Tax on taxable income explained

Tax on taxable income explained

ISLAMABAD: Federal Board of Revenue (FBR) has explained taxable income for collection of tax from persons or corporate entities.

The FBR issued Income Tax Ordinance, 2001 updated June 30, 2020 incorporating amendments brought through Finance Act, 2020.

Section 4 of the Income Tax Ordinance, 2001 explained the tax on taxable income, which is as follow:

Sub-Section (1): Subject to this Ordinance, income tax shall be imposed for each tax year, at the rate or rates specified in Division I or II of Part I of the First Schedule, as the case may be, on every person who has taxable income for the year.

Sub-Section (2): The income tax payable by a taxpayer for a tax year shall be computed by applying the rate or rates of tax applicable to the taxpayer under this Ordinance to the taxable income of the taxpayer for the year, and from the resulting amount shall be subtracted any tax credits allowed to the taxpayer for the year.

Sub-Section (3): Where a taxpayer is allowed more than one tax credit for a tax year, the credits shall be applied in the following order –

(a) any foreign tax credit allowed under section 103; then

(b) any tax credit allowed under Part X of Chapter III; and then

(c) any tax credit allowed under sections 147 and 168.

Sub-Section (4): Certain classes of income (including the income of certain classes of persons) may be subject to –

(a) separate taxation as provided in sections 5, 6 and 7; or

(b)collection of tax under Division II of Part V of Chapter X or deduction of tax under Division III of Part V of Chapter X as a final tax on the income of the person.

Sub-Section (5): Income referred to in sub-section (4) shall be subject to tax as provided for in section 5, 6 or 7, or Part V of Chapter X, as the case may be, and shall not be included in the computation of taxable income in accordance with section 8 or 169, as the case may be.

Sub-Section (6): Where, by virtue of any provision of this Ordinance, income tax is to be deducted at source or collected or paid in advance, it shall, as the case may be, be so deducted, collected or paid, accordingly.

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