HaXor’z

HaXor’Z namesHafiz atta 09

Sarfaraz Ahmad 15Sabeeh Amjad 44Salma majeed 02

Muhammad Sulman 11Madiha bisharat 36

Topic:Tax accounting

Assign by:Sir Zubair

Introduction

• Tax: [section2(63)]

Tax mean any tax impose under the income tax law. It also include any penalty, investment tax, fee or other charges tax.

orAny sum or amount payable under

income tax ordinance 2001 is called tax.

Introduction (continue)

• Tax Accounting: [section 32(1)]Income chargeable to tax shall be

computed in accordance with the method of accounting regularly employed by such person.

• In simple wordsAccounting system which tell us about

the tax payable of a tax payee on taxable income.

Some concepts of tax

• Income [section2(69)]The income of a person for a tax year shall be

the sum of the persons income under each head of income for the year.

• Taxable income [section2(64)] The income of a person for a year as reduced by

any deductible allowances. However such income can’t below zero.

Concepts…….

Tax payer [section2(66)]tax payer means:

1. A person who derives an amount chargeable to tax.

2. Representative of such person.3. Any person who required to furnish a return.

(form which tax payer submitted at the end of a tax year to FBR.)

sarfarazSarfaraz AhmedRoll number 15

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Concepts…….

• Tax year[section2(68)]

Tax year is a period of time for which tax is to be calculated regarding a person.

• Tax payableTax imposed on Taxable income on tax

payee for a tax year.

Different types of accounting methods

According to section32(2) there are two types of accounting methods.

1.Cash Basis Accounting2.Accrual Basis Accounting

Different Methods of determining cost:

According to section 35(5)Following are the different methods of

determining cost:1. Prime cost method2. Absorption cost method3. FIFO cost method4. Average cost method

Heads of income (section11)

• Income 4rm salary [section12]• Income from property[section15]• Income from Business[section18]• Capital gain

[section37]• Income from other sources

[section39]

Format of income tax return

Mr. Zubair AmirTax year 2011Tax year ended 30june,2011residential status : residentComputation tax liability

cebiMuhammad SulmanRoll number 11

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Income from salary [section12]

• Salary:B basic salaryB bonusC commissionD dearness allowanceO overseas allowanceC cost of living allowance

Allowances and Facilities

• Special Allowance:completely exempt

• Entertainment Allowance:Fully taxable

• Medical Allowance:Exempt up to 10% of Basic salary

• Bills reimbursement :utility bill taxable, all other not included.

Allowances and Facilities

• Accommodation:Allowance:

fully taxable

facility:

ALV(given amount)Or

45% of MTS(Basic salary)Which ever is higher will be taxable.

Allowances and Facilities

• Conveyance :Allowance:

Fully Taxable

Facility:

For business use:Fully exempt

Allowances and Facilities

Partly for business and partly for personal use:5% of cost of vehicle

For personal use: 10% of cost of vehicle

Conveyance on lease:5 or 10 % of market value of vehicle

Provident Fund

Funds maintain by organization for benefits of their employees.

There are 3 kinds of P.V

1. Recognized P.V2. Unrecognized P.V3. Government P.F

Example• Income 4rm salary[section(12)]

Basic salary(30,000-3000-40000) 360,000Bonus 30,000Cost of living allowance 10,000Salary 400,000Allownce, perqusits:Entertainment allowance 15,000Utility bill reimbursed 10,000Medical allowance 40,000

10%of360,000 36,000 4,000Accommodation allowance 25,000Total 454,000

salmaSalma MajeedRoll number 02

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Income from property [section15]

• Amount of rent taken by owner of land and building

Fully taxable• Forfeited deposit

Fully taxable• Unadjusted advance

1/10*amount is taxable

Income from property [section15]rules

S r no.

Amount of rent Rate of tax

1 Up to 150,000 nil

2 150,000-------400,000 5% of amount exceeding 150,000

3 400,001-------10,00,000 12500+7.5%of amount exceeding 400,000

4 More then 10,00,000 57500+10%of amount exceeding 10,00,000

Example• Income from property[section15]Rent received from building 25,000Token money( forfeited ) 5,000Unadjusted advance 5,000Total income from salary 30,000

Now there is no tax imposed on sir zubair because sir income from property is less then Rs 150,000

Income from business [section18]

• Business section2(9)any trade , commerce, manufacture,

profession, vocation or concern in nature of trade commerce, manufacture but not include employment.

1. Remuneration by professional as examiner.2. Income from non professional activity.3. Casual income. e.g prize bond

Not Taxable income

Taxable income:

• Profit and gain of any business carried on by a person at any time during tax year.

• Income from hire and lease of tangible movable property.

• management fee taken by management company.

• Income derived by trade , profession.

Example

Income from Business (section18)Agriculture income ExemptExaminer fee 10,000income from trade 40,000Total 50,000

madiha

Madiha bisharatRoll number 36

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Capital gain[section37]

Any gain arising from disposable of capital asset.

Rules:• Gain on sale of private co. share fully taxable(disposed off with in 12 month)• Gain on sale of private co. share 25%exempt(disposed off after 12 month)• Gain on sale of inherited house fully exempt

note

• Capital loss must be deducted from capital gain of same tax year.

ExampleCapital gain (section37)Sale on share of pvt. co. share 10,000(holding period = >12 months)Less: capital loss 5,000 5,000Gain on sale of inherited house exemptTotal 5,000

Income from other sources [section39]

• Income that cant came under any four head discuss later, came under this head.

Examples• Dividend• Royalty• Profit on debt• Annuity, pension• Income of non professional• Income from part time job

Example

• Income from other sources (section39)

Gift from mama exemptIncome by writing drama exemptRent of tractor 10,000Ins. Amount received on maturity exemptTotal 10,000

Direct Deductions

Amount which directly deduct from total income of a payee is called direct deduction.

There are two direct deductions.• Zakat to approved charitable institute• Worker welfare fund

Taxable income of mr. zubair

Income from salary[sec12] 454,000Income from property [sec15] not taxable

thereIncome from business [sec18] 50,000Capital gain [sec37] 5,000Income from other sources [sec39] 10,000Total income 519,000Less : zakat + wwf 9,000Total taxable income 510,000

sulmanSabeeh amjadRoll number 44

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Computation Tax liability

• Methods:There are two methods.1. Direct method2. Marginal relief method

Let us start computation.

Computation tax liability

Taxable income 510,000

direct method510,000*3.50% 17,850

Marginal relief method

400,000*1.50% 6,000110,000*20% 22,000 28,000

Which ever is lesser take as tax liability 17,850

Time to add income from property

Tax liability 17,550

Add : income from property(sec15)(30,000 is less then 150,000 so) 0

Tax liability 17,550

Concession to university teacher

75% concession is given in tax to uni. Teacher

Tax liability 17,500Total Salary amount of taxActual taxable income454,000 17550 14,755540,000So 14,755 75% (11,066)Tax liability 6,484

Average Relief

Government of Pakistan allow concession on some expenditures and investment.

1. I . Investment in shares and ins.2. C . Contribution to approved pension fund3. D . Donation to charitable institution4. H . Housing finance scheme

% of average relief

I•15%•500,000 ( Which ever is less)

C

•20%

D

•30%

H•50%•750,000 (which ever is less)

Now tax liability

Tax liability 6,484Gross tax amount admissibleT taxable income 6,484 25,000 300540,000

Or30%of taxable income 162,000

Which ever is less admissible for average relief 300

Tax liability 6,184

Tax deduct at source

Directly deducted by tax payee from tax liability.

Tax liability 6,184Less : tax deduct at source 1,184

Tax return 5,000

Time to

• To submit income tax return to FBR.

FBR (Stand for federal board of revenue)

FBR check it, accept I, as result process of tax accounting complete. But if FBR not satisfied then may b ask for re-assessment, amended assessment.