Karachi, September 2, 2024 – The Federal Board of Revenue (FBR) has outlined specific deductions to aid taxpayers in accurately computing their business income tax.
These deductions are detailed in the updated Income Tax Ordinance, 2001, which has been revised up to June 30, 2024. Section 20 of the Ordinance provides clear guidelines on allowable deductions against business income tax.
According to the FBR, Section 20 specifies several deductions under the category “Income from Business.” These deductions are crucial for businesses to ensure they are only taxed on their net income after legitimate business expenses are accounted for.
Key Deductions Explained by Section 20:
1. General Business Expenditures: The FBR says Subsection (1) states that any expenditure incurred by a person wholly and exclusively for the purposes of their business during a tax year is deductible. This provision ensures that all costs directly related to running the business can be subtracted from the gross income to compute taxable income. This includes expenses such as salaries, rent, utilities, and other operating costs.
2. Animal-Related Deductions: Subsection (1A) provides for deductions in cases where animals, used in a business or profession but not as stock-in-trade, have died or become permanently useless. In such situations, the taxpayer is allowed a deduction equal to the difference between the actual cost of the animals and any amount recovered from selling the carcasses or animals. This provision is particularly relevant for businesses involved in agriculture, farming, or animal husbandry, according to the FBR.
3. Depreciable Assets and Intangibles: Subsection (2) addresses expenditures on acquiring depreciable assets or intangible assets with a useful life exceeding one year, as well as pre-commencement expenditures. Such expenses must be depreciated or amortized according to the guidelines laid out in Sections 22, 23, 24, and 25 of the Ordinance. This ensures a systematic deduction over the useful life of the asset, preventing any immediate and disproportionate tax relief.
4. Amalgamation Expenses: Subsection (3) allows deductions for expenses incurred by an amalgamated company on legal and financial advisory services and other administrative costs related to the planning and implementation of amalgamation. This deduction helps businesses manage the often significant costs associated with merging or consolidating companies.
By providing these detailed deductions, the FBR aims to simplify the tax filing process for businesses and ensure a fair taxation system that considers the various expenses businesses incur. The guidelines also encourage compliance by clarifying what can and cannot be deducted, helping to reduce disputes and misunderstandings between taxpayers and tax authorities.
