ed Practice Problems for Taxation

TAXATION – PRACTICE PROBLEMS Q. Mr. Ahmed Karim is serving as Assistant Manager (Finance) in a private limited company on pay scale of (Rs. 45,000-5,000-70,000). His date of joining is 03-03-2003. In addition to his salary, Mr. Ahmed Karim is entitled to draw following Per Month allowances from the company. House Rent Allowance: 15% of BS or Rs. 10,000/- whichever is more Conveyance Allowance: 10% of MTS Recreational Allowance: Rs 2000/Admin Allowance: 30% of MTS Medical Allowance: 20% of MTS Following Deductions are also made from his salary on Monthly basis: GP Fund: Rs. 3000/Insurance: Rs. 1888/-

 

Income Tax: Rs 4000/Benevolent Fund: 2% of MTS

In addition to his salary Income, Mr. Ahmed Karim has also received Rs. 320,000/- as his 20% share from an AOP, during Tax Year 2009. REQUIRED: Q.

COMPUTE TOTAL TAXABLE INCOME AND NET TAX PAYABLE BY MR. HASSAN FOR THE TAX YEAR 2009.

Mr. A, Mr. B and Mr. C are three partners of ABC Associates, an AOP. They share profit in the ratio of 50%, 30% and 20% respectively. For the Tax Year 2009, the AOP has declared Net Profit of Rs. 4000,000/-. Details of profit and loss expenses are given as under: a) Accounting depreciation is calculated at Rs. 230,000/- while tax depreciation comes out

to be Rs. 520,000/-. b) The AOP has paid Rs. 475,000/- to different authorities as penalty in respect of noncompliance with the statuary regulation but has not been Debited to P&L Account. c) The AOP donated Rs. 200,000/- to Agha Khan Board, during the year. d) Un-vouched profit and loss expenses of the AOP are Rs. 680,000/-.

Details of other than AOP Annual income of the partners is as under: Mr. A: Mr. B: Mr. C:

Salary Income: Rs. 330,000/- ; Restrictive Covenant: Rs. 470,000/- ; Property Income: Rs. 500,000/-; Dividend Income: Rs. 280,000/-; Gain on Disposal of Shares of Listed Company: Rs. 500,000/Property Income: Rs. 520,000/-; Loss in Business (shop): Rs. 220,000/-; Age of Mr. C is 66 years.

REQUIRED:

COMPUTE TOTAL TAXABLE INCOME AND NET TAX PAYABLE BY THE AOP AND ALL OF ITS PARTNERS FOR TAX YEAR 2009. Q(a). Miss Madiha is serving as Director Finance at National Highway Authority (NHA). While making Payment of Rs. 10 Millions to M/S Ali Builders, against the contract of making a new road, Miss Madiha deducted tax at the rate of 3.5% on 10-09-2008. Miss Madiha kept the amount so deducted in the bank account of NHA till 30-06-2009. After having consulted with the taxation authorities, Miss Madiha deposited the amount into Government Treasury on 30-06-2009.

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REQUIRED:

(b).

ARE THERE ANY DEFAULTS ON THE PARTS OF NHA, MISS MADIHA AND M/S ALI BUILDERS? IF YES, LIST ALL THE DEFAULTS ON PARTS OF ALL. CALCULATE THE AMOUNT OF TAX IN DEFAULT & ADDITIONAL TAX ON PART OF MISS MADIHA, NHA, AND M/S ALI BUILDERS, IN VIEW OF THE ABOVE DEFAULTS.

Is it possible to sustain loss under the head salary? If yes, give a comprehensive example to illustrate your answer.

Q(a). During TY 2008, Mr. Shahidullah Khan earned Income as given below:1. 2. 3. 4. 5.

Earned Salary Income @ Rs. 23,400/- per month while serving in ISI. Received Dividend Rs. 320,000/- from ABC & Co, a private limited company. Won a Prize Bond amounting to Rs. 500,000/- in a draw of Rs. 1000/- prize bonds. Earned Rs. 450,000/- from his Agriculture farms in respect of sales of crops. Got Rs. 800,000/- as sales proceed of 10,000 shares (on 05-05-2009) of an unlisted company, that he had purchased @ Rs. 41 per share on 08-03-2009. 6. Earned Rs. 210,000 on disposal of shares of a listed company on 20-06-2009. 7. Received Rs. 480,000/- as rent, from his two shops that he has rented out @ Rs. 20,000 Per Month per shop, after receiving security of Rs. 100,000/- against each shop. 8. Sustained Loss of Rs. 120,000/- in the business (Shahid Arms, Quetta). 9. Received a contract of erecting a block (building) at civil hospital Quetta. About 60% work has been completed and Mr. Ahmed has received 60% payment. Total value of contract is Rs. 5 Million/-. 10. Received Rs. 250,000/- from Kamal Builders against for non-participating in a bid of making a road, from Quetta to Mastung. REQUIRED: COMPUTE TAX PAYABLE BY MR. SHAHIDULLAH UNDER NTR & PTR FOR TY 2009. (b).

Are you in favour of taxing Agriculture Income and Capital Gain or not? Give reasons in support of your answer.

Q.

Discuss with suitable examples any THREE of the following: i. ii. iii. iv.

Taxation of Concessional Loans Thin Capitalization Sales Tax Vs VAT Mode of Taxation Penalty of Concealment Vs Penalty of Making False and Misleading Statements

Q(a). Mr. A, Mr. B and Mr. C are three partners of ABC Associates, an AOP. They share profit in the ratio of 50%, 35% and 15% respectively. For the Tax Year 2008, the AOP has declared Net Profit of Rs. 3000,000/-. Details of profit and loss expenses are given as under: e) Accounting depreciation is calculated at Rs. 230,000/- while tax depreciation comes out

to be Rs. 320,000/-. f) The AOP has paid Rs. 175,000/- to different authorities as penalty in respect of noncompliance with the statuary regulations. g) The AOP has paid Rs. 2300,000/- in cash as salaries to its employees. The only payment in excess of Rs. 12,500/- PM was the salary paid to the director finance at Rs. 60,000/PM. h) The AOP donated Rs. 500,000/- to Edhi Trust, Karachi, during the year. 2/6

i) Vouched profit and loss expenses of the AOP are Rs. 680,000/-.

Details of other than AOP Annual income of the partners is as under: Mr. A:

Salary Income: Rs. 300,000/- (Mr. A is a full time teacher at BUITEMS).

Mr. B:

Property Income: Rs. 400,000/-; Salary Income: Rs. 280,000/-; Dividend Income: Rs. 200,000/-; Capital Gain Income: Rs. 50,000/-

Mr. C:

Property Income: Rs. 520,000/-; Loss in Business (shop): Rs. 220,000/-; Age of Mr. C is 66 years.

Required:

(b).

Calculate Total Taxable Income and Net Tax Payable by the AOP and all of its partners for Tax Year 2008.

List any FOUR amendments made in Income Tax, Sales Tax or Federal Excise laws through Finance Act 2008-09 (recent Budget).

Q(a).

Mr. Safi is serving as Director Finance at BUITEMS. While making payment of Rs. 9500,000/- to M/S Classic Builders, against the contract of making a new block at BUITEMS, Mr. Safi deducted tax @ 3.5% on 10-09-2005. Mr. Safi kept the amount so deducted in the account of BUITEMS. After having consulted with the taxation authorities, Mr. Safi deposited the same amount into Government Treasury on 31-12-2008.

Required:

Are there any defaults on the part of Mr. Safi (being withholding agent) and Classic Builders? If yes, what are the defaults? Calculate the amount (tax / additional tax / penalty) payable by the Contractor (M/S Classic Builders) and Mr. Safiin view of the above defaults.

(b). Q(a).

Is there any possibility of sustaining Loss under the head “Salary”? Give a suitable example to illustrate your answer. During TY 2008, Mr. Ahmed earned Income from various sources as given below: Received Dividend of Rs. 400,000/- from ABC & Co, a private limited company.

 Won a Prize Bond amounting to Rs. 500,000/- in a draw of Rs. 1000/- prize bonds.  Got Rs. 800,000/- as sales proceed of 10,000 shares (on 05-05-2008) of an unlisted company, that he had purchased @ Rs. 47 per share on 08-05-2007.  Earned Rs. 210,000 on disposal of shares of a listed company on 20-06-2008.  Received Rs. 480,000/- as rent, from his two shops that he has rented out @ Rs. 20,000 Per Month Per Shop, for the last 3 years after receiving security of Rs. 300,000/- against both.  Sustained Loss of Rs. 120,000/- in the business (Ahmed Store, Quetta).  Received a contract of erecting a block (building) at civil hospital Quetta. About 40% work has been completed and Mr. Ahmed has received 40% payment. Total value of contract is Rs. 1 Million.  Mr. Ahmed has received Rs. 500,000/- from Kamal Builders against for nonparticipating in a bid of making a road, from Quetta to Mastung. 3/6

Required: Work out tax Payable by Mr. Ahmed under all the heads / PTR. (b).

Are you in favour of taxing Capital Market or not? Give reasons.

Q(a). Mr. Hassan is serving as Manager (dying) in a Textile Mill on a fixed lump sum salary with an annual increase of 20% in every January. During Calendar Year 2008, his salary was Rs. 184,000/- per month. REQUIRED:

COMPUTE TOTAL TAXABLE INCOME AND NET TAX PAYABLE BY MR. HASSAN FOR THE TAX YEAR 2008. ALSO COMPUTE THE TAX PAYABLE BY HIS COMPANY, IF THEY SO DESIRE.

(b).

Explain VAT Mode of Taxation with the help of a suitable Example.

Q.

Write short notes on any TWO of the following:i. ii. iii.

Thin Capitalization Penalty for Non-Filing of Return Treatment of Concessional Loans

Q1.

What are the due dates of filing a Return for Individual, AOP and Companies? How a person is penalized for late filing of Return. How much penalty would be payable if a company having NP of 5M files its Return for TY 2007 on 30-06-2009?

Q2.

What do you mean by a tax year? Differentiate among Normal, Special and Transitional Tax Year with the help of Examples.

Q3.

Draw VAT chart with columns Stage No, Purchase Price, Input Tax, Value Addition, Selling Price, Output Tax and Tax of Current Stage using the following data: STAGE 1 2 3 4 5

VALUE ADDITION (Rs) 500 800 (300) 0 1100

Q4.

What do you mean by Withholding Agent? What kind of defaults can be committed by a Withholding Agent? Discuss legal provisions to penalize a Withholding agent for these defaults.

Q5.

What do you mean by Restrictive Covenant? How restrictive covenant is taxed? What tax would be payable by a person whose basic salary is Rs. 24000/- PM, gets Restrictive Covenant of Rs. 300,000/- and having property income of Rs. 50,000/- PM.

Q6.

Discuss legal provision of Taxing Golden Hand Shake? What tax would be payable by a person whose Per month income in Calendar Year 2009 was Rs 70,000/- PM fixed (Annual Increase being 10%). The person took GHS on 09-09-2009.

Q7.

How an AOP is taxed? What would be tax payable by the Partners of AB Brothers if NP of AOP is 2M while property Income of Mr. A was Rs. 60,000/- PM while salary income of Mr. B is Rs. 34,500/- PM. Mr. B also sustained loss of Rs. 65,000/- in the Business.

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Q8.

Differentiate between PTR and NTR? Compute tax payable by Mr. A under both PTR and NTR if his income is: Salary: Rs. 340,000/- PA; Dividend: Rs. 500,000/-; Property: Rs. 345000/- PA; Capital Gain: Rs 66,000/-; Loss in Business: Rs. 120,000/-; Prize Bond: Rs 200,000/-; Contract: Rs. 2 Millions; Share from AOP: Rs. 120,000/-

Q9.

What do you mean by Normal Depreciation and Initial Allowance? What method of computing depreciation is recognized by Income Tax Ordinance, 2001? Elaborate your answer by using a suitable example.

Q10.

What do you mean by the Term Capital Gain? How capital Gain is taxed? Are you in favour of taxing Capital Gain on disposal of shares of a listed Co? Give reasons in support of your answer.

Q11.

What do you mean by the terms set off and carry forward? Give a suitable example to explain your answer.

Q12.

What do you mean by the terms Revenue and Capital Expenses? How these expenses are treated under Income Tax Ordinance, 2001? Give at least three examples of each.

RATES OF TAX FOR INDIVIDUALS AND AOP (SALARY) S#

Taxable income

1

Where the taxable income does not exceed Rs.180,000

2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Where the taxable income exceeds Rs.180,000 but does not exceed Rs.250,000 Where the taxable income exceeds Rs.250,000 but does not exceed Rs.350,000 Where the taxable income exceeds Rs.350,000 but does not exceed Rs.400,000 Where the taxable income exceeds Rs.400,000 but does not exceed Rs.450,000 Where the taxable income exceeds Rs.450,000 but does not exceed Rs.550,000 Where the taxable income exceeds Rs.550,000 but does not exceed Rs.650,000 Where the taxable income exceeds Rs.650,000 but does not exceed Rs.750,000 Where the taxable income exceeds Rs.750,000 but does not exceed Rs.900,000 Where the taxable income exceeds Rs.900,000 but does not exceed Rs.1050,000 Where the taxable income exceeds Rs.1050,000 but does not exceed Rs.1,200,000 Where the taxable income exceeds Rs.1,200,000 but does not exceed Rs.1,450,000 Where the taxable income exceeds Rs.1,450,000 but does not exceed Rs.1,700,000 Where the taxable income exceeds Rs.1,700,000 but does not exceed Rs.1,950,000 Where the taxable income exceeds Rs.1,950,000 but does not exceed Rs.2,250,000 Where the taxable income exceeds Rs.2,250,000 but does not exceed Rs.2,850,000 Where the taxable income exceeds Rs.2,850,000 but does not exceed Rs.3,550,000, Where the taxable income exceeds Rs.3,550,000 but does not exceed Rs.4,550,000, Where the taxable income exceeds Rs.4,550,000 but does not exceed Rs.8,650,000, Where the taxable income exceeds Rs.8,650,000

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Tax Rate 0% 0.50% 0.75% 1.50% 2.50% 3.50% 4.50% 6.00% 7.50% 9.00% 10.00% 11.00% 12.50% 14.00% 15.00% 16.00% 17.50% 18.50% 19.00% 20.00%

(NON SALARY) S# 1 2 3 4 5 6 7 8

Taxable Income Where taxable income does not exceed Rs.100,000 Where the taxable income exceeds Rs.100,000 but does not exceed Rs.110,000 Where the taxable income exceeds Rs.110,000 but does not exceed Rs.125,000 Where the taxable income exceeds Rs.125,000 but does not exceed Rs.150,000 Where the taxable income exceeds Rs.150,000 but does not exceed Rs.175,000 Where the taxable income exceeds Rs.175,000 but does not exceed Rs.200,000 Where the taxable income exceeds Rs.200,000 but does not exceed Rs.300,000 Where the taxable income exceeds Rs.300,000 but does not exceed Rs.400,000

9

Where the taxable income exceeds Rs.400,000 but does not exceed Rs.500,000

10 11

Where the taxable income exceeds Rs.500,000 but does not exceed Rs.600,000 Where the taxable income exceeds Rs.600,000 but does not exceed Rs.800,000

12

Where the taxable income exceeds Rs.800,000 but does not exceed Rs.10,00,000

13

Where the taxable income exceeds Rs.10,00,000 but does not exceed Rs. 1300,000

14

Where the taxable income exceeds Rs.13,00,000

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Rate 0 0.50% 1.00% 2.00% 3.00% 4.00% 5.00% 7.500 % 10.00 % 12.5% 15.00 % 17.50 % 21.00 % 25.00 %