Federal Board of Revenue (FBR) has defined taxable income in Pakistan under Income Tax Ordinance, 2001 updated up to June 30, 2022, after incorporating changes made through Finance Act, 2022.
The taxable income has been defined under Section 9 of the Income Tax Ordinance, 2001.
According to this section: “The taxable income of a person for a tax year shall be the total income under clause (a) of section 10 of the person for the year reduced (but not below zero) by the total of any deductible allowances under Part IX of this Chapter of the person for the year.
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Meanwhile, Section 4 of Income Tax Ordinance, 2001 deals with tax on taxable income.
As per the Section 4, the tax on taxable income is:
(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.
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(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.
(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.
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(4) Certain classes of income (including the income of certain classes of persons) may be subject to –
(a) separate taxation as provided under this chapter; 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.
(5) Income referred to in sub-section (4) shall be subject to tax as provided for under this chapter, 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.
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(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.
