Income Tax Ordinance, 2001 — Section 18: Income from business

18. Income from business.— (1) The following incomes of a person for a tax year, other than income exempt from tax under this Ordinance, shall be chargeable to tax under the head “Income from Business”

(a)the profits and gains of any business carried on by a person at any time in the year;

(b)any income derived by any trade, professional or similar association from the sale of goods or provision of services to its members 1[. Explanation.– For the removal of doubt, it is clarified that income derived by co-operative societies 2[including recreational club] from the sale of goods, immoveable property or provision of services to its

(h)any expenditure paid or payable by the person in the tax year for legal services acquired to defend the person’s title to the property or any suit connected with the property in a Court; and

(i)where there are reasonable grounds for believing that any unpaid rent in respect of the property is irrecoverable, an allowance equal to the unpaid rent where –

(i)the tenancy was bona fide, the defaulting tenant has vacated the property or steps have been taken to compel the tenant to vacate the property, and the defaulting tenant is not in occupation of any other property of the person;

(ii)the person has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or has reasonable grounds to believe that legal proceedings would be useless; and

(iii)the unpaid rent has been included in the income of the person chargeable to tax under the head “Income from Property” for the tax year in which the rent was due and tax has been duly paid on such income.

(2)Where any unpaid rent allowed as a deduction under clause (i) of sub-section (1) is wholly or partly recovered, the amount recovered shall be chargeable to tax in the tax year in which it is recovered.

(3)Where a person has been allowed a deduction for any expenditure incurred in deriving rent chargeable to tax under the head “Income from Property” and the person has not paid the liability or a part of the liability to which the deduction relates within three years of the end of the tax year in which the deduction was allowed, the unpaid amount of the liability shall be chargeable to tax under the head “Income from Property” in the first tax year following the end of the three years.

(4)Where an unpaid liability is chargeable to tax as a result of the application of sub-section

(3)and the person subsequently pays the liability or a part of the liability, the person shall be allowed a deduction for the amount paid in the tax year in which the payment is made.

(5)Any expenditure allowed to a person under this section as a deduction shall not be allowed as a deduction in computing the income of the person chargeable to tax under any other head of income.

(6)The provisions of section 21 shall apply in determining the deductions allowed to a person under this section in the same manner as they apply in determining the deductions allowed in computing the income of a person chargeable to tax under the head “Income from Business”.” 1 Semi colon substituted and Explanation added by the Finance Act, 2021. 2 Words inserted by the Finance Act, 2025. 61 Chapter III – Tax on Taxable Income members is and has always been chargeable to tax under the provisions of this Ordinance;]

(c)any income from the hire or lease of tangible movable property;

(d)the fair market value of any benefit or perquisite, whether convertible into money or not, derived by a person in the course of, or by virtue of, a past, present, or prospective business relationship1[.] 2[Explanation. — For the purposes of this clause, it is declared that the word ‘benefit’ includes any benefit derived by way of waiver of profit on debt or the debt itself under the State Bank of Pakistan Banking Policy Department’s Circular No.29 of 2002 or in any other scheme issued by the State Bank of Pakistan;]

(e)any management fee derived by a management company (including a modaraba 3[management company] ).] Chapter III – Tax on Taxable Income Private Equity and Venture Capital Fund] out of its income from profit on debt, shall be chargeable to tax under the head “Income from Business” and not under the head “Income from Other Sources”.]