A person’s income from business and profession is taxable under the income head “income from business” at the rates as given in Division I of Part 1 of the First Schedule of the Income Tax Ordinance 2001.
Business income tax is explained in the section 18 of the Income Tax Ordinance 2001 and includes the following incomes of a taxpayer other than the incomes that are exempt under any provision of the ITO 2001.
a) Profit from any business activity carried out by a person during the tax year.
(b) Income earned by a trade association, professional association, or any other business association by providing services to the clients in the tax year.
(c) Income derived from leasing or hiring tangible movable property during the tax year.
(d) A benefit or perquisite whether convertible into money or otherwise earned by a person by a business relationship (past, present or prospective).
(e) Management fee earned by a management company (including modaraba management company)
(f) Profit on debt earned by a person in a case where it is the business of the person to derive income from profit on debt is taxable under the head “income from business” and not under the head “income from other sources”.
(g) Income derived by a scheduled bank, an investment bank, a development finance institution, a modaraba, or a leasing company by leasing out an asset is taxable under the head “income from business”.
(h) An amount received by a banking company, or a non-banking finance company from distribution by a mutual fund, out of its profits on debt is chargeable to tax under the head “income from business” and not under the head “income from other sources”.
Allowed Deductions in Business Income for Tax
Any expenditure that is incurred exclusively for the purpose of business is allowed to be deducted from the taxable business income of the tax year.
1. If animals have been used for business purposes, other than as stock in trade, and such animal died or became useless permanently, the difference in the actual cost of the animal and any amount realized from its disposal, is allowed to be deducted from the business income.
2. Depreciation expense in respect of physical assets having a useful life of more than one year is also allowed to be deducted from the taxable income.
3. Expenditure on legal and financial advisory services and administrative costs related to the procedure of amalgamation of the company is also allowed to be deducted.
Business Tax Rates for Tax Year 2022
Business tax slab rates are applied for the calculation of tax payable by a person on the business income for a tax year on the taxable income that is calculated as per the procedure given above and after deducting the allowed deductions. For business tax slab 2022, click on the link given below:-
Disclaimer
“The contents of this post are intended for informational and educational purposes only and are based on data gathered by Team Fiscal Updates. It is important to note that the information provided here should not be relied upon as a reference for any legal documents. If you require assistance with legal decisions, it is recommended to seek proper professional advice. It may also be noted that the provisions of the Income Tax Ordinance 2001 have an overriding effect on all other laws of the country and shall prevail in case of any contradiction in terms of Section 3 of the Ordinance”