Tax Book 2023

Income From Other Sources Chapter- 13

(c) An option shall be filed by the person at the date of filing of return for the tax year in the year of

receipt or by such later date as allowed by the Commissioner Inland Revenue.

Example: Mr. Zia received Profit on debt Rs. 600,000 in 20 23 including profit on debt of Rs.100,000

related to tax year 20 22.

Required: Calculate the amount of tax under the Income Tax Ordinance, 2001 by assuming that the

tax rate in tax year 20 22 was 8% and in tax year 20 23 it is 10%.

Solution:

Option A (Total income charged to tax at tax rate of 20 23 )

2023

Rs.

Income from other sources 600,000

Tax on Rs. 600,000 @ 10% 60,000

Tax liability = Rs. 60,000

Option B

2022 2023

Rs. Rs.

Income from other sources 500,000 100,000

Tax on income

2023 : tax rate is 10% 50,000

2022 : tax rate is 8% 8,000

Tax liability (50,000 + 8,000) = Rs. 58,000

Note: As tax liability under option B is less hence, the same is opted by the taxpayer.

Non application of section 39 U/S 39(5):

This section shall not apply to any income received by a person in a tax year that is chargeable to tax

under any other head of income or subject to tax under Final tax regime.

4. Income from other sources [U/s 40]

Where a person’s income is chargeable to tax under the head income from other sources, he shall be

allowed to deduct expenditure incurred on deriving such income. These expenditures are as under:

 A deduction shall be allowed for any expenditure (except capital expenditure) paid by the

person to the extent to which the expenditure is paid in deriving income from other sources.

 Zakat paid under the Zakat and Ushr Ordinance on profit on debt.

 Deduction for depreciation of plant, machinery or building in case of lease income from letting

out such building together with plant and machinery.

 An initial allowance for any plant or machinery.

5. Deductions not allowable [U/s 40(4), (5) and (6)]

 No deduction shall be allowed to a person under this section to the extent that the expenditure

is deductible in computing the income of the person under another head of income.

 The inadmissible expenses u/s 21 shall also be used under this head in the same manner as

they apply in determining the deductions allowed in computing the income under the head

income from business.

 Expenditure is of a capital nature if it has a normal useful life of more than one year

Example: Mr. Imran let out his building together with plant and machinery to Mr. Amir. He provided you the
following information for the calculation of taxable income and tax liability:
a. Rent received Rs. 600,000
b. Repair and maintenance of building Rs. 35,000