Updated tax rules set conditions for deducting business expenses and specify treatment of depreciable and intangible assets
ISLAMABAD: The Federal Board of Revenue (FBR) has outlined the rules for claiming deductions against income chargeable under the head “Income from Business” for tax year 2027.
The FBR issued the Income Tax Ordinance, 2001, updated up to June 30, 2026, explaining the provisions governing deductions in computing business income under Section 20.
Under the law, a taxpayer deriving income chargeable under the head “Income from Business” can claim a deduction for expenditure incurred during the tax year, provided the expense is incurred wholly and exclusively for the purposes of business.
The deduction remains subject to the conditions and limitations prescribed under the Income Tax Ordinance.
Deduction allowed for business animals
The law also provides a specific deduction where animals used for business or professional purposes, other than as stock-in-trade, die or become permanently useless for those purposes.
In such cases, a taxpayer is allowed a deduction equal to the difference between the actual cost of the animals to the taxpayer and any amount realised from their carcasses or from the animals themselves.
Depreciable assets and long-term expenditure
The FBR has further clarified the treatment of expenditure incurred on depreciable assets and intangible assets.
Where business expenditure is incurred to acquire a depreciable asset, an intangible asset having a useful life of more than one year, or constitutes pre-commencement expenditure, the amount cannot simply be deducted in full in the year in which it is incurred.
Instead, subject to the Income Tax Ordinance, such expenditure is required to be depreciated or amortised in accordance with Sections 22, 23, 24 and 25.
This provision establishes a distinction between ordinary business expenses and expenditure relating to assets or costs that provide benefits over an extended period.
Amalgamation-related costs
The law also provides relief for certain expenses incurred by an amalgamated company.
Where an amalgamated company incurs expenditure on legal and financial advisory services, as well as other administrative costs associated with planning and implementing an amalgamation, a deduction is allowed for such expenditure, subject to the provisions of the Ordinance.
The provisions of Section 20 establish the framework for determining which expenses can be deducted when calculating taxable business income for tax year 2027.
Taxpayers are required to ensure that claimed expenses meet the statutory conditions and that capital, intangible and pre-commencement expenditure is treated under the relevant depreciation or amortisation provisions.