By:

Fayaz Hussain Abro, Assistant

Commissioner
 Tax was imposed on ‘Income’ in 1799 for the first time in
Britain.
 Earlier, taxes were being imposed on trade, land, property,
or even tax on expenditure but not on income.
 The reason for tax on income was to generate revenues to
meet the expenses of Britain’s war against Napoleon.
Hence, it is sometimes said that Napoleon is the “Father of
Income Tax”
 Then in undivided India in 1860 being 600 taxable per
anum. After 2 years it was imposed on 200 @ 2%.

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1. Who levies it? Parliament
2. Why is it imposed? - To generate revenue for Govt
- Re-distribution of wealth
- To help the poor

3. What is taxed? Income

4. Type of tax? Direct Tax

5. Who pays it? The person on whom it is levied.

Incidence many not be passed on to an
other person.

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Income Tax Authorities:
 Chairman FBR
 Chief Commissioner Inland Revenue
 Commissioner Inland Revenue
 Commissioner Inland Revenue (Appeals)
 Additional Commissioner Inland Revenue
 Deputy Commissioner Inland Revenue
 Assistant Commissioner Inland Revenue
 Officer of Inland Revenue
 Special Officer Inland Revenue; and
 Inspector Inland Revenue
1. Income Tax Ordinance, 2001.
2. Income Tax Rules, 2002.
3. Finance Acts
4. Statutory Regulatory Orders (SRO)
5. Circulars
6. Case Law

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 Historically, there have been three laws imposing
tax on income in Pakistan:
 Income Tax Act,1922.
 Income Tax Ordinance, 1979.
 Income Tax Ordinance,2001.

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 REASONS FOR PROMULGATION:
 Simplification of income tax law
 Effort to make it easy to understand even for a lay man.
 Rearrangement of income tax law
 Due to numerous amendments, the I.T. Ordinance,1979,
had become complex.
 Introduction of Universal Self Assessment Scheme
(USAS).

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There are 13 Chapters in Income Tax Ordinance,
2001.
– Chapter are divided into Parts
– Parts may be further sub-divided into Divisions
– Divisions consists of Section
No. of original sections : 240
No. of omitted sections : 11
No. of sections inserted later on: 37
No. of current sections : 266
No. of schedules : 07

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Representation of Sections and their Sub-divisions:
– Sections are represented by 1,2,3…
– Sub-sections are represented by (1),(2), (3)….
– Clauses are represented by (a), (b), (c)…..
– Sub-clauses are represented by (i), (ii), (iii)….
Later Insertions:
- If a section is inserted between two sections, such as between
Section 138 and Section 139, it is written as 138A.

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 Charging Section: The section which imposes
tax is called charging section.
 Sections: 4 of the IT Ordinance,2001 is the
charging section, which imposes tax on taxable
income.
 Machinery Sections: Those sections which
provide for the method of computation and
collection of the tax imposed in charging
section.
 All the sections of the IT Ord,2001, other than
Section: 4, are machinery sections.
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Section 4(1) reads:

“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 Division I or II
of Part I of the First Schedule, as the case may be, on
every person who has taxable income for the year.”

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There are four major underlying concepts in
Section 4(1):

1. Tax Year Concept

2. Tax Rate Concept
3. Person Concept
4. Income Concept

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• Section 74: Tax year
• Tax year is a period of twelve months
ending on the 30th day of June.
• Types of Tax Years
– Normal Tax Year
– Special Tax Year

– Transitional Tax Year

Definitions:
 These are of three types
1. Exclusive: it gives definite meaning to the word or term and
does not give ordinary meaning of the term or word.
The exclusive definition starts with the expression “mean” or
“means”
E.g. “Prescribed means prescribed by rules made under the
ordinance”. S.(44)
2. Inclusive: A word that retains its ordinary dictionary meaning &
also acquires the meaning assigned to it by the definition given
in the statute.
This type of definition begins with the word “includes”
Cont..

e.g. Business includes any trade, commerce,

manufacture etc
e.g. S.(9)
3. Exhaustive: This definition carries both the
elements it is both flexible as well as restrictive.
e.g. S.2(7)
 A Tax Year is denoted by the calendar year in
which 30th June of the said tax year falls.
 And, such tax is called ‘Normal Tax Year’
EXAMPLE
01.07.2008 to 30.06.2009 (Tax Year 2009)
01.7.2005 to 30.06.2006 (Tax Year ………)
• On application, the Commissioner may allow a taxpayer to use
a period of twelve months’ different from normal tax year.
• Such tax year is called ‘special tax year’
• It is denoted by the calendar year relevant to normal tax year in
which the closing date of the special tax year falls.
EXAMPLE
- 01.01.2009 to 31.12.2009
31.12.2009 relates to N.T. Year 01.07.2009-30.06.2010
Hence, Tax Year 2010 (not Tax Year 2009)
• Where the tax year of a person changes from
normal to special tax year, the period in-
between the two tax years is known as the
“transitional tax year”.
• A taxpayer with Normal Tax Year 01.06.2007 to
30.06.2008, shifts to Special Tax Year 01.01.2009
– 31.12.2010.
• The period of 01.07.2008 to 31.12.2008 is known
as trasitional tax year.(S.74(9)
 Types of Tax Rates:
 Progressive
 Regressive
 Flat
 Tax rates in Inc. Tax Ordinance,2001, are
progressive.
 Tax rates are provided in the 1st Shedule
• Section 80: Person
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 subdivision of a
foreign government, or public international
organization.
 “Association of Persons” includes a
firm, a Hindu undivided family (HUF),
any artificial juridical person and any
body of persons formed under a foreign
law, but does not include a company.
Company means:
(i) a company as defined in the Companies Ordinance,
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
(v) a trust, a co-operative society or a finance society or
any other society established or constituted by or under
any law for the time being in force
(vi) a foreign association, whether incorporated
or not, which the Board has, by general or
special order, declared to be a company for the
purposes of this Ordinance
(vii) a Provincial Government
(viii) a Local Government] in Pakistan, or
(ix) a Small Company as defined in section 2.
• Section 10: Total Income
The total income of a person for a tax year shall be the sum of the
person’s income under each of the heads of income for the year.
• Section 11: Heads of income
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
(b) Income from Property
(c) Income from Business
(d) Capital Gains, and
(e) Income from Other Sources.
 Section 9: Taxable income
 The taxable income of a person for a tax year
shall be the total income 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. (i.e zakat,
workers’ welfare fund, workers’ participation
fund)
 Head of Inc Salary IFP IFB C.GAINS IFOS
Amount 500,000 250,000 800,000 200,000 150,000
Chargeable
Les: Deductions Nil Nil 600,000 50,000 50,0000
Allowed
Net Amount 500,000 250,000 200,000 150,000 100,000
Chargeable under
the Head
Total Income 1,200,0000
Less: Deductable 100,000
Allowances
Taxable Income 1,100,000
Tax Rate ?
Tax Liability ….
Less: Tax Cr …..
Tax Payable ……
WHAT IS INCOME TAX?
It is an equitable form of taxation wherein burden
lies with whom who pays it.
It is Progressive in nature hence reduces the
economic disparity.
OBJECTIVES:
 TO RAISE REVENUE FOR THE STATE
 TO STOP PEOPLE CONSUMING SOME
HARMFUL ITEMS I.E OPIUM.
 TO REMOVE INEQUALITIES WHILE
DISTRIBUTION OF INCOME.
 TO PROVIDE SERVICES LIKE FREE
SCOOLING & FREE MEDICAL TO THE
POOR.
Certain Expressions
1.Subject to: means the effect of the provision under
consideration depends on (is subordinate to) the other
provisions of the statute.
2.Notwithstanding anything contained in: the provision
under consideration will have over-riding effect on other
provisions of the statute in case of conflict.
3.Provided that: a proviso creates an exception from a
general principle or restricts the scope of preceding
enactment.
Exemptions & Tax Concessions ( Part VII of
Chapter III)
 Items contained in Sections 41 to51 have been exempted fully
from tax or some concession in the tax has been provided.
 Section 53 specifies that items mentioned in the second
schedule will be:
1. Completely exempt from tax; or
2. Exempt from tax subject to fulfillment of certain conditions; or
3. Will be liable to pay tax at lower rates; or
4. Will be allowed a reduction in tax liability; or
5. Will be exempt from the operation of certain provisions of
Income Tax Ordinance,2001.
Second Schedule:
 Four Parts
Part I
Exemptions from total income
There are 139 clauses in this Part.
Incomes of the persons shall be exempt from tax subject to the conditions and the extent specified in the given clauses/
Part II
Reduction in tax rates
There are 26 clauses in this Part.
Incomes of the persons shall be liable to tax @ such rates which are less than the rates specified in the First Schedule.

Part III
Reduction in tax liability
There are 06 clauses in this Part.
Income of the persons shall be allowed reduction in tax liability to the extent and subject to such conditions in the given clauses.
Part IV
Exemption from specific provisions
There are 72 clauses in this Part.
Income of the persons shall be exempt from the operation of such provisions of this Ordinance subject to such conditions and to the
extent as specified in the given clauses.
Cotinue..
 Second Schedule of Income Tax Ordinance,2001
contains the list of exempted incomes.
 Federal Govt is empowered to make such

changes but such changes should be:

1. Notified in the official Gazette
2. The Federal Govt is bound to place all such
changes before the National Assembly.
Incomes Exempt from TAX:
 Agriculture Income (S.41)
 Diplomatic & United Nations Exemptions (S.42)
 Foreign government officials (S.43)
 Exemptions under international agreements (S.44)
 President’s honours. (S.45)
 Profit on debt (S.46)
 Scolarships (S.47)
 Support payments under an agreement to
live apart (S.48)
 Federal govt, Provincial govt & Local govt income (S.49)
Cont…
 Foreign-source income of short-term resident
individuals (S.50)
 Foreign-source income of returning

expatriates (S. 51)