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Presentation on Section 21

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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

				
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