Tax on deemed income

Tax on Deemed Income

Income tax Ordinance 2001

Overview of the Guideline

• What is deemed income
• Rate of Tax
• Relevant properties
• Exclusions

These provisions Inserted by Finance Act 2022

Applicable for Tax Year 2022 and onward

 

7E. Tax on deemed income.-

 

• For tax year 2022 and onwards, a tax shall be imposed at the rate of 20% on the income specified in this section

(First Schedule, Part I, Division VIIIC)

 

• A resident person shall be treated to have derived, as income equal to 5% of the fair market value of capital assets situated in Pakistan held on the last day of tax year

 

Tax can also be calculated as “1% of the fair market value of capital assets”

 

7E(4)(a) “capital asset” means property of any kind held by a person, whether or not connected with a business, but does not include –

1. any stock-in-trade, consumable stores or raw materials held for the purpose of business;
2. any shares, stocks or securities;

• any property with respect to which the person is entitled to a depreciation or amortization; or

1. any movable asset not mentioned in clauses (i), (ii) or (iii)

 

7E(4)(b) “farmhouse” means a house constructed on a total minimum area of 2,000 square yards (66.11558 Marla) with a minimum covered area of 5,000 square feet (18.36544 Marla) used as a single dwelling unit

For more than one dwelling units with average area of the compound more than 2,000 square yards for a dwelling unit, each one of such dwelling units shall be treated as a separate farmhouse.

 

Section 68. Fair market value.

(4) Notwithstanding anything contained in sub-sections (1) and (3), the Board may, from time to time, by notification in the official Gazette, determine the fair market value of immovable property of the area or areas as may be specified in the notification

(5) Where the fair market value of any immovable property of an area or areas has not been determined by the Board in the notification referred to in subsection (4), the fair market value of such immovable property shall be deemed to be the value fixed by the District Officer (Revenue) or provincial or any other authority authorized in this behalf for the purposes of stamp duty

Excluding

Following assets shall be excluded to calculate Tax payable:-

1. one capital asset owned by the resident person;
2. self-owned business premises from where the business is carried out by the persons appearing on the active taxpayers’ list at any time during the year;
3. self-owned agriculture land where agriculture activity is carried out by person excluding farmhouse and land annexed thereto;
4. capital asset allotted to –
   1. a Shaheed or dependents of a shaheed belonging to Pakistan Armed Forces
   2. a person or dependents of the person who dies while in the service of Pakistan armed forces or Federal or provincial government;

• a war wounded person while in service of Pakistan armed forces or Federal or provincial government;

1. an ex-serviceman and serving personal of armed forces or ex-employees or serving personnel of Federal and provincial governments, being original allottees of the capital asset;

1. any property from which income is chargeable to tax under the Ordinance and tax is paid;
2. capital asset in the first tax year of acquisition where tax under section 236K has been paid;
3. where the fair market value of the capital assets in aggregate excluding the capital assets mentioned in clauses (a), (b), (c), (d), (e) and (f) does not exceed Rs 25 million;
4. capital assets owned by a provincial government or a local government; or
5. capital assets owned by a local authority, a development authority, builders and developers for land development and construction,

Provided that such persons are registered with Directorate General of Designated Non-Financial Businesses and Professions.