CAF-2 · Chapter 13 · Question 14 of 15
Mr. Zaid has a total taxable income of Rs. 4,000,000, which includes Rs. 3,000,000 as Pakistan-source income and Rs. 1,000,000 as foreign-source 'Income from Other Sources'. His gross Pakistan tax liability on the Rs. 4,000,000 is Rs. 800,000. He paid Rs. 150,000 as foreign income tax on his foreign income. What is his net tax payable in Pakistan? (Assume the Rs. 800,000 is his exact tax).
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) B) Rs. 650,000
Explanation
Average rate of Pak tax = (800,000 / 4,000,000) = 20%. Proportionate Pak tax on foreign income = 20% of 1,000,000 = Rs. 200,000. Foreign Tax Credit is the lesser of the foreign tax paid (Rs. 150,000) or Pak tax payable (Rs. 200,000). Net tax payable = Gross Tax (800,000) - FTC (150,000) = Rs. 650,000.
More Foreign Source Income of a Resident Person MCQs
- Q1Under the Income Tax Ordinance, 2001, how are the deductible expenditures relating to foreign-source income treated for a resident person?
- Q2If a resident taxpayer derives foreign-source income from multiple heads (e.g., Business and Property), how must this income be computed?
- Q3What is the maximum amount of Foreign Tax Credit (FTC) a resident taxpayer can claim under Section 103?
- Q4For the purpose of calculating the Foreign Tax Credit, how is the "Pakistan tax payable" in respect of foreign-source income determined?
- Q5If a taxpayer’s available Foreign Tax Credit exceeds their Pakistan tax payable on that foreign income for the year, what is the treatment…