What are the exceptions to the general rule of taxation for individuals? - Basic Concepts Review!

1. General rule for taxability of individuals - Income Tax Ordinance, 2001

1.1. As per the provisions of Section 86 of the Income Tax Ordinance, 2001 the taxable income incase of individuals shall be determined separately for each individual. 

1.2. However, there are certain exception to this general rule. These exceptions are discussed in detail as under:

2. Exceptions to the general rule for taxability of individuals

2.1. Deceased Individual:

2.1.1. Incase of a deceased individual the liability to discharge the tax assessed is transferred as against the general rule discussed above.

2.1.2. As per the Section 87 of the Income Tax Ordinance, 2001 the responsibility of taxation of a deceased individual is transferred to the legal representative in respect of following:

• Any outstanding tax to be paid by the deceased person if he had not died; and
• Any tax payable on the income generated from the deceased estate

2.1.3. Limitation of Liability - Liability of the legal representative with respect to the tax of deceased individual shall not exceed the capability of the decease's estate to meet such liability.

2.1.4. Scope of proceedings - The legal representatives are prone to following sort of proceedings to be initiated against them with respect to the taxability of deceased individuals:

• Any ongoing proceeding against the deceased individual before his death may be continued against his legal representative from the stage it was left on the date of the deceased death; or

• Any proceeding that could have been initiated against the deceased individual relating to his taxable income had he not been dead.

2.1.5. The above discussion clearly signifies that the legal representative of the deceased individual is liable to pay any tax payable on the deceased income to the extent of the such decease's estate capability of meeting the tax liability.

2.1.6. Legal representative is a person who in law represents the estate of a deceased person. Any person to whom the estate of the deceased person passes on his death or who intermeddles with such estate is also treated as legal representative.

2.2. Income of a minor child

2.2.1 Incase of any income from business of a minor child the liability of any tax on such income is transferred to the parents subject to certain prescribed conditions.

2.2.2. As per the definition provided under Section 2(33) of the Income Tax Ordinance, 2001 any individual below the age of eighteen years at the end of a tax year is considered to be a minor child.

2.2.3. Section 91 of the Income Tax Ordinance, 2001 specifies that any income of a minor child falling under the above definition for a tax year chargeable under the head "Income from Business" shall be included to the tax as the income of parent of the child who has the highest taxable income for such tax year.

2.2.4. The provisions of Section 91 of the Income Tax Ordinance, 2001 are yet another exception to the general rule for the taxablity of an individual as specified in Section 86 of the Income Tax Ordinance, 2001.

2.2.5. However, the provisions of Section 91 of the Income Tax Ordinance, 2001 shall not be applicable to the taxable income of a minor child who has inherited any such business generating any taxable income.

2.2.6 Furthermore, a minor child as discussed above shall not include a married daughter

2.3. Authors

2.3.1. According to Section 89 of the Income Tax Ordinance, 2001 where the time taken by an author of a literary or artistic work to complete the work exceeds twenty-four months, the author may elect to treat any lump sum amount received by him in a tax year on account of royalties as having been received in that tax year and the preceding two tax years in equal proportions.