Exemptions (Special Items) Section 45. President s honours.- (1979: Second Schedule Part I - Clause 40) (1) Any allowance attached to any Honour, Award, or Medal awarded to a person by the President of Pakistan shall be exempt from tax under this Ordinance. (2) Any monetary award granted to a person by the President of Pakistan shall be exempt from tax under this Ordinance. Section 47. Scholarships.- (1979: Second Schedule Part I - Clause 87) Any scholarship granted to a person to meet the cost of the person s education shall be exempt from tax under this Ordinance, other than where the scholarship is paid directly or indirectly by an associate. Section 48. Support payments under an agreement to live apart.- (New) Any income received by a spouse as support payment under an agreement to live apart] shall be exempt from tax under this Ordinance. Section 49. Federal and Provincial Government, and local authority income.- (1979: Second Schedule Part I - Clause 88) (1) The income of the Federal Government shall be exempt from tax under this Ordinance. (2) The income of a Provincial Government or a local authority in Pakistan shall be exempt from tax under this Ordinance, other than income chargeable under the head Income from Business derived by a Provincial Government or local authority from a business carried on outside its jurisdictional area. 506
1 [(3) Subject to sub-section (2), any payment received by the Federal Government, a Provincial Government or a local authority shall not be liable to any collection or deduction of advance tax.] THE SECOND SCHEDULE EXEMPTIONS AND TAX CONCESSIONS [See section 53] PART I EXEMPTIONS FROM TOTAL INCOME Incomes, or classes of income, or persons or classes of persons, enumerated below, shall be exempt from tax, subject to the conditions and to the extent specified hereunder: 1) 2 [ ] 2) 3 [ ] 3) 4) 4 [ ] 5 [ ] 5) Clause 57 (1979: Clause 56) (1) Any income from voluntary contributions, house property and investments in securities of the Federal Government derived by the following, namely:- 1 Added by the Finance Act, 2006. 2 Omitted by the Finance Act, 2006. The omitted clause (45) read as follows: (45) Any amount received as flying allowance by junior commissioned officers or other ranks of Pakistan Armed Forces. 3 Omitted by the Finance Act, 2006. The omitted clause (47) read as follows: (47) The value of rations issued in kind, or cash allowance paid in lieu thereof, to members of Pakistan Armed Forces or of Territorial Forces. 4 Omitted by the Finance Act, 2006. The omitted clause (48) read as follows: (48) The value of rent-free quarters occupied by, or cash allowance paid in lieu thereof, to members of the Pakistan Armed Forces, including Territorial Force. 5 Omitted by the Finance Act, 2006. The omitted clause (49) read as follows: (49) The conservancy allowance granted in lieu of free conservancy to personnel below commissioned rank of Pakistan Armed Forces and Territorial Force. 507
(i) National Investment (Unit) Trust of Pakistan established by the National Investment Trust Limited, if not less than ninety per cent of its Units at the end of that year are held by the public and not less than ninety per cent of its income of the year is distributed among the Unit-holders; (ii) any Mutual Fund approved by the 6 [Securities and Exchange Commission of Pakistan] and set up by the Investment Corporation of Pakistan, if not less than ninety per cent of its Certificates at the end of that year are held by the public and not less than ninety per cent of its income of that year is distributed among the Certificate-holders; and (iii) Sheikh Sultan Trust, Karachi. (2) Any income derived by any Mutual Fund, investment company, or a collective investment scheme 7 [or a real estate investment trust] approved by the Securities and Exchange Commission or the National Investment (Unit) Trust of Pakistan established by the National Investment Trust Limited from any instrument of redeemable capital as defined in the Companies Ordinance, 1984 (XLVII of 1984), if not less than ninety per cent of its income of that year is distributed amongst the Unit-holders. (3) Any income of the following funds and institutions, namely: - (i) a provident fund to which the Provident Funds Act, 1925 (XIX of 1925), applies; (ii) trustees on behalf of a recognized provident fund or an approved superannuation fund or an approved gratuity fund; (iii) a benevolent fund or group insurance scheme approved by the Central Board of Revenue for the purposes of this clause; (iv) Service Fund; (v) Employees Old Age Benefits Institution established under the Employees Old Age Benefit Act, 1976 (XIV of 1976); 6 Substituted for the words Controller of Capital Issues by the Finance Act, 2002. 7 Inserted by the Finance Act, 2006. 508
(vi) any Unit, Station or Regimental Institute; and (vii) any recognized Regimental Thrift and Savings Fund, the assets of which consist solely of deposits made by members and profits earned by investment thereof; Explanation.-For the purpose of this clause, "Service Fund" means a fund which is established under the authority, or with the approval of the Federal Government for the purpose of - (a) securing deferred annuities to the subscribers of payment to them in the event of their leaving the service in which they are employed; or (b) making provision for their wives or children after their death; or (c) making payment to their estate or their nominees upon their death. 8 [(viii) a Pension Fund approved by the Securities and Exchange Commission of Pakistan under the Voluntary Pension System Rules, 2005;] 9 [(ix) any profit or gain or benefit derived by a pension fund manager from a pension Fund approved under the Voluntary Pension System Rules, 2005, on redemption of the seed capital invested in pension fund as specified in the Voluntary Pension System Rules, 2005 10 [;] ] 11 [(x) the accumulated balance upto 25% received from the voluntary pension system offered by a pension fund manager under the Voluntary Pension System Rules, 2005 at the time of eligible person s: (a) (b) retirement; or disability rendering him unable to work; or 8 Added by the Finance Act, 2005. 9 Added by the Finance Act, 2005. 10 Full stop substituted by the Finance Act, 2006. 11 Added by the Finance Act, 2006. 509
(c) death by his nominated survivors.] 6) Clause 58 (1979: Clause 62) (1) Any income of a trust or welfare institution or non-profit organization specified in sub-clauses (2) and (3) from donations, voluntary contributions, subscriptions, house property, investments in the securities of the Federal Government and so much of the income chargeable under the head "Income from business " as is expended in Pakistan for the purposes of carrying out welfare activities: Provided that in the case of income under the head "Income from business", the exemption in respect of income under the said head shall not exceed an amount which bears to the income under the said head the same proportion as the said amount bears to the aggregate of the incomes from the aforesaid sources of income. (2) A trust administered under a scheme approved by the Federal Government in this behalf and established in Pakistan exclusively for the purposes of carrying out such activities as are for the benefit and welfare of- (i) (ii) ex-servicemen and serving personnel, including civilian employees of the Armed Forces, and their dependents; or ex-employees and serving personnel of the Federal Government or a Provincial Government and their dependents, where the said trust is administered by a committee nominated by the Federal Government or, as the case may be, a Provincial Government. (3) A trust or welfare institution or non-profit organization approved by 12 [Regional Commissioner of Income Tax] for the purposes of this sub-clause. 12 The words the Central Board of Revenue substituted by the Finance Act, 2006. 510
7) Clause 59 (1979: Clause 93) Any income which is derived from investments in securities of the Federal Government, 13 [profit on debt from scheduled banks, grant received from Federal Government or Provincial Government or District Governments, foreign grants] and house property held under trust or other legal obligations wholly, or in part only, for religious or charitable purposes and is actually applied or finally set apart for application thereto: Provided that nothing in this clause shall apply to so much of the income as is not expended within Pakistan: Provided further that if any sum out of the amount so set apart is expended outside Pakistan, it shall be included in the total income of the tax year in which it is so expended or of the year in which it was set apart, whichever is the greater, and the provisions of section 122 shall not apply to any assessment made or to be made in pursuance of this proviso. Explanation.- Notwithstanding anything contained in the Mussalman Wakf Validating Act, 1913 (VI of 1913), or any other law for the time being in force or in the instrument relating to the trust or the institution, if any amount is set apart, expended or disbursed for the maintenance and support wholly or partially of the family, children or descendents of the author of the trust or the donor or, the maker of the institution or for his own maintenance and support during his life time or payment to himself or his family, children, relations or descendents or for the payment of his or their debts out of the income from house property dedicated, or if any expenditure is made other than for charitable purposes, in each case such expenditure, provision, setting apart, payment or disbursement shall not be deemed, for the purposes of this clause, to be for religious or charitable purposes. 8) Clause 60 (1979: Clause 94) Any income of a religious or charitable institution derived from voluntary contributions applicable solely to religious or charitable purposes of the institution: 13 Inserted by the Finance Act, 2002. 511
Provided that nothing contained in clause (61) or this clause shall apply to the income of a private religious trust which does not ensure for the benefit of the public. 9) Clause 65 (1979: Clause 93-A) Any income derived from donations made by non-official or private sector sources in Pakistan to the Waqf for Research on Islamic History, Art and Culture, Istanbul set up by the Research Centre for Islamic History, Art and Culture (IRCICA). 10) Clause 14 [(66) Any income derived by- (1979: Clause 133A) i. Abdul Sattar Edhi Foundation, Karachi; ii. iii. iv. Al-Shifa Trust, Rawalpindi. Bilquis Edhi Foundation, Karachi. Fatimid Foundation, Karachi. v. Hamdard Laboratories (Waqf) Pakistan. vi. vii. viii. ix. International Islamic Trade Finance Corporation. Islamic Corporation for Development of Private Sector; National Memorial Bab-e-Pakistan Trust for the assessment year commencing on or after the 1st day of July, 1994. Pakistan Agricultural Research Council, Islamabad. x. Pakistan Engineering Council; 14 Substituted by the Finance Act, 2006. The substituted clause (66) read as follows: (66) Any income of the Institutions of the Agha Khan Development Network (Pakistan) as contained in Schedule 1 of the Accord and Protocol, dated November 13, 1994, executed between the Government of the Islamic Republic of Pakistan and the Agha Khan Development Network. 512
xi. xii. xiii. xiv. xv. xvi. The corporatized entities of Pakistan Water and Power Development Authority from the date of their creation upto the date of completion of the process of corporatization i.e. till the tariff is notified. The Institution of Engineers, Pakistan, Lahore. The Institutions of the Agha Khan Development Network (Pakistan) as contained in Schedule 1 of the Accord and Protocol, dated November 13, 1994, executed between the Government of the Islamic Republic of Pakistan and the Agha Khan Development Network. The Liaquat National Hospital Association, Karachi. The Pakistan Council of Scientific and Industrial Research. The Pakistan Water and Power Development Authority established under the Pakistan Water and Power Development Authority Act, 1958 (W. P. Act XXXI of 1958).] 15 [xvii. WAPDA First Sukuk Company Limited.] 11) 12) 13) 14) 15) 16 [ ] 17 [ ] 18 [ ] 19 [ ] 20 [ ] 15 Added by S.R.O. 864(I)/2006, dated 22.08.2006. 16 Omitted by the Finance Act, 2006. The omitted clause (67) read as follows: (67) Any income of the Liaquat National Hospital Association, Karachi. 17 Omitted by the Finance Act, 2006. The omitted clause (68) read as follows: (68) Any income derived by- (i) Abdul Sattar Edhi Foundation, Karachi; and (ii) Bilquis Edhi Foundation, Karachi. 18 Omitted by the Finance Act, 2006. The omitted clause (69) read as follows: (69) Any income derived by Al-Shifa Trust, Rawalpindi. 19 Omitted by the Finance Act, 2006. The omitted clause (70) read as follows: (70) Any income derived by Fatimid Foundation, Karachi. 20 Omitted by the Finance Act, 2006. The omitted clause (71) read as follows: (71) Any income of Hamadard Laboratories (Waqf) Pakistan. 513
16) Clause 91 (1979: Clause 85-A) Any income of a text-book board of a Province established under any law for the time being in force, accruing or arising from the date of its establishment. 17) Clause 92 (1979: Clause 86) Any income of any university or other educational institution established solely for educational purposes and not for purposes of profit. 18) 19) 20) 21 [ ] 22 [ ] 23 [ ] 21) Clause 98 (1979: Clause 90) Any income derived by any Board or other organization established 24 [ ] in Pakistan for the purposes of controlling, regulating or encouraging major games and sports recognised by Government. 22) Clause (99) (1979: Clause 102D) Any income derived by a mutual fund or an investment company registered under the 25 [Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003], or a unit trust scheme constituted by an assets management company registered under the Assets Management Companies Rules, 1995 26 [, or a Real Estate Investment Trust approved and authorized under Real Estate Investment Trust Rules, 2006, 21 Omitted by the Finance Act, 2006. The omitted clause (95) read as follows: (95) Any income derived by the Pakistan Council of Scientific and Industrial Research. 22 Omitted by the Finance Act, 2006. The omitted clause (96) read as follows: (96) Any income derived by the Institution of Engineers, Pakistan, Lahore. 23 Omitted by the Finance Act, 2006. The omitted clause (97) read as follows: (97) Income of Pakistan Agricultural Research Council, Islamabad. 24 The words by Government omitted by the Finance Act, 2003. 25 The words, comma and figures Investment Companies and Investment Advisers Rules, 1971 substituted by the Finance Act, 2005. 26 Inserted by the Finance Act, 2006. 514
established and managed by a REIT Management Company licensed under the Real Estate Investment Trust Rules, 2006], if not less than ninety percent of its accounting income of that year, as reduced by capital gains whether realized or unrealized, is distributed amongst the unit or certificate holders or shareholders as the case may be: Explanation. For the purpose of this clause the expressing accounting income means income calculated under the Generally accepted Accounting Principles and verified by the auditors.. 23) Clause 100 (1979: Clause 102E) Any income, not being income from trading activity, of a modaraba registered under the Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980 (XXXI of 1980), for any assessment year commencing on or after the first day of July, 1999 27 [:] Provided that not less than ninety per cent of its total profits in the year as reduced by the amount transferred to a mandatory reserve, as required under the provisions of the said Ordinance or the rules made 28 [thereunder, as are distributed amongst the shareholders]: Provided further that with effect from the first day of July, 1999 for the purpose of determining the distribution of ninety per cent profits, the profits distributed through bonus certificates or shares to the certificate holders shall not be taken into account. 24) Clause 101 (1979: Clause 102G) Profits and gains derived between the first day of July,2000 and the thirtieth day of June, 29 [2014] both days inclusive, by a venture capital company and venture capital fund registered under Venture Capital Companies and Funds Management Rules, 2000. 25) 30 [ ] 27 Substituted the semi-colon by the Finance Act, 2003. 28 Substituted for the word thereafter by the Finance Act, 2003. 29 The figure 2007 substituted by the Finance Act, 2006. 30 Omitted by the Finance Act, 2006. The omitted clause (106) read as follows: (106) Any income derived by the Pakistan Water and Power Development Authority, established under the Pakistan Water and Power Development Authority Act, 1958 (West Pakistan Act. No. XXXI of 1958). 515
26) 27) 31 [ ] 32 [ ] THE SECOND SCHEDULE EXEMPTIONS AND TAX CONCESSIONS [See section 53] PART IV EXEMPTION FROM SPECIFIC PROVISIONS Income, or classes of income, or persons or classes of persons, enumerated below, shall be exempt from the operation of such provisions of this Ordinance, subject to such conditions and to the extent, as are specified hereunder: - 1. Clause 16 (1979: Clause 21) The provisions of sections 113, 148, 151, 153, 155 33 [and 156] shall not apply to the institutions of the Agha Khan Development Network (Pakistan) listed in Schedule 1 of the Accord and Protocol dated November 13, 1994, executed between the Government of the Islamic Republic of Pakistan and Agha Khan Development Network: Provided that such institutions shall continue to collect and deduct tax under section 34 [149, 151, 152, 153, 155, 156 or 233] from others persons, wherever required thereunder: 2. Provided further that in respect of application of section 35 [113], this clause shall take effect from the first day of July, 1991. 36 [ ] 31 Omitted by the Finance Act, 2003. The omitted clause (108) read as follows: (108) Any income derived by the International Irrigating Management Institute (IIMI), Pakistan. 32 Omitted by the Finance Act, 2003. The omitted clause (129) read as follows: (129) Any income of Saudi-Pak Industrial and Agricultural Investment Company Limited in Pakistan for a period of twenty years commencing with the thirty-first day of December, 1982. 33 Substituted for the comma, figures and words,156 and 157 by the Finance Act, 2003. 34 Substituted for the figure 113 by the Finance Act, 2003. 35 Substituted for the figures, commas and word A [149, 151, 152, 153, 155, 156 or 233 by the Finance Act, 2004. A Earlier the figure 113 was substituted by the Finance Act, 2003. 36 Omitted by the Finance Act, 2005. The omitted clause (17) read as follows: (17) The provisions of section 113, shall not apply to A [Provincial Governments and] local authorities, qualifying for exemption under section 49 and other B [ ] C [Government or semi-government bodies which are otherwise exempt from income tax]: 516
3. 4. 5. 37 [ ] 38 [ ] 39 [ ] Provided that nothing contained in this clause shall be construe to authorize any refund of tax already paid or the collection of any outstanding demand created under the said section. A Inserted by the Finance Act, 2003. B The word than omitted by the Finance Act, 2004. C Substituted for the words and commas corporate, Government or semi-government bodies, not otherwise liable to income tax by the Finance Act, 2003. 37 Omitted by the Finance Act, 2005. The omitted clause (18) read as follows: (18) The provisions of section 113 shall not apply to Pakistan Red Crescent Society. 38 Omitted by the Finance Act, 2005. The omitted clause (20) read as follows: (20) The provisions of section 113 shall not apply to special purpose, non-profit companies engaged in securitizing the receivables of Provincial Governments or the companies. 39 Omitted by the Finance Act, 2005. The omitted clause (21) read as follows: (21) The provisions of section 113 shall not apply to non-profit organisations A [approved under clause (36) of section 2 or clause (58) or included in] clause (61) of Part-I of this Schedule. A Substituted for the words, brackets and figures including those approved or included in clause (58) or by the Finance Act, 2003. 517