Administration

INCOME TAX AUTHORITIES (207)

Board

Regional Commissioner (RCIT)

Commissioner Income Tax Appeals (CIT Appeals)

Commissioner Income Tax (CIT)

Taxation Officers (TO) Board shall exercise the general administration of this Ordinance. A taxation officer vested with powers of CIT shall be subordinate to RCIT.

APPOINTMENT OF INCOME TAX AUTHORITIES (208)

Who can appoint Board may appoint as many authorities and staff as necessary. Any Income tax authority may appoint subordinate authority subject to Boards directions. All appointments (other than valuers, CAs or experts) shall be subject to rules and orders of Federal Government as applicable on public services and posts.

JURISDICTION OF INCOME TAX AUTHORITIES (209)

Jurisdiction Board shall specify jurisdiction (power, area etc.) of RCIT, CIT (Appeals) & CIT. Such jurisdiction may be in respect of persons, classes of persons or are. Board or RCIT (with approval of Board) may confer or assign powers of CIT to any Taxation officer and such officer shall be subordinate to RCIT. Such person shall be treated as CIT. Such commissioner shall have jurisdiction in respect of person; carrying on business having principal place in area assigned to him or residing in his area. Every Commissioner shall have all the powers in respect of any income arising within area assigned to him. If a question arises about jurisdiction over a person, RCIT or RCITs shall decide. In case of disagreement between RCITs, Board shall decide. A person cannot call jurisdiction into question if; He has filed Income Tax return. He has failed to furnish return after expiry of time allowed in notice for return. Jurisdiction may be transferred from one authority to another. Succeeding authority may continue the proceedings from the stage at which it was left by the previous one.

Tax officer as CIT

Jurisdiction of CIT

Succession of authority

DELEGATION (210 & 211)

By CIT Power exercised after delegation CIT may delegate all or any of powers to TO (other than power of delegation). Such delegation may be in respect of person, classes of persons or are falling under his jurisdiction. Powers shall be delegated by written order. Power to amend assessment cannot be delegated to an officer below the rank of Additional CIT. CIT can cancel, modify, alter or amend delegation order at any time. When such TO exercises a delegated power, such action is deemed to be performed by CIT. Such performance does not prevent CIT from exercising same power.

AUTHORITY OF APPROVAL (212)

By Board Board may authorize RCIT or CIT to grant approvals required from Board under any provision of Ordinance.. Such authorization may be made in General or special order.

GUIDANCE TO INCOME TAX AUTHORITIES (213)

Who may CIT or TO may be assisted, guided or instructed by any superior

financedoctors@gmail.com Income Tax Authority or person authorised by Board in course of any proceeding.

AUTHORITIES TO FOLLOW ORDER OF BOARD (214)

Orders by Board No order interfering appellate authorities All income tax authorities are bound to follow the orders, instructions and directions by the Board. Board shall not issue any order interfering with the discretion of CIT Appeals in exercising his functions.

FURNISHING OF RETURNS, DOCUMENTS ETC. (215)

Delegation by CIT When CIT delegates power (u/s 210) to receive, or to call for and receive return, certificates, documents, accounts and statements and the person (filer) files the same, he is treated as having filed to CIT. Application to be filed to the CIT can be filed with TO authorize by CIT for such purpose.

DISCLOSURE OF INFORMATION BY PUBLIC SERVANT (216)

Status of information Information contained in any document provided by a taxpayer in respect of tax proceedings shall be confidential and a public servant may not disclose such information except to the extent provided under this Ordinance. Subject to the approval of board a public servant may disclose information in following cases; For tax recovery and processing of data relating to return. To Auditor General of Pakistan or his authorized officer for functions including audit of tax receipts and refunds. To any Government official for realization of federal or provincial tax. To authorities exercising powers under law relating to Excise, Sales tax, Customs, Stamp duty, Securities and Exchange Commission, Companies Ordinance and Foreign Exchange Regulations. To State Bank of Pakistan for compilation of Financial statements. Relevant to inquiry against a legal practitioner, accountant or public servant in connection with tax proceedings or related matters. To any foreign Government under tax treaty (tax agreements). To Federal Government ombudsman (a person appointed by FG for investigating complaints by private persons against Government). FG or CIT with approval of FG may publish certain particulars and amount of tax paid by certain taxpayers under National Accountability Bureau (NAB).

Disclosure when permitted

FORM AND NOTICES; AUTHENTICATION OF DOCUMENTS (217)

Form, notices, returns, statements, tables and other documents required under this Ordinance may be determined by the Board. Publication of such documents in the official gazette shall not be Form required. CIT shall make the documents available to public in manner prescribed. Notices etc. shall be considered sufficiently authenticated if the name or Authentication title of CIT or authorised officer is printed, stamped or written on the notice or document.

SERVICE OF NOTICES AND OTHER DOCUMENTS (218)

Any notice to be served on resident individual (other than in a representative capacity) is treated as properly served when; Personally served on the individual To representative of legally disable or non resident individual or; Sent to specified place or individuals usual or last known address in Pakistan of individual ; or Served as a summon under Code of Civil Procedure. Notice to person other than resident individual shall be treated as properly served when; Personally served on representative Sent by registered post or courier service to persons registered office or address for service of notices under the Ordinance in Pakistan; or Served as a summon under Code of Civil Procedure Such notice may be served on Principal Officer or a member immediately before dissolution. Any order, notice or requisition to be served under section 117 may be served on person discontinuing business or his representative at the time of discontinuance. Validity of notice cannot be challenged after the return to which notice relates has been filed or notice has been complied with.

When treated served

Notice of dissolution of AOP Notice of discontinuance of business Validity

TAX OR REFUND TO BE COMPUTED TO NEAREST RUPEE (219)

Fraction Fractions 50 paisa shall be treated as one Rupee. Fraction < 50 paisa shall be ignored.

RECEIPTS FROM AMOUNTS PAID (220)

By CIT CIT shall give a receipt for any tax or other amount paid or recovered under this Ordinance.

RECTIFICATION (221)
Who can rectify Opportunity of being heard Time limit when rectification is applied by taxpayer Time limit for other rectification Effect of no rectification order CIT, CIT (appeals) or ITAT (Income tax appellate tribunal). Rectification may be on own motion or on application by taxpayer. If rectification has an adverse effect on taxpayer, he shall be given opportunity of being heard. before the expiration of financial year next following the date of application for rectification i.e. for application dated 15.10.2007 the last date of rectification is 30.6.2009. Within 5 years of order to be rectified. Mistakes shall be deemed to have been rectified in favor of taxpayer.

APPOINTMENT OF EXPERT (222)

By CIT CIT shall appoint any expert as necessary for this Ordinance including for the purposes of audit or revaluation.

APPEARANCE BY AUTHORISED REPRESENTATIVE (223)

When AR An AR may represent taxpayer before CIT,CIT (appeals) or ITAT unless can personal attendance of taxpayer is required. represent Person AR Company Principal officer AOP Principal officer or member Trust Trustee Local authority, Government Personal responsible for accounting receipts and payments Others Relative Full time employee Bank officer dealing with taxpayer Legal practitioner An accountant i.e. Who can A chartered accountant be AR A cost and management accountant An ACCA A member of Society of Incorporated Accountants London A member of ICAEW An Income tax practitioner i.e. a person registered by Board as ITP having prescribed qualification or service with tax department for 10 years or more in capacity of TO or higher. Insolvent till his insolvency continues. Employee dismissed from tax department. Employee resigning from tax department till two years of resignation. Employee retired from Tax department till one year if he was involved in Who taxpayers tax proceedings within one year before retirement. cannot Person guilty of misconduct regarding tax proceedings for a period be AR determined by CIT in writing. CIT shall provide such person an opportunity of being heard before making the order. He shall be allowed to file an appeal with Board. If appeal is filed he can be representative till the decision of Board. In case of misconduct by accountant or legal practitioner, punishment shall be decided by the relevant authority.

CHAPTER 1

Understanding of Income Tax Ordinance, 2001

PRACTICAL STEPS INVOLVED FOR TAXATION:
In the first we should have the knowledge of the practical steps involved in the taxation process

Step - 1

Recording of business transactions:

During the period a person records the business transactions keeping in view the rules and regulations of the income tax but this is not compulsory. A person may prepare its books of accounts on the basis of accounting conventions and at the end of the year it will calculate its taxable income by making certain adjustments in the profit and loss. In this case accounting profit and taxable profit will be different. Taxable Income = total income from different sources

Step - 2 Financial Statement (profit) Financial statements are prepared at the end of the period and the document which is important for tax department is the profit and loss account from where the income and expenditures are assessed. Step - 3 Calculate the tax liability It has already been mentioned in step one that if accounts are prepared on the basis of accounting standards then the taxable income is calculated and also calculate the tax liability as well. Step - 4 Filing of Return (Communication with Tax Department) Filing and Return is the prescribed form by the tax department on which a person provides the detail of his income and tax. This return is divided into three parts. Profile Computation of Income

Computation of Tax Step - 5 Assessment When the person file the return of income tax the tax department (assessing officer) evaluate that whether the information provided by the person (assessee) is correct or not. For this they may call them for other information as required and may made certain amendments. This process of evaluation is known as assessment and an assessment order is made. There are different types of assessment procedures are given by the Income Tax Ordinance 2001
Assesses Assessment Assessment officer Tax payer/who is liable to pay tax Checking/detailed checking Who will made the assessment of assesses commissioner income tad officer,

Step - 6 Appeals (against the assessment) If the person is not satisfied with the order made by the department then it has options to go against the order of the department and may file an appeal. Following rooms are available: CIT (Commission of Income Tax) - Appeal ITAT (Income Tax Appellate Tribunal) Reference to High court Recovery/collection procedure

Step - 7

The law has given different powers to the assessing officers for the recovery and collection of income tax that are also discussed in the law.

Construction of the Law:

Income tax ordinance 2001

Ordinance General Rules/provision

Schedule Schedule is a part of ordinance. There are 7 schedule First - Tax Rates on Persons Second Exemptions Third - Depreciation , Initial All, Pre.Com Fourth - Profit and Gains of Insurance Business Fifth - Profit and Gains of Exploration Sixth - Provident Fund Seventh Profit and Gains of Banking Company

Rules Explanation of the ordinance

Difference between Income Tax Ordinance, Schedule and Income Tax Rules:
In Ordinance rules and regulations are given and in the Income Tax Rules, explanations and application of the provisions are given. For example, in ordinance the structure of salary is given that it may include certain facilities (perquisites) provided by the employer and in the Rules the method of calculations are given. The schedule is a part of a Ordinance. There are seven schedules in Income Tax Ordinance, 2001. In schedules tax rates, privileges, exemptions and rules for special businesses i.e. bank and Insurance etc are given.

How to read the law:

Income Tax Ordinance and Rules are segregated into Chapters, Parts, Divisions, Sections, Sub-sections, Clauses and Sub-Clauses. There are 12 chapters and 240 Sections. If chapters are divided into parts and parts into divisions and so on up sub-clauses if required. Chapters and sections are continuous but divisions and parts start for each chapters and divisions e.g Chapters III
PART IV Division I Section 18 Sub-Section 1 of 18 write as 18(1) Clause a of Sub section 1 18(1)(a)

Tax on Taxable Income

INCOME FROM BUSINESS Income from Business Income from business include Income chargeable to tax under Business the profits and gains of any business carried on by a person at any time in the year;

Classification Chapters Parts Division Provisions starts from Sections Sub Sections Clauses Sub Clauses

Definitions: All laws define the terms in their own ways and in order to understand the law we must understatnd these definitions because these are immense important. Definitions

Inclusive

Inclusive & Exclusive

Exclusive It excludes the ordinary dictionary meaning and gives definitive meaning to the term or phrase. Starts with the word mean/means.
Agricultural income means an income that satisfies following conditions. 1) Income is derived from land that may be in the form of rent or revenue. 2) Land is situated in Pakistan. 3) Land is used for agricultural purpose.

It retains its ordinary dictionary This definitions has both elements meaning and also acquires the meaning assigned to the term or Banking company means a phrase by the definition given in banking company as the statute. defined in the Banking Starts with the word includes. Companies Ordinance 1962 and includes any Person include: body corporate which Individual transacts the business of AOP
Company Government

CLAUSES

Superlative clause Starts with the word Notwithstanding anything contained

Subordinate clause Starts with the word Subject to the provision of

CHAPTER 2

Computation of Tax Liability of a Person

STEPS INVOLVED FOR THE CALCUALTION OF TAX
Return is divided into three parts:

Profile
Name: Status: Assessee

Computation of Income
Income from Salary Income from property

Computation of Tax
Tax on taxable income (in accordance with the first schedule) xxxxx A - Less: Tax Credits I - Senior Citizen Allownce II- Full Time Teacher All III- Foreign Tax Credit

Personal status: (IND / AOP/ CO) Income from business Residential status: (Resident / Non-Residet) Capital gains: Other sources: Less:

B - Less: Average Relief (IPDP)

Investment in shares Person fund Zakat Donation Donation u/c 61 Profit on debt Worker welfare fund - WWF Tax year:
Worker profit participation fund WPPF

X X X X

C Advance Tax
Collection of Tax (X) (X) XXXX

Add:

Share from AOP Deduction of Tax

Taxable income PERSON:

XXXX

Tax payable/refundable

Person may be a salaried or non salaried person. Person is divided into three parts

How to find the residential status of the person. PERSONS

Salaried

Non-salaried

AOP

Company 1. If the company is in corporated in Pakistan 2. If the management and control of the company is in Pakistan 3. If it is provincial Government or it is Federal Government

Individual If an individual live 183 days. In Pakistan he is a resident person.

If the management of an AOP live in Pakistan wholly or partly at any time then