[Contents] Income Tax Ordinance, 2001 I

THE

INCOME TAX

ORDINANCE 2001******

CONTENTS*******Chapter 1

PRELIMINARY1. Short title, extent and commencement. 12. Definitions. 23. Ordinance to override other laws. 22

Chapter IICHARGE OF TAX

4. Tax on taxable income. 235. Tax on dividends. 246. Tax on certain payments to non-residents. 24

7. Tax on shipping and air transport income of anon-resident person. 25

8. General provisions relating to taxes imposedunder sections 5, 6 and 7 26

II Income Tax Ordinance, 2001 [Contents]

Chapter III

TAX ON TAXABLE INCOMEPART I

COMPUTATION OF TAXABLE INCOME

9. Taxable income. 2710. Total income. 2711. Heads of income. 27

PART IIHEAD OF INCOME SALARY

12. Salary. 28

13. Value of perquisites. 3214. Employee share schemes. 35

PART III

HEAD OF INCOMEINCOME FROM PROPERTY

15. Income from property. 3715A Deduction in computing income chargeable

under the head “Income from Property38

16. Non-adjustable amounts received in relationto Buildings.

41

17. Omitted. 41

PART IV

HEAD OF INCOME: INCOME FROMBUSINESS

Division I

Income from Business

18. Income from business. 4119. Speculation business. 43

[Contents] Income Tax Ordinance, 2001 III

Division II

Deductions:

General Principles

20. Deductions in computing income chargeableunder the head "Income from Business".

44

21. Deductions not allowed.

Division III

Deductions:

Special Provisions

45

22. Depreciation. 4723. Initial allowance. 51

23A. First Year Allowance. 52

23B. Accelerated depreciation to alternate energyprojects.

53

24. Intangibles. 53

25. Pre-commencement expenditure. 56

26. Scientific research expenditure. 56

27. Employee training and facilities. 57

28. Profit on debt, financial costs and leasepayments.

58

29. Bad debts. 60

29A Provision regarding consumer loans. 61

30. Profit on non-performing debts of a bankingcompany or development finance institution.

62

31. Transfer to participatory reserve.

Division IV

Tax Accounting

63

32. Method of accounting. 6333. Cash-basis accounting. 64

IV Income Tax Ordinance, 2001 [Contents]

34. Accrual-basis accounting. 6435. Stock-in-trade. 6536. Long-term contracts. 68

PART V

HEAD OF INCOME CAPITAL GAINS37. Capital gains. 6837A Capital gain on disposal securities. 71

38. Deduction of losses in computing the amountchargeable under the head “Capital Gains”.

PART VI

HEAD OF INCOME FROM OTHERSOURCES

72

39. Income from other sources. 7340. Deductions in computing income chargeable

under the head “Income from Other Sources”.75

PART VII

EXEMPTIONS AND TAX CONCESSIONS

41. Agricultural income. 7642. Diplomatic and United Nations exemptions. 7743. Foreign government officials. 7844. Exemptions under international agreements. 7845. President’s honours. 7946. Profit on debt. 8047. Scholarships. 8048. Support payments under an agreement to live

apart.80

49. Federal, Provincial Government, and LocalGovernment income.

80

[Contents] Income Tax Ordinance, 2001 V

50. Foreign-source income of short-term residentindividuals.

81

51. Foreign-source income of returningexpatriates.

82

52. Omitted. 8253 Exemptions and tax concessions in the Second

Schedule.82

54 Exemptions and tax provisions in other laws. 83

55 Limitation of exemption.

PART VIIILOSSES

84

56 Set off of losses. 8456A Set off of losses of companies operating

hotels.85

57. Carry forward of business losses. 8557A Set off of business loss consequent to

amalgamation.86

58 Carry forward of speculation business losses. 8759. Carry forward of capital losses. 8859A. Limitations on set off and carry forward of

loses.88

59AA Group taxation. 9059B Group relief. 90

PART IXDEDUCTIBLE ALLOWANCES

60 Zakat. 9360A. Workers’ Welfare Fund. 9360B. Workers’ Participation Fund. 93

PART X

TAX CREDITS

61 Charitable donations. 94

VI Income Tax Ordinance, 2001 [Contents]

62 Tax credit for investment in shares andinsurance.

95

63 Contribution to an Approved PensionFund

97

64 Profit on debt. 98

65 Miscellaneous provisions relating to taxcredits.

99

65A Tax credit to a person registered under theSales Tax Act, 1990.

100

65B Tax credit for investment. 101

65C Tax credit for enlistment. 103

65D Tax credit for equity investment 103

65E Tax credit for industrial undertakingsestablished before the first day of July 2011

105

Chapter-IVCOMMON RULES

PART IGENERAL

66 Income of joint owners. 108

67 Apportionment of deductions. 108

68 Fair market value. 109

69 Receipt of income. 109

70 Recouped expenditure. 109

71 Currency conversion. 109

72 Cessation of source of income. 110

73 Rules to prevent double derivation anddouble deductions.

110

[Contents] Income Tax Ordinance, 2001 VII

PART II

TAX YEAR

74 Tax year. 111

PART III

ASSETS

75 Disposal and acquisition of assets. 113

76 Cost. 114

77 Consideration received. 115

78 Non-arm’s length transactions. 117

79 Non-recognition rules. 117

Chapter VPROVISIONS GOVERNING PERSONS

PART I

CENTRAL CONCEPTS

Division I

Persons

80 Person 119

Division II

Resident and Non-resident Persons

81 Resident and non-resident persons. 121

82 Resident individual. 121

83 Resident company. 121

84 Resident association of persons. 122

Division III

Associates

85 Associates. 122

VIII Income Tax Ordinance, 2001 [Contents]

PART IIINDIVIDUALS

Division ITaxation of Individuals

86 Principle of taxation of individuals. 124

87 Deceased individuals. 124

Division II

Provisions Relating to Averaging

88 An individual as a member of anassociation of persons.

125

88A. Share profits of company to be added totaxable income.

125

89 Authors. 126

Division III

Income Splitting

90 Transfers of assets. 126

91 Income of a minor child. 128

PART III

ASSOCIATIONS OF PERSONS92 Principles of taxation of associations of

persons.128

93 [*****] 128

PART IV

COMPANIES94 Principles of taxation of companies. 129

95 Disposal of business by individual towholly-owned company.

129

[Contents] Income Tax Ordinance, 2001 IX

96 Disposal of business by association ofpersons to wholly-owned company.

131

97 Disposal of asset between wholly-ownedcompanies.

133

97A Disposal of asset under a scheme ofarrangement and reconstruction.

135

PART V

COMMON PROVISIONSAPPLICABLE TO ASSOCIATIONSOF PERSONS AND COMPANIES

98 Change in control of an entity. 137

PART VA

TAX LIABILITY IN CERTAINCASES

98A. Change in the constitution of anassociation of persons.

138

98B. Discontinuance of business or dissolutionof an association of persons.

138

98C. Succession to business, otherwise thanon death.

138

Chapter VISPECIAL INDUSTRIES

PART I

INSURANCE BUSINESS99 Special provisions relating to insurance

business .140

X Income Tax Ordinance, 2001 [Contents]

PART II

OIL, NATURAL GAS AND OTHERMINERAL DEPOSITS

100 Special provisions relating to theproduction of oil and natural gas, andexploration and extraction of othermineral deposits.

140

100A Special provisions relating to Bankingbusiness

141

100B Special provision relating to capital gaintax.-

141

Chapter VIIINTERNATIONAL

PART I

GEOGRAPHICAL SOURCE OFINCOME

101 Geographical source of income. 142

PART II

TAXATION OF FOREIGN-SOURCEINCOME OF RESIDENTS

102 Foreign source salary of residentindividuals.

145

103 Foreign tax credit. 145

104 Foreign losses. 147

PART III

TAXATION OF NON-RESIDENTS105 Taxation of a permanent establishment in

Pakistan of a non-resident person.147

[Contents] Income Tax Ordinance, 2001 XI

106 Thin capitalization. 150

PART IV

AGREEMENTS FOR THE AVOIDANCEOF DOUBLE TAXATION AND

PREVENTION OF FISCAL EVASION107 Agreements for the avoidance of double

taxation and prevention of fiscal evasion.152

Chapter VIII

ANTI-AVOIDANCE108 Transactions between associates. 154

109 Recharacterization of income anddeductions.

154

110 Salary paid by private companies. 154

111 Unexplained income or assets. 155

112 Liability in respect of certain securitytransactions.

156

Chapter IX

MINIMUM TAX113 Minimum tax on the income of certain

persons.157

113A Minimum tax on builders 159

113B Minimum tax on land developers 159Chapter X

PROCEDUREPART I

RETURNS114 Return of income. 160

115 Persons not required to furnish a return ofincome.

165

XII Income Tax Ordinance, 2001 [Contents]

116 Wealth statement. 166

117 Notice of discontinued business. 168

118 Method of furnishing returns and otherdocuments.

169

119 Extension of time for furnishing returnsand other documents.

170

PART II

ASSESSMENTS120 Assessments. 172

120A Investment Tax on income. 173

121 Best judgment assessment. 174

122 Amendment of assessments. 175

122A. Revision by the Commissioner. 178

122B. Revision by the Regional Commissioner. 179

122C Provisional assessment. 180

123 Provisional assessment in certain cases. 180

124 Assessment giving effect to an order. 181

124A. Powers to tax authorities to modify orders,etc.

183

125 Assessment in relation to disputedproperty.

183

126 Evidence of assessment. 184

PART III

APPEALS127 Appeal to the Commissioner (Appeals). 184

128 Procedure in appeal. 186

129 Decision in appeal. 187

[Contents] Income Tax Ordinance, 2001 XIII

130 Appointment of the Appellate Tribunal. 188

131 Appeal to the Appellate Tribunal. 191

132 Disposal of appeals by the AppellateTribunal.

192

133 Reference to High Court. 194

134 [Omitted]. 195

134A Alternative Dispute Resolution. 195

135 [Omitted]. 197

136 Burden of proof. 197

PART IVCOLLECTION AND RECOVERY

OF TAX137 Due date for payment of tax. 198

138 Recovery of tax out of property andthrough arrest of taxpayer.

199

138A. Recovery of tax by District Officer(Revenue).

200

138B Estate in bankruptcy. 200

139 Collection of tax in the case of privatecompanies and associations of persons.

201

140 Recovery of tax from persons holdingmoney on behalf of a taxpayer.

202

141 Liquidators. 203

142 Recovery of tax due by non-residentmember of an association of persons.

204

143 Non-resident ship owner or chatterer. 205

144 Non-resident aircraft owner or chatterer. 206

145 Assessment of persons about to leavePakistan.

207

XIV Income Tax Ordinance, 2001 [Contents]

146 Recovery of tax from persons assessed inAzad Jammu and Kashmir.

208

146A. Initiation, validity, etc., of recoveryproceedings.

208

146B Tax arrears settlement incentives scheme 209

PART VADVANCE TAX AND DEDUCTION OF

TAX AT SOURCEDivision I

Advance Tax Paid by the Taxpayer147 Advance tax paid by the taxpayer. 209

Division IIAdvance Tax Paid to a Collection Agent

148 Imports. 214

Division IIIDeduction of Tax at Source

149 Salary. 216

150 Dividends. 217

151 Profit on debt. 217

152 Payments to non-residents. 219

153 Payments for goods and services. 223

153A [Omitted] 228

154 Exports. 228

155 Income from property. 230

156 Prizes and winnings. 231

156A Petroleum Products. 231

156B Withdrawal of balance under PensionFund.

231

157 Omitted. 232

[Contents] Income Tax Ordinance, 2001 XV

158 Time of deduction of tax. 232

Division IVGeneral Provisions Relating to the

Advance Payment of Tax or theDeduction of Tax at Source

159 Exemption or lower rate certificate. 233

160 Payment of tax collected or deducted. 234

161 Failure to pay tax collected or deducted. 234

162 Recovery of tax from the person fromwhom tax was not collected or deducted.

236

163 Recovery of amounts payable under thisDivision.

236

164 Certificate of collection or deduction oftax.

236

165 Statements. 237

165A Furnishing of information by banks. 239

166 Priority of tax collected or deducted. 240

167 Indemnity. 241

168 Credit for tax collected or deducted. 241

169 Tax collected or deducted as a final tax. 243

PART VIREFUNDS

170 Refunds. 246

171 Additional payment for delayed refunds. 247

PART VII

REPRESENTATIVES

172 Representatives. 248

173 Liability and obligations ofrepresentatives.

251

XVI Income Tax Ordinance, 2001 [Contents]

PART VIII

RECORDS, INFORMATIONCOLLECTION AND AUDIT

174 Records. 252

175 Power to enter and search premises. 253

176 Notice to obtain information or evidence. 254

177 Audit. 256

178 Assistance to Commissioner. 259

179 Accounts, documents, records andcomputer-stored information not in Urduor English language.

259

180 Power to collect information regardingexempt income.

259

PART IX

TAXPAYER’SREGISTRATION

181 Taxpayer’s registration. 260

181A. Active taxpayers’ list 260

181B. Tax payer Card 260

181C. Displaying of National Tax Number 260

PART X

PENALTY182 Offences and penalties. 261

183 Exemption from penalty and defaultsurcharge.

267

184 [Omitted]. 267

185 [Omitted]. 267

186 [Omitted]. 267

[Contents] Income Tax Ordinance, 2001 XVII

187 [Omitted]. 267

188 [Omitted]. 267

189 [Omitted]. 267

190 [Omitted]. 267

PART XI

OFFENCES AND PROSECUTIONS

191 Prosecution for non-compliance withcertain statutory obligations.

268

192 Prosecution for false statement inverification.

268

192A Prosecution for Concealment of income. 269

193 Prosecution for failure to maintain records. 269

194 Prosecution for improper use of NationalTax Number Certificate

270

195 Prosecution for making false or misleadingstatements.

270

196 Prosecution for obstructing an income taxauthority.

271

197 Prosecution for disposal of property toprevent attachment.

271

198 Prosecution for unauthorized disclosure ofinformation by a public servant.

271

199 Prosecution for abetment. 271

200 Offences by companies and associations ofpersons.

272

201 Institution of prosecution proceedingswithout prejudice to other action.

272

202 Power to compound offences. 273

203 Trial by Special Judge. 273

XVIII Income Tax Ordinance, 2001 [Contents]

203A Appeal against the order of a SpecialJudge.

274

204 Power to tender immunity fromprosecution.

274

PART XII

DEFAULT SURCHARGE

205 Default surcharge. 275

205A. Reduction in default surcharge,consequential to reduction in tax orpenalty.

278

PART XIII

CIRCULARS

206 Circulars. 278

206A Advance ruling. 278

Chapter XIADMINISTRATION

PART I

GENERAL

207 Income Tax Authorities. 280

208 Appointment of income tax authorities. 281

209 Jurisdiction of income tax authorities. 282

210 Delegation. 284

211 Power or function exercised. 285

212 Authority of approval. 285

213 Guidance to income tax authorities. 285

214 Income tax authorities to follow orders ofthe Central Board of Revenue.

28

214A Condonation of time limit. 286

[Contents] Income Tax Ordinance, 2001 XIX

214B Power of the Board to call for records. 286

214C Selection for audit by the Board. 287

215 Furnishing of returns, documents etc. 288

216 Disclosure of information by a publicservant.

288

217 Forms and notices; authentication ofdocuments.

292

218 Service of notices and other documents. 293

219 Tax or refund to be computed to thenearest Rupee.

294

220 Receipts for amounts paid. 294

221 Rectification of mistakes. 295

222 Appointment of expert. 296

223 Appearance by authorized representative. 296

224 Proceedings under the Ordinance to bejudicial proceedings.

299

225 Proceedings against companies underliquidation.

299

226 Computation of limitation period. 299

227 Bar of suits in Civil Courts. 300

227A Reward to officers and officials of InlandRevenue

300

PART IIDIRECTORATES-GENERAL

228 The Directorate-General of Internal Audit. 301

229 Directorate General of Training andResearch

301

230 Directorate General (Intelligence andInvestigation), Inland Revenue

301

XX Income Tax Ordinance, 2001 [Contents]

PART IIIDIRECTORATE-GENERAL

230A Directorate-General of Withholding Taxes. 302

230B Directorate-General of Law. 302

230C Directorate-General of Research andDevelopment.

302

231 [Omitted]. 302

Chapter XIITRANSITIONAL ADVANCE TAX

PROVISIONS231A Cash withdrawal from a Bank. 303

231AA Advance Tax on transaction in bank. 303

231B Advance Tax on private motor vehicles. 304

232 [Omitted]). 304

233 Brokerage and Commission. 305

233A Collection of tax by a stock exchangeregistered in Pakistan.

305

233AA Collection of tax by NCCPL. 306

234 Tax on motor vehicles. 306

234A CNG Stations. 307

235 Electricity Consumption. 307

236 Telephone users. 308

236A Advance tax at the time of sale by auction. 309

236B Advance tax on purchase of air ticket. 310

236C Advance tax on sale or transfer ofImmovable Property.

310

236D Advance tax on functions and gathering. 311

236E Advance tax on foreign-produced TVplays and serials.

311

[Contents] Income Tax Ordinance, 2001 XXI

236F Advance tax on cable operators and otherelectronic media..

312

236G Advance tax on sale to distributors,dealers and wholesalers.

312

236H Advance tax on sale to retailers. 312

236I Collection of advance tax by educationalinstitutions.

313

236J Advance tax on dealers, commissionagents and arhatis etc.

313

Chapter XIIIMISCELLANEOUS

237 Power to make rules. 314

237A Electronic record. 315

238 Repeal. 316

239 Savings. 316

239A Transition to Federal Board of Revenue. 320

239B Reference to authorities. 320

240 Removal of difficulties. 320

SCHEDULES

First Schedule. 321

Second Schedule. 340

Third Schedule. 404

Fourth Schedule. 406

Fifth Schedule. 412

Sixth Schedule. 423

Seventh Schedule. 443

Eighth Schedule. 449

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