Deductions Allowed & Not Allowed

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Taxation Management FIN 623

MODULE 8

LESSON 8.33

INCOME FROM BUSINESS & ITS COMPUTATION

Deductions Allowed under Section 20

Deduction allowed for expenditure incurred by a person in the year wholly for the purpose of business:

Expenditure on acquiring a depreciable asset or an intangible with useful life of more than one year.

Expenditure in the course of amalgamation of companies incurred by an amalgamated company

Deductions not Allowed Sec. 21

a. Any cess, rate or tax paid or payable by a person in Pakistan or a foreign country under PTR/Final Tax

Regime.

b. Any amount of tax deducted at source.

c. If payer/employer does not deduct tax from payments/disbursement of salary, then payments made,

salaries paid by such payer/employer shall not be allowed for deduction of these expenses.

d. Any entertainment expenditure in excess of such limits [or in violation of such conditions] as may be

prescribed;

e. Any contribution made by the person to a fund that is not a recognized provident fund* [approved

pension fund] approved superannuation fund, or approved gratuity fund;

f. Any contribution made by the person to any provident or other fund established for the benefit of

employees of the person, unless the person has made effective arrangements to secure that tax is

deducted under section 149 from any payments made by the fund in respect of which the recipient is

chargeable to tax under the head "Salary"

g. Any fine or penalty paid or payable by the person for the violation of any law, rule or regulation.

h. Any personal expenditures incurred by the person;

i. Any amount carried to a reserve fund or capitalized in any way;

j. Any profit on debt, brokerage, commission, salary or other remuneration paid by an association of

persons to a member of the association.

k. Omitted by finance act, 2006

l. Any expenditure for a transaction, paid or payable under a single account head which, in aggregate,

exceeds fifty thousand rupees, made other than by a crosses cheque drawn on a bank or crossed bank

draft or crossed pay order or any other crossed banking instrument showing transfer of amount from

the business bank account of the taxpayer:

Provided that online transfer of payment from the business account of the payer to the business account of

payee as well as payments through credit card shall be treated as transactions through the banking channel,

subject to the condition that such transactions are verifiable from the bank statements of the respective

payer and the payee.

Provided further that this clause shall not apply in the case of-

(a) Expenditure not exceeding ten thousand rupees;

(b) Expenditures on account of:

(i)

Utility bills;

(ii)

Freight charges;

(iii)

Travel fare;

(iv)

postage; and

(v)

Payment of taxes, duties, fee, fines or any other statutory obligation;

m. Any salary paid or payable exceeding [ten] thousand rupees per month other than by a crossed

cheque or direct transfer of funds to the employee's bank account; and

n. Except as provided in Division III of this Part, any expenditure paid or payable of a capital nature.

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