 4[minimum] tax.]

5[(8A) The tax collected under this section at the time of import of ships by ship-breakers shall be final tax.]

(9) In this section –

“Collector of Customs” means the person appointed as Collector of Customs under section 3 of the Customs Act, 1969 (IV of 1969), and includes a Deputy Collector of Customs, an Additional Collector of Customs, or an officer of customs appointed as such under the aforesaid section; 6[*]

7[“value of goods” means the value of the goods as determined under the Customs Act, 1969 (IV of 1969), as if the goods were subject to ad valorem duty increased by the customs-duty, federal excise duty and sales tax, if any, payable in respect of the import of the goods.]

8[Explanation.- For the purpose of this section the expression “edible “edible oils” includes crude oil, imported as raw material for manufacture of ghee or cooking oil.]

9[148A. Tax on local purchase of cooking oil or vegetable ghee by certain persons.- (1)The manufacturers of cooking oil or vegetable ghee, or both, shall be chargeable to tax at the rate of two per cent on purchase of locally produced editable oil.


1 Sub-section (8) subs by the Finance Act, 2004, s.6(25)(b). 
Ins by the Finance Act, 2012, s.15(31)(b). 
3 Ins by the Finance Act, 2009, s.5(29)(b)(i). 
4 Ins ibid, s.5(29)(b)(ii). 
5 Ins by the Finance Act,2014, s.7(24)(b). 
6 Omitted by the Finance Act, 2004, s.6(25)(c )(i). 
7 Subs by the Finance Act,2007, s.20(23)(a). 
8 Ins by the Finance Act,2006, s.17(16)(c ). 
9 Ins by the Finance Act, 2015, s.9(31)(w.e.f. 01.07.2015). 
bidi-language:AR-SA’>[6] Ins by the Finance Act, 2010, s.(29).


(2) The tax payable under sub-section (1) shall be final tax in respect of income accruing from locally produced edible oil.”]

Division III

Deduction of Tax at Source

149. Salary. — (1) Every 1[person responsible for] paying salary to an employee shall, at the time of payment, deduct tax from the amount paid at the employee’s average rate of tax computed at the rates specified in Division I of Part I of the First Schedule on the estimated income of the employee chargeable under the head “Salary” for the tax year in which the payment is made after making2[adjustment of tax withheld from employee under other heads and tax credit admissible under section 61, 62, 63 and 64 during the tax year after obtaining documentary evidence], as may be necessary, for 3[:]

4[(i) tax withheld from the employee under this Ordinance during the tax year;

(ii) any excess deduction or deficiency arising out of any previous deduction; or

(iii) failure to make deduction during the year;]

(2) The average rate of tax of an employee for a tax year for the purposes of sub-section (1) shall be computed in accordance with the following formula, namely:–

A/B

where –

A is the tax that would be payable if the amount referred to in component B of the formula were the employee’s taxable income for that year; and

B is the employee’s estimated income under the head “Salary” for that year.


1 Subs by the FinannceAct,2013, s.7(22). 
2 Subs by the FinannceAct,2007, s.20(23)(a). 
3 Ins ibid, s.20(23)(b). 
4 Subs ibid, s.20(23)(c ). 
n class=MsoFootnoteReference>[5] Proviso subs by the Finance Act, 2012, s.15(29).


1[(3) Notwithstanding anything contained in sub-sections (1) and (2), every person responsible for making payment for directorship fee or fee for attending board meeting or such fee by whatever name called, shall at the time of payment, deduct tax at the rate of twenty percent of the gross amount payable.

(4) Tax deductible under sub-section (3) shall be adjustable.]

150. Dividends. — Every 2[person] paying a dividend shall deduct tax from the gross amount of the dividend paid 3[* * *] at the rate specified in 4[Division I of Part III] of the First Schedule.

151. Profit on debt. — (1) Where –

5[(a) a person pays yield on an account, deposit or a certificate under the National Savings Scheme or Post Office Savings Account;]

(b) a banking company 6[or] financial institution pays any profit on a debt, being an account or deposit maintained with the company or institution; 7[*]

8[(c) the Federal Government, a Provincial Government or a 9[Local Government] pays to any person 9[* * *] profit on any security 10[other than that referred to in clause (a)] issued by such Government or authority; or]

11[(d) a banking company, a financial institution, a company referred to in 12[sub-clauses (i) and (ii) of clause (b)] of sub-section , s.12(70)(d).(2) of section 80, or a finance


1 Sub-sections (3) and (4) added by the Finance Act, 2014, s.7(25). 
2 Subs by the Finance Act, 2009, s.5(30). 
3 Omitted by the Finance Act, 2002, s.8(55). 
4 subs by the Finance Act, 2014, s.7(26). 
5 subs by the Finance Act, 2003, s. 12(70)(a). 
6 subs ibid, s.12(70)(b). 
7 The word “or” omitted by the Finance Act, 2002, s.8(56)(a). 
8 Subs ibid, s.8(56)(b). 
9 The words “other than a financial institution” omitted by the Finance Act, 2003, s.12(70) (c )(i). 
10Ins ibid, s. 8(56)(b). 
11 Added by the Finance Act, 2002, s.8(56)(c ). 
12 subs by the Finance Act, 2003


society pays any profit on any bond, certificate, debenture, security or instrument of any kind (other than a loan agreement between a borrower and a banking company or a development finance institution) to any person other than financial institution.]

the payer of the profit shall deduct tax at the rate specified in Division 1[IA] of Part III of the First Schedule from the gross amount of the yield or profit paid as reduced by the amount of Zakat, if any, paid by the recipient under the Zakat and Ushr Ordinance, 1980 (XVII of 1980), at the time the profit is paid to the recipient.

(2) This section shall not apply to any profit on debt that is subject to sub-section (2) of section 152.

2[(3) Tax deductible under this section shall be a final tax on the profit on debt arising to a taxpayer, except where –

(a) a taxpayer is a company; or

(b) profit on debt is taxable under section 7B.”]

152. Payments to non-residents. — (1) Every person paying an amount of 3[royalty] or fees for technical services to a non-resident person that is chargeable to tax under section 6 shall deduct tax from the gross amount paid at the rate specified in Division IV of Part I of the First Schedule.

4[(1A) Every person making a payment in full or part (including a payment by way of advance) to a non-resident person on the execution of –

(a) a contract or sub-contract under a construction, assembly or installation project in Pakistan, including a contract for the supply of supervisory activities in relation to such project; or

(b) any other contract for construction or services rendered relating thereto; or


1 Subs by the Finance Act, 2014, s.7(27)(a). 
2 Subs by the Finance Act, 2015, s.9(32)w.e.f. 01.07.2015) 
3 Subs by the Finance Act, 2002, s.8(57)(a). 
4 Ins by the Finance Act, 2006, s.17(18)(a). 
man”;mso-ansi-language:EN-US;mso-fareast-language:EN-US; mso-bidi-language:AR-SA’>[5] Proviso subs by the Finance Act, 2012, s.15(29).


(c) a contract for advertisement services rendered by T.V. Satellite Channels,

shall deduct tax from the gross amount payable under the contract at the rate specified in Division II of Part III of the First Schedule.

1[(1AA) Every person making a payment of insurance premium or re-insurance premium to a non-resident person shall deduct tax from the gross amount paid at the rate specified in Division II of Part III of the First Schedule.]

2[(1AAA) Every person making a payment for advertisement services to a non-resident media person relaying from outside Pakistan shall deduct tax from the gross amount paid at the rate specified in Division IIIA of Part III of the First Schedule.]

(1B) The tax 3[deductible] under sub-section (1A) shall be a final tax on the income of a non-resident person arising from a contract.]

4[(1BB) The tax 4[deductible] under sub-section (1AA) shall be a final tax on the income of the non-resident person arising out of such payment.]

(2) Subject to sub-section (3), every person paying an amount to a non-resident person (other than an amount to which sub-section (1) 5[or sub-section (1A) 6[, (1AA)] 7[, (1AAA) or (2A)] applies)] shall deduct tax from the gross amount paid at the rate specified in Division II of Part III of the First Schedule.

8[(2A) Every prescribed person making a payment in full or part including a payment by way of advance to a permanent establishment in Pakistan of a non-resident person—


1 Ins by the Finance Act, 2008, s.18(18)(a). 
2 Ins by the Finance Act, 2012, s.15(33)(a). 
3 Subs by the Finance Act, 2012, s.15(33)(b) and (c ). 
4 Ins by the Finance Act, 2008, s.18(18)(b). 
5 Ins by the Finance Act, 2007, s.20(24). 
6 Ins by the Finance Act, 2010, s.8(30). 
7 Ins by the Finance Act, 2012, s.15(33)(d). 
8 Added by the Finance Act, 2012, s.15(33)(e).


(i) for the sale of goods;

(ii) for the rendering of or providing services; and

(iii) on the execution of a contract, other than a contract for the sale of goods or the rendering of or providing services, shall, at the time of making the payment, deduct tax from the gross amount payable (including sales tax, if any) at the rate specified in Division II of Part III of the First Schedule.]

(2AA) sub-section (1AA) shall not apply to an amount, with the written approval of the Commissioner, that is taxable to a permanent establishment in Pakistan of the non-resident person.]

(3) Sub-section (2) does not apply to an amount —

(a) that is subject to deduction of tax under section 149, 150, 1[ * ] 2[ * ] 156 3[or 233];

(b) with the written approval of the Commissioner, that is taxable to a permanent establishment in Pakistan of the non-resident person;

(c) that is payable by a person who is liable to pay tax on the amount as representative of the non-resident person under sub-section (3) of section 172; or

(d) where the non-resident person is not chargeable to tax in respect of the amount.

(4) Where a person claims to be a representative of a non-resident person for the purposes of clause (c) of sub-section (3), the person shall file a declaration to that effect with the Commissioner prior to making any payment to the non-resident person.

4[(4AA) The Commissioner may, on application made by the recipient of a payment referred to in sub-section (2A0 and after making such


1 Omitted by the Finance Act, 2012, s.15(33)(f) 
2 Omitted by the Finance Act, 2013, s.7(23)(a). 
3 Ins by the Finance Act, 2006, s.17(19)(b). 
4 Ins by the Finance Act, 2015, s.9(33)(w.e.f.01.07.2015).


inquiry as the Commissioner thinks fit, may allow in cases where the tax deductible under sub-section (2A) is adjustable, by order in writing, any person to make the payment, without deduction of tax at a reduced rate.”]

(5) Where a person intends to make a payment to a non-resident person without deduction of tax under this section, 1[other than payments liable to reduced rate under relevant agreement for avoidance of double taxation,] the person shall, before making the payment, furnish to the Commissioner a notice in writing setting out —

(a) the name and address of the non-resident person; and

(b) the nature and amount of the payment.

2[(5A) The Commissioner on receipt of notice shall 3[, within thirty days,] pass an order accepting the contention or making the order under sub-section (6).]

(6) Where a person has notified the Commissioner of a payment under sub-section (5) and the Commissioner has reasonable grounds to believe that the non-resident person is chargeable to tax under this Ordinance in respect of the payment, the Commissioner may, by 4[order] in writing, direct the person making the payment to deduct tax from the payment in accordance with sub-section (2).

(7) Sub-section (5) shall not apply to a payment on account of –

(a) an import of goods where title to the goods passes outside Pakistan 5[and is supported by import documents], except an6[*] import that is part of an overall arrangement for the supply of goods, their installation, and any commission and guarantees in respect of the supply where –


1 Ins by the Finance Act, 2008, s.18(18)(c ). 
2 Ins by the Finance Act, 2003, s.12(71). 
3 Ins by the Finance Act, 2004, s.6(26)(a). 
4 Subs ibid, s.6(26)(b). 
5 Ins by the Finance Act, 2008, s.8(18)(d). 
6 The word “the’ omitted by the Finance Act, 2002, s.8(57)(b).


(i) the supply is made by the head office outside Pakistan of a person to a permanent establishment of the person in Pakistan;

(ii) the supply is made by a permanent establishment of the person outside Pakistan to a permanent establishment of the person in Pakistan;

(iii) the supply is made between associates; or

(iv) the supply is made by a resident person or a Pakistan permanent establishment of a non-resident person; or

(b) educational and medical expenses remitted in accordance with the regulations of the State Bank of Pakistan.

1[(8) In this section “prescribed person” means a prescribed person as defined in sub-section (7) of section 153.]

2[153. Payments for goods, services and contracts.— (1) Every prescribed person making a payment in full or part including a payment by way of advance to a resident person or 3[* * *]—

(a) for the sale of goods;

(b) for the rendering of or providing of services;

(c) on the execution of a contract, 4[including contract signed by a sportsperson] 5[but not including] a contract for the sale of goods or the rendering of or providing services, shall, at the time of making the payment, deduct tax from the gross amount payable (including sales tax, if any) at the rate specified in Division III of Part III of the First Schedule.


1 Added by the Finance Act, 2013, s.7(23)(b). 
2 Subs by the Finance Act, 2011, s.6(20). 
3 The words “permanent establishment in Pakistan of a non-resident person” omitted by the Finance Act, 2012, s.15(34)(a). 
4 Ins by the Finance Act, 2014, s.7(28)(i). 
5 Subs ibid, s.7(28)(ii).


(2) Every exporter or an export house making a payment in full or part including a payment by way of advance to a resident person or permanent establishment in Pakistan of a non-resident person for rendering of or providing services of stitching, dying, printing, embroidery, washing, sizing and weaving, shall at the time of making the payment, deduct tax from the gross amount payable at the rate specified in Division IV of Part III of the First Schedule.

(3) The tax 1[deductible] under clauses (a) and (c) of sub-section (1) and under sub-section (2) of this section, on the income of a resident person or 2[* * *], shall be final tax.

Provided that,—

(a) tax deducted under clause (a) of sub-section (1) shall be adjustable where payments are received on sale or supply of goods, by a, —

(i) company being a manufacturer of such goods; or

(ii) public company listed on a registered stock exchange in Pakistan;

(b) tax 3[deductible] shall be a minimum tax on transactions referred to in clause (b) of sub-section (1); and

(c) tax deducted under clause (c) of sub-section (1) shall be adjustable if payments are received by a public company listed on a registered stock exchange in Pakistan, on account of execution of contracts 4[;]

5[(d) tax deducted under clause (c ) of sub-section (1) in respect of a sportsperson shall be final tax with effect from year 2013”].


1 Subs by the Finance Act, 2012, s.15(34)(b)(i). 
2 The words “permanent establishment in Pakistan of a non-resident person” omitted ibid, s.15(34)(b)(ii). 
3 Subs by the Finance Act, 2012, s.15(34)(b)(iii). 
4Added by the Finance Act, 2015, s.9(34)(w.e.f.01.07.2015) 
5Added by the Finance Act, 2015, s.9(34)(w.e.f. 01.07.2015).


(4) The Commissioner may, on application made by the recipient of a payment referred to in sub-section (1) and after making such inquiry as the Commissioner thinks fit, may allow in cases where tax deductible under sub-section (1) is adjustable, by an order in writing, any person to make the payment,—

(a) without deduction of tax; or

(b) deduction of tax at a reduced rate.

(5) Sub-section (1) shall not apply to —

(a) a sale of goods where the sale is made by the importer of the goods and tax under section 148 in respect of such goods has been paid and the goods are sold in the same condition as they were when imported;

(b) payments made to traders of yarn by the taxpayers specified in the zero-rated regime of sales tax (as provided under clause (45A) of Part-IV of the Second Schedule);

(c) a refund of any security deposit;

(d) a payment made by the Federal Government, a Provincial Government or a Local Government to a contractor for construction materials supplied to the contractor by the said Government or the authority;

(e) a cotton ginner who deposits in the Government Treasury, an amount equal to the amount of tax deductible on the payment being made to him, and evidence to this effect is provided to the ‘prescribed person”;

(f) the purchase of an asset under a lease and buy back agreement by a modaraba, leasing company, banking company or financial institution; or

(g) any payment for securitization of receivables by a Special Purpose Vehicle to the Originator.


(6) Where any tax is deducted by a person making a payment for a Special Purpose Vehicle, on behalf of the Originator, the tax is credited to the Originator.

(7) In this section, —

(i) “prescribed person” means—

(a) the Federal Government;

(b) a company;

(c) an association of persons constituted by, or under law;

(d) a non-profit organization;

(e) a foreign contractor or consultant;

(f) a consortium or joint venture;

(g) an exporter or an export house for the purpose of sub-section (2); 224

(h) an association of persons, having turnover of fifty million rupees or above in tax year 2007 or in any subsequent tax year; 1[ * ]

(i) an individual, having turnover of fifty million rupees or above in the tax year 2009 or in any subsequent year; 2[or]

3[(j) a person registered under the Sales Tax Act, 1990;]

(ii) ”services” includes the services of accountants, architects, dentists, doctors, engineers, interior decorators and lawyers, otherwise than as an employee;


1 The word “or” omitted by the Finance Act, 2013, s.7(24)(A)(a)(i). 
2 Added ibid, s.7(24)(a)(ii). 
3 Added by the Finance Act, 2013, s.7(24)(A)(b).


(iii) ”sale of goods” includes a sale of goods for cash or on credit, whether under written contract or not;

(iv) ”manufacturer” means a person who is engaged in production or manufacturing of goods, which includes—

(a) any process in which an article singly or in combination with other articles, material, components, is either converted into another distinct article or product is so changed, transferred, or reshaped that it becomes capable of being put to use differently or distinctly; or

(b) a process of assembling, mixing, cutting or preparation of goods in any other manner; and

(v) ”turnover” means—

(a) the gross sales or gross receipts, inclusive of sales tax and federal excise duty or any