INCOME FROM OTHER SOURCES Sections39 and 40
LECTURE # 14
SOURCES OF INCOME
SALARY Section 12 to 14 INCOME FROM PROPERTY Section 15 to 17 INCOME FROM BUSINESS Section 18 to 36 CAPITAL GAINS Section 37 to 38 INCOME FROM OTHER SOURCES Section 39 to 40 (Other related items, Section 89 and 111)
BASIC FEATURES OF EACH HEAD OF INCOME
For Salary, relationship between employer and employee must be there. Under income from property, property is rented out and income is received. Income must be earned through own operation of the business, under the third head of income. Under Capital gains, certain capital asset is sold at a price higher than the purchase price . The last head of income is the residual head, if any income does not fall in the above four heads, it will ultimately fall in this head of income. So, under Income from other sources, there are two types of income: a) Income not falling in above for heads b) It s own incomes.
EXAMPLES
a) b) c) d)
INCOME NOT TAXABLE UNDER SALARY.
Paper marking income received by university teacher from other institution. Tips received by waiter. Annuities granted by a life insurance company. Salary or pension received from foreign government.
NOT TAXABLE UNDER INCOME FROM PROPERTY.
Income from subletting of building or land. Rental income received from building kept on lease together with plant and machinery. Mining rent or royalty.
a) b) c)
EXAMPLES
a) b) c) d)
NOT TAXABLE UNDER BUSINESS Income of non-professional writer. Prize on prize bonds. Dividend. Remuneration received by a professional man as an examiner.
OTHER EXAMPLES
Income from provision of amenities, utilities ( like telephone, electricity, water, gas) or other services connected with the renting of property. Prize on winning a quiz, Any amount received by tenant as consideration for vacating the property less the amount paid by him to acquire the same property. The excess amount will be charged to ten years. EXAMPLE Amount paid as advance Rs. 80,000 Amount received for vacating the property 120,000 Excess amount received 40,000 Amount to be charged every year, up to 10 years 4, 000
OTHER EXAMPLES--Continued
Income representation Nazrana by a gaddi nasheen Sales of irrigation water for agricultural purposes. Remuneration received by MPA S or MNA S Gratuity received by the legal representatives of a deceased person. Annuity payable to the lender of a patent right, copy right or trade mark. Profit or interest on debt. ( other then financial institution & Banks whose core activity is to advance loans)
OTHER EXAMPLES--Continued
Any annuity or pension received, where there is no relationship between employer & employee. Any amount of loan, advance, deposit for issuance of shares or gift received from a person other than through a crossed cheque or through a normal banking channel. [39(3)]
DEDUCTIONS
Section 40
While computing the taxable income under the head Income from Other Sources any expenditure (other than capital expenditure) incurred but wholly for the purpose of earning such income can be deducted. These are: Collection or realization expenses. Repair and maintenance charges. Insurance charges. Depreciation allowance and Initial allowance as per the 3rd Schedule, if any. Zakat paid on profit, under Zakat and Usher Ordinance. Any other expenditure incurred to earn such income.
SOME SPECIAL ITEMS
ASESSMENT OF ROYALTIES OR COPY RIGHT FEE. (Section 89) a) Lump-sum receipt by author. b) Can be spread over 3 years (one current tax year and two previous years) to avoid falling in higher slab, provided author took more than 24 months to complete the work. EXAMPLE: Mr. A is a non-professional writer. During the tax year 200C, he received a lump-sum amount of Rs. 300,000 an account of royalty of a book. He claims that he spend 30 months in completing the book. Compute his tax liability for the tax year 200C.
COMPUTATION OF TAX PAYABLE
Total income for 200A,200B&200C Ave income for each of the 3 years Tax on Rs. 100,000
Rs.300,000 100,000 NIL
Tax for three years NIL x 3 NIL OR Tax on Rs. 300,
[email protected]% 2,250 So, tax payable is NIL as it is the lesser amount.
UNEXPLAINED INCOMES, EXPENDITURES OR ASSETS Section 111 UNEXPAINED INCOME OR ASSETS SHALL BE CHARGEABLE TO TAX IN THE TAX YEAR WHEN IT IS LOCATED. WHERE; a) Amount is credited in a person s books of account; b) A person has made an Investment ; c) A person has incurred an expenditure; and d) The person either; o Fails to explain the source of income; o The explanation offered by him is not satisfactory, in the opinion of Commissioner of Income Tax. o Section111(1) does not apply to any unexplained amount beyond preceding 5 years.
IMMUNE(EXEMPTED) INVESTMENT / INOME Private Foreign Currency Accounts. Three years Foreign Currency Bearer Certificate. Rupees withdrawn or assets created out of;
o US Dollar Bearer Certificate. o Withdrawal from Foreign Currency Accounts. o Encashment of Foreign Exchange Bearer Certificate.