Section 40 of the Income Tax Ordinance, 2001 explains the adjustment of expenses against income from other sources.
Following is the text of Section 40 of Income Tax Ordinance, 2001:
40. Deductions in computing income chargeable under the head “Income from Other Sources”.— (1) Subject to this Ordinance, in computing the income of a person chargeable to tax under the head “Income from Other Sources” for a tax year, a deduction shall be allowed for any expenditure paid by the person in the year to the extent to which the expenditure is paid in deriving income chargeable to tax under that head, other than expenditure of a capital nature.
(2) A person receiving any profit on debt chargeable to tax under the head “Income from Other Sources” shall be allowed a deduction for any Zakat paid by the person under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980), at the time the profit is paid to the person.
(3) A person receiving income referred to in clause (f) of sub-section (1) of section 39 chargeable to tax under the head “Income from Other Sources” shall be allowed —
(a) a deduction for the depreciation of any plant, machinery or building used to derive that income in accordance with section 22; and
(b) an initial allowance for any plant or machinery used to derive that income in accordance with section 23.
(4) No deduction shall be allowed to a person under this section to the extent that the expenditure is deductible in computing the income of the person under another head of income.
(5) The provisions of section 21 shall apply in determining the deductions allowed to a person under this section in the same manner as they apply in determining the deductions allowed in computing the income of the person chargeable to tax under the head “Income from Business”.
(6) Expenditure is of a capital nature if it has a normal useful life of more than one year.
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