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Section 23 ITO Initial Allowance in Income Tax Ordinance

Section 23 ITO Initial Allowance in Income Tax Ordinance

Section 23 ITO Initial Allowance in Income Tax Ordinance and as per Lawkidunya, the word Initial Allowance is allowable @ 25% at the cost of an asset (15% in case of building) if the asset is used for business purpose in the tax year in which asset is placed into service in Pakistan or which commercial production is commenced whichever is later. Building given on rent along with plant and machinery.

Section 23 Initial Allowance in Income Tax Ordinance

Initial allowance.—(1) A person who places an eligible depreciable asset into service in Pakistan for the first time in a tax year shall be allowed a deduction (hereinafter referred to as an “initial allowance”) computed in accordance with sub-section (2), provided the asset is 1[used by the person for the purposes of his business for the first time or the tax year in which commercial production is commenced, whichever is later].
(2) The amount of the initial allowance of a person shall be computed by applying the rate specified in Part II of the Third Schedule against the cost of the asset.
(3) The rules in section 76 shall apply in determining the cost of an eligible depreciable asset for the purposes of this section.
(4) A deduction allowed under this section to a leasing company or an investment bank or a modaraba or a scheduled bank or a development finance institution in respect of assets owned by the leasing company or the investment bank or the modaraba or the scheduled bank or the development finance institution and leased to another person shall be deducted only against the leased rental income derived in respect of such assets.
(5) In this section, “eligible depreciable asset” means a depreciable asset other than —
(a) any road transport vehicle unless the vehicle is plying for hire;
(b) any furniture, including fittings;
(c) any plant or machinery 4[that has been used previously in Pakistan]; or
(d) any plant or machinery in relation to which a deduction has been allowed under another section of this Ordinance for the entire cost of the asset in the tax year in which the asset is acquired.

Initial Allowance in Taxation

Initial allowance: One-off relief in the first year of purchasing a QCE. This means initial allowance is calculated only once over the useful life of an asset. It is not recurring. Annual allowance: It is a tax relief based on the cost of the asset less initial allowance.

Initial Allowance and Annual Allowance

Capital Allowances consist of an initial allowance and annual allowance. Initial allowance is fixed at the rate of 20% based on the original cost of the asset at the time when the capital expenditure is incurred. While annual allowance is a flat rate given every year based on the original cost of the asset.

What is Special Initial Allowance

An SIA is a capital allowance which ranks as a deduction. It has the effect of reducing the taxable amount and therefore the tax due from a business. This incentive enables the business to retain more of its earnings which can then be re-invested to grow the business.

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