SOLVED ASSIGNMENT 1 CODE 456 BUSINESS TAXATION
Aiou solved assignment 1 code 456 business taxation for B.Com students of semester spring 2016. This is the first solved assignment for this course code 456 naming business taxation and offered by the University to the B.Com student.
Course: Business Taxation Level: 13.Com Code: 456 Spring 2016 Assignment No: 01
Q 1:- Understanding the legal terms in taxation provides a way forward for determining the tax liability of a person. Keeping this in view, define the following terms with reference to Income Tax Ordinance 2001:
Ans: Capital Asset:
“Capital Asset” means property of any kind held by a person, whether or not connected with a business, but does not include:
a) Any stock-in-trade (not being stocks and shares), consumable stores or raw materials held for business.
b) Any appreciable asset or intangible;
c) Any movable property held for personal use by the person or any member of the person’s family dependent on the person. However, followings are capital assets although held for personal use:-
a) A painting, sculpture, drawing or any other work of art;
c) A rare manuscript, folio or book;
d) A postage stamp or first day cover;
e) A coin or medallion; or
f) An antique.
Securities under Section 37A:-
• Shares of public company;
• Modaraba Certificates;
• Instruments of redeemable capital; like
Participation Term Certificates;
Term Finance Certificates;
• Derivative products; like
• Immovable property is also capital asset.
a) Any amount chargeable to tax under the Income Tax Ordinance, 2001;
b) Any amount subject to collection or deduction of tax u/s 148, 150, 152(1), 153, 154, 156, 156A, 233, 233A and 234(5);
c) Any amount treated as income under any provision of Income Tax Ordinance, 2001; or
d) Any loss of income.
a) The gross receipts, exclusive of Sales Tax and Federal Excise Duty or any trade discounts shown an Invoices, or bills, derived from the sales of goods, and also excluding any amount taken as deemed income 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 any association of persons of which the company is a member.
“Industrial undertaking” means an undertaking which is setup in Pakistan and which employs ten or more persons in Pakistan and involves the use of electrical energy and any other form of energy which is mechanically transmitted and is not generated by human or animal energy and which is engaged in:-
i) Manufacture of goods or materials or the subjection of goods or materials to any process which substantially changes their original condition.
iii) Generation, conversion, transmission or the distribution of the electrical energy or the supply of hydraulic power.
iv) The working of any time, oil well or any other source of mineral deposits.
“Small company” means a company registered on or after 01-07.2005, under the companies Ordinance, 1984, which:-
i) Has paid up capital plus undistributed reserves not exceeding Rs. 25 million.
ii) Has employees not exceeding 250 any time during the year.
iii) Has annual turnover not exceeding Rs. 250 million and;
iv) Is not formed by the splitting up or the reconstitution of company already in existence.
“Royalty” means any amount paid or pay able, however described or computed, whether periodical or a lump sum, as consideration for;
a) The use of, or right to use patent, inventions, design or model, secret formulas or process, trademark of other like property or right;
b) The receipt of, or right to receive, any visual images or sounds, or both, transmitted by satellite, cable, optic fiber of similar technology, in connection with television, radio or internet broadcasting. c) The supply of any technical, industrial, commercial or scientific knowledge., experience or skill.
d) The use of or right to use any industrial, commercial, or scientific equipment.
e) The disposal of any property or right reffered to in sub-clauses (a) through (e).
“Intangible” means any patent, invention, design or model, secret formulas or process, trade mark, scientific or technical knowledge, computer software, motion picture film, export quotas, franchise, license, intellectual property or other like property or rights or any expenditure that provides an advantage or benefit for a period of more than one year having no physical life.
A period for which taxpayer is required to furnish a return of income is called tax year. Period of tax year may be twelve months or less than twelve months. Tax year has following types;
i) Normal tax year
ii) ii) Special tax year
iii) iii) Transitional tax year
iv) iv) Separate tax year
Q2:- The income tax ordinance 2001 divides income into five major head : salary, property, business, capital gains and other sources. Explain your understanding of the income from property as per the provision of the income tax Ordinance 2001. How would you differentiate the property tax imposed by the provisional government and the income tax on property imposed by the federal government?
Ans:- Property Income Procedure: The rent received or receivable by a person for tax year is the second source of income and is chargeable under the head income from property, other than the rent which is exempt from tax.
• Property means constructed building or land Building means block of brick or stone work covered by roof.
• Land means vacant plot used for erecting temporary huts or for storing materials.
• Rent means any amount received or receivable by the owner of land or a building for its use or the right to use its occupation. The amount of rent shall not be less than the fair market rent. It means that where the land or building is let on rent and the actual amount of rent received or receivable is less than the fair market rent then fair market rent shall be taken as the amount of rent. The above shall not apply where the fair market rent is included in the income of the lessee (tenant) chargeable to tax under the head salary.
• Fair market rent means the amount of rent determined on the basis of a rent fetched by similar property in the same or similar locality at that time.
Q4:- Suppose you are running a small business. The FBR sends you a notice to pay your tax liability. Under the Income Tax Ordinance 2001, how would you calculate your income from business on which the tax will be payable.
Ans:- under the Income Tax Ordinance 2001, following are the cases where you should calculate Income from Business on which the tax will be payable. \
1. The tool for business: The tool for business help you get all your small business tax issues sorted quickly and simply.
2. Filling business income tax returns: If you are in business, you will need to complete and send us an income tax returns, that is an IR3, IR4, IR6, IR7, or IR9. Find out more about the types of business income tax returns, the due dates for completing them and the financial reporting you may need to do.
3. Claiming business expenses: Most business incur expenses when generating income and most of these can be deducted from its income to arrive at its net profit or taxable income. It is on this amount that you pay income tax. Certain business expenses that are paid for out of business income cannot be claimed as allowable business expenses.
4. Depreciation: Depreciation allows for the wear and tear on a fixed asset and must be deducted from your income. You must claim depreciation on fixed assets used in your business that have a useful lifespan of more than 12 months. Not all fixed assets can be depreciated. Land is a common example of a fixed asset that cannot be depreciated. Learn about method of depreciation and the record you must keep.
5. Imputation: Imputation is a tax mechanism available to registered companies and certain other types of business.
6. Business Income tax basics: Learn the basics of business income tax plus including what a business pays income tax on an additional information on tax income during the first year of business including the early payment discount available for the first year of paying provisional tax.
7. Glossary of business income tax terms:
Glossary of the terms used in business income tax publications including: Balance date; Capital expenditure; Depreciation; and more. Treatments of income from business:
1. Rent of furniture and fittings FT
2. Rent of any movable property FT
3. Income from fish catching business FT
4. Income from poultry (arms FT
5. Income from stud farm FT
6. Income from timber business FT
7. Royalties on professional books FT
8. Income from photostate machine FT
Q5:- There are certain types of incomes on which no tax is payable under the Income Tax Ordinance 2001. You are required to list down at least twenty (20 ) such types of income which exempt from tax.
Ans:- following are the list of such types of income which exempts from tax.
1. Agricultural Income
2. Income of Federal Board of Revenue Foundation
3. Income of foreign employees of Agha Khan Development Network
4. Income of a Pakistani working on a Foreign ship
5. Income of Textbook boards
6. Income of Educational institutions
7. Income of Real Estate investment trust
8. Income from collective investment scheme
9. Income of local Government
10. Income of a public sector university
11. Income from Gawadar parts ports
12. Income of Trusts
13. Income from fruit processing units
14. Income of Islamic development bank
15. Income of religious or charitable institutions