TAXATION

MANAGEMENT (FIN623)

Muhammad Shahbaz Yaqub

(MS, M. COM, DCMA, FCMA, APA)
 Income Chargeable u/s 18
• The profits and gains of any business carried on
by a person at any time in the year
• Any income derived by any trade, professional or
similar association from the sale of goods or of
provision of services to its members
• Any income from the hire or lease of tangible
movable property
• Any management fee derived by a management
company including a modaraba management co.
• Lease rentals derived by a scheduled bank,
investment bank, development finance institution,
modaraba or a leasing company
 Income Chargeable u/s 18
• Profit on debt by banks and financial institutions as their
business. Otherwise, it is “Income from Other Sources”
• Any amount distributed by a mutual fund or a private
equity and venture capital fund, out of its income from
profit on debt, to a banking company or a non-banking
finance company shall be chargeable to tax under this
head and not under the head income from other source
• The fair market value of any benefit or perquisite
whether convertible into money or not, derived by a
person in the course of, or by virtue of, a past, present, or
prospective business relationship. The word benefit
includes any benefit derived by way of waiver of profit on
debt or the debt itself under circular/scheme issued by
the State Bank of Pakistan
 Speculation Business - u/s 19(1)
A speculation business –
a) shall be treated as distinct and separate from any
other business carried on by the person (owner);
b) This Part is separately applicable to a person’s
speculation and other businesses under the head
- Income from Business for that year; &
c) A ny l o s s o f t h e p e r s o n a r i s i n g f r o m t h e
speculation business sustained for a tax year
computed in accordance with this Part shall be
dealt with under section 58 .
 Speculation Business - u/s 19(2)
Speculation business means any business in which a
contract for the purchase and sale of any commodity
including stocks & shares is periodically or ultimately
settled otherwise than by the actual deliver y or
transfer of the commodity, but does not include a
business in which:
a) a contract in respect of goods is entered into by a
per son in the cour se of a manufacturing or
mercantile business to guard against loss through
future price f luctuations for the pur pose of
fulfilling the person’s other contracts for the actual
deliver y of the goods to be manufactured or
merchandise to be sold
 Speculation Business - u/s 19(2)
b) a contract in respect of stocks and shares is
entered into by a dealer or investor therein to
guard against loss in the person's holding of
stocks and shares through price fluctuations; or
c) a contract is entered into by a member of a
forward market or stock exchange in the course
of any transaction in the nature of jobbing
(arbitrage) to guard against any loss which may
arise in the ordinary course of the person‘s
business as such member.
 Loss from Speculation Business u/s 58
• Any profits and gains from speculation business in a tax
year computed in accordance with this part shall be
chargeable to tax under the head Income from Business
• Any loss from speculation business sustained in a tax year
shall be set off against the person’s income from any
other speculation business chargeable to tax for that year
• Any unwritten off speculation loss in a tax year shall be
carried forward to the following tax year against the
income of any speculation business in that year & so on
• Speculation loss can be carried forward to 6 tax years
following the tax year for which its was first computed
• For any loss carried forward under this section for more
than one tax year, the loss of the earliest tax year shall be
set off first
 Admissible Deductions - u/s 20
Expenditures incurred for the purpose of business
of profession - 20(1)
A deduction shall be allowed for any expenditure
incurred by the person in the year wholly and
exclusively for the purposes of business
Examples
• Cost of goods manufactured & used in business
• Cost of goods manufactured and sold
• Rent of business premises
• Any tax, cess, charge or rate (other than income
tax) paid for the business or any of its assets
• Repair charges on the business assets
• Insurance premium paid for business assets
 Admissible Deductions - u/s 20
• Any sum paid to an empl oyee as bonus or
commission for services rendered in accordance
with the following:
o Employee’s pay & conditions of his services;
o The business profit earned during the year;
o The payment is not as distribution of profit; &
o The general practices in the industry.
• Actual bad debts incurred
• Employer’s expenditure on educational, training
or health center setup for the employees
• Subscription to trade or professional organization
• Any other expenditure incurred in the year wholly
and exclusively for the purposes of business
 Admissible Deductions - u/s 20
Animal used for business - 20(1A)
W here animals used f or the pur poses of the
business (otherwise than as stock-in-trade) have died
or become permanently useless for such purposes.
The deduction will be allowed equal to:
Rs.
Actual cost of the animal (a) xxxx
Amount realized on carcasses or animals (b) xxxx
Deduction to be allowed (if, a > b) xxxx
 Admissible Deductions - u/s 20
Depreciation on assets and amor tization on
intangibles – 20(2)
Deduction in respect of depreciation or amortization
on following assets is allowed for the business:
• depreciable assets
• Intangibles having useful life over one year
• pre-commencement expenditure
The depreciation, amortization on the above is
applicable in accordance with sections 22 - 25
 Admissible Deductions - u/s 20
Amalgamation Expenses – 20(3)
Following deductions are allowed to amalgamated
company for expenditures on amalgamation
incurred by itself:
• Legal expenses
• Financial advisory services
• Other administrative expenses on planning and
implementation of amalgamation policy
 Inadmissible Deductions - u/s 21
• Any tax, cess or rate other than income tax levied on the profits
or gains of the business 21(a)
• Tax deducted at source, under Div. III of Part V of Chapter X, from an
amount received by a person 21(b)
• Any expenditure from which the person is required to deduct or
collect tax under Part V of Chapter X or Chapter XII. Provided that
purchases of raw materials and finished goods under this clause
shall not exceed twenty per cent of purchases of raw materials and
finished goods 21(c)
• Any amount of commission paid or payable in respect of supply of
products listed in the Third Schedule of the Sales Tax Act, 1990,
where the amount of commission paid or payable exceeds 0.2
percent of gross amount of supplies thereof unless the person to
whom commission is paid or payable, as the case may be, is
appearing in the active taxpayer list under this Ordinance 21(ca)
• Any entertainment expenditure in excess of such limits or in
violation of such conditions as may be prescribed 21(d)
 Inadmissible Deductions - u/s 21
• A ny c o n t r i b u t i o n m a d e b y t h e p e r s o n t o a n
unrecognized provident fund, unapproved
superannuation fund, or unapproved gratuity fund or
unapproved pension fund 21(e)
• Any fine or penalty paid or payable by a person for the
violation of any law, rule or regulation 21(g)
• Personal expenditures incurred by a person 21(h)
• Any amount capitalized as reserve fund 21(i)
• Any profit on debt, brokerage, commission, salary or
other remuneration paid by an association of persons
to a member of the association 21(j)
• Any cash or accrued expenditure of a capital nature
but allowing depreciation, or amortization on a
depreciable asset, intangible or pre-commencement
expenditure and expenditures provided in Division III
of Part IV of Chapter III 21(n)
 Inadmissible Deductions - u/s 21
• 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 u/s 149 from any payments made by
the fund in respect of which the recipient is
chargeable to tax under the head "Salary" 21(f)
• Any salary paid or payable exceeding twenty five
thousand rupees per month other than by a
crossed cheque or direct transfer of funds to the
employee’s bank account or through digital means
21(m)
Inadmissible Deductions - u/s 21
• Any expenditure paid or payable under a single
account head which, in aggregate, exceeds 250,000
rupees, made other than normal banking channels
of all types. However, online transfer and payments
through credit card shall be treated as transactions
through the banking channel 21(l)
• This clause is not applicable to:
• expenditures not exceeding twenty five thousand
rupees;
• expenditures on account of utility bills, freight
charges, travel fare, postage, & payment of taxes,
duties, fee, fines or any other statutory obligation
(taxes, duties, fee, fine, cess etc.)
 Depreciation - u/s 22
• A person shall be allowed a deduction for the depreciation
of the person’s depreciable assets used in the person’s business
in the tax year 22(1)
• Depreciation shall be computed on the written down value
( W DV ) of the asset at the beginning of the year at the rates
specified in Part I of the 3rd Schedule 22(2)
• Proportional depreciation is allowed on the depreciable asset
partly used in deriving income from business and partly for another
use, but used solely for the purpose of deriving business income in
a tax year 22(3)
• For a tax year, WDV of such asset, discussed in 22(3) , shall be
computed on the basis that the asset has been solely used to derive
business income chargeable to tax 22(6)
Depreciation Rates – 3rd Schedule
No. Type of Asset Rate

I Building - all types 10%

II Furniture including fittings and machinery & plant
(not otherwise specified), Motor vehicles of all types, 15%
ships, technical or professional books
III Computer hardware including printer, monitor &
allied items, Machiner y & Equipment used in 30%
manufacture of IT Products, aircrafts & aero engines
IV Mineral oil concerns whose income is to be computed
as per rules in Part-I of the 5th Schedule

b) Offshore platform and production Installations. 20%

V A ramp built to provide access to persons with
disabilities not exceeding Rs. 250,000 each. 100%
 Depreciation - u/s 22
• WDV of a depreciable asset at the beginning of the
tax year shall be 22(5):
a) Acquisition in the same tax year - the cost of the
asset to the per son as reduced by its initial
allowance u/s 23
b) Any other case – the cost of the asset to the person
as reduced by the total depreciation deductions
including any initial allowance u/s 23 allowed to the
person in respect of the asset in previous tax years
• The total deductions allowed to a person on account
of depreciation and initial allowance during the period
of ownership of a depreciable asset shall not exceed
the cost of the asset 22(7)
 Depreciation - u/s 22
• Disposal of Depreciable Asset 22(8)
o No depreciation allowed in a tax year on disposal
o Profit on disposal (Consideration received > the Asset’s WDV)
chargeable to tax in that year u/s 18
o Loss on disposal (Consideration received < the Asset’s WDV)
deductible in that year u/s 18
• The WDV of the asset used partly for purposes other than
business shall be increased by the amount not allowed as a
deduction 22(9)
• Depreciation deduction is allowed to a financial institution on
the asset leased to other person only against the lease rental
income derived in respect of such assets 22(12)
 Depreciation - u/s 22
• Cost of a depreciable asset as a passenger transport
vehicle not plying for hire shall not exceed Rs. 7.5 Million
22 (13)
• Cost of immovable property or structural improvement
thereto shall exclude cost of the land 22 (13)
• Any asset owned by a leasing entity and leased to another
person is treated as used in the leasing entity 22 (13)
• Upon disposal of immovable property, the consideration
received over its cost shall be treated as the cost of the
property 22 (13)
• A depreciable asset used in Pakistan and exported or
transferred out of Pakistan, shall be treated as having
disposed of at the time of the export or transfer for a
consideration received equal to the cost of the asset 22
(14)
 Depreciation - u/s 22
• In case of disposal of passenger transport vehicle, the
sale consideration shall be computed as under 22(10):
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• Depreciable Asset - any tangible movable and immovable
proper ty other than unimproved land, or str uctural
improvement to immovable property, owned by a person
that 22(15):
a) has a normal useful life exceeding one year;
b) is likely to lose value as a result of normal wear and
tear, or obsolescence; and
c) is used wholly or partly by the person in deriving
income from business chargeable to tax
 Depreciation - u/s 22
• Depreciable Asset shall not include any tangible movable
property, immovable property, or structural improvement
to immovable property in relation to which a deduction
has been allowed under another section of this Ordinance
for the entire cost of the property or improvement in the
tax year in which the property is acquired or improvement
made by the person 22(15)
• Str uctural Improvement – in relation to immovable
property, includes any building, road, driveway, car park,
railway line, pipeline, bridge, tunnel, airport runway, canal,
dock, wharf, retaining wall, fence, power lines, water or
sewerage pipes, drainage, landscaping or dam 22(15)
 Initial Allowance - u/s 23
• Initial allowance is allowed on an eligible depreciable
asset first time placed into service in the business in
Pakistan or in a tax year in which commercial production
is commenced, whichever is later
• The amount of initial allowance of a person shall be
computed by applying the rate specified in Part II of 3rd
Schedule (25% for plant and machinery) against the cost
of the asset determined u/s 76
• Initial allowance is allowed to a financial institution on
the asset leased to other person only against the lease
rental income derived in respect of such assets
 Initial Allowance - u/s 23
Eligible Depreciable Asset - a depreciable asset other than:
a) any road transport vehicle unless the vehicle is plying
for hire;
b) any furniture, including fittings;
c) any plant or machinery that has been used previously in
Pakistan;
d) any plant or machinery in relation to which a deduction
has been allowe d unde r ano the r section o f thi s
Ordinance for the entire cost of the asset in the tax year
in which the asset is acquired; or
e) immovable property or structural improvement to the
immovable property.
Accelerated Depreciation to Alternate
Energy Projects u/s 23B
• Any plant, machinery and equipment installed for generation
of alter nate energy by an industrial under taking set up
anywhere in Pakistan and owned and managed by a company
shall be allowed first year allowance in lieu of initial allowance
under section 23, at the rate o f specified in Part II of the
Third Schedule against the cost of the eligible depreciation
assets put to use after first day of July, 2009.
• The provisions of section 23 except sub-sections (1) and (2)
thereof, shall mutatis mutandis apply
• The rate of First Year Allowance under section shall be 90%
as specified in Part II of the 3rd Schedule against the cost of
the eligible depreciable assets put to use after July, 2009.
 Intangibles - u/s 24
• An amortization deduction is allowed in a tax year for the
cost of the person's intangibles that 24(1):
a) Are wholly or partly used by the person in the tax year
in deriving income from business chargeable to tax; &
b) have a normal useful life exceeding one year.
• No deduction shall be allowed under this section where
a deduction has been allowed under another section of
this Ordinance for the entire cost of the intangible in the
tax year in which the intangible is acquired 24(2)
• Proportional depreciation is allowed on the intangible
asset partly used in deriving income from business and
partly for another use, but used solely for the purpose of
deriving business income in a tax year 24(5)
 Intangibles - u/s 24
• The amortization deduction of a person for a tax year shall
be computed using straight line method 24(3)
• An intangible that does not have an ascertainable useful life
shall be treated as if it had a normal useful life of 25 years
24(4)
• Following amortization deduction is allowed on the intangible
asset that is not used for the whole tax year in deriving income
from business chargeable to tax 24(6)
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×B
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Where
A is “Annual Amortization” computed under sub-section (3)
or (5),
B is “Business Days, Intangible used” and
C is the “Number of Days in the Tax Year”
 Intangibles - u/s 24
• The total deductions allowed to a person u/s 24
during the period of ownership of the intangible
shall not exceed its cost 24(7)
• Disposal of an intangible 24(8):
o No amor tization allowed in a tax year of
disposal
o Profit on disposal (Consideration received > the
Asset’s WDV) chargeable to tax in that year u/s
18
o Loss on disposal (Consideration received < the
Asset’s WDV) deductible in that year u/s 18
 Intangibles - u/s 24
• WDV of an intangible at the time of disposal 24(9):
a) W holl y used f or business the cost of the
intangible reduced by the total deductions
allowed to the person under this section in
respect of the intangible
b) Partly used for business the amount that would
be allowed under this section if the intangible
were wholly so used
•The consideration received on disposal of an
intangible shall be determined in accordance with
section 77
 Intangibles - u/s 24
• Cost for intangibles means any expenditure incur red in
acquiring or creating the intangible, including any expenditure
incurred in improving or renewing the intangible 24(11)
• Intangible means any patent, invention, design or model, secret
formula or process, copyright, trademark, scientific or technical
knowledge, computer software, motion picture film, export
quotas, franchise, license, intellectual property, or other like
property or right, contractual rights and any expenditure that
provides an advantage or benefit for a period of more than one
year other than expenditure incurred to acquire a depreciable
asset or unimproved land but shall not include self-generated
goodwill or any adjustment arising on account of accounting
treatment in the manner as may be prescribed 24(11)
Pre-commencement Expenditure - u/s 25
• A deduction for any pre-commencement expenditure
is allowed u/s 25
• T he pr e-commencement expenditur e shall be
amortized on straight line basis
• The rate of amortization of pre-commencement
expenditure is 20% as per Part III of 3rd Schedule
• The total deductions allowed u/s 25 cumulatively in
respect of an amount of such expenditure shall not
exceed amount of the expenditure
• No deduction shall be allowed under this section
where a deduction has been allowed under another
section of this Ordinance for the entire amount of the
pre-commencement expenditure in the tax year in
which it is incurred
Pre-commencement Expenditure - u/s 25
Pre-commencement Expenditure
Any expenditure incurred before the commencement of
a business wholly and exclusively to derive income
chargeable to tax, including the cost of feasibility
studies, constr uction of prototypes, and trial
production activities, but shall not include any
expenditure which is incurred in acquiring land, or
which is depreciated or amortized u/s 22 or 24
 Scientific Research Expenditure - u/s 26
A person shall be allowed a deduction for scientific
research expenditure incurred in Pakistan in a tax year
wholly and exclusively for the purpose of deriving
income from business chargeable to tax.
• Scientific research means any activity undertaken in
Pakistan in the fields of natural or applied science
for the development of human knowledge
• S c i e n t i f i c r e s e a r c h ex p e n d i t u r e m e a n s a ny
expenditure incurred by a person on scientific
research undertaken in Pakistan for the purposes of
developing the person’s business, including any
contribution to a scientific research institution to
undertake scientific research for the purposes of the
person’s business.
Employee Training and Facilities - u/s 27
Deduction is allowed for any expenditure except
capital expenditure incurred in a tax year in respect
of:
• any educational institution or hospital in Pakistan
e s t ab l i s h e d f o r t h e b e n e f i t o f t h e p e r s o n ’s
employees and their dependents;
• any institute in Pakistan established for the training
of industrial workers recognized, aided, or run by
the Federal Govt., or a Provincial Govt., or a Local
Govt.; or
• the training of any person, being a citizen of
Pakistan, in connection with a scheme approved by
the Board for the purposes of this section.
Profit on Debt, Financial Costs & Lease Payments - u/s 28
• Any profit on debt to the extent the proceeds of debt have been
used for the business purposes;
• Any lease rental to a scheduled bank, financial institution, an
approved modaraba, an approved leasing company or a Special
Purpose Vehicle on behalf of the Originator for a business asset,
provided that for the purpose of determining the deduction on
account of lease rentals the cost of a passenger transport vehicle
not paying for hire to the extent of principal amount shall not
exceed two and a half million rupees;
• To a modaraba or participation term certificate holder for funds
therefrom;
• By a bank to a person maintaining PLS account or a deposit with
the bank;
• Payment as profit to SBP by HBFC, NDLC & SME Bank on any
investment or credit line by SBP
• Share of profit under musharika scheme to a bank
• Share of profit to a certificate holder under a musharika scheme
approved by SECP and Religious Board under Modaraba
Ordinance
 Bad Debts - u/s 29
1. Bad debts in any tax year shall be allowed as deduction,
if:
• The amount of the debt was previously included in
his income from business chargeable to tax
• In case of a financial institution, it was lent to derive
income from business chargeable to tax
• The debt or its part is written off during the tax year
• There are reasonable grounds for believing that the
debt is irrecoverable.
2. The deduction allowed for a tax year shall not exceed
the amount of the debt written off in the accounts of the
person in the tax year.
 Bad Debts - u/s 29
3. Treatment of subsequent recovery of bad debts already
allowed as deduction:
If the amount received against the written off debt is
greater than the difference b/w actual bad debts and bad
debts allowed as a deduction, it will be treated as taxable
income. Otherwise, it will be treated as bad debts for the
year in which the amount is received.
Provision regarding Consumer Loans – 29(A)
1. An NBFC or the HBFC shall be allowed a deduction, up
to 3% of the income for the tax year, for creation of a
reserve to off-set bad debts arising out of consumer loans
2. Any excess of actual bad debts over the reserves shall be
carried forward for adjustment against the reserve for the
following years
Profit on Non-performing Debts of a
Banking Company or DFI - u/s 30
1. A banking company or DFI or NBFC or modaraba
shall be allowed a deduction for any profit accruing
on its non-perfor ming debt where the profit is
credited to a suspense account in accordance with
the SBP’s Prudential Regulations issued for Banks
or NBFC or modaraba of NBFIS.
2. A n y p r o f i t d e d u c t e d u n d e r s u b - s e c t i o n ( 1 )
subsequently recovered by the banking company or
DFI or NBFC or modaraba shall be included in the
income of the company or institution or NBFC or
modaraba chargeable under the head―Income from
Business for the tax year in which it is recovered.
Transfer to Participatory Reserve - u/s 31
• For a tax year, deduction is allowed to a company for
transfer to participatory reserve created u/s 66 of the
Companies Act, 2017 (XIX of 2017) as per an agreement
with a banking co. on participatory redeemable capital
• Such deduction is allowed for a tax year up to 5% of
the co.’s participatory redeemable capital provided the
amount of the accumulative tax exempted reserve is not
above 10% of amount of the capital
• The accumulated reserve used other than payment of
share of profit on the capital or for any purpose not
allowable for deduction under this Ordinance shall be
included in the income from business of the company
in the tax year in which it is applied
 Tax Accounting - u/s 32
1) A person’s taxable income u/s 18 shall be computed
as per the accounting method in his regular use.
2) A company shall use accrual based accounting while
other persons may use cash or accr ual based
accounting to determine taxable income u/s 18
3) FBR may prescribe any accounting method for any
class of persons to determine taxable income u/s 18
4) A p e r s o n c a n g e t a n a p p r o v a l f r o m t h e
Commissioner for change in the accounting method,
if the change necessarily reflects his taxable income
u/s 18
5) Upon change of accounting method, a person shall
adjust all the items affected by the change in order
to avoid any omission and duplication of the items
 Tax Accounting - u/s 32
Cash-basis accounting Any person accounting for
income chargeable to tax u/s 18 on a cash basis shall
record income on receipt basis and on payment basis
Accrual-basis accounting Any person accounting for
income chargeable to tax u/s 18 on an accrual basis
shall record income when it becomes receivable and
expenditure when it becomes payable
• Any installment plan or postponement of receipt or
payment will not have any impact upon status of
accrual of income or expenses
• An amount will become payable upon occurrence
of events that determine liability and the payable
amount is determined with reasonable accuracy
 Tax Accounting - u/s 32
• Any liability or part thereof allowed as deduction,
unpaid within 3 years from the end of the year (tax)
of deduction, shall be chargeable to tax u/s 18 at the
end of the 3 years 34(5)
• Any unpaid liability charged to tax as above
subsequently paid in full or in part shall be allowed
a deduction for the amount paid in the year (tax) of
payment 34(6)
• Any benefit derived from any trading liability
allowed a deduction shall be chargeable to tax u/s 18
in the year of benefit receipt 34(5A)
Valuation of Stock-in-Trade - u/s 35
• The cost of stock-in-trade disposed off in tax year shall be equal
to Op. Stock + Purchases – Cl. Stock
• The value of opening stock-in-trade:
• for a running business shall be the closing value of the
previous year’s stock-in-trade; or
• for a new business, the fair market value of the stock acquired
prior to the start of the business
• Closing stock for a tax year shall be valued at lower of cost or
net realizable value at the year-end
• Methods to determine cost of stock-in-trade:
• Cash based Acct. – prime cost or absorption cost method
• Accrual basis accounting – absorption cost method
• FIFO or the average-cost method may be used for stock not
readily identifiable
• Any stock valuation method once chosen, may be changed only
with written permission of the Commissioner and in accordance
with any conditions that the Commissioner may impose
Valuation of Stock-in-Trade - u/s 35
• Absorption-cost method sum of costs of direct
material, direct labor, & factory overhead
• Prime-cost method sum of costs of direct
materials, direct labor, & variable factor y
overhead
Dir ect labor costs cost of labor dir ectl y
involved in the production of stock-in-trade
• Direct material costs the cost of materials that
become an integral part of the stock produced
• Factory overhead costs means the total costs of
manufacturing or producing stock-in-trade,
other than direct labor and direct material costs
Valuation of Stock-in-Trade - u/s 35
• First-in-first-out method valuation of stock-in-
trade is based on the assumption that stock is sold
in the order of its acquisition
• Average-cost method valuation of stock is based
on weighted average cost of stock on hand
• Stock-in-trade anything produced, manufactured,
purchased, or otherwise acquired for manufacture,
sale or exchange, and any materials or supplies to
be consumed in the production or manufacturing
process, but does not include stocks or shares
• Variable FOH costs means those factory overhead
costs which vary directly with changes in volume
of stock-in-trade produced
 Long Term Contracts - u/s 36
• For any tax year u/s 18, for accrual basis, income on a
long-ter m contract shall be computed using the
percentage of completion method
• Long-term Contract a contract for manufacture,
installation, or construction, or the performance of
related services, which is not completed in the year in
which the work started
• Percentage of Completion Method principle under
which revenues and expenses arising under a long-
term contract are recognized with reference to the
stage of completion of the contract
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 Disposal of Assets - u/s 75
• Disposal of an asset occurs at the time its ownership
separates from the owner as a result of sale, exchange,
transfer or distribution, cancellation, redemption,
relinquishment, destruction, lost, expiry or surrender
• The transmission of an asset by succession or under a will
shall be treated as a disposal of the asset by the deceased
at the time of transmission
• The application of business assets including stock or
depreciable asset to personal use shall be treated as a
disposal of the asset by the owner of the asset at the time
the asset is so applied
• Discard or cease of a business asset in the business shall
be treated to have been disposed off
• A disposal shall include the disposal of a part of an asset
 Cost - u/s 76
• For assets acquired 76(2):
a) The total consideration – cash and fair market value of
in-kind given for the asset
b)Any incidental expenditure incurred in acquiring and
disposing it
c)Any expenditure incurred to alter or improve the asset

• For assets produced or constructed 76(4):

a)Total costs incurred by the person in producing or
constructing the asset
b)Any incidental expenditure incurred in acquiring and
disposing it
c)Any expenditure incurred to alter or improve the asset
 Cost - u/s 76
• For an asset acquired through a foreign currency loan,
any variation in the loan payable due to cur rency
fluctuation, will be adjusted in the asset’s cost 76(5)
• The cost of a part of an asset disposed off should be
proportional to the FMV of the whole asset determined at
the time of acquisition 76(7)
• An asset’s cost excludes any grant, subsidy, rebate,
commission or any other irredeemable assistance received
or receivable by a person in respect of the acquisition of
the asset, except to the extent to which the amount is
chargeable to tax under this Ordinance 76(10)
• The cost of an asset acquired due to derivation of a tax
free amount, shall be the exempt amount plus any amount
paid to acquire it 76(9)
 Consideration received - u/s 77
• The consideration received by a person on disposal of
an asset shall be the total amount as higher of amount
received or the FMV of the asset, plus, the FMV of any
consideration received in kind determined at the time
of disposal
• Consideration received for the asset lost or destroyed
shall include any compensation, indemnity or
damages received by the person under any insurance
policy, indemnity or other agreement, any settlement,
or any judicial decision
• FMV will be the consideration received at the time a
business asset is applied to personal use or discarded
or ceased to be used in business, as the case may be
 Consideration received - u/s 77
• The consideration received by a lessor in respect of
an asset leased to another person shall be the
residual value received by the lessor on maturity of
the lease agreement subject to the condition that
the residual value plus the amount realized during
the term of the lease towards the cost of the asset
is not less than the original cost of the asset
• Total consideration received on disposal of
multiple assets in a single transaction shall be
apportioned among the assets disposed off in
proportion to their respective FMVs determined at
the time of the transaction
For any Query regarding this
Lesson – talk to me through:
MDB or E-mail
FIN623@vu.edu.pk
Enjoy Learning…☺