TEN CONDITIONS BINDING A PERSON TO FILE RETURN OF INCOME

Who is required to file a return of income? Remember how the government used to publish a list of persons required to file return of income in the newspapers? However, that list has expanded over a period of time making it difficult to be published and now we only see general advertisements regarding filing of returns within the deadline.

In this blog we will discuss the ten conditions prescribed in Section 114 of the Income Tax Ordinance, 2001 making a 'person' liable to file income tax return in Pakistan.

1. Company

Every company formed, established and operated in Pakistan as described below including permanent establishment of a foreign company is liable to file a return of income.

A company includes following:

• Company as defined in the Companies Ordinance, 1984 (XLVII of 1984); 
• Body corporate formed by or under any law in force in Pakistan; 
• Modaraba; 
• Body incorporated by or under the law of a country outside Pakistan relating to incorporation of companies; 
• Co-operative society, a finance society or any other society; 
• A non-profit organisation (to be discussed later); 
• A trust, an entity or a body of persons established or constituted by or under any law for the time being in force; 
• Foreign association, whether incorporated or not declared to be a company by the Board for the purposes of this Ordinance; 
• Provincial Government; 
• Local Government in Pakistan; 
• Small Company with a paid up capital plus undistributed reserves not exceeding 50 million rupees, having employees below 250, and a turnover below 250 million rupees 

2. Income above the prescribed threshold

Every 'person', other than company as already covered above, who drives taxable income above the prescribed threshold is required to file a return of income.

The threshold for individual and association of persons other than from income from property for Tax Year 2017 is Rs. 400,000/-

The threshold for individual and association of persons for income from property for Tax Year 2017 shall be Rs. 200,000/-

3. Non profit organisations

Any 'approved' and 'registered' Non Profit Organisation, other than individual, formed for the purpose of religious, educational, charitable, welfare or development purposes, or for the promotion of an amateur sport is liable to file a return of income.

4. Taxability in preceding years

Any person who was charged to tax in any preceding two years is required to file a return of Income. 

Being charged to tax irrespective of filing of return in preceding years is enough to make the person liable for filing the said return of income.

5. Loss eligible to be carried forward

A person other than salaried person who claims an eligible loss carried forward under this Ordinance for a tax year shall file return of income.

6. Immoveable Property 

Any person who owns immovable property with a land area of 250 square yards or more or owns any flat located in areas within the municipal limits; or areas in a Cantonment; or the Islamabad Capital Territory;

Any person who owns immoveable property with a land area of 500 square yards or more located in a rating area or owns a flat having covered area of 2,000 square feet or more located in a rating area;

Following are the exceptions to the above rule:

• A widow; 
• A disabled person; 
• An orphan below age of 25 Years; or 
• A non resident individual

7. Motor Vehicle

Any person who owns a motor vehicle having engine capacity above 1000 CC is liable to file the return of income.

Following are the exceptions to the above rule:

• A widow; 
• A disabled person; 
• An orphan below age of 25 Years; or 
• A non resident individual 

8. National Tax Number

Any person who has obtained a National Tax Number is required to file the return of income.

9. Electricity Consumption

Any person who is the holder of commercial or industrial connection of electricity where the amount of annual bill exceeds rupees 500,000/-.

10. Business and Trading memberships

A resident person registered with any chamber of commerce and industry or any trade or business association or any market committee or any professional body including Pakistan Engineering Council, Pakistan, Medical and Dental Council, Pakistan Bar Council or any Provincial Bar Council, Institute of Chartered Accountants of Pakistan or Institute of Cost and Management Accountants of Pakistan is required to file return of income;

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Besides the above conditions the Commissioner may require any person to file return of income who in his opinion was liable to file the same.

Introduction of Filer and Non Filer concept - If the above were not already enough to expand the tax net the government introduced additional taxes to be paid by the non filers whether or not liable to file return of income by law thus making it almost mandatory for every person to file a return of income.

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A 'person' for the purpose of this article means following:

• An individual;
• A company or association of persons incorporated, formed, organised or established in Pakistan or elsewhere;
• The Federal Government, a foreign government, a political sub-Division of a foreign government, or public international organisation.

Exception - A provincial government is not included in the definition of a person.