Computation of Taxable Profits Where Receipt and Payment Account is Available

The receipt and payment account is the summary of cash transactions made during the accounting year. The debit side consists of all receipts and credit side consists of all payments, whether of capital or of revenue nature, made during the accounting year. The taxable profits are computed in the following manner

1. Add all the receipts relating to the business or profession Receipts of capital nature, ie profit on sale of investments or receipts which are not related to the business or profession, e.g interest on securities, rent from property or dividends, etc. are not taken. After adding all the receipts relating to business or profession, it comes total receipts during the accounting year.

2.Less (a) Payment relating to the business or profession and which are also admissible as deduction under the provisions of the Income Tax Ordinance, 2001, should be deducted. Thus, payments which are not incurred wholly and exclusively for the purpose of business or profession or which are not admissible as deductions, cannot be deducted.

(b) Depreciation allowable as per income tax rules Dfa Ho and not charged to the receipts and payment account should also be deducted. Computation of Taxable Profits Where Receipt and Payment Account is Available

3. If receipts exceed the payments, it will be taxable profit. If payments exceed receipts, it will be loss