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Thursday, December 22, 2011
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1. Central Board of Revenue
“Central Board of Revenue” means the Central Board of Revenue (CBR) established under the Central Board of Revenue Act 1924.
Who appoints the CBR?
CBR is a statutory body appointed by the Federal Government by the authority of the Central Board of Revenue Act, 1924.
Basic Function of the CBR:
Tax collection is the basic function of the CBR.
Status of the CBR:
CBR is the highest executive tax authority in
Head of the CBR:
Chairman of the CBR is the main authority in the CBR who is appointed by the Federal Government.
Members of the CBR:
CBR consist of four members who are as office joint _______ in the Government of Pakistan.
Powers & Functions of the Central Board of Revenue (CBR):
The CBR has following powers & performs the following functions in the presence of its powers:
1) Certification of research institutions: [26(2)]
The CBR is authorized to certify an institution as conducting scientific research in
2) Approval of employee training scheme: [27(c)]
The CBR is empowered to approve a Pakistani employee training scheme against which a business is allowed a deduction.
3) Approval of Leasing Companies & Modaraba: [28(3)]
The CBR has authority to approve such leasing companies & Modaraba where lease rental payment made to such companies is allowed as deduction to person against income from business.
4) Method of accounting: [32(3)]
The CBR may prescribe that any class of persons shall account for income chargeable to tax under the head “Income from Business” on a cash or accrual basis.
5) Approval of security: [46(d)]
The CBR is authorized to approve any security that the profit received by a non-resident person on such approved security shall be exempt from tax.
6) Approval of charitable institutions: 
The CBR is empowered to approve the charitable institutions for the purposes of the Income Tax Ordinance, 2001 specially, for donation purposes.
7) Apportionment of Deductions: [67(2)]
The CBR may make rules u/s 237 for the purposes of apportioning deductions where the expenditure relates to the derivation of more than one head of income.
8) Decision of application u/s 74:
The CBR is authorized to decide an application submitted by a person against the decision of the CIT for granting or withdrawing the permission regarding use of a special or normal tax year.
9) Power to collect information regarding exempted income: 
The CBR may authorize any department or agency of the Government to collect and compile any data in respect of incomes from industrial and commercial undertakings exempt from tax under the Income Tax Ordinance, 2001.
10) Authority of circulars: 
The CBR may issue circulars to achieve consistency in the administration of Ordinance and to provide guidance to taxpayers and officers of the CBR.
11) Empowerment of advance ruling: [260A]
The CBR may issue to the non-resident taxpayer an advance ruling setting out the Commissioner’s position regarding the application of the Income Tax Ordinance, 20001 to a transaction proposed or entered into by the taxpayer.
12) Empowerment of General Administration:
The CBR shall exercise the general administration of the Income Tax Ordinance, 2001.
13) Appointment of income tax authorities: 
The CBR may appoint as many Regional Commissioners of Income Tax, Commissioners of Income Tax, Commissioners of Income tax (Appeals), Taxation officers and such other executive or ministerial officers and staff as may be necessary.
14) Criteria for audit selection: [177(1)]
The CBR may lay down criteria for selection of any person for an audit of person’s income tax affairs, by the Commissioner.
15) Appointment of the auditor: [177(8)]
The CBR may appoint a firm of Chartered Accountants, to conduct an audit of the income tax affairs of any person.
16) Determination of the scope of audit: [179(8)]
The scope of any audit conducted by firm of Chartered Accountants shall be determined by the CBR on a case to case basis.
17) determination of jurisdiction: [209(6)]
Where a question arises as to whether a Commissioner has jurisdiction over a person, the question shall be decided by the RCIT or RCITs concerned and, if they are not in agreement, it is determined by the CBR.
18) Authority of Approval: 
The CBR may, by a general or special order, authorize the RCIT or the CIT to grant approval on behalf of the CBR.
19) Determination: 
Forms, notices, returns, statements, tables and other documents required under this Ordinance may be in such form as determined by the CBR.
20) Registration of Income tax practitioners: [223(10)]
The CBR may make rules u/s 237 for the registration of income tax practitioners.
21) Power to make rules: [237(1)]
The CBR may, by notification in the official Gazette, make rules for carrying out the purposes of the Income Tax Ordinance, 2001.
22) Delegation of powers: [209(2)]
The CBR may assign to any Taxation Officer or any authority all or any of the powers its powers & functions for the purposes of administrative convenience.
23) Unexplained income or assets:
The CBR may make rules u/s 237 for the procedure of taxation of any unexplained income or asset discovered by any income tax authority.
24) Supervision of subordinate authorities:
The CBR supervises the functions, duties and jurisdiction of its authorities.
2. Regional Commissioner of Income Tax (RCIT)
“Regional Commissioner” means a person appointed to be a Regional Commissioner of Income Tax (RCIT) u/s 208 of the Income Tax Ordinance, 2001. It also includes a Director-General of Income Tax & Sales Tax.
Who appoints the RCIT?
RCIT is appointed by the CBR.
Basic function of the RCIT:
The RCIT has to supervise the functioning of his subordinate tax authorities. He shall make such arrangement to ensure that the provisions of the Income Tax Ordinance, 2001 and directions given by the CBR are being complied with.
Jurisdiction of the RCIT:
The jurisdiction of the RCIT is decided by the CBR.
Authorities subordinates to RCIT:
The following authorities are sub-ordinate to the CBR.
i) Commissioner of Income Tax (CIT)
ii) Additional Commissioner of Income Tax
iii) Deputy Commissioner of Income Tax
iv) Income Tax Officer
v) Special Officer
vi) Any other officer appointed by the CBR.
Powers & Functions of the RCIT:
The RCIT may exercise the following powers & functions:
1) Transfer of jurisdiction:
The RCIT may transfer the jurisdiction in respect of cases or persons from one Commissioner subordinate to another.
2) Decision of jurisdiction:
If any dispute arises regarding the jurisdiction of two Commissioners within same region, it is decided by the RCIT of that region.
3) Revision of orders:
The RCIT may revise any order passed by any sub-ordinate authority of the RCIT.
4) Appointment of sub-ordinate authorities:
The RCIT may appoint any of his subordinate authority with the approval of the CBR.
5) Inspection of sub-ordinate offices:
The RCIT may inspect the subordinate offices.
6) Delegation of power:
The RCIT with the approval of the CBR may delegate all or any of its powers and functions to any sub-ordinate income tax authority in respect of any person, classes of persons or areas.
7) Supervision of Technical work:
This RCIT is responsible to supervise the technical work performed in the region.
8) Power to write-off irrecoverable demands:
This RCIT has powers to write off irrecoverable demands in respect of the instructions issued by the CBR.
9) Supervision of tax collection procedure:
The RCIT being an administrative authority is responsible to supervise the tax collection procedure under his region.
10) Internal audit of tax department:
The RCIT may conduct internal audit of his subordinate offices.
11) Regulation of inspection work:
The RCIT may supervise & regulate the inspection work of the Additional Commissioner.
12) Examination of inspection notes:
The RCIT may examine the inspection notes received from the Additional Commissioners of Income Tax and take necessary follow up actions.
13) Action against tax evasion:
The RCIT may take action in respect of the complaints of tax evasion under the region.
14) Posting of subordinate authorities:
The RCIT may pos different subordinate authorities in different offices in the region.
15) Any function assigned by the CBR:
The RCIT shall perform any function assigned to him by the CBR.
3. Commissioner of Income Tax
“Commissioner” means a person appointed as a Commissioner of Income Tax (CIT) u/s 208, and includes a Taxation Officer vested with all or any of the powers, and functions of the Commissioner.
Who appoints the Commissioner?
Commissioner is appointed by the CBR u/s 208 of the Income Tax Ordinance 2001.
Basic function of the Commissioner:
Commissioner performs all such functions as are required by any provision of the Income Tax Ordinance and as directed by the CBR.
Powers of the Commissioner:
Briefly speaking the Income Tax Ordinance, 2001, revolves around the Commissioner because lot of powers has been granted under such Ordinance to the Commissioner.
Authority which supervises the CIT:
CBR and RCIT under whose jurisdiction, the Commissioner works, supervises the Commissioner of Income Tax.
Note: Income Tax Ordinance, 2001 also permits the delegation of work. If some work of Commissioner is delegated to a Taxation Officer, such Taxation Officer may enjoy all powers of the Commissioner.
Powers & Functions of the Commissioner of Income Tax:
1) Change in method of accounting [32(4)]
The Commissioner may allow a change in method of accounting, if the CIT is satisfied that the change is necessary to clearly effect the person’s income chargeable to tax under the head “Income from Business”.
2) Change in stock valuation method [35(6)]
A stock valuation method, once chosen, may be changed only within the written permission of the Commissioner.
3) Allowability of Special Tax Year [74(3)]
The Commissioner may allow a person to use special tax year, only if the person has shown a compelling need to use special tax year.
4) Allowability of
Normal Tax Year [74(4)]
The Commissioner may allow a person to use normal tax year instead of special tax year, only if the person has shown a compelling need to use normal tax year.
5) Imposition of conditions regarding tax year [74(5)]
The Commissioner may imposer certain conditions while permitting a person to use a special tax year or normal tax year.
6) Withdrawal of permission to use a specific tax year:
The Commissioner may withdraw the permission granted to a person in respect of using the specific tax year (special tax year or normal tax year), after providing the opportunity of being head.
7) Transactions between associations [108(1)]
The Commissioner may, in respect of any transaction between associates, distribute apportionate or allocate income, deduction or tax credits.
8) Unexplaiend income or assets 
The Commissioner may charge to tax the value of any unexplained income or asset and determine the value if it has been declared less than the fair market value (FMV).
9) Issuance of notice for filing of return [114(3) & (4)]
The Commissioner may issue a notice to a person or a person’s representative for filing a return for a period of less than 12 months or to a person who is required to file a return but has failed to do so.
10) Issuance of notice to furnish Wealth Statement [116(1)]
The Commissioner may be notice, require any person to furnish a wealth statement in the prescribed form and verified in the prescribed manner.
11) Return of discontinued business [117(3)]
The Commissioner may serve a notice on the person who has discontinued the business or is likely to discontinue the business to furnish the return of income within the specified time & specified period in the notice.
12) Extension of time 
The Commissioner may grant the applicant an extension of time for furnishing the return certificate, or statement etc.
13) Best judgment assessment 
If the tax payer has not furnished required return or any other document, the Commissioner may, based on any available information or material and to the best of his judgment, make an assessment of the taxable income of the person and the tax due thereon.
14) Amended assessment order 
The Commissioner may amend an original assessment order by making necessary alterations or additions.
15) Recovery of tax from defaulting tax payer 
The Commissioner may take all necessary and appropriate actions for recovery of tax from a defaulting taxpayer.
16) Recovery of tax from other person on behalf of taxpayer 
The Commissioner may recover the tax from a person who holds money on behalf of the defaulting taxpayer.
17) Issuance of an exemption certificate 
The Commissioner may issue an exemption or lower rate certificate to the person whose income is not likely to be chargeable to tax under this Ordinance or at lower rate.
18) Adjustment & refund of tax 
Where a person applies for refund, the Commissioner after necessary adjustments shall refund the balance to the taxpayer within 34 days of receipt of a refund application.
19) Power to enter & search premises 
The Commissioner may enter in any business premises of the taxpayer within his jurisdiction to perform any task which is deemed fit for the Income Tax Ordinance, 2001.
20) Power to impound documents 
The Commissioner or any authorized officer may impound any accounts or documents relating to taxpayer and retain them for so long as may be necessary for examination or for the purpose of prosecution.
21) Power to make inventory 
The Commissioner may make an inventory of articles found in any premises or place of taxpayer during special inspection of taxpayer records & inventory etc.
22) Power to select a person for audit 
The Commissioner may select a person for audit of his income tax affairs.
23) Imposition of penalties [Part-X of Chapter-X]
The Commissioner may impose penalties for different defaults discussed under Part-X of Chapter-X of the Income Tax Ordinance, 2001.
24) Imposition of additional tax 
The Commissioner may impose additional tax if the tax payer fails to pay the tax by due date.
25) Appointment of subordinates [208(2)]
Any income tax authority may appoint any income tax authority subordinate to it by the approval of the CBR. So, the Commissioner may appoint any subordinate authority by the approval of the CBR.
26) Delegation of powers:
The Commissioner may delegate to any Taxation Officer all or any of its powers or functions, other than the powers of delegation.
27) Rectification of mistakes 
The Commissioner may amend his own order to rectify any mistake apparent from the record on his own activity or any mistake brought to its notice by a taxpayer or any income tax authority.
28) Appointment of expert 
The Commissioner may appoint any expert for the purposes of audit or valuation etc.
29) Recognition of funds:
The Commissioner may recognize the provident fund, superannuation fund and gratuity fund etc. under the Income Tax Ordinance, 2001.
30) Supervision of subordinate authorities:
The CIT supervises the functions, duties and jurisdiction of its subordinate authorities.
4. Directorate General of Inspection & Audit:
Head of the Directorate:
Director General of Inspection (DG1) is the head of Directorate.
Who appoints the Directorate General of Inspection & Audit?
It is appointed by the Federal Government.
How many officers are appointed?
The Federal Government may appoint as many officers as are required to discharge the functions of the Directorate-General of Inspection & Audit.
Qualification of officers of the Directorate:
The officers from income tax group are appointed as officers of the Directorate.
Authorities working under the Directorate General of Inspection & Audit:
The following officers shall perform their functions under the supervision of the DG1:
i) Directors of inspection
ii) Additional Directors of Inspection
iii) Deputy Directors of Inspection
iv) Assistant Directors of Inspection
v) Extra Assistant Directors of Inspection
vi) Inspectors of Inspection
Powers & Functions of the Directorate-General of Inspection & Audit:
Generally, the following functions & powers are exercised by the Directorate-General.
1) Inspection of cases & offices:
Directorate General caries out inspection of income tax cases & offices.
2) Investigation of cases regarding tax evasion:
It investigates the cases involving leakage of revenue or evasion of taxes.
3) Investigation of staff of income tax department:
It investigates the officers and staff of the income tax officers allegedly involved in corruption & malpractice and recommends the case to competent authority for necessary action.
4) Audit of cases or offices:
It may carry out audit of cases or officers involving income tax revenues.
5) Recommendations to the CBR:
It may recommend the CBR in matters of tax policy, tax administration and tax operations.
6) Preparation of annual report:
An annual report about the working of Income Tax Officers is furnished by the directorate to the CBR. So, preparation of the report is the responsibility of the directorate.
7) Acquirement of evidence on oath:
The Directorate may acquire evidence on oath regarding cases under consideration.
8) Performance of work assigned by the Federal Government:
The Directorate may perform any other function as may be assigned to it by the Federal Government.
5. Director-General of Investigation & Intelligence:
Director-General of Investigation & Intelligence (
DGII) means a person appointed to be a Director-General of Investigation & Intelligence under the Income Tax Ordinance, 2001.
Who appoints the
DGII is appointed by the CBR.
Basic function of the
The Director-General of Investigation & Intelligence performs the function of intelligence in finding out the concealed income & assets etc. Further, he shall perform such functions as may be specified by the CBR.
Jurisdiction of the
The CBR shall specify the jurisdiction of the DGII.
Authorities subordinate to
The following authorities work under the
i) Director of Investigation & Intelligence
ii) Additional Director of Investigation & Intelligence.
iii) Deputy Director of Investigation & Intelligence.
iv) Assistant Director of Investigation & Intelligence.
v) Extra Assistant Director of Investigation & Intelligence.
6. Director-General of Training & Research:
“Director-General of Training & Research” (DGTR) means a person appointed to be a Director-General of Training & Research under the Income Tax Ordinance, 2001.
Who appoints the DGTR?
The DGTR is appointed by the CBR.
Basic function of the DGTR:
The DGTR provides training & research facility to the Income Tax Department. Further, he shall perform such functions as may be specified by the CBR.
Jurisdiction of the DGTR:
The jurisdiction of the DGTR is specified by the CBR.
Authorities subordinate to DGTR:
The following authorities are subordinate to the DGTR:
i) Director of Training & Research
ii) Additional Director of Training & Research
iii) Deputy Director of Training & Research
iv) Assistant Director of Training & Research
v) Any other officer appointed to perform the functions of the DGTR.
Appointment of a Firm of Chartered Accountants:
The CBR may appoint a firm of Chartered Accountants to conduct an audit of the income tax affairs of any person and the scope of such audit shall be determined by the CBR on case to case basis.
Any person employed by a firm for audit may exercise the powers to enter and search premises & may issue a notice to obtain information or evidence.
Appointment of Surveyor:
The CBR is authorized to appoint any private agency, firm or company to carry out survey. Such survey may relate to certain persons or areas as deemed fit by the CBR. The CBR shall authorize surveyor to conduct survey in writing. The scope of survey is determined by the CBR on case to case basis.
Valuer is not an income tax authority under the Income Tax Ordinance, 2001. However, he assists the Commissioner in the valuation assets, so it is necessary to know about him.
1) Who appoints the valuer?
The Commissioner may appoint the valuer as a result of an application made by a person willing to be a valuer.
2) Basic function of the valuer:
The main function of the valuer is to assist the CIT in valuation of the capital assets belonging to a taxpayer.
3) Status of valuation made by valuer:
Valuation made by the valuer is not binding on the Commissioner. The Commissioner may disagree with the value determined by a valuer.
4) Qualification of valuer:
A person should be competent according to nature of assets normally valued by him. Generally, a person who holds a recognized degree or equivalent qualification in civil, mechanical & electrical engineering & architectural field etc.
5) Disqualification of a valuer:
The following persons are qualified for appointment as a valuer:
i) A person who has been dismissed or removed from government service.
ii) An un-discharged insolvent.
iii) A person who has been found quality of misconduct in his professional capacity.
iv) Representative of taxpayer.
6) Termination of valuer:
The Commissioner may terminate the valuer at any time without assigning any reason and without paying any compensation.
7) Remuneration of value:
A valuer is remunerated on the basis of the value of the assets valued by him. Remuneration list has been provided in the Rule-227 of the Income Tax Ordinance, 2001.
7. Income Tax Appellate Tribunal [ITAT]
1) Status of the ITAT:
Income Tax Appellate Tribunal is the highest appellate authority under the Income Tax Ordinance, 2001.
2) Who appoints the ITAT?
The Income Tax Appellate Tribunal (ITAT) is appointed by the Federal Government.
3) Who may appeal to the ITAT?
If a taxpayer or Commissioner of Income Tax (CIT) is not satisfied with the decision of the Commissioner’s (Appeals). The un-satisfied party may appeal the appellate tribunal.
4) Basic function of the tribunal:
The basic function of the tribunal is to hear the appeals against the decisions of Commissioner (Appeals).
5) head of the appellate tribunal:
Head of the appellate tribunal is called Chairman. Chairman is appointed by the Federal Government, generally, out of the judicial members of the tribunal.
6) Members of the ITAT:
There are two types of Income Tax Appellate Tribunal (ITAT) members.
i) Judicial members
ii) Accountant members
7) Who appoints the members?
The Federal Government appoints the members of the ITAT considering their qualifications.
8) Qualification of members:
i) Judicial members:
A person may be appointed as a judicial member of the appellate tribunal if the person:
a) Has exercised the powers of a district judge and is qualified to be a judge of a high court; or
b) Is or has been an advocate of a high court and is qualified to be a judge of a high court.
ii) Accountant member:
A person may be appointed as an accountant member if the person is an officer of the Income Tax Group equivalent in rank to the Regional Commissioner of Income Tax.
9) Number of the ITAT members:
The Federal Government may appoint as many members of the appellate tribunal as are considered necessary.
Powers & Functions of the Appellate Tribunal:
The Income Tax Appellate Tribunal is the head of the Appellate system under the Income Tax Ordinance, 2001. It is independent from the CBR. In other words, the CBR may not interfere in the appellate functions of the ITAT.
1) Performance of the functions of ITAT:
The powers and functions of ITAT are exercised and discharged by the Benches.
2) Establishment of Benches:
The Benches of the ITAT are constituted by the Chairman out of the judicial and accountant members of the ITAT.
3) Placement of Benches:
The ITAT shall decide that where the Benches of the ITAT shall hold their sittings.
4) Power to regulate its own procedure:
According to section 130(12), the Appellate Tribunal has the power to regulate its own procedure.
5) Decision of the appeals:
The appellate tribunal performs its functions in deciding the appeals against decisions of the Commissioner (Appeals) through establishment of Benches.
6) Decision about number of the members of the Benches:
Where the members are equally divided in their opinion, the matter is referred to the chairman of ITAT. Chairman shall appoint one or more other members of the tribunal for hearing of disputed point.
7) Power of final decision:
The decision of the appellate tribunal on a point of fact is final. If the decision involves point of law, it may be referred to high cart.
Number of the Members of a Bench:
A bench, generally, consist of at least two members. Normally, a bench consists of equal number of judicial as well as accountant members (one judicial + one accountant) but in certain cases, the number of one type of members may exceed the other.
(For example, one judicial + two accountants or two judicial + one accountant)
Note: The Federal Government may authorize only one member of the tribunal to alone hear and decided the case.
Who Regulate the Procedure of ITAT:
According to section 130(12), the Appellate Tribunal has the power to regulate its own procedure, and the procedure of its Benches in all matters arising out of.
1) The discharge of its functions
2) The places at which the Benches shall hold their sittings.
Procedure of the Decision of a Bench:
Decision is made by the bench. If the members of a bench differ in opinion on any point, the majority decision is accepted. Where the members are equally divided in their opinion, the matter is referred to the Chairman. Chairman shall appoint one or more other members of the tribunal for hearing of disputed point. The point shall be decided according to the opinion of the majority of the members of the tribunal who have heard the case including those who first hear it.
Note: If there are an equal numbers of the Appellate Tribunal, the Federal Government may appoint an additional member for the purpose of deciding the case on which there is a difference of opinion.
Why Appellate Tribunal is called Final Fact Finding Authority?
It is called final fact finding authority because the decision of the appellate tribunal on a point of fact is final. If the decision involves point of law, it may be referred to high cart.
Administration:Registrar is the responsible authority in the office of appellate tribunal who works under the guidance of Chairperson and entertains the appeals provisionally, fixes the date for hearing and looks after the Appellate Tribunal office matters.
Income Tax Ordinance, 2001, provide a list of the incomes which either has been exempted fully from tax or some concession in the tax has been provided on such income. Section 53 of the Ordinance, authorizes the Federal Government to specify the incomes or classes of incomes, persons or classes of persons which shall either be exempt from tax or whose tax liability shall be reduced.
The incomes or classes of incomes, the persons or classes of persons specified in the Second Schedule all under any of the following categories:
1) Fully exempt from tax (subject to certain conditions and to the extent specified)
2) Reduction of tax rates (rates specified in the First Schedule)
3) Reduction in tax liability
4) Exempt from the operation of any specified provision of the Income Tax Ordinance, 2001.
The Federal Government may, from time to time, by notification in the Official Gazette, make such amendments in the Second Schedule by:
a) Adding any clause or condition
b) Omitting any clause or condition
c) Making any change in any clause or condition as the Government may think fit.
Note: The Federal Government shall place before the National Assembly all amendments made by it to the Second Schedule in a financial year.
Agricultural income means an income:
a) Derived from land (it may in the form of rent or revenue)
b) Land is situated in
c) Land is used for agricultural purposes.
In other words, any rent or revenue derived from agricultural land situated in
represents agricultural income. Pakistan
Note: Agricultural income is fully exempt from the tax irrespective of the quantum of the income.
Types/Sources of Agricultural Income:
1) Rent or revenue derived from the land situated in
and is used for agricultural purposes. Pakistan
2) Any income derived by a person from land situated in
from agriculture. Pakistan
3) Income of cultivator or receiver of rent-in-kind, from the performance of any process which is ordinarily performed by such person (cultivator or receiver of rent-in-kind) to render the produce fit to be taken to market.
Income of cultivator or receiver of rent-in-kind from the sale of agricultural produce without performing any further process.
Income from a building shall also be treated as agricultural income if
a) The building is owned and occupied by the cultivator or receiver of rent-in-kind.
b) It is situated in
in the immediate vicinity of the land used for agricultural purpose. Pakistan
c) It is required by the cultivator or receiver of rent-in-kind, by reason of the person’s (cultivator etc.) connection with the agricultural land and it is required as:
i) A dwelling house
ii) A store house
iii) Other out-building
Examples of Agricultural Income:
Some examples of agricultural income are as follows:
1) Income from growing flowers and creepers.
2) Income from growing forest for example: Changa Manga forest
3) Amount received from cattle owners for allowing the cattle to graze in growing forest.
4) Income from cultivation of growing rice, tobacco, wheat, tea, coffee, sugarcane, rubber etc.
5) Profit on sale of standing crops;
6) Compensation received from an insurance company for danger caused by natural calamities to crops or agricultural produce.
7) Rent received by lessor of agricultural land.
8) Income received by lessee of agricultural land by cultivation.
9) Profit on sale of the produce raised after harvesting by the cultivator or the owner of an agricultural land.
10) Fee paid by tenant for renewal of lease.
Examples of Non-agricultural Income:
1) Income from sale of spontaneous fruits, flowers and creepers.
2) Income from spontaneous forest.
3) Amount received from cattle owners for allowing the cattle to graze in spontaneous forest.
4) Income from sale of wild grass and weeds of spontaneous growth.
5) Interest received by a money-lender in the form of agricultural produce.
6) Income from sale of irrigation water.
7) Commission earned by the landlord for selling agricultural produce of his tenant.
8) Income from fisheries & ferries.
9) Royalty income of mines.
10) Income received from land let out for storing crops or timbers.
11) Income from butter and cheese making.
12) Income from poultry farm.
13) Maintenance allowance charged on agricultural land.
14) Income from sale of earth for brick making.
15) Income from stone quarries.
Examples of Partly Agricultural & Partly Non-agricultural Income:
1) Income of a Sugar Mill owner who grows sugarcane on his own agriculture farm and uses it as raw material in manufacturing sugar.
2) Income of a person who grows tea leaves on his own farm and uses leaves as raw material in manufacturing of tea.
3) Income of a person who grows tobacco on his own farm and uses it as material in manufacturing of cigarettes.
Where a person uses his own farm agriculture produce in the manufacturing that article whose income is treated as business income. The market value of such produce used as raw material is allowed as deduction against income from business is calculated as follows:
Total income from business XXX
Less: Market value of the agricultural produce
Utilized in the business as raw material XXX
Taxable income from business XXX
Note: Only the market value of the agricultural produce is deducted. No full deduction shall be made in respect of any expenditure incurred by the taxpayer as cultivator or as a receiver of rent-in-kind.
Diplomatic and United Nations Exemptions:
The income of an individual entitled to privileges under:
i) The Diplomatic and Consular Privileges Act, 1972; or
ii) The United Nations (Privileges and Immunities) Act, 1948 shall be exempt from tax.
Pension of United Nation Employees:
Pension income of a Pakistani shall be exempt from tax provided that:
i) Pension has been received being an employee of United Nations or its specialized agencies (including the international court of justice).
ii) His salary income from such employment was exempt from tax.
Foreign Government Officials 
Any salary received by an employee of a foreign government shall be exempt from tax provided that:
1) Foreign nationality:
The employee is not a citizen of
2) Similar services:
This employee is performing such services as are being performed by the employees of the Federal Government (Govt. of Pakistan) in foreign country.
3) Similar exemption:
The foreign government grants a similar exemption to the employees of the Government of Pakistan performing similar services in such foreign country.
Salary income of Indian High Commissioner appointed in
shall be exempt from tax, if salary income of Pakistan High Commissioner appointed in Pakistan is exempt from tax by the Government of India. India
Exemptions under International Agreements:
Exemption as a result of tax treaty:
Any Pakistan-source income for which
is not permitted to tax under a tax treaty shall be exempt from tax under the Income Tax Ordinance, 2001. Pakistan
Salary Income of an Individual Performing Services under an Aid Agreement:
The salary income of an individual shall be exempt from tax, if the following conditions are satisfied:
1) Foreign nationality:
The person is not a citizen of
2) Performance of services under Aid Agreement:
The person is performing services under an Aid Agreement between the Federal Government and a foreign government or public international organization.
3) Non-resident or resident only due to service:
The person is either not a resident or is resident only due to his service under the Aid agreement.
4) Nationality of aiding country:
The person is a citizen of that foreign country with which the Aid Agreement has been entered into.
5) Payment of salary from aided funds:
The salary is being paid to the person out of the funds or grants released as aid to
Income of Contractor, Consultant or Expert:
Income from business of a contractor, consultant or expert shall be exempt from tax if the following conditions are fulfilled:
1) Foreign nationality:
The person is not a citizen of
2) Performance of services under Technical Assistant Agreement:
The person is engaged on a project in
being undertaken under a bilateral or multilateral technical assistance agreement between the Government of Pakistan and foreign government or Public International Organization. Pakistan
3) Non-resident or resident only due to service:
The person is either a non-resident or a resident only due to the performance of services under the agreement.
4) Financing of project from aided funds:
The project is being financed out of the funds available in accordance with the aid agreement.
5) Receipt of income from aided funds:
The person received income out of the funds of the grant available according to the agreement.
Allowances Attached to President’s Honours, Awards etc. 
i) Any allowance attached to any honour, award or medal; or
ii) Any monetary award granted to a person by the president of
shall be fully exempt from tax. Pakistan
The President of Pakistan awarded to player of Pakistan Cricket Team Rs. 100,000 each as a result of winning of test series in
. Such monetary award granted by President of Pakistan is fully exempt from tax. India
Profit on Debt Received by a Non-resident Person 
Any profit on debt received by a non-resident person on a security issued by a resident person shall be exempt from tax, where:
1) Payer & payee are not associates:
The persons are not associates (if such payment is made by the associate of the non resident person, exemption shall not be granted to non-resident person).
2) Security was widely issued outside
for raising loan: Pakistan
The security was widely issued by the resident person outside
for the purposes of raising a loan outside Pakistan for using such loan in a business carried on by the resident person in Pakistan . Pakistan
3) Payment of profit outside
The profit was paid outside
to non-resident person. Pakistan
4) Approval of security from the CBR for exemption:
The security is approved by the CBR for the purposes of this exemption.
ICI Pakistan Limited issued 6% debentures outside
to raising loan for its business in Pakistan . Mr. Lewis, a British Nationality Holder & non-resident in Pakistan during the tax year purchased debentures. ICI paid profit (interest) on such debentures to Mr. Lewis from its bank account in Pakistan . London
It is fully exempt from tax.
Any scholarship granted to a person to meet the cost of the person’s education shall be exempt from tax provided that such scholarship has not been paid by an associate of the payee.
Shezan International Limited decided to provide management course to its employees. They contracted with LUMS to provide such facility & incurred Rs. 500,000 in respect of each employee Mr. Muhammad Ali is one of the employees who enjoyed free management course facility provided by the employer.
Point to be noted:
This facility is fully exempt from tax for Mr. Muhammad Ali.
Support Payment under an Agreement to Live Apart 
Any income received by a spouse as support payment under an agreement to live apart shall be exempt from tax.
The Federal and Provincial Government & Local Authority:
Income of the following persons shall be exempt from tax:
i) The Federal Government;
ii) A Provincial Government; and
iii) A local authority in
However, “Income from Business” derived by a Provincial Government or a local authority from a business carried on outside its jurisdictional area shall be taxable.
Punjab invested in certain business carried on in the jurisdiction of Government of Sindh. So, any income derived by the Government of Punjab shall be taxable.
Foreign-Source Income of Short-Term Resident Individuals 
Foreign-source income of short-term resident individual shall be exempt from tax provided that:
1) Resident only due to employment:
The person is resident only due to his employment in
2) Resident period not exceeding three years:
The person is resident in
for a period which is not more than three years. Pakistan
However, the income of short-term resident individual shall not be exempt from tax if such income is:
1) Income derived from business:
Derived by the individual from the business established in
; or Pakistan
2) Foreign source income brought into
Any foreign source income has been brought into
or received in Pakistan by the person. Pakistan
Foreign-Source Income of Returning Expatriates:
Foreign-source income of a Pakistani returning back in Pakistan is exempt for two years starting from the year in which he became resident if:
i) The income accrues or arises outside
ii) The person was not resident of
in any of the four years immediately preceding the year in which he became again resident. Pakistan
Mr. Ali settled in
with his family in year 1999 as a result of immigration. He returned to England August 2006 to reside in Pakistan again as a resident. He earned Rs. 5000,000 as income from business in Pakistan and brought into England . His income from business shall be exempt from tax up to the tax year, 2008. Pakistan
However, Salary income of a Pakistani shall be exempt from tax if the person:
a) Left Pakistan during the tax year;
b) Remained abroad during the tax year; and
c) Earned “Salary” income from outside
during the tax year. Pakistan
Exemptions under Part-1 of the Second Schedule
Part-1 of the Second Schedule provides certain incomes, or classes of income, or persons or classes of persons which shall be exempt from tax, subject to the conditions and to the extent specified under each case.
Salary Income of an Employee of a
: Shaukat Khanum Memorial Hospital
The salary income of an employee of Shaukat Khanum Memorial Hospital & Research Centre,
is exempt from tax, if it satisfies the following conditions: Lahore
1) Foreign nationality holder:
Employee is a foreign nationality holder.
2) Non-resident employee:
Employee is a non-resident during the tax year.
3) Health Professional:
He is a health professional.
4) Approval of service contract by the Federal Government:
Contract of the service of employee has been approved by the Federal Government for the purpose of such exemption.
Employee of Agha Khan Development Network
The salary income of a person working as expert, advisor, consultant or senior management staff in any institution run by AKDNP is exempt from tax if the employee is not citizen of
Salary Income of a Pakistani Seafarer Working on a Foreign Ship:
Income derived by a seafarer working on a foreign vessel or on
flag vessels for 183 days or more during a tax year, has been exempted from the tax. It is necessary, however, that such amount: Pakistan
a) Shall be remitted to
within two months of the income year in which it is received. Pakistan
b) Shall be remitted through normal banking channels.
Employee of British Council:
Salary income of an employee of British Council is exempt from tax if the person is not a citizen of
Allowance etc. to a Person Working Outside
Any allowance and perquisites paid by the Government of Pakistan to a Pakistani appointed by the Government of Pakistan to a Pakistani appointed by the Government of Pakistan in any foreign country is exempt from tax.
Mr. Ansar is working as Pakistani High Commissioner in
. The Government of Pakistan has incurred the following expenditures in respect: USA
Furnished accommodation Rs. 300,000
Utilities Rs. 100,000
Conveyance Rs. 150,000
Medial allowance Rs. 70,000
Pointed to be noted:
Although accommodation, utilities & conveyance is taxable in
up to some extent but if is received by a Pakistani appointed by the Government of Pakistan in any foreign country is exempt from tax. So, all perquisites received by Mr. Ansar is fully exempt from tax. Pakistan
Pension received by the following persons is exempt from tax:
1) Pension received by any citizen of
2) Pension received by members of armed Forces of Pakistan or employees of the Federal Government or a Provincial Government.
3) Commutation of pension received from Government or under any pension scheme approved by the CBR.
4) Pension received by dependents of “Shaheeds”
i) Exemption in respect of pension shall be withdrawn if the retired person is reemployed by the same employer or an associate of the employer.
ii) Where a person receives more than one pension, then only one pension having higher amount will be exempt and remaining others will be taxable.
Any amount received by a Government employee on encashment of ‘leave preparatory to retirement’ (LPR) is exempt from tax.
Exemption on leave encashment is only available to government employees. It is fully taxable for private employees.
Any income received as annuity is exempt up to Rs. 10,000 per annum, if it is received from:
Postal Annuity Certificate Scheme; or Pakistan
b) State Life Insurance Corporation of
; or Pakistan
c) A life insurance company registered under the Issuance Companies Ordinance, 2000.
Any amount received by any person on account of:
i) Provident fund registered under the Provident Fund Act, 1925.
ii) Accumulated balance of recognized provident fund.
iii) Benevolent Fund.
iv) Approved superannuation fund.
v) Worker’s Profit Participation Fund (WPPF)
Mr. Sheraz appeared in Supreme Court in respect of company litigation matters, Company provided him Rs. 4,000 as travelling allowance (T/A) & Rs. 2,000 as daily allowance (D/A). Actual expenses incurred by Mr. Sheraz in such tour were Rs. 5,000.
Point to be noted:
Special allowance is fully exempt from tax irrespective of actual expenses against special allowance. So, all amount received by Mr. Sheraz is fully exempt from tax.
Perquisites without Marginal Cost Incurred by Employer:
The following perquisites received by an employee by virtue of his employment are fully exempt from tax.
1) Free or concessional passage to own employees:
Free or concessional passage provided by transporters (including airlines) to their employees or family members or dependents of the employees.
2) Free or subsidized food to own employees:
Free or subsidized food provided by hotels and restaurants to its employees during duty hours.
3) Free or subsidized education to own employees:
Free or subsidized education provided by an educational institution to the children of its employees.
4) Free or subsidized medical treatment to own employees:
Free or subsidized medical treatment provided by a hospital or a clinic to its employees.
5) Any other perquisite or benefit to own employees:
Any other perquisite or benefit for which the employer does not have to bear any marginal cost, as notified by the CBR.
1) Mr. Atta Ullah is working as flight engineer in Aero Asia Airlines. His son visited
& company provided him free return ticker in Aero Asia Airbus. It is fully exempt from tax although it is perquisite by the employer to Mr. Atta Ullah. London
2) Mr. Khalid is working as a manager in Marriot Hotel Islamabad. His family visited hotel during the duty hours of Mr. Khalid at Marriot Hotel. Free lunch was provided to his family. It is fully exempt from tax although it is perquisite by the employer.
3) Mr. Mubashar Malik is working as a Registrar in Minhaj University Lahore. University has provided a free admission & education facility during current year to his daughter. This is fully exempt from tax.
4) Mr. Ahsan is working as a Neuro Surgeon in
, Sheikh Zaid Hospital . Unfortunately, he met with serous accident. He was provided a free medical treatment in Lahore . It is fully exempt from tax. It has no concern with the amount of the medical expenses. Sheikh Zaid Hospital
Any amount received as flying allowance by pilots, flight engineers and navigators of the Pakistan Air Force, Pakistan Army and Pakistan Navy, Civil Aviation Authority or any Pakistani Airline is exempt from tax. Further any sum received as flying allowance by junior commissioned officers or other ranks or Pakistan Armed Forces is also exempt from tax.
Income of National Investment (Unit) Trust:
Any income derived by National Investment (Unit) Trust of Pakistan established by the National Investment Trust Limited from voluntary contributions, house property and investments in securities of the Federal Government shall be exempt from tax provided that.
a) At least 90% of its units are held by the public at the end of the relevant year.
b) At least 90% of its income of the (relevant) year is distributed among the units-holders.
Income of Mutual Funds:
Incomes of mutual funds, investment companies and collective investment schemes from any instrument of redeemable capital are exempt, if at least 90% of their incomes (whether realized or unrealized) are distributed among Unit or certificate holders.
Incomes of Trust, Welfare Institutions or Non-Profit Organizations:
Any income derived by a trust, welfare institutions or non-profit organizations from donations, voluntary contributions, subscriptions, house property, investment in securities of the Federal Government and so much of the income chargeable under the head “Income from Business” as is expected in Pakistan for the purposes of carrying out welfare activities. Provided that:
1) Purpose of profit:
Trust is established for the benefit and welfare of the employees (whether past or current) of the Federal Government, Provincial Government or Armed Forces.
2) Place of establishment:
Trust has been established in
and is being administered under a scheme approved by the Government. Pakistan
3) Approval by the CBR for exemption:
A trust, welfare institution or non-profit organization is approved by the CBR for this purpose.
Income of Modarba:
Income of a Modarba registered under the Modarba Companies and Modarba (Floatation and Control) Ordinance, 1980, is not taxable subject to the following conditions:
a) Income other than trading activity:
Income should not be from trading activity.
b) Distribution of profit:
At least 90% of the profits of the year (as reduced by the amount transferred to a mandatory reserve required under the law) should be distributed among the certificate holders.
Profit on Debt (Under the Second Schedule)
1) Profit on debt against approve loan:
Profit on debt derived by a non-resident person against an approved loan.
2) Profit on debt derived by Hub Power Company:
Profit on debt derived by Hub Power Company Limited on its bank deposits or accounts with financial institutions.
3) Profit on debt derived by foreign government, foreign national person etc:
Profit on debt derived by an agency of foreign government, foreign national (company, firm or AOP), or any other non-resident person approved by the Federal Government on moneys borrowed under a loan agreement or in respect of foreign currency instrument approved by the Federal Government.
4) Profit derived by non-resident person from the Islamic Mode of Financing:
Any profit derived by a non-resident person (whether a citizen of
or not) in respect of the Islamic mode of financing including Istisna, Morabha, Musharika. Pakistan
5) Profit on debt derived from foreign currency account:
Any profit on debt derived from foreign currency account held with authorized bank
or certificates of investment issued by investment banks. Pakistan
6) Profit on debt from a rupee foreign currency account:
Any profit on debt derived from a rupee foreign currency account held with a scheduled bank in
by a Pakistani residing abroad, if the deposits are made from remittances from outside Pakistan . Pakistan
7) Profit on debt derived from private foreign currency account:
Any income derived from private foreign currency account held with an authorized ban in
or certificate of investment issued by investment banks only on such deposits as were on Pakistan 16-12-1999.
8) Profit on debt from foreign currency bearer certificates:
Profit on debt received by any person (other than bank and financial institution) on Foreign Currency Bearer Certificates on existing holdings till the certificates are encashed.
9) Profit on Special US Dollar Bonds:
Profit on Special US Dollar Bonds, exemption shall be allowed only on such deposits as were on
10) Profit on debt from Pak rupees account created by conversion:
Profit on debt from Pak rupee account or certificates created by conversion of foreign currency accounts held on
Income of Textbook Boards:
Any income derived by the textbook boards of all the provinces is fully exempt from tax.
Income of Educational Institutions:
Any income of any university or other educational institution established solely for educational purposes and not for purposes of profit is fully exempt from tax.
Income of Computer Training Institute or Scheme:
Any income derived by the taxpayer from the running of any computer training institute or computer training scheme is exempt for five years if the following conditions are satisfied:
1) Recognized institute or scheme:
The institution or scheme is recognized by the Board of Education or a University or the University Grants Commission; and
2) The Institution or scheme is set up between
01-07-1997 and 30-06-2006.
Income of Vocational or Technical or Poly-Technical Institute:
Profit and gains of a taxpayer from the running of any vocational, technical or poly-technical institutes shall be exempt from tax for a period of five years, if the following conditions are satisfied:
1) The institute is recognized by:
i) A Board of Technical Education.
ii) A University; or
iii) Any other authority appointed in this behalf by the Federal Government or Provincial Government; and
2) The institute is set up between
01-07-2004 and 30-06-2008.
Note: The exemption period of five years shall begin from the tax year in which the institution is recognized.
Income of Sports Board:
Any income derived by any Board or other organization established in Pakistan for the purposes of controlling, regulating or encouraging major games and sports recognized by the Government is fully exempt from tax.
For example: Income of Pakistan Cricket Board is fully exempt from tax.
Subsidy by the Federal Government:
Subsidy received by a person from the Federal Government which is granted for the purpose of implementation of any order of the government is exempt from tax.
The Government of Pakistan has provided subsidy to the WAPDA to facilitate the general consumer in respect of lower rated electricity. Any income of the WAPDA in respect of subsidy from Government is fully exempt from tax.
Dividend Received by the Investment Corporation of
Any dividend received by the Investment Corporation of Pakistan (ICP) from any other company which has paid or will pay tax in respect of the profits out of which such dividends are paid is fully exempt from tax.
The Second Schedule of the Income Tax Ordinance, 2001 allows exemption to certain capital gains from tax. Following capital gains are exempt from tax.
According to clause 110 of the Second Schedule:
Capital gains from sale of:
1) Modarba certificates
2) Redeemable capital; like
i) Participation Term Certificates (PTCs)
ii) Term Finance Certificates (TFCs)
iii) Musharika Certificates
iv) Any other security not based on interest (excluding shares)
3) Pakistan Telecommunication Vouchers issued by the Government of Pakistan.
4) Shares of Public Company
Period of exemption:
Exempt up to
June 30, 2007 (up to tax year 2007)
According to clause 111 of the Second Schedule:
Any capital gain arising from the sale of shares of a public company, if shares have been sold by a foreign institutional investor approved by the Federal Government.
Period of exemption:
According to clause 113 of the Second Schedule:
Company registered in Special Industrial Zone (SIZ):
Any capital gain arising from the sale of shares of public company set up in any Special Industrial Zone is exempt from tax.
Period of exemption:
It is exempted up to five years from the date of commencement of commercial production.
According to clause 114 of the Second Schedule:
Industrial Undertaking Set Up in Export Processing Zone (EPZ):
Any capital gain arising from the sale of shares of an Industrial undertaking set up in Export Processing Zone.
Period of exemption:
Income from Transport Business:
Any income derived by a person from plying of any vehicle registered in the territories of Azad Jammu and
Kashmir, excluding income arising from the operation of such vehicle in , to a person who is president in Pakistan and non-resident in those territories. Pakistan
Profits and Gains from Industrial Undertaking:
Profits and gains of a taxpayer from an industrial undertaking shall be exempt from tax for a period of ten years starting from the later of the month in which it is set up or has commenced the commercial production. This exemption shall be allowed if the following conditions are satisfied:
1) Period of establishment of Industrial Undertaking:
The Industrial Undertaking is set up between
01-07-1995 and 31-12-2002.
2) Situated in Special Industrial Zone:
It has been setup in such area as is notified by the Federal Government as a Special Industrial Zone.
3) New establishment:
It is newly set up industrial taking.
4) Managed by company engaged in industrial undertaking:
It is owned and managed by a company formed exclusively for operating such industrial undertaking and registered under the Companies Ordinance, 1984 having its registered office in
5) Limitation on nature of business:
It is not engaged in any of the following businesses:
i) Manufacture of arms and ammunition;
ii) Security printing, currency & mint;
iii) High explosives, radioactive substances;
iv) Alcohol (except industrial alcohol);
v) Cotton ginning, spinning (except as part of integrated textile unit);
vi) Sugar manufacturing (white), flour milling;
vii) Steal re-rolling and furnace;
viii) Tobacco industry, ghee or vegetables oil industry;
ix) Plastic bags (including polypropylene & polyethylene);
x) Beverages (excluding fruit juices);
xi) Polyester industry, automobile assembly and cement industry.
Income Earned from Foreign
If a company registered under the Companies Ordinance, 1984, and having its registered office in
, derives any income by way of royalty, commission or fee for consideration of usage of any patent, invention or other intangible property rights, it shall be exempt from tax subject to the following conditions: Pakistan
a) Received as result of services rendered outside
The royalty, fee etc. should be received from a foreign enterprise for technical services rendered outside
b) Amount received in
The amount is received in
Income from Electric Power Generation Project:
Any profits and gains derived from an electric power generation project set up in
shall be exempt from tax if: Pakistan
1) Period of establishment:
The project is set up on or after
2) Managed by company engaged in Electric Power Generation Project:
The project is owned and managed by a company formed for operating such project and registered under the Companies Ordinance, 1984 and having its registered officer in
3) New establishment:
The project has been newly started (it has not been formed by splitting up or reconstitution of a business already in existence).
i) It is not necessary for Hub Power Company Limited to be managed by a company whose registered office is in
ii) Any project, which is oil-fired power plant, shall not be exempt from tax with effect from
22-10-2002. However, the Duel Fuel (Oil and Gas) power projects set up on or after September 1, 2001, 1005 shall be exempt from tax.
Income from Export of Computer Software:
Income from export of computer software or IT enabled services up to the period ending on 30th day of June, 2016.
a) “It Services” include software development, software maintenance, system integration, web designing, web development, web hosting and net work design.
“IT enabled services” include inbound or outbound call centres, medical transcription, remote monitoring, graphics design, accounting services, HR services, telemedicine centres, data entry operators and insurance claims processing.
Income from Transfer of Membership Rights:
Any income derived by an individual from transfer of his membership rights or shares of a Stock Exchange in
to a company at any time between Pakistan 01-07-2005 and 30-06-2006 is fully exempt from tax.
Income of Special US Dollar Bonds:
Any amount received on encashment of Special US Dollar Bonds issued under the Special US Dollar Bonds Rules, 1998.