Tax on income from ceased business

Tax on income from ceased business

Section 72 of the Income Tax Ordinance, 2001 has outlined tax on income from ceases business. The Federal Board of Revenue (FBR) has incorporated these regulations into the Ordinance, ensuring that taxpayers understand the implications of income derived from a business, activity, investment, or other sources that have ceased.

As of the last update on June 30, 2021, the Income Tax Ordinance, 2001, which includes amendments introduced by the Finance Act, 2021, sheds light on the taxation of income under circumstances of cessation. The following is the text of Section 72:

72. Cessation of source of income. — Where —

(a) any income is derived by a person in a tax year from any business, activity, investment, or other source that has ceased either before the commencement of the year or during the year; and

(b) if the income had been derived before the business, activity, investment, or other source ceased it would have been chargeable to tax under this Ordinance,

this Ordinance shall apply to the income on the basis that the business, activity, investment, or other source had not ceased at the time the income was derived.

This section elucidates that if a person earns income from a source that has ceased either before the commencement of the tax year or during the tax year, and had the income been derived before the cessation, it would have been subject to taxation, the Income Tax Ordinance, 2001 shall apply to the income as if the business, activity, investment, or other source had not ceased at the time the income was earned.

The significance of this provision lies in its ability to prevent potential loopholes that might arise from the cessation of a source of income. By treating the income as if the source had not ceased, the ordinance ensures that taxes are applied consistently, discouraging attempts to manipulate the timing of income realization for tax purposes.

It is crucial for taxpayers to be aware of the provisions outlined in Section 72, especially those engaged in businesses or activities where sources of income may cease. However, as with any legal text, it is advised that taxpayers consult with tax professionals to ensure a comprehensive understanding and application of the regulations in their specific circumstances.

As part of the disclaimer issued by Team PkRevenue.com, it is important to note that while efforts are made to provide the correct version of the text, the team is not responsible for any error or omission. Taxpayers are encouraged to stay informed about any updates or amendments to tax regulations to ensure compliance with the latest provisions. In conclusion, Section 72 serves as a vital component in maintaining the integrity of the tax system by addressing the taxation of income in cases of the cessation of sources.