Tax Book 2023

Losses Chapter- 14

is no “income from business” for that year, be set off against 50% of the person’s income chargeable

under the head “income from business” for the next following year and so on for succeeding years.

7. Foreign losses [Section 104]

Where a resident person sustains a foreign loss (i.e. loss from a foreign-source income) he may set

it off against his income under the same head of income. If the foreign loss is not fully set-off then the

loss shall be carried forward maximum upto six (6) tax years immediately succeeding the tax year

during which the loss occurred.

Important notes

(a) All foreign losses can be set-off and carried forward upto six (6) tax years.

(b) The foreign losses are adjusted against the same head of income. For this purpose, the

speculation business is treated as a separate head of income.

(c) Where more than one tax years’ losses are simultaneously carried forward, the loss of earliest

year shall be set-off first.

Example: Mr. Zahid suffered loss of Rs. 50,000 (converted in Pakistani currency) in business in

Dubai in tax year 20 22. His taxable income from his Dubai Business in tax year 20 23 was Rs.

600,000.

Required: Compute tax payable by Mr. Zahid for tax year 20 23.

Solution:

Mr. Zahid

Tax year 20 23

Computation of taxable income and tax liability:

Rs.

Income from business:

Income from foreign business 600,000

Less: brought forward loss (50,000)

Taxable income 550,000

Computation of tax liability:

Tax on Rs. 550,000 x 0 % ----- 0 -----

Exercise:

KL is an Association of Persons having two partners, Mr. K and Mr. L sharing profit

and loss equally. During the tax year 20 23 , KL’s Pakistan source income amounted

to Rs.2,500,000 and tax is payable thereon.

Following are the details of its foreign source incomes, tax paid thereon for the tax

year 20 23 and foreign losses brought forward from tax year 20 22 :

Heads of income Foreign income /

(loss)

Foreign tax paid Foreign losses

brought forward

Speculation

business

500,000 125,000 (250,000)

Non-speculation

business

(1,000,000) - -

Income from

other source

1,250,000 187,500 -

Capital gain 750,000 75,000 (1,500,000)

Tax credit amounting to Rs.100,000 relating to income from other source remained