Deductions not allowed in Computing Income from Business

This blog is written by Mr M. Basir Dawer, Senior Associate Taxation and Corporate Affairs. Please read this blog and provide your valued comments.


Deductions not allowed in Computing Income from Business

Section.21 of Income Tax Ordinance 2001 specifies different deductions which are not allowed while computing Income from Business. One should always be careful in respect of that as these items will be straight away disallowed by the Tax authorities boosting the Tax payable. One should always be careful and seek professional advice in business matters. The said Section prescribes the following list ;

  • Any cess, rate or tax paid or payable by the person in Pakistan or a foreign country that is levied on the profits or gains of the business.
  • Any amount of tax deducted under Division III of Part V ofChapter X of Income Tax Ordinance, from an amount derived by the person.
  • Any expenditure from which the person is required to deduct orcollect tax under Part V of Chapter X or Chapter XII of Income Tax Ordinance, unless the person has paid or deducted and paid the tax as required by Division IV of Part V of Chapter X of Income Tax Ordinance.
  • Any entertainment expenditure in excess of such limits or in violation of such conditions as may be prescribed.
  • Any contribution made by the person to a fund that is not a recognized provident fund ,approved pension fund, approved superannuation fund or approved gratuity fund.
  • 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 under section 149 from any payments   made by the fund in respect of which the recipient is chargeable to tax under the head “Salary”.
  • Any fine or penalty paid or payable by the person for the violation of any law, rule or regulation.
  • Any personal expenditures incurred by the person.
  • Any amount carried to a reserve fund or capitalized.
  • Any profit on debt, brokerage, commission, salary or other remuneration paid by an association of persons to a member of the association.
  • Any expenditure for a transaction, paid or payable under a single account head which, in aggregate, exceeds fifty thousand rupees, made otherwise than by a crossed cheque drawn on a bank or by crossed bank draft or crossed pay order.
  • Any salary paid or payable exceeding fifteen thousand rupees per month other than by a crossed cheque or direct transfer of funds to the employee‘s bank account;
  • Any expenditure paid or payable of a capital nature; and
  • Any expenditure in respect of sales promotion, advertisement and publicity in excess of Ten per cent of turnover incurred by pharmaceutical manufacturers.
  • However payments on account of following are exempt from the application of said rule;
    (a) Expenditures not exceeding ten thousand rupees;
    (b) Expenditures on account of :
    (i) Utility bills;
    (ii)  Freight charges;
    (iii) Travel fare;
    (iv) Postage; and
    (v) Payment of taxes, duties, fee, fines or any other statutory obligations;

Muhammad Basir Dawer