Income From Business Chapter- 09
- Provision regarding consumer loans [U/s 29A]
A non-banking finance company or the HBFC shall be allowed a deduction, not exceeding 3% of
the income for the tax year, arising out of consumer loans for creation of a reserve to off-set bad
debts arising out of such loans.
Where bad debt cannot be wholly set off against reserve, any amount of bad debt, exceeding the
reserves shall be carried forward for adjustment against the reserve for the following years.
"Consumer loan" means a loan of money or its equivalent made by a non-banking finance company
or the HBFC to a debtor (consumer) and the loan is entered primarily for personal, family or
household purposes and includes debts created by the use of a lender credit card or similar
arrangement as well as insurance premium financing.- Profit on non-performing debts of a banking company or development finance
institution [U/s 30]
A banking company or development finance institution or Non-Banking Finance Company
(NBFC) or modaraba shall be allowed a deduction for any profit accruing on a non-performing debt
where the profit is credited to a suspense account in accordance with the Prudential Regulations
for the above named category, issued by the SBP or the SECP.
Any profit deducted as above that is subsequently recovered shall be included in the income of the
company or institution or NBFC or modaraba chargeable under the head "Income from Business" for
the tax year in which it is recovered.- Transfer to participatory reserve [U/s 31]
A company shall be allowed a deduction for a tax year for any amount transferred by the company in
the year to a participatory reserve created u/s 66 of the Companies Act, 2017 in accordance with
an agreement relating to participatory redeemable capital entered into between the company and a
banking company as defined in the “Financial Institutions (Recovery of finances), Ordinance, 2001.
The deduction allowed as above for a tax year shall be limited to 5% of the value of the company's
participatory redeemable capital.
No deduction shall be allowed as above if the amount of the tax exempted accumulation in the
participatory reserve exceeds 10% of the amount of the participatory redeemable capital.
Where any amount accumulated in the participatory reserve has been allowed as a deduction as
above is applied by the company towards any purpose other than payment of share of profit on
the participatory redeemable capital the amount so applied shall be included in the income
from business of the company in the tax year in which it is so applied.Example: A company has received amount as Participatory redeemable capital Rs.10,000,000 in
the tax year 20 23.
You are required to compute the amount that should be allowed as expense against business
income of the Company u/s 31 under the following situations
A. If the amount transferred during the tax year 20 23 to Participatory reserve is 5% of the amount
received.
B. If the amount transferred to Participatory reserve is 3% of the amount received.
C. If the amount transferred to Participatory reserve is 8% of the amount received.
D. If the accumulated balance in Participatory reserve is 10%.
F. If the accumulated balance in Participatory reserve is 14%.
G. If the amount transferred during the tax year 20 23 to Participatory reserve is 5% of the amount
received however the amount was used other than to redeem capital.Solution: Under case A, B, C and D the company shall be allowed expense equal to 5% of
Participatory reserve of the respective years. However in case of E and F the company shall not be
allowed any expense as it exceeds from maximum limit of 10% and used for any purpose other than
for redemption of redeemable capital.