This document contains solutions to tax practice problems for Term Test 1 on March 24. It includes calculations of taxable income and tax liability for an individual, Mr. Salman, and for a company, Azadi and Company. Details of income and expenses are provided to support the tax computations. Calculations are also shown for tax depreciation, tax gain/loss on disposal of an asset, and disallowance of certain purchases for Azadi and Company.
This document contains solutions to tax practice problems for Term Test 1 on March 24. It includes calculations of taxable income and tax liability for an individual, Mr. Salman, and for a company, Azadi and Company. Details of income and expenses are provided to support the tax computations. Calculations are also shown for tax depreciation, tax gain/loss on disposal of an asset, and disallowance of certain purchases for Azadi and Company.
This document contains solutions to tax practice problems for Term Test 1 on March 24. It includes calculations of taxable income and tax liability for an individual, Mr. Salman, and for a company, Azadi and Company. Details of income and expenses are provided to support the tax computations. Calculations are also shown for tax depreciation, tax gain/loss on disposal of an asset, and disallowance of certain purchases for Azadi and Company.
This document contains solutions to tax practice problems for Term Test 1 on March 24. It includes calculations of taxable income and tax liability for an individual, Mr. Salman, and for a company, Azadi and Company. Details of income and expenses are provided to support the tax computations. Calculations are also shown for tax depreciation, tax gain/loss on disposal of an asset, and disallowance of certain purchases for Azadi and Company.
CAF-02 Tax Practices Term Test-1 Solution Answer-1
Mr. Salman
Taxable income and tax thereon
For tax year 2023
Rupees Income from salary (W-1) 3,956,000 Income from other source – FTR (Profit on debt) (W-2) 900,000 Total income 4,856,000 Less: Income from other source – FTR (Profit on debt) (900,000) Taxable income under NTR 3,956,000
Tax liability on income falling under NTR (435,000 + 356,000 x 27.5%) 532,900 Less: Tax credit on donation [S.61] (532,900/3,956,000) x 240,000 (32,330) C is lower of: 240,000 (300,000 x 80%) or 30% of 3,956,000 = 1,186,800 500,570 Tax on interest income (900,000 x 15%) 135,000 Total Tax liability 635,570 Less: Tax withheld on interest income (135,000) Less: Tax withheld on salary (400,000) Tax payable by Salman 100,570
(W-1) Income from salary
Basic Salary 2,400,000 House rent allowance 600,000 Bonus 480,000 Free meals (Exempt being hotel employee) - Staff discount 40,000 Health insurance (Exempt being as per terms) - Company maintained car (2,000,000 x 5%) 100,000 Shares acquired under scheme [S.14(2)] Fair market on date restriction released (12,000 x 110) 1,320,000 Less: Cost of shares (12,000 x 98) (1,176,000) Less: Cost of rights (0) 144,000 Employee contribution to provident fund - Employer contribution to provident fund (2,400,000 x 8%) 192,000 Less: Exempt up to lower of: - 10% of basic salary and dearness all. (10% of 2,400,000 = 240,000) or - 150,000 (150,000) 42,000
Interest credited (960,000 x 22%) 211,200
Less: Exempt up to (higher of) - 1/3rd of (basic salary + dearness allowance) (1/3 x 2,400,000) = 800,000 - 211,200 / 22% x 16% = 153,600 (800,000) - Chef course - Travelling allowance – not spent for employer (250,000 – 100,000) 150,000 3,956,000
2 CAF-02 Tax Practices Term Test-1 Solution (W-2) Profit on debt - FTR
Net interest income = Gross interest income – income tax
765,000 =x – 0.15x
X = Gross interest income = 900,000
Answer-2 Azadi and company Income and Tax Thereon TY 2022 0.5 Rs. In 000 Income from business (W-1) - 0.25 Taxable Income – NTR - Tax liability - 0.25
(W-1) Income from Business Rs. in ‘000
Loss (66,000) 0.5
Add: Payment for purchase of machine 14,000 0.5
Purchase disallowed (W-4) 24,000 0.5 Commission paid to owner 1,200 0.5 Scholarship to Sara - 0.5 Cost of software 6,400 0.5 Accounting depreciation on leased asset 2,100 0.5 Finance charges 1,500 0.5 49,200 Less: Initial allowance (W-3) (3,500) 0.5 Tax depreciation (W-3) (1,575) 0.5 Tax loss on disposal of old machine (W-2) (1,000) 0.5 NRV loss (18,000 – 12,000) (6,000) 0.5 Salary to office boy (Allowed being upto Rs. 25,000) - 0.5 Warehouse rent - 0.5 Bad debt written off - 0.5 Tax amortization (6,400/5 x 91/365) (319) 0.5 Lease rentals (571) 0.5 (12,965) (29,765) (W-2) Tax Gain/(loss) on Disposal TY 2022 Consideration (Fair value) 4,000 0.25 Less: Tax Written down value on (5,000) 0.25 Disposal Tax loss on disposal (1,000)
- Purchase on which tax is not deducted 40,000 0.5 - 20% of purchase (120,000 x 20%) 24,000 0.5
b) As Sara is an employee of AC and employee is not considered as an associate of employer, the scholarship received by Sara from AC is exempt from tax. (02 marks) Answer-3 a) She should file the wealth statement alongwith the return of income on or before 30 September 2021. (01 mark)
b) After receiving application for extension by taxpayer if Commissioner is satisfied that the applicant is unable to furnish the wealth statement by the due date because of – (a) absence from Pakistan; (b) sickness or other misadventure; or (c) any other reasonable cause, the Commissioner may grant the applicant an extension of time. [S. 119 (3)] (03 Marks)
c) A person required to furnish a wealth statement (u/s 116) may apply to the Commissioner for an extension of time. [S. 119 (1)] The application for extension will be made by the due date of furnishing the above documents. [S. 119 (2)] (02 marks)
d) As per Section 39 of Income Tax Ordinance, 2001,
- any amount received other than through cross cheque or banking channel and - fair market value of any property received without consideration or received as gift form other than relative shall be chargeable under the head Income from other source. (01 mark) Therefore, receipt of cash gift amounting to Rs.100,000 and gold necklace having fair value of Rs.30,000 from friend shall be chargeable in tax year 2021 under the head Income from other source in hands of Jamila. (01 mark) Jewelry is a capital asset. A gain arising on the disposal of a capital asset shall be chargeable under the head “Capital Gain”. Therefore, gain of Rs. 3,000 (33,000 – 30,000) shall be chargeable under the head Income from capital gain. (01 mark)
4 CAF-02 Tax Practices Term Test-1 Solution
Answer-4 1. As per S.76, the cost of purchased asset shall be the total amount given for the asset and does not include the amount of any subsidy received in respect of the acquisition of the asset. However if subsidy is chargeable to tax then it will be added in the cost. Firstly we will calculate amount of subsidy: (01 mark)
Total subsidy (25,000 x 100) = 2,500,000 x 15% 375,000
Exempt subsidy (375,000 x 25%) 93,750 0.5 Taxable subsidy (375,000 x 75%) 281,250 0.5 We will start with net purchase price and then taxable will be added. Purchase price [2,500,000 – 375,000] = (net) 2,125,000 + 281,250 = 2,406,250 (01 mark ) 2. The cost of produced or constructed asset shall be the total costs incurred in producing or constructing the asset plus any incidental expenditure and expenditure paid to alter or improve the asset. If an asset is purchased with a loan from foreign currency, then any increase/decrease in the liability (before repayment) due to currency fluctuation will be added/deducted in the cost of the asset. (1.5 marks)
Labour 50,000 0.5
Instrument 200,000 0.5 Expert 100,000 0. 5 Effect of Currency fluctuation (105-100) ×1,000 5,000 01 Total cost 355,000
Answer-5 a) Tax credit for point of sale machine [Sec 64D] (1) All Tier 1 retailers are required to integrate with Board's Point of Sale online real time reporting system. A tax credit for POS machines will be allowed to them. (2) The tax credit will be allowed for the tax year in which the point of sale machine is installed, integrated and configured with the FBR’s computerized system, at the lower of: i. amount actually invested in purchase of point of sale machine; or ii. Rs. 150,000/ machine. (3) ‘Point of sale machine’ is a machine made for processing and recording the sale transactions for goods or services, either in cash or through credit and debit cards or online payments (in an internet enabled environment). (1 mark for each) b) Any profit (interest) received by a non-resident person on a security issued by a resident shall be exempt from tax if: (a) the persons are not associates; (b) the security was widely issued by the resident person outside Pakistan for raising a loan outside Pakistan. The loan is used in a business in Pakistan; (c) the interest was paid outside Pakistan; and (d) the security is approved by the Board. (1 mark for each)
5 CAF-02 Tax Practices Term Test-1 Solution
c) a) Calculation of amortisation
TY 2008 (4,000,000/4) 1,000,000 0.5
TY 2009 (4,000,000/4) 1,000,000 0.5 TY 2010 (12,000,000/12) x 273/365 747,945 01 Note: days used (31+30+31+31+28+31+30+31+30)
b)Tax Gain/loss on disposal
Consideration 1,000,000 0.25 Less: Written down value (W) (2,000,000) 0.25 Loss on disposal (1,000,000)
Cost 4,000,000 0.5
Less: Total amortisation assuming fully used in business -TY 2008 1,000,000 0.5 -TY 2009 1,000,000 0.5 (2,000,000) 2,000,000
Answer-6
Foreign source salary is exempt from tax if the individual has paid foreign income tax. So if Sidra has paid A foreign income tax in respect of her salary it will be exempt otherwise it will be chargeable to tax. (02 marks)
