Assignment - 1

Q-1: Salman is employed at Shanzay Mills at a monthly salary of Rs. 210,800. He gets the
following monthly allowances:

 Dearness allowance of Rs. 8000,

 Rs. 50,000 in lieu of availing of his annual recreational leave
 Special relief allowance of 15% of basic salary,
 Rs. 2,500 as entertainment allowance, and
 Medical allowance of Rs. 20,000.

The special relief allowance started from the month of December 2019. Salary and allowances
are paid to Salman on the first day of the next month of service. In the month of May 2020,
Salman’s son got sick. He spent Rs. 15000 in paying doctor’s fee and purchase of medicines.

He has been provided a company maintained 1600cc car which was used partly for official and p
artly for personal purposes. The company has leased the car from a bank. The gross lease rental
s payable over the period of lease amount to Rs. 2,700,000. The fair market value of the car atth
e time of lease was Rs. 1,600,000. The total lease rentals paid by the company
during the year amounted to Rs. 800,000.  A second car – Honda City, is also provided by
Shanzay Mills that is used exclusively by Salman’s wife. The cost of Honda City was Rs.1400,000
two years ago. The company incurred Rs. 235,000 as expense during the year in respect of fuel
for both cars.

Salman is a member of Karachi Golf club and pays monthly fee of Rs. 5000 to the club. Salman’s
employer pays the monthly fee of Rs. 6000 for Salman’s membership of the Polo Club. Salman
pays monthly salary of Rs, 15,000 of his driver. His driver went on leave in the month of January
2020, and Salman’s employer provided him with a replacement driver for the month. The
replacement driver is also paid Rs. 15,000 a month. His employer also reimburses school fee for
Salman’s two children. Monthly fee of each child is Rs. 17,500.

Salman’s employer, Shanzay Mills, run an approved provident fund for all employees.
Provident fund was deducted @10% of his basic salary. An equal amount was contributed by
the company. Interest credited to his provident fund account amounted to Rs. 48,000 for the
tax year 2020.

Salman’s employer gave 50,000 options free of cost on 25th March 2019. Each option entitles
Salman to buy 2 shares of the company at a price of Rs. 15 per share. Each option has a market
value of Rs. 2.5 in Mar 2019 and are tradeable. On 15th June 2020, Salman exercised 10,000
options, when the market value of one share was Rs. 25. On 31st July 2020, Salman exercised
10,000 options again, when the market value of one share was Rs. 30. Salman has 30,000
options left that he plans to exercise in December 2020.

ShanzayMills gave Salman a loan of Rs. 400,000 at a 2% markup on 1 October 2019 for the edu
cation of his children. On 30 June 2020, Salman returned the principal amount of Rs. 350,000 al
ong with the markup payable on the total loan. The balance amount of Rs. 50,000 was, howev
er, waived by Shanzay Mills on that day. 

During tax year 2019, Salman gave donation of Rs. 80,000 to Shaukat Khanum Hospital (listed in
2nd Schedule.

Required: Income Tax Liability for the tax year 2020.

Download the ITO 2001 from www.fbr.gov.pk and get the tax rates (First Schedule).
15 marks
Q2
From employment with Galaxy Ltd as technical officer Mr Ahmed worked with Galaxy Ltd (‘Gala
xy’) throughout the year ended 30 June 2020. On reaching the age of 55 years, he opted for earl
y retirement and retired on 30th June 2020. He was employed at a monthly salary of Rs.
300,000. He gets the following allowances and perquisites:

 Monthly medical allowance at 5% of basic salary. This allowance is available to all

employees.
 Company maintained car costing Rs. 2,500,000 for both official use. The car had market
value of Rs. 1,600,000 on 30th Jun 2019 and Rs. 1,200,000 on 30th Jun 2020 respectively.
 A concessional loan of Rs. 2,500,000 was given on 1 Jan 2019. He repaid Rs. 500,000 on 31 st
Dec 2019. Rs. 20,000 was deducted in total from his salary as interest payment for the
period Jul 2019 – Jun 2020.

Ahmed contributes 10% of his salary in the company’s provident fund. Ahmed’s employer
disburses salary and cash allowances on the first day of next month of the service. However,
due to Ahmed’s retirement, salary and allowances for June 2020 and the retirement benefits
were paid to him on 30th June 2020. Ahmed was paid:
 Amount equivalent to 1 year salary (without allowance) as an early retirement benefit
 Salary tax reimbursement of Rs. 300,000 (as a good gesture that the employer is bearing
salary tax)
 Rs.800,000 from the company’s approved gratuity scheme
 Rs. 1,200,000 from the company’s approved provident fund
 Rs. 200,000 as leave encashment in respect of holidays that were not availed during
employment

On 30th June 2020, Ahmed bought the car in his use from his employer for Rs. 750,000.

On 15th August 2019, the company gave all employees shares of the company under employee
share ownership scheme. Employees cannot sell the shares received under the scheme for ten
months. The shares were given at no cost to employees, and had a market value of Rs. 18 on
15th August 2019, Rs. 23 on 15th February 2020, and Rs. 26 on 15th Jun 2020. Ahmed received
10,000 shares under the scheme.

On 29th June 2020, his employer threw a farewell dinner in Ahmed’s honor, and presented him
with a new UHD TV that had a market value of Rs. 120,000. His employer also informed him
that the loan is waived off by 50% of outstanding principal amount. Remaining 50% would be
adjusted in final settlement payment.

Required: Income Tax Liability for the tax year 2020.

Download the ITO 2001 from www.fbr.gov.pk and get the tax rates (First Schedule).
15 marks