Midterm Assignment

Taxation and Auditing

Salary Taxation
BBA [4]-8 (M) Morning
15 – Marks
Submission Date 27th of May

A. Background
Taxation on Income has been covered in detail before midterm exams. As per the discussion in
the class five head of income has been covered namely

1. Income from salary

2. Business income
3. Property income
4. Capital gain
5. Income from other source

In light of income tax ordinance ITO 2001, taxable income of the person can be calculated as
under:

Income> 5 heads> Taxable allowance >Total income >less Zakat >taxable income> apply rate
>tax liability>less credits > final liability.

B. Scenario

You have to create 5 scenarios with their answers covering the Tax credits, Exemptions,
Rebates and retirement benefits.

1. Each scenario example must cover at least five different clauses/section either from
Perquisites, Tax credits, Exemptions, Rebates and retirement benefits.
2. Each scenario must be different, if one clause has been used in scenario 1 it should not
be repeated in subsequent scenarios.
3. Each scenario must have at least 10 data inputs i.e. basic salary, House Rent Allowance,
Medical Allowance, Utilities Allowance, Zakat paid etc. The data can be assumed for
calculations.
4. To understand the concept please see couple of sample scenario below, and follow this
pattern while developing your own scenarios.
5. All the scenarios must be in typed in MS word Format (both question and solution).
Solution can be done on excel however it should be pasted in the word document.
Sample - Scenario 1

This scenario covers following sections and clauses

1. Salary – Exemptions Clause (139) - medical allowance

Question:

Mr. A is the employee of M/s ABC Ltd. Mr. A provided following particulars. Compute his
taxable income and tax liability for the Tax Year 2020

Basic salary 350,000

Bonus 25,000
House Rent Allowance 150,000
Conveyance Allowance 14,000
Utilities Allowance 30,000
Medical Allowance 42,000
Tax deducted by the employer u/s 149 5,400

Solution:
Sample - Scenario 2

This scenario covers following sections and clauses

1. Annual value of accommodation (Rule 4)
2. Medical allowance (Clause 139, Part I, 2nd Schedule)
3. Employer's contribution in Recognized provident fund [Rule 3(a) Part I, 6th Schedule]
4. Interest on recognized provident fund contribution [Rule 3(b), Part I, 6th Schedule]

Question:

Solution:
Notes:

1. Annual value of accommodation is not given, so 45% of Basic salary is taken as minimum
value. (Rule 4)
2. Vehicle provided only for business use, so nothing should be taken in the income of
employee.
3. Medical allowance is exempt up to 10% of Basic Salary. (Clause 139, Part I, 2nd Schedule)
4. Employer's contribution in Recognized provident fund is exempt up to 10% of Salary
(excluding
perquisites & allowances) or Rs. 150,000 whichever is less [Rule 3(a) Part I, 6th Schedule]
5. Provident fund employee's contribution, no treatment.
6 Interest on recognized provident fund contribution. "Interest credit on the balance is exempt
up to 1/3rd of the salary or is allowed at the rate fixed by Federal Government in this behalf
(i.e. 16%). If interest credited exceed 1/3rd of the Salary or is allowed at a higher rate, the
amount exceeding the salary of the said rate shall be taxable". [Rule 3(b), Part I, 6th Schedule]