Income Tax Ordinance, 2001 — Section 34: Accrual-basis accounting

34. Accrual-basis accounting.—(1) A person accounting for income chargeable to tax under the head “Income from Business” on an accrual basis shall derive income when it is due to the person and shall incur expenditure when it is payable by the person.

(2)Subject to this Ordinance, an amount shall be due to a person when the person becomes entitled to receive it even if the time for discharge of the entitlement is postponed or the amount is payable by instalments. 1 Sub-section (1) substituted by the Finance Act, 2003. The substituted sub-section (1) read as follows: “(1) A person’s income chargeable to tax under the head “Income from Business” shall be computed in accordance with the method of accounting regularly employed by the person.” 2 The words “Central Board of Revenue” substituted by the Finance Act, 2007. 3 Substituted for the word “notice” by the Finance Act, 2003. 84 Chapter III – Tax on Taxable Income

(3)Subject to this Ordinance, an amount shall be payable by a person when all the events that determine liability have occurred and the amount of the liability can be determined with reasonable accuracy 1[ ]. 2[ ]

(5)Where a person has been allowed a deduction for any expenditure incurred in deriving income chargeable to tax under the head “Income from Business” 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 Business” in the first tax year following the end of the three years. 3[(5A) Where a person has been allowed a deduction in respect of a trading liability and such person has derived any benefit in respect of such trading liability, the value of such benefit shall be chargeable to tax under 4[the] head “Income from Business” for the tax year in which such benefit is received.]

(6)Where an unpaid liability is chargeable to tax as a result of the application of sub-section (5) 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.