Impact of residential status on scope of Tax

CLICHED

IMPACT OF RESIDENTIAL STATUS ON SCOPE OF INCOME [11]

The residential status of a taxpayer (i.e., whether resident or non-resident) has important impact on the scope of his total income. In case of a resident, all incomes of a person (from wherever derived) are taxable in Pakistan whereas in the case of a non-resident person, only such incomes are chargeable to tax which are derived from or received within Pakistan.

Scope of Total Income for Resident [11 (5)]

In case of a resident all incomes, from whatever source derived, shall be included in the total income if during the tax year the income is:

1 Received in Pakistan;

2 Deemed to be received in Pakistan;

3. Accrued or arisen in Pakistan;

4 Deemed to accrue or arise in Pakistan; and

5. Accrued or arisen outside Pakistan.

From the above it is construed that a resident person's total income has two components. which are:

i) Pakistan-Source Income; and

ii) Foreign-source income.

Scope of Total Income for Non-Resident [11 (6)]

In the case of non-resident the following incomes shall be included in the total income:

1. An income which is received in Pakistan;

2. An income which is deemed to be received in Pakistan;

3. An income which accrues or arises in Pakistan; and

4. An income which is deemed to accrue or arise in Pakistan.

From the above it is construed that a non-resident person's total income shall comprise on Pakistan-source income only.

Notes:

1. An income may be received by the taxpayer himself or by any other person on his behalf.

2. If any income or a part of any income has been included in the total income on the basis on its accrual, it shall not be included again on its actual receipt.

3. Incomes are taxable in relation to a specific tax year. Only such incomes are included in the total income that relates to the tax year under assessment.

4. Incomes of each tax year are separately chargeable to tax.