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Revenue Board clarifies conditions for exemption

ISLAMABAD (October 10 2003): The Central Board of Revenue (CBR) has clearly defined the limitations of the welfare organisations/institutions for availing of income tax exemption on the business income and issued a directive in this regard to all the regional commissioners of income tax (RCITs) here on Thursday.

The CBR has informed the chartered accountant firms/tax practitioners and commissioners that the commission earned by a welfare institution or non-profit organisation, as an investment promotion agent of the National Investment Trust (NIT) would be chargeable to tax under the head “Income from business”.

Under Clause (58) of Part-I of Second Schedule to the Income Tax Ordinance, business income of a welfare institution has been exempted subject to the following conditions/limitations.

Firstly, trust is approved by the CBR for the purposes of sub-clause (3) of Clause (58) or is a trust specified in sub-section (2).

Secondly, only so much of the income chargeable under the head “Income from business” has been exempted as is expended in Pakistan for the purpose of carrying out welfare activities, subject to limitation.

In this regard, exemption in respect of income under the head “Income from business” would not exceed an amount which bears to the income under the said head the same proportion as the said amount bears to the aggregate of income from the sources of income mentioned in sub-clause (1) of Clause (58).

However, Clause (59) of Part-I of Second Schedule contains no mention of income chargeable under the head “Income from business”, hence, it is not applicable.

Clarifying another query pertaining to the total income as per sub-clause (1) of Clause (58), the income from donations, voluntary contributors, subscriptions, house property, investment in the securities of the federal government has been exempted on the whole, while business income has been exempted to the extent of condition/limitation.

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