Income Tax Ordinance, 2001 — Section 19: Speculation business

19. Speculation business.— (1) Where a person carries on a speculation business –

(a)that business shall be treated as distinct and separate from any other business carried on 1[by]the person;

(b)this Part shall apply separately to the speculation business and the other business of the person; b head “Income from Business” for that year; and

(e)any loss of the person arising from the speculation business sustained for a tax year computed in accordance with this Part shall be dealt with under section 58.

(2)In this section, “speculation business” means any business in which a contract for the purchase and sale of any commodity (including 2[stocks] and shares) is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity, but does not include a business in which

(a)a contract in respect of raw materials or merchandise is entered into by a person in the course of a manufacturing or mercantile business to guard against loss through future price fluctuations for the purpose of fulfilling the person’s other contracts for the actual delivery of the goods to be manufactured or merchandise to be sold;

(b)a contract in respect of stocks and shares is entered into by a dealer or investor therein to guard against loss in the person’s holding of stocks and shares through price fluctuations; or

(c)a contract is entered into by a member of a forward market or stock exchange in the course of any transaction in the nature of jobbing 3[arbitrage] to guard against any loss which may arise in the ordinary course of the person’s business as such member. 1 Inserted by the Finance Act, 2002 2 The word “stock” substituted by the Finance Act, 2005. 3 The word “arbitrate” substituted by the Finance Act, 2005. 63 Chapter III – Tax on Taxable Income Division II Deductions: General Principles 20. Deductions in computing income chargeable under the head “Income from Business”.— (1) Subject to this Ordinance, in computing the income of a person chargeable to tax under the head “Income from Business” for a tax year, a deduction shall be allowed for any expenditure incurred by the person in the year 1[wholly and exclusively for the purposes of business]. 2[(1A) Subject to this Ordinance, where animals which have been used for the purposes of the business or profession otherwise than as stock-in-trade and have died or become permanently useless for such purposes, 3[a deduction shall be allowed equal to] the difference between the actual cost to the taxpayer of the animals and the amount, if any, realized in respect of the carcasses or animals.]

(2)Subject to this Ordinance, where the expenditure referred to in sub section (1) is incurred in acquiring a depreciable asset or an intangible with a useful life of more than one year or is pre-commencement expenditure, the person must depreciate or amortise the expenditure in accordance with sections 22, 23, 24 and 25. Chapter III – Tax on Taxable Income 1[(c) any expenditure from which the person is required to deduct or collect tax under Part V of Chapter X or Chapter XII, unless the person has paid or deducted and paid the tax as required by Division IV of Part V of Chapter X: Provided that disallowance in respect of purchases of raw materials and finished goods under this clause shall not exceed twenty per cent of purchases of raw materials and finished goods: Provided further that recovery of any amount of tax under sections 161 or 162 shall be considered as tax paid.] 2[(ca) any amount of commission paid or payable in respect of supply of products listed in the Third Schedule of the Sales Tax Act, 1990, where the amount of commission paid or payable exceeds 0.2 percent of gross amount of supplies thereof unless the person to whom commission is paid or payable, as the case may be, is appearing in the active taxpayer list under this Ordinance;]

(d)any entertainment expenditure in excess of such limits 3[or in violation of such conditions] as may be prescribed;

(e)any contribution made by the person to a fund that is not a recognized provident fund4[,]5[approved pension fund], approved superannuation fund or approved gratuity fund; 6[(ea) an amount in excess of fifty percent of contribution made by a person to an approved gratuity fund, an approved pension fund or an approved superannuation fund.]

(f)any contribution made by the person to any provident or other fund established for the benefit of employees of the person, unless the person has made effective arrangements to secure that tax is deducted under section 149 from any payments made by the fund in respect of which the recipient is chargeable to tax under the head "Salary"; 1 Clause (c) substituted by the Finance Act, 2016. The substituted clause (c) read as follows: “(c) any salary, rent, brokerage or commission, profit on debt, payment to non-resident, payment for services or fee paid by the person from which the person is required to deduct tax under Division III of Part V of Chapter X or section 233 of chapter XII, 1[unless] the person has 1[paid or] deducted and paid the tax as required by Division IV of Part V of Chapter X” 2 New clause (ca) inserted by Finance Act, 2019. 3 Inserted by the Finance Act, 2003. 4 Inserted by Finance Act, 2014. 5 Inserted by the Finance Act, 2005. 6 Clause (ea) inserted by the Finance Act, 2022. 65 Chapter III – Tax on Taxable Income

(g)any fine or penalty paid or payable by the person for the violation of any law, rule or regulation;

(h)any personal expenditures incurred by the person;

(i)any amount carried to a reserve fund or capitalised in any way;

(j)any profit on debt, brokerage, commission, salary or other remuneration paid by an association of persons to a member of the association; 1[ ] 2[(l) any expenditure for a transaction, paid or payable under a single account head which, in aggregate, exceeds 3[two hundred and fifty] thousand rupees, made other than by a crossed cheque drawn on a bank or by crossed bank draft or crossed pay order or any other crossed banking instrument showing transfer of amount from the business bank account of the taxpayer: Provided that online transfer of payment from the business account of the payer to the business account of payee as well as payments through credit card shall be treated as transactions through the banking channel, subject to the condition that such transactions are verifiable from the bank statements of the respective payer and the payee: Provided further that this clause shall not apply in the case of

(a)expenditures not exceeding 4[twenty-five] thousand rupees;

(b)expenditures on account of

(i)utility bills;

(ii)freight charges; 1 Clause (k) omitted by the Finance Act, 2006. The omitted clause (k) read as follows: “(k) any expenditure paid or payable by an employer on the provision of perquisites and allowances to an employee where the sum of the value of the perquisites computed under section 13 and the amount of the allowances exceeds fifty per cent of the employee’s salary for a tax year (excluding the value of the perquisites or amount of the allowances);” 2 Clause (l) substituted by the Finance Act, 2006. The substituted clause (l) read as follows: “(l) any expenditure paid or payable under a single account head which, in aggregate, exceeds fifty thousand rupees made other than by a crossed bank cheque or crossed bank draft, except expenditures not exceeding ten thousand rupees or on account of freight charges, travel fare, postage, utilities or payment of taxes, duties, fee, fines or any other statutory obligation;” 3 Expression substituted through Finance Act, 2020 dated 30th June, 2020 4 Expression substituted through Finance Act, 2020 dated 30th June, 2020 66 Chapter III – Tax on Taxable Income

(iii)travel fare;

(iv)postage; and

(v)payment of taxes, duties, fee, fines or any other statutory obligation 1[:]] 2[Provided further also that this clause shall not apply to a company from the date clause (la) has been made effective through the notification issued by the Board.

(la)any expenditure by a taxpayer being a company for a transaction, paid or payable under a single account head which, in aggregate, exceeds rupees two hundred and fifty thousand, made other than by digital means from business bank account of the taxpayer notified to the Commissioner under section 114A: Provided that this clause shall not apply in the case of

(a)expenditures not exceeding Rupees twenty-five thousand; and

(b)expenditures on account of

(i)utility bills;

(ii)freight charges;

(iii)travel fare;

(iv)postage; and

(v)payment of taxes, duties, fee, fines or any other statutory obligation: Provided further that this clause shall be effective from such date as the Board may notify.]

(m)any salary paid or payable exceeding 3[ ] 4[thirty-two thousand rupees per month to an individual] other than by a crossed cheque or direct transfer of funds to the employee’s bank account 5[or through digital means]; 6[ ] 1 Semi colon substituted by the Finance Act, 2022. 2 Inserted by the Finance Act, 2022. 3 The word “fifteen” substituted by the Finance Act, 2020 dated 30th June, 2020. 4 The expression “twenty-five thousand rupees per month” substituted by the Finance Act, 2023. 5 Inserted by the Finance Act, 2022. 6 The word “and” omitted by the Finance Act, 2016. 67 Chapter III – Tax on Taxable Income

(n)except as provided in Division III of this Part, any expenditure paid or payable of a capital nature; 1[ ] 2[(o) any expenditure in respect of sales promotion, advertisement and publicity in excess of 3[ten] per cent of turnover incurred by pharmaceutical manufacturers 4[;] ] 5[(p) any expenditure on account of utility bill in excess of such limits and in violation of such conditions as may be prescribed; 6[ ] 7[(q) ten percent of the claimed expenditure made attributable to purchases made from persons who are not National Tax Number holders: Provided that in case of purchase of agricultural produce this clause shall only apply to the purchase made from middle man: Provided further that the Board may, by notification in the official Gazette, exempt persons or classes of persons from this clause subject to such conditions and limitations as may be specified therein;] 8 [(r) any expenditure attributable to sales claimed by any person who is required to integrate but fails to integrate his business with the Board through approved fiscal electronic device and software: 1 The word “and” omitted by the Finance Act, 2020 dated 30th June, 2020. 2 Inserted by the Finance Act, 2016 3 The word “five” substituted by the Finance Act, 2017 4 Full stop substituted by semi colon through Finance Act, 2020 dated 30th June, 2020 5 New clauses (p) and (q) added through Finance Act, 2020 dated 30th June, 2020 6 The word “and” omitted by the Finance Act, 2025. 7 Clause (q) substituted by the Finance Act, 2025. The substituted clause read as follows: “(q) any expenditure attributable to sales made to persons required to be registered but not registered under the Sales Tax Act, 1990 by an industrial undertaking computed according to the following formula, namely: (A/B) x C Where A is the total amount of deductions claimed under this Part; B is the turnover for the tax year; and C is the total amount of sales exclusive of sales tax and federal excise duty to persons required to be registered but not registered under the Sales Tax, 1990 where sales equal or exceed rupees one hundred million per person: Provided that disallowance of expenditure under this clause shall not exceed ten percent of total deductions claimed under this Part: Provided further that the Board may, by notification in the official Gazette, exempt persons or classes of persons from this clause subject to such conditions and limitations as may be specified therein: Provided also that this clause shall come into force with effect from the first day of October, 2020.]” 8 Inserted by the Finance Act, 2022. 68 Chapter III – Tax on Taxable Income Provided that disallowance of expenditure under this clause shall not exceed eight percent of the allowable deduction 1[; and] ] 2[(s) fifty percent of the expenditure claimed in respect of sale where the taxpayer received payment exceeding two hundred thousand rupees otherwise than through a banking channel or digital means against a single invoice containing one or more than one transactions of supply of goods or provisions of services.] Division III Deductions: Special Provisions