INCOME TAX ORDINANCE 2001

Relevant Sections – 74

Chapter 01

Lecture 01

Topic – Tax Year

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Tax year (Sec-74)
There are three kinds of tax years as stipulated in Section 74 of the Income Tax Ordinance, 2001:
⇒ Normal tax year
⇒ Special tax year
⇒ Transitional tax year

Normal tax year
Normal tax year is a period of twelve months ending on the 30th day of June and is denoted by the calendar year in which the said date falls.

Special tax year
Where a person’s income year is different from the normal tax year, or where, by an order, a person has been allowed by the Commissioner to use a twelve months’ period different from normal tax year, such income year or such period shall be that person’s special tax year and shall be denoted by the calendar year relevant to normal tax year in which the closing date of the special tax year falls.

The Board has authority to prescribe any special tax year in respect of any particular class of taxpayer. For example in respect of certain classes of assesses following special tax years are specified by the Board.

Here are the SROs

134(R)/68, July 31,1968 ;

367(I) /74, January 14,1974 ;

878 (I) /95, August 30,1995

Change in Tax Year:

In addition to above, a taxpayer may get permission to adopt special income year subject to fulfilment of following conditions laid down in section 74 ibid:

A person may apply to the Commissioner for change of tax year from normal tax year to special tax year or from special tax year to normal tax year and the same can be granted subject to any conditions that may be imposed by the Commissioner.

A change of tax year from normal to special or vice versa, granted by the Commissioner is subject to withdrawal if in his opinion it is no longer feasible but not unless the person has been provided an opportunity of being heard.
An order of the Commissioner for change of tax year shall take effect from such date, being the first day of the special tax year or the normal tax year, as the case may be, as may be specified in the order.
A person dissatisfied with the order may file a review application with the Board against the decision of the Commissioner at the time of granting permission for a special tax year or withdrawal of the same and the decision by the Board on such application shall be final.

Transitional tax year
Where the tax year of a person changes as a result of an order by the Commissioner of Income tax either from the normal tax year to special tax year or vice versa, the period between the end of the last tax year prior to change and the date on which the changed tax year commences shall be treated as a ‘transitional tax year’.
Example
The normal tax year of ABC Limited was the period from 01 July 2015 to 30 June 2016. On an application by ABC Limited, Commissioner granted approval to adopt special tax year of 30 September each year. The period from 01 July 2016 to 30 September 2016 will be treated as transitional tax year.

Examinations covered here : 

ICAP CAF 06 – Principals of Taxation & ICAP CFAP 05 – Advance Taxation

Video Lecture by:

Khalid Petewala, FCA