Mr. Ejaz, aged 55 years is employed as a salesman by Farwa Pharmaceutical Pvt. Limited (‘FPPL’). His earnings and relevant expenditures for the tax year ended 30 June 2020 are as follows:

Current employment:

1. Basic salary of Rs.25,000 per month.
2. A utility allowance of 5% of his basic salary. The payment is gratuitous and not covered in his employment agreement.
3. Commission earnings of the year of Rs.375,000
4. Trainning allowance of Rs.10,000 per month for the training of newly recruited trainee salesmen.
5. In February 2020, Ejaz won the saleman of the year award. The award consisted of paid holiday of 15 days along with ticktes and a hotel stay, at total cost of Rs.450,000.
6. Ejaz is provided with a car by FPPL which cost the company Rs.1,150,000. The log book showed personal use of the car as 20%.
7. In addition to a medical allowance at 9% of his basic salary, Ejaz was also reimbursed treatment expenses of Rs.430,000 at a private hospital, in accordance with the terms of his employment.
8. Ejaz and FPPL each contribute Rs.2,500 per month towards a recognized provident fund.
9. FPPL advanced Ejaz a loan of Rs.1,000,000 on 1 January 2020 at a mark up of 2% per annum as per policy of the company.
10. Ejaz had to spend one week in a risky area in connection with a sales campaign for a new product for which he was given a dangerous working conditions supplement of Rs.50,000.

Other Information

11. Ejaz receives a pension of Rs. 5000 per month from his ex-employer.
12. Ejaz made Zakat payments of Rs.35,000 for the year, of these 20% of the payments were made to deserving relatives and the rest to Edhi Foundation ( a registered charity)
13. Ejaz received rental income of Rs.60,000 in the year for letting out a room in his apartment.
14. Worker Participation Fund contributions of Rs.25,000 have been made for the year.
15. Dividend income of Rs. 20,000 was received by Ejaz during the year from a listed company.

Requirement

Compute Mr Ejaz taxable income, total income and tax liability for the tax year 2020. Give reasons for treatment of the various items in computing his taxable income and tax liability for his ease of understanding.

Answer rating: 100% (QA)

Basic salary Rs300000 25000 x 12 Rs300000 Basic salary is income earned so it is taxable Utility all... View the full answer