Fin623 Mid Term Current Paper (Dec 2010)
LONG QUESION
Q. 1 List down the characteristic of salary? Mark 5
Q. 2 What is the rule of double derivation of income and double deduction of expense also write section? Mark5
See answer page 90 above question
What is the non resident status of Pakistan source income? Marks 5
Mr. sohail going come in Pakistan 1st march 2008 to attend marriage ceremony and he is going back to Singapore 22nd march 2008 however he extend his visit and going back 30th may 2009.
What is residential status of Mr. Suhail in tax year 2009? Marks 3
Define section 47 and Section 48 ? Mark 3
Answers
1.3 CHARACTERISTICS OF SALARY
For any payment to be made taxable under the head "Salary" it must fulfill the following characteristics. In case any receipt is not covered under any of these features it will not come under this head :
1.3.1. Relationship of Employer and Employee
For a payment to fall under the head 'Salaries' the relationship of employer and employee must exist between payee and the receiver of the salary. The employer may be a Government, Local Authority, A Company, or any other public body or Association of person or HUF or even an individual. Every kind of payment to every kind of servant, public or private, however high or low placed he may be, is covered under the provisions of this Act. The relationship of master and servant is the only test to establish the relationship of employer and employee. A Director of a company, though holding an office, is not an employee unless it is so provided in the independent contract, or the Article of Association of the company provide for such relationship.
1.3.2. Salary from more than one Employer
Any amount of salary received or due from one or more than one employer/ source shall be taxable under the this head. Such situation may arise when an employee is working with two employers simultaneously or has worked with one employer and later on serves with another employer after leaving service with first employer, salary from both the employers shall be taxable under this head.
1.3.3. Tax Free Salary
Sometimes, the employer allows an employee to draw tax-free salary e.g. the employer pays full salary to the employee and also pays tax on this directly to the department . The employee's assessment is to be made not on the amount of salary he is drawing but on gross amount i.e. salary drawn plus the tax paid by the employer.
1.3.4. Salary Received as Member of Parliament
Salary received by a member of Parliament is not taxable under the head "Salaries". It is taxable as income from other sources . Any allowance received by them is fully exempted from tax.
1.3.5. Receipt from Persons other than Employer
Perquisites or benefits or any other remuneration received from persons other than the employer, would be taxable not under the head 'Salaries' but under the head 'Income from Other Sources' even if they accrue to the employee by reason of his employment. Or while he was discharging his normal duties e.g. amount received by a professor of a college for acting as an Examiner in a university.
1.3.6. Place of Accrual of Salary Income
Salary accrues at that place where the services are rendered. If the services are rendered in India, the salary accrues in India and if the services are rendered outside India, the salary accrues outside India. Thus, if a person employed in India goes on leave t England and gets his leave salary there, the salary is said to accrue in India and not in England, because it is paid for services rendered in India. Pension paid in a foreign country for services rendered in India, will be Indian Income ,as it is paid for the services rendered in India although in the past. On the other hand , if any person is employed in India and transferred to its branch in USA, the salary received by him in USA is not Indian Income, but it is income arising in USA as the service is rendered in USA.
Followings are the Two Exceptions to this rule :
(i) A Pension payable Outside India : to a person who has gone to foreign country for permanent settlement is not deemed to arise in India, if pension is payable to a person appointed by the Secretary of State or to a person who was appointed before 15th August 1947, as a judge of the Federal Court or of a High Court and who continued to serve on or after the commencement of the Constitution as a Judge in India.
(ii) The Govt. of India employs Indian citizens for services to be rendered in foreign countries and salary paid outside India is deemed to accrue or arise in India.
1.3.7. Deduction made by the employer
If, an employer makes certain deduction out of the salary payable to an employee, amount so deducted is deemed to be received by the employee and the amount so deducted is also known as application of income by the employee. Some important types of deductions made by the employer are as follows :
1. Deductions made to recover the loan advanced by the employer.
2. Employee's contribution towards the provident fund, income tax and Profession tax.
3. Deduction made to pay the premium on life insurance policy of the employee.
4. Any other deductions for which the employee has authorized the employer.
In case an employee receives his salary after certain deductions made by employer on account of profession tax, contribution to provident fund , tax deducted at source, the salary will not be the net amount received, rather it will be the gross salary due to the employee.
1.3.8. Salary as Partner
Any salary , commission or remuneration received by a working partner from a firm assessed as firm shall not be taxable under the head 'Salaries' . It is taxable under the head Profit and Gain.
1.3.9. Taxability of Salary on due or receipt whichever is earlier basis
U/s 15(a) salary is taxable on due basis whether received or not. Salary becomes due after doing work and in India it is due on monthly basis. Every employees gets salary on completion of a month. As per our financial system the year starts on 1st April and ends on 31st March. As such first salary for the month of April becomes due on 1st day of next month. But in some cases salary becomes due on the last day of the month and salary for the month April shall be due on 30th April. This results into following tow sitiations :
If salary is due on 1st day of the month, during the financial year 2008-2009 first salary shall be due on 1st April 2008 and it shall be for the month of March 2008 and last salary will shall be due on 1st March 2009 for the month of February 2009.
If salary is due on the last day of the month, during the financial year 2008-2009 first salary shall be due on 30th April 2008 and it shall be for the month of April 2008 and last salary shall be due on 31st March 2009 for the month of March 2009.
1.3.10. Advance Salary received
In case an assessee receives some salary in advance in a previous year which was actually not due in that year, it shall be taxable in the year of receipt. In case, any loan or advance is taken it is not treated as Advance Salary.
1.3.11. Arrears of Salary received.
Any amount of salary received from present or past employer during relevant previous year and which relates to some earlier previous years, is treated as arrears of salary. In is taxable in the year in which received and not the year to which it belongs.
Answer Q.2
Rules to Prevent Double Derivation of
Income and Double Deductions (Section 73)
Where:
1-Any amount chargeable to tax on the basis that it is receivable, the amount shall not be charged
that it is received;
Or
2- Any amount is chargeable to tax on the basis that it is received the amount shall not be chargeable
to tax again on the basis that it is receivable.
With regard to expenditure, where:
3- Any expenditure is deductible on the basis that it is payable, the expenditure shall not be deductible
again on the basis that it is paid;
Or
4- Any expenditure is deductible on the basis that it is paid, the expenditure shall not be deductible
again on the basis that it is payable.
Answer Q.3:
For Pakistan tax purposes, a person has one of the following status i.e
Individual, or Association of Persons (AOP) or Company. Under either status a person is taxed according to the residency position. The two residency positions are resident or non-resident. The residency requirements for each status are given in the table below.
Tax Status
Residency Requirements
Individual
a. is present in Pakistan for a period of, or periods amounting in aggregate to, one hundred and eighty-two days or more in the tax year;
b. is present in Pakistan for a period of, or periods amounting in aggregate to, ninety days or more in the tax year and who, in the four years preceding the tax year, has been in Pakistan for a period of, or periods amounting in aggregate to, three hundred and sixty-five days or more; or
c. is an employee or official of the Federal Government or a Provincial Government posted abroad in the tax year.
Association of persons (AOP)
An association of persons shall be a resident association of persons for a tax year if the control and management of the affairs of the association is situated wholly or partly in Pakistan at any time in the year.
Company
a. it is incorporated or formed by or under any law in force in Pakistan;
b. the control and management of the affairs of the company is situated wholly or almost wholly in Pakistan at any time in the year; or
c. it is a Provincial Government or local authority in Pakistan.
2. Income of Non-Residents Chargeable to Tax
All "Pakistan – source" incomes of non-residents are taxable under Pakistan Tax Law, including:-
·Business Income. ·Business incomes attributable to PEs. ·Business incomes from activities similar to those carried on through PEs. ·Business incomes from rendering services ·Gains from disposal of any asset used in deriving business income in Pakistan. ·Profits on debts. ·Pensions or annuities.·Technical Fees ·Dividends paid by a resident company ·Royalty or Rental Income ·Gain from alienation of any property or right. ·Salaries ·Execution of Contracts ·any other amount:
AnswerL
Section 47 Scholarships
• Any scholarship granted to a person to meet the cost of person's education shall be exempt from tax.
Section 48 Support Payments 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 under this Ordinance.
Another Paper:
My Today Paper of TAX
Q.!: Define employemnet & also mention section?
Q2: profit on debt in which conditions will be pakistan source of income.
1. Resident person
2-Non Resident Person.
Q.3 : define section 49
baqi bhool gay hain
Another Paper:
Total questions 23
Mcq 18
short questions 2*3
long questions 3*5
Another Paper:
Total 18 MCQs, 5 subjective questions
All MCQs were from past papers and past quizzes'
Subjective questions
1) Define these sections section 47, section 48 under the IT ordinance 2001 (3 marks)
2) Mr. Ali is a resident of Pakistan, 1000 salary received in UK paid by the UK Company; he paid the income tax on his salary in UK. The tax treatment of Mr.ali s income in Pakistan with IT ordinance 2001, also mention the section that is applicable (3)
3) Explain the two terms with their relevant sections (5 marks)
Resident individual
Resident AOP
4) If the utility bills are paid by the employer to an employee, give the rational with the applicable section (5 marks)
5) Why the government imposes the taxes to its citizens, what element should be taken into account while formation of the tax laws (5 marks)
Another Paper:
Q: what is meant by reduction in tax liability ? give an example from Income Tax Ordinance 2001 ? 3 marks
Q: what does Bench Mark rate means ? also mention which section describe bench mark rate ? 3 marks
Q: list down the examples of Income from Agriculture under section 41 of the ordinance ( any five ) 5 marks
Q: an association of persons named M/S Khan and sons has its most of its branches in Pakistan is it sufficient to be resident AOP or not ? explain with reference to Income Tax Ordinance 2001 ? 5 marks
Q: list down some important characteristics of salary ? 5 marks
Another Paper:
1. Under which circumstances business income of a non-resident person shall be considered as Pakistan-source income? ( marks 3)
2. List down some characteristics of salary (marks 5)
3. What is meant by reduction in tax liability? Give one example in the light of IT ordinance 2001. ( marks 3)
4. Section 102 deals with Foreign-source of income of resident individuals. Identify the tax treatment. (marks 3)
5. This question was related to identification of tax year of the given cases. (marks 5)
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