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Section 21
Deductions not allowed
from business income
Section 21(a)
Any cess, rate or tax paid or payable in
Pakistan or a foreign country on the
profits of the business as a % or
otherwise on the basis of such profits
Tax payable under the Income Tax
Ordinance is not allowable deduction
Section 21(a)
NP before tax 800,000
Provision for taxation 210,000
NP after tax 590,000
WWF is allowable tax expense
– S 60A
WPPF is allowable tax expense
– S 60B
Section 21(b)
Any amount of tax deduction from the
taxpayer is not allowable tax expense.
Section 21(c)
Certain payments by the taxpayer without
tax deduction are not allowable tax
expenses
Section 21(c)
Salary
Rent
Com/brokerage
Profit on debt
Services
Payment to NR
Section 21(c)
Individual AOP Company
Salary
Rent
Com/brokerage
Profit on debt
Services
Payment to NR
Section 21(c)
Individual AOP Company
Salary
Rent
Com/brokerage
Profit on debt
Services
Payment to NR
Section 21(c)
Individual AOP Company
Salary
Rent x x
Com/brokerage
Profit on debt
Services
Payment to NR
Section 21(c)
Individual AOP Company
Salary
Rent x x
Com/brokerage x
Profit on debt
Services
Payment to NR
Section 21(c)
Individual AOP Company
Salary
Rent x x
Com/brokerage x
Profit on debt x x
Services
Payment to NR
Section 21(c)
Individual AOP Company
Salary
Rent x x
Com/brokerage x
Profit on debt x x
Services x
Payment to NR
Section 21(c)
Individual AOP Company
Salary
Rent x x
Com/brokerage x
Profit on debt x x
Services (limit Rs.10,000) x
Payment to NR
Section 21(c)
Individual AOP Company
Salary
Rent x x
Com/brokerage x
Profit on debt x x
Services (limit Rs.10,000) x
Payment to NR
Section 21(c)
AOP paid the following without tax deduction:
Rent 720,000
Commission 6,000
Services 7,000
Section 21(c)
AOP paid the following without tax deduction:
Rent 720,000 no effect
Commission 6,000
Services 7,000
Section 21(c)
AOP paid the following without tax deduction:
Rent 720,000 no effect
Commission 6,000 add
Services 7,000
Section 21(c)
AOP paid the following without tax deduction:
Rent 720,000 no effect
Commission 6,000 add
Services 7,000 no effect
Section 21(d)
Entertainment expenditure in
excess of the prescribed limit is
not allowable deduction
Refer Rule 10 of the Income Tax
Rules
Section 21(e)
Contribution to RPF, approved gratuity
and superannuation fund is allowable tax
expense on accrual basis
Section 21 (f)
Contribution to unapproved or
unrecognized fund is allowable tax
expense if the person has made effective
arrangement to secure that tax is
deducted from any payments made by
the fund
Gratuity Scheme
- Provision for the year is inadmissible (add)
- Payment to employees is admissible
for tax purpose (less)
It means that expense against gratuity
scheme is allowable tax expense on
payment basis
Reference CBR Circular 11 of 1980
Section 21(g)
Any fine or penalty for the violation of any law,
rule or regulation is not admissible.
Certain penalties are allowable tax expense
which are not for the violation of any law, rule or
regulation e.g.
- Penalty for late repayment of loan installment
- Demurrage to custom authorities
- penalty for breach of a contract in the ordinary
course of business
Section 21(h)
Any personal expense by the taxpayer
is not admissible
Section 21(i)
Any amount carried to a reserve fund
or capitalised in any way
Section 21(j)
Profit on debt, brokerage, commission, salary
or other remuneration by an AOP to its
members
Section 21(j)
Profit on debt, brokerage, commission, salary
or other remuneration by an AOP to its
members
Rent paid to partner
Section 21(j)
Profit on debt, brokerage, commission, salary
or other remuneration by an AOP to its
members
Rent paid to partner
For partner’s residence
Section 21(j)
Profit on debt, brokerage, commission, salary
or other remuneration by an AOP to its
members
Rent paid to partner
For partner’s residence For business premises
Section 21(j)
Profit on debt, brokerage, commission, salary
or other remuneration by an AOP to its
members
Rent paid to partner
For partner’s residence For business premises
Salary expense
Section 21(j)
Profit on debt, brokerage, commission, salary
or other remuneration by an AOP to its
members
Rent paid to partner
For partner’s residence For business premises
Salary expense Rent expense
Section 21(j)
Profit on debt, brokerage, commission, salary
or other remuneration by an AOP to its
members
Rent paid to partner
For partner’s residence For business premises
Salary expense Rent expense
Inadmissible
Section 21(j)
Profit on debt, brokerage, commission, salary
or other remuneration by an AOP to its
members
Rent paid to partner
For partner’s residence For business premises
Salary expense Rent expense
Inadmissible Admissible
Section 21(j)
Profit on debt, brokerage, commission, salary
or other remuneration by an AOP to its
members
Rent paid to partner
For partner’s residence For business premises
Salary expense Rent expense
Inadmissible Admissible
Add
Section 21(j)
Profit on debt, brokerage, commission, salary
or other remuneration by an AOP to its
members
Rent paid to partner
For partner’s residence For business premises
Salary expense Rent expense
Inadmissible Admissible
Add No effect
AOP
NP 800,000
Accounting depreciation 200,000
Salary to partner A 300,000
Commission to partner B 5,000
1,305,000
Less: Tax depreciation 305,000
Taxable income 1,000,000
Income tax @ 17.5% 175,000
Divisible income 825,000
Share of profit from AOP
A B Total
825,000
Share of profit from AOP
A B Total
Salary 300,000 300,000
825,000
Share of profit from AOP
A B Total
Salary 300,000 300,000
commission 5,000 5,000
825,000
Share of profit from AOP
A B Total
Salary 300,000 300,000
commission 5,000 5,000
Balance 520,000
825,000
Share of profit from AOP
A B Total
Salary 300,000 300,000
commission 5,000 5,000
Balance 260,000 260,000 520,000
825,000
Share of profit from AOP
A B Total
Salary 300,000 300,000
commission 5,000 5,000
Balance 260,000 260,000 520,000
560,000 265,000 825,000
Section 21 (l) and 21 (m)
Payment of salaries and wages
Salaries and wages are required to be
paid thru banking channel. However, this
condition is not applicable where the
salary of an employee does not exceed
Rs.10,000 per month
Payment of other expenditures
Other expenditures are also required to be paid thru
banking channel. However, this condition is not
applicable in the following cases:
Where aggregate of a single account head does not
exceed Rs.50,000 for the year
Single payment up to Rs.10,000
Payment on account of freight, travel fare, postage,
utility and other government dues
