CAF 2 Chapter-wise MCQ Tests
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CAF 2 Chapter-wise MCQs
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CAF 2 — Chapter 1
Difficult ICAP-Level MCQs
MCQ 1
The Government introduces the following measures:
I. Higher customs duty on luxury imports
II. Tax exemptions for industries established in underdeveloped areas
III. Progressive income tax rates for higher-income persons
Which combination most appropriately identifies the underlying objectives?
A. Revenue collection, certainty and convenience
B. Balance of trade, economic development and redistribution of wealth
C. Documentation, economy of collection and benefit principle
D. Protection of foreign industries, fiscal adequacy and proportional taxation
MCQ 2
A tax is levied at 18% on a consumer product irrespective of the income of the purchaser. Mr. A earns Rs. 60,000 per month while Mr. B earns Rs. 600,000 per month. Both purchase the same product.
Which statement is most appropriate?
A. The tax is progressive because Mr. B has greater ability to pay.
B. The tax is proportional because the statutory rate is the same and therefore cannot be regressive.
C. The tax may be regressive because the tax burden represents a greater proportion of Mr. A’s income.
D. The tax is direct because the ultimate consumer bears the economic burden.
MCQ 3
A Government proposes a tax under which persons using a particular public facility would contribute according to the benefits they receive from that facility.
This proposal most closely reflects:
A. Ability-to-Pay Principle
B. Equal-Distribution Principle
C. Benefit Principle
D. Canon of Equality
MCQ 4
Tax X is imposed at a fixed percentage on every taxpayer. Tax Y applies progressively higher rates as income increases.
Which statement is correct?
A. Both X and Y follow the Equal-Distribution Principle because higher earners pay higher absolute amounts under both.
B. X is regressive and Y is proportional.
C. X represents proportional taxation, whereas Y represents progressive taxation.
D. X satisfies the Ability-to-Pay Principle only because every taxpayer pays the same percentage.
MCQ 5
A tax authority designs a tax having the following characteristics:
- liability is precisely determinable;
- due date is known in advance;
- method of payment is clearly prescribed; and
- taxpayer has little uncertainty regarding the amount payable.
Which canon of taxation is primarily demonstrated?
A. Equality
B. Economy
C. Convenience
D. Certainty
MCQ 6
Consider the following:
- Income tax on the profits of a business
- Sales tax charged by a registered seller to customers
- Customs duty forming part of the cost of imported goods
Which statement best distinguishes item 1 from items 2 and 3?
A. Item 1 is administered federally whereas items 2 and 3 are always administered provincially.
B. The economic burden of item 1 is generally intended to remain with the person taxed, whereas that of indirect taxes may generally be shifted.
C. Items 2 and 3 cannot ultimately be borne by a consumer.
D. Item 1 is imposed only on companies.
MCQ 7
Which of the following combinations is correctly classified under Pakistan’s tax structure as described in the study text?
| Tax | Classification/administration |
|---|---|
| I. Income tax | Principal federal direct tax |
| II. Sales tax on goods | Major indirect tax |
| III. Sales tax on services | Generally administered under relevant federal/provincial legislation |
| IV. Customs duty | Direct tax |
A. I and II only
B. I, II and III only
C. II, III and IV only
D. I, II, III and IV
MCQ 8
A registered manufacturer has output tax on taxable supplies and has also paid sales tax on eligible business purchases.
Subject to the applicable provisions and restrictions, which treatment is most consistent with the sales tax mechanism?
A. Output tax is treated as an expense and input tax as income.
B. Admissible input tax may be adjusted against output tax.
C. Input tax can only be adjusted against income tax payable.
D. The manufacturer must bear both input and output tax without adjustment.
MCQ 9
Which statement regarding the rate of sales tax is most accurate according to the updated study text?
A. The standard rate of 18% applies without exception to every taxable transaction.
B. Sales tax may only be imposed below 18% where Government grants an exemption.
C. Depending upon the nature of goods and applicable statutory provisions, the rate may be higher or lower than 18%.
D. Any rate other than 18% automatically converts the supply into an exempt supply.
MCQ 10
A Government wishes to encourage exports. Which of the following measures mentioned in Chapter 1 most directly serves that objective?
A. Progressive tax rates on salary income
B. Zero rating of exports
C. Higher customs duty on essential raw materials
D. Tax on moveable assets
MCQ 11
Which of the following statements regarding Federal Excise Duty (FED) is most appropriate?
A. FED is imposed exclusively on services and never on goods.
B. FED is imposed only on goods manufactured within Pakistan.
C. FED may apply to specified locally produced goods, imported goods and specified services according to relevant law.
D. All exports are subject to the standard FED rate applicable to domestic supplies.
MCQ 12
Which of the following is the best example of using taxation as an instrument of economic development rather than merely revenue collection?
A. Taxing every taxpayer at precisely the same rupee amount
B. Establishing industrial/economic zones and providing tax incentives to encourage investment and employment
C. Increasing the cost of tax administration
D. Requiring tax only where the taxpayer receives an equal direct Government benefit
MCQ 13
Consider the following events:
- Income Tax Act, 1922
- Income Tax Ordinance, 1979
- Income Tax Ordinance, 2001
- Income Tax Act, 1860
Which is the correct chronological order?
A. 4 → 1 → 2 → 3
B. 1 → 4 → 2 → 3
C. 4 → 2 → 1 → 3
D. 1 → 2 → 4 → 3
MCQ 14
Which statement is incorrect?
A. The Income Tax Act, 1860 was introduced partly in response to fiscal pressure following the war of 1857.
B. The Income Tax Act, 1886 introduced a definition of agricultural income substantially resembling the later concept.
C. The Income Tax Act, 1922 remained in force in Pakistan until 30 June 1979.
D. The Income Tax Ordinance, 2001 became effective immediately on 13 September 2001.
MCQ 15 — ICAP Trap
A tax system has the following features:
- rates are clearly prescribed;
- collection procedures are inexpensive;
- taxpayers can conveniently discharge their liabilities; and
- persons with different financial capacities are taxed appropriately.
Which set of Adam Smith’s canons is reflected, respectively?
A. Certainty → Economy → Convenience → Equality
B. Economy → Certainty → Equality → Convenience
C. Certainty → Convenience → Economy → Equality
D. Equality → Economy → Certainty → Convenience
Answer Key — Admin Only
1. B
Luxury import duties can support the balance of trade; incentives in underdeveloped areas promote development; progressive taxation can support wealth redistribution. CAF-2-ST
2. C
A uniform consumption tax may have a regressive effect because lower-income persons spend a greater proportion of income on consumption. CAF-2-ST
3. C
The Benefit Principle links tax contribution with benefits received from Government programmes/projects. CAF-2-ST
4. C
A constant percentage is proportional/flat taxation; increasing rates with income represent progressive taxation. CAF-2-ST
5. D — Certainty
6. B
Direct taxes are generally intended to remain with the person taxed; the economic burden of indirect taxes may generally be shifted. CAF-2-ST
7. B
Customs duty is an indirect, not direct, tax.
8. B
Admissible input tax may be adjusted against output tax, subject to relevant restrictions. CAF-2-ST
9. C
The updated book specifically states that applicable sales-tax rates may be higher or lower than 18%. CAF-2-ST
10. B — Zero-rating exports supports promotion of exports. CAF-2-ST
11. C
FED may apply to specified manufactured/produced goods, imports and specified services. CAF-2-ST
12. B
Tax incentives in free/industrial/economic zones can attract investment, employment and economic activity. CAF-2-ST
13. A
14. D ⭐
The Ordinance was promulgated on 13 September 2001, but came into effect from 1 July 2002. Ye exactly ICAP-type wording trap hai. CAF-2-ST
15. A
Certainty → Economy → Convenience → Equality. CAF-2-ST
Bilkul jani — Chapter 2: Constitutional Provisions on Taxes ka next set. Is dafa bhi proper difficult ICAP-style, close options aur statement-based traps rakhe hain, strictly updated CAF 2 study text se. CAF-2-ST
CAF 2 — Chapter 2
Difficult ICAP-Level MCQs
MCQ 1
Which of the following receipts forms part of the Federal Consolidated Fund?
A. Money deposited with the Supreme Court
B. All revenues received by the Federal Government and loans raised by it
C. All money received on behalf of the Federal Government other than revenue
D. Deposits held by courts established under the Federation
MCQ 2
Which statement regarding the Public Account of the Federation is correct?
A. It contains all revenues collected by the Federal Government.
B. It includes all loans raised by the Federal Government.
C. It includes other moneys received by or on behalf of the Federal Government and deposits with federal courts.
D. It contains only tax revenues not yet appropriated by Parliament.
MCQ 3
The Federal Annual Budget Statement must separately show:
I. Expenditure charged upon the Federal Consolidated Fund
II. Other expenditure proposed from the Federal Consolidated Fund
III. Revenue expenditure separately from other expenditure
Which is correct?
A. I only
B. I and II only
C. II and III only
D. I, II and III
MCQ 4
Which of the following statements regarding expenditure charged upon the Federal Consolidated Fund is correct?
A. It must be voted upon by the National Assembly before payment.
B. It may be discussed in the National Assembly but is not submitted to vote.
C. It cannot be discussed or voted upon.
D. It is voted upon only if the President requires.
MCQ 5
A demand for a grant relating to non-charged Federal expenditure can validly be made only:
A. on recommendation of the President
B. on recommendation of the Federal Government
C. after approval by the Senate
D. after authentication by the Prime Minister
MCQ 6 — ICAP Trap
Who authenticates the Federal schedule of authorised expenditure?
A. President
B. Federal Minister for Finance
C. Prime Minister
D. Speaker of National Assembly
MCQ 7
Which statement correctly distinguishes supplementary expenditure from excess expenditure?
A. Supplementary expenditure relates to amounts already spent above the grant; excess expenditure relates to a future shortfall.
B. Supplementary expenditure may arise where an authorised amount is insufficient or a new service arises; excess expenditure relates to an amount already spent beyond the grant.
C. Both terms refer only to expenditure charged upon the Consolidated Fund.
D. Neither requires presentation to the National Assembly.
MCQ 8 — High-Level Trap
The National Assembly may make a vote on account for estimated expenditure for a period:
A. not exceeding three months
B. not exceeding four months
C. not exceeding six months
D. up to the end of the financial year
MCQ 9
When the National Assembly stands dissolved, the Federal Government may authorise expenditure from the Federal Consolidated Fund for a period:
A. not exceeding three months
B. not exceeding four months
C. not exceeding six months
D. only until the new Assembly’s first meeting
MCQ 10 — Federal vs Provincial
Which combination is correct?
| Matter | Maximum period |
|---|---|
| Federal vote on account | 4 months |
| Provincial vote on account | 3 months |
| Federal expenditure when Assembly dissolved | 4 months |
| Provincial expenditure when Assembly dissolved | 4 months |
A. Federal vote-on-account only
B. Federal and Provincial vote-on-account only
C. All except Provincial dissolution
D. All four
MCQ 11
Which person authenticates the Provincial schedule of authorised expenditure?
A. Governor
B. Chief Minister
C. Provincial Finance Minister
D. Speaker of Provincial Assembly
MCQ 12
Which expenditure is specifically charged upon the Provincial Consolidated Fund?
A. Remuneration of President
B. Remuneration of Chief Election Commissioner
C. Remuneration of Judges of the High Court
D. Administrative expenses of the Senate
MCQ 13 — Legislative Powers
Which of the following taxes falls within the Federal Legislative List?
I. Duties of customs
II. Taxes on income other than agricultural income
III. Sales tax on services
IV. Taxes on corporations
A. I and II only
B. I, II and IV only
C. II, III and IV only
D. I, II, III and IV
MCQ 14
Which of the following is not within the Federal legislative power identified in Chapter 2?
A. Taxes on corporations
B. Taxes on capital value of assets excluding immovable property
C. Sales tax on services
D. Customs duties including export duties
MCQ 15 — Multiple Statement ICAP Trap
Consider the following:
- Federation may levy tax on income other than agricultural income.
- Federation may impose sales tax on goods imported, exported, produced, manufactured or consumed.
- Sales tax on services falls within the same Federal Legislative List entry as sales tax on goods.
- Taxes on transfer of immovable property may be introduced by Provinces.
Which statements are correct?
A. 1 and 2 only
B. 1, 2 and 4 only
C. 2, 3 and 4 only
D. 1, 2, 3 and 4
Admin Answer Key
1 — B
Federal revenues, loans raised and repayments of loans form part of the Federal Consolidated Fund. Other moneys/deposits generally go to the Public Account. CAF-2-ST
2 — C
Other moneys received by/on behalf of the Federal Government and deposits with specified federal courts are credited to the Public Account. CAF-2-ST
3 — D
All three requirements are expressly included in the Annual Budget Statement rules. CAF-2-ST
4 — B ⭐
Charged expenditure may be discussed but is not voted upon. This wording is a strong ICAP trap. CAF-2-ST
5 — B
No demand for grant can be made except on recommendation of the Federal Government. CAF-2-ST
6 — C
The Prime Minister authenticates the Federal schedule of authorised expenditure. CAF-2-ST
7 — B
Insufficient authorised expenditure/new service → supplementary; amount already spent beyond grant → excess. CAF-2-ST
8 — B
Federal vote on account = maximum four months. CAF-2-ST
9 — B
When National Assembly is dissolved, Federal Government may authorise expenditure for not exceeding four months. CAF-2-ST
10 — D ⭐
This is a major exam trap:
Federal vote-on-account = 4 months
Provincial vote-on-account = 3 months
Federal dissolution = 4 months
Provincial dissolution = 4 months. CAF-2-ST CAF-2-ST
11 — B
Provincial schedule is authenticated by the Chief Minister. CAF-2-ST
12 — C
Remuneration of Judges of the High Court is charged upon the Provincial Consolidated Fund. CAF-2-ST
13 — B
Customs, income other than agricultural income and corporation taxes are federal. Sales tax on services is excluded. CAF-2-ST
14 — C
Sales tax on services falls within provincial legislative scope rather than the relevant federal sales-tax entry. CAF-2-ST CAF-2-ST
15 — B ⭐
Statements 1, 2 and 4 are correct. Statement 3 is false because the Federal Legislative List expressly excludes sales tax on services. CAF-2-ST
Ye Chapter 1 se bhi zyada ICAP-style set hai — especially MCQ 4, 7, 10, 13 aur 15 students ko proper trap karenge.
Status: Draft – awaiting approval
CAF 2 — Chapter 3: Ethics
Difficult ICAP-Level MCQs
MCQ 1
A tax officer selects a taxpayer for audit merely because the taxpayer previously challenged an assessment in appeal. No objective risk factor supports the selection.
Which principle is most directly violated?
A. Transparency only
B. Fairness and consistency
C. Confidentiality only
D. Economy of collection
MCQ 2
Which of the following is not one of the four pillars of tax administration identified in the study text?
A. Fairness
B. Transparency
C. Accountability
D. Independence
MCQ 3
A tax officer lawfully has power to attach a taxpayer’s bank account. However, the taxpayer demonstrates that immediate attachment would destroy an otherwise viable export business, and requests instalments.
According to the ethical approach discussed in the study text, the authority should:
A. necessarily attach the account because collection of revenue overrides all other considerations
B. consider the request where permitted by law, taking justice and equity into account
C. waive the tax liability permanently
D. defer collection irrespective of the law
MCQ 4
A tax administrator grants a concession to a taxpayer even though no such concession is available under tax law.
Which responsibility of tax administrators is most directly breached?
A. Maintain confidentiality
B. Provide prompt service
C. Grant no exemption, credit or advantage not provided by law
D. Educate taxpayers
MCQ 5
Which of the following best reflects professional competence and due care?
A. Avoiding disclosure of client information
B. Remaining technically updated and acting diligently under applicable standards
C. Refusing all engagements involving judgment
D. Avoiding any disagreement with a client
MCQ 6 — ICAP Trap
A tax practitioner becomes aware of confidential information obtained during an engagement. He uses that information to assist a relative in a commercial negotiation without disclosing it publicly.
Which fundamental principle is breached most directly?
A. Objectivity
B. Confidentiality
C. Professional competence
D. Professional behaviour only
MCQ 7
A practitioner knows that a proposed tax return contains unsupported expenses. His senior instructs him to ignore the issue because “this is not an audit engagement.”
According to the study text, the senior’s instruction may breach:
I. Integrity
II. Professional behaviour
III. Confidentiality
IV. Professional competence and due care
A. I only
B. I and II only
C. II and III only
D. I, II and IV only
MCQ 8
In the situation above, the junior practitioner fears losing his job if he refuses to follow the senior’s instruction.
The most relevant threat is:
A. Advocacy threat
B. Familiarity threat
C. Intimidation threat
D. Self-interest threat
MCQ 9
Which action is least appropriate as a response to the intimidation threat described in the study text?
A. Discuss the matter with the senior and urge compliance
B. Raise the matter with an appropriate senior person in the firm
C. Implement the instruction because responsibility rests solely with the senior
D. Seek legal advice where appropriate
MCQ 10
Which statement best distinguishes tax avoidance from tax evasion under the study text?
A. Both necessarily involve illegal conduct.
B. Avoidance generally operates within the law, whereas evasion involves unlawful concealment or misrepresentation.
C. Avoidance occurs only after tax liability arises.
D. Evasion may be acceptable if full disclosure is made.
MCQ 11 — Scenario
Mr. A earns Rs. 10 million but declares only Rs. 6 million and hides the remaining Rs. 4 million in another bank account.
This is:
A. lawful tax planning
B. tax avoidance
C. tax evasion
D. acceptable if no false deduction is claimed
MCQ 12
Mr. B earns Rs. 10 million and claims Rs. 7 million of genuine, allowable and properly documented business expenses.
This is best classified as:
A. tax evasion
B. unlawful avoidance
C. lawful tax planning
D. concealment of income
MCQ 13 — Audit Client
An audit firm prepares current and deferred tax calculations for an audit client for the purpose of preparing accounting entries that will later be audited by the same firm.
Which threat arises?
A. Advocacy threat only
B. Self-review threat
C. Intimidation threat
D. Familiarity threat
MCQ 14 — Non-PIE
The audit client is not a public interest entity. Which of the following may be an appropriate safeguard?
A. Use the same audit team member and require no review
B. Use professionals who are not members of the audit team
C. Prohibit the service in every circumstance
D. Allow the client to determine the audit conclusion
MCQ 15 — PIE Trap
An audit client is a public interest entity, and the audit firm is requested to prepare material current and deferred tax calculations for accounting entries.
Which is correct?
A. The service is freely permitted if management approves it.
B. The service is prohibited where the amounts are material to the financial statements, subject to emergency or unusual situations permitted by the Code.
C. The service is permitted provided a separate fee is charged.
D. PIE status is irrelevant.
Admin Answer Key
1 — B
Audit-selection powers should be exercised objectively, rationally and ethically; arbitrary or inconsistent selection conflicts with fairness. CAF-2-ST(1)
2 — D
The four pillars are Fairness, Transparency, Equity and Accountability. CAF-2-ST(1)
3 — B
The study text specifically discusses considering instalments where law permits, with justice and equity in mind. CAF-2-ST(1)
4 — C
Tax administrators should grant no exemption, credit or advantage not provided by law. CAF-2-ST(1)
5 — B
Professional competence and due care requires current knowledge, skill and diligent application of professional standards. CAF-2-ST(1)
6 — B
Confidential information must not be disclosed improperly or used for personal advantage or that of third parties. CAF-2-ST(1)
7 — B ⭐
The book specifically identifies Integrity and Professional Behaviour in this type of scenario. CAF-2-ST(1)
8 — C
Fear of adverse employment consequences due to pressure from a senior is an intimidation threat. CAF-2-ST(1)
9 — C
A practitioner should not knowingly implement an improper course merely because a senior instructed it. CAF-2-ST(1)
10 — B
Avoidance is generally lawful planning within the law; evasion involves illegal methods such as concealment or misrepresentation. CAF-2-ST(1)
11 — C
Deliberately understating income and concealing the balance is tax evasion. CAF-2-ST(1)
12 — C
Claiming genuine allowable expenses with proper documentation is lawful tax planning. CAF-2-ST(1)
13 — B ⭐
Preparing tax calculations for accounting entries that will later be audited by the same firm creates a self-review threat. CAF-2-ST(1)
14 — B
For a non-PIE audit client, one safeguard is using professionals who are not audit team members. CAF-2-ST(1)
15 — B ⭐
For a PIE audit client, material tax calculations for accounting entries are prohibited, except in permitted emergency/unusual circumstances with safeguards. CAF-2-ST(1)\
Bilkul jani — ab Chapter 4: Basic Concepts of Income Tax Law. Is chapter mein numericals aur wording traps dono bohat hain, is liye is set ko aur zyada ICAP-style application based rakha hai.
CAF 2 — Chapter 4
Difficult ICAP-Level MCQs
MCQ 1 — Tax Year Trap
A company follows an accounting period from 1 January 2026 to 31 December 2026.
Its tax year will be:
A. Normal Tax Year 2026
B. Special Tax Year 2026
C. Special Tax Year 2027
D. Transitional Tax Year 2027
MCQ 2
A company was previously following a normal tax year. The Commissioner permits it to adopt a special tax year ending 30 September. Its last normal tax year ends on 30 June 2027 and the new special tax year starts on 1 October 2027.
The period 1 July 2027 to 30 September 2027 is:
A. Special Tax Year 2027
B. Normal Tax Year 2028
C. Transitional Tax Year
D. Not treated as a tax year
MCQ 3 — Public Company Trap
ABC Limited is not listed on PSX. Exactly 50% of its shares are held by the Provincial Government and the remaining 50% by individuals.
For income tax purposes, ABC Limited is:
A. a private company because Government ownership does not exceed 50%
B. a public company
C. a public company only if listed on PSX
D. neither a public nor private company
MCQ 4
XYZ Limited’s shares were traded on PSX during the tax year but it was delisted one day before the end of the tax year.
For tax purposes, XYZ Limited:
A. remains a public company because its shares were traded during the year
B. is not a public company under the PSX test because it was not listed at year-end
C. is automatically a private company only after two tax years
D. remains public because Companies Act status determines tax status
MCQ 5 — Resident Individual
Mr. Ali was physically present in Pakistan for 181 ordinary days and, in addition, spent:
- 1 full day in Pakistan due to flight delay; and
- part of another day in Pakistan solely in transit between Dubai and London.
His number of days present in Pakistan for section 82 purposes is:
A. 181 days
B. 182 days
C. 183 days
D. 184 days
MCQ 6
A foreign company is incorporated in the UK. Its control and management remained wholly in Pakistan from 1 July to 15 July, after which the entire control and management shifted permanently to the UK.
For the relevant tax year, the company is:
A. non-resident because control was outside Pakistan for most of the year
B. resident because control and management was wholly in Pakistan at some time during the year
C. resident only if incorporated in Pakistan
D. non-resident unless more than 183 days of control were in Pakistan
MCQ 7 — AOP Trap
An AOP is formed outside Pakistan. During the tax year, part of its management functions are carried out in Pakistan while the remaining management functions are exercised abroad.
The AOP is:
A. non-resident because management is not wholly in Pakistan
B. resident because control and management is wholly or partly in Pakistan at any time in the year
C. resident only if all partners are residents
D. non-resident because it was formed outside Pakistan
MCQ 8 — Salaried Person Trap
Mr. Z has taxable income of Rs. 8,000,000, comprising:
- Salary income: Rs. 6,000,000
- Other taxable income: Rs. 2,000,000
For purposes of applying the salaried individual tax rates, Mr. Z is:
A. salaried because salary is 75% of taxable income
B. salaried because salary is at least 75%
C. non-salaried because salary does not exceed 75% of taxable income
D. non-salaried only if salary is below 50%
MCQ 9 — Minimum Tax Applicability
Which of the following persons falls within section 113, assuming the relevant conditions are met?
I. Resident company with turnover of Rs. 40 million
II. Resident individual with turnover of Rs. 95 million
III. AOP with turnover of Rs. 110 million
A. I only
B. III only
C. I and III only
D. I, II and III
MCQ 10 — Numerical
An AOP has:
- Turnover: Rs. 120,000,000
- Normal tax liability: Rs. 900,000
Minimum tax under section 113 is 1.25% of turnover.
Tax payable for the year will be:
A. Rs. 900,000
B. Rs. 1,200,000
C. Rs. 1,500,000
D. Rs. 2,400,000
MCQ 11 — Carry Forward Trap
Using the facts in MCQ 10, the excess minimum tax over normal tax liability will be:
A. Rs. 300,000, carried forward for six years
B. Rs. 600,000, carried forward for two tax years
C. Rs. 600,000, carried forward indefinitely
D. Nil, because minimum tax is always final
MCQ 12 — Section 67 Numerical
A business incurs common administrative expenditure of Rs. 3,000,000.
Gross receipts are:
- Taxable business income: Rs. 60 million
- Exempt income: Rs. 20 million
- FTR income: Rs. 20 million
Amount of common expenditure allocable to taxable business income is:
A. Rs. 600,000
B. Rs. 1,200,000
C. Rs. 1,800,000
D. Rs. 3,000,000
MCQ 13 — Receipt of Income
A debtor owes Rs. 100,000 to ABC Ltd. On ABC Ltd’s instructions:
- Rs. 40,000 is paid directly to ABC Ltd; and
- Rs. 60,000 is paid to ABC Ltd’s supplier on its behalf.
For section 69 purposes, ABC Ltd is treated as having received:
A. Rs. 40,000 only
B. Rs. 60,000 only
C. Rs. 100,000
D. Nil until the entire amount is physically received
MCQ 14 — Recouped Expenditure
A taxpayer was allowed a deduction of Rs. 500,000 for an expense in Tax Year 2025. In Tax Year 2027, Rs. 300,000 of that expense is waived/recovered.
The Rs. 300,000 will generally be:
A. added back to Tax Year 2025
B. included in income for Tax Year 2027
C. ignored because the original year is closed
D. treated as exempt income
MCQ 15 — Women Enterprise Trap
A woman-owned startup established after 1 July 2021 is unable to qualify for the 100% tax credit under section 65F. It otherwise meets the definition of a woman enterprise and was not created by splitting/reconstitution of an existing business.
The study text provides that tax payable on qualifying business profits may be reduced by:
A. 10%
B. 20%
C. 25%
D. 100%
Admin Answer Key
1 — C ⭐
A 1 January to 31 December 2026 period is a Special Tax Year 2027. The book determines the label by reference to the normal tax year in which the special year’s closing date falls. CAF-2-ST(1)
2 — C
The gap between the last tax year and commencement of the changed tax year is a transitional tax year. CAF-2-ST(1)
3 — B
“Not less than 50%” Government ownership qualifies. Exactly 50% is sufficient. CAF-2-ST(1)
4 — B ⭐
Under the PSX test, shares must have been traded during the year and the company must remain listed at the end of the year. CAF-2-ST(1)
5 — B
181 ordinary days + 1 day due to flight delay = 182 days. A day spent solely in transit between two places outside Pakistan is excluded. CAF-2-ST(1)
6 — B ⭐
For a foreign company, wholly situated control and management in Pakistan at any time in the year is sufficient for residence. CAF-2-ST(1)
7 — B
An AOP is resident if control and management is wholly or partly in Pakistan at any time in the year. CAF-2-ST(1)
8 — C ⭐
The study text requires salary income to exceed 75% of taxable income. Exactly 75% does not satisfy the test. CAF-2-ST(1)
9 — C
Section 113 applies to a resident company irrespective of the Rs.100m individual/AOP threshold, and to an individual/AOP where turnover is Rs.100m or more. Thus I and III. CAF-2-ST(1)
10 — C
Rs.120m × 1.25% = Rs.1.5m. Since this exceeds normal tax of Rs.0.9m, Rs.1.5m is payable. CAF-2-ST(1)
11 — B
Excess = Rs.1.5m − Rs.0.9m = Rs.600,000, carried forward for two tax years. CAF-2-ST(1)
12 — C ⭐
Common expenditure allocation:
Rs.3m × Rs.60m / Rs.100m = Rs.1.8m. CAF-2-ST(1)
13 — C
An amount is treated as received if actually received or applied on behalf of the person at their instruction. Total receipt = Rs.100,000. CAF-2-ST(1)
14 — B
A recovery/waiver relating to a previously allowed deduction is included in income in the year of recovery, not reopened in the earlier year. CAF-2-ST(1)
15 — C
Where the 100% section 65F credit is unavailable, qualifying woman-enterprise business tax may receive a 25% reduction, provided the business was not formed through transfer/reconstitution/splitting of an existing business. CAF-2-ST(1)
CAF 2 — Chapter 5: Salary Income
Difficult ICAP-Level MCQs
MCQ 1 — Motor Vehicle Trap
An employer leases a motor car whose fair market value at the commencement of lease was Rs. 4,000,000. The car is provided to an employee for both official and private use.
Amount chargeable as salary perquisite is:
A. Rs. 200,000
B. Rs. 400,000
C. Actual lease rentals paid by employer
D. Nil because the vehicle is also used officially
MCQ 2 — Accommodation Numerical
An employee receives basic salary of Rs. 1,200,000 per annum. Had accommodation not been provided, he would have received house rent allowance of Rs. 420,000. Employer provides rent-free accommodation.
Taxable value of accommodation will be:
A. Rs. 420,000
B. Rs. 540,000
C. Rs. 960,000
D. Nil because the accommodation is employer-provided
MCQ 3 — Medical Trap
Mr. A receives:
- Basic salary: Rs. 1,000,000
- Medical reimbursement under terms of employment: Rs. 80,000, duly supported and certified
- Medical allowance: Rs. 90,000
Correct treatment is:
A. Both amounts are exempt
B. Reimbursement is exempt and medical allowance is also exempt up to 10% of basic salary
C. Reimbursement is exempt but the medical allowance is fully taxable
D. Both amounts are taxable
MCQ 4 — Interest-Free Loan
An employee receives an interest-free loan of Rs. 1,800,000 from his employer for the entire tax year.
Using the benchmark rate prescribed in the study text, taxable perquisite is:
A. Rs. 18,000
B. Rs. 90,000
C. Rs. 180,000
D. Nil
MCQ 5 — Concessional Loan
Employer grants a loan of Rs. 2,000,000 carrying interest at 4% per annum. Benchmark rate is 10%.
Taxable salary perquisite for a complete year is:
A. Rs. 80,000
B. Rs. 120,000
C. Rs. 200,000
D. Rs. 280,000
MCQ 6 — Loan Threshold Trap
An employer grants an interest-free loan of exactly Rs. 1,000,000 to an employee.
Under the rule given in the study text:
A. Rs. 100,000 will be taxable as perquisite
B. Rs. 50,000 will be taxable
C. No loan perquisite will arise
D. Entire Rs. 1,000,000 will be taxable
MCQ 7 — Unapproved Gratuity
Mr. B receives Rs. 140,000 from an unapproved gratuity fund. All conditions for the exemption are otherwise satisfied.
Taxable amount is:
A. Rs. 65,000
B. Rs. 70,000
C. Rs. 75,000
D. Rs. 140,000
MCQ 8 — Gratuity Exception
Which employee would not be entitled to the normal exemption available for gratuity from an unapproved gratuity scheme?
A. Resident regular employee receiving gratuity in Pakistan for the first time
B. Employee receiving the amount outside Pakistan
C. Employee receiving gratuity from an approved fund
D. Government employee
MCQ 9 — Pension: Updated Rule
A 65-year-old retired employee receives annual pension of Rs. 12,000,000 and is not working for his former employer or its associate.
Tax under the pension regime described in the updated study text is:
A. 5% of Rs. 12,000,000
B. 5% of Rs. 2,000,000
C. Tax at normal salaried slab rates
D. Nil
MCQ 10 — Pension NTR Trap
Mr. X retires from ABC Ltd but later continues to work for ABC Ltd’s associated company while receiving pension from ABC Ltd.
His pension will generally be:
A. fully exempt
B. taxed at 5% FTR only
C. taxed under normal tax regime at applicable slab rates
D. treated as capital gain
MCQ 11 — Recognised Provident Fund
Basic salary plus dearness allowance of an employee is Rs. 1,500,000. Employer contributes Rs. 210,000 to a recognised provident fund.
Amount of employer contribution taxable in salary is:
A. Nil
B. Rs. 60,000
C. Rs. 150,000
D. Rs. 210,000
MCQ 12 — PF Interest Numerical
Accumulated balance in a recognised provident fund is Rs. 1,000,000. Interest credited during the year is Rs. 180,000. Salary for PF purposes is Rs. 1,200,000.
Taxable interest is:
A. Nil
B. Rs. 20,000
C. Rs. 160,000
D. Rs. 180,000
MCQ 13 — Foreign Salary
A resident individual performs employment outside Pakistan and receives foreign-source salary. Foreign income tax has been withheld by the foreign employer and paid to the foreign revenue authority.
The foreign-source salary is:
A. fully taxable in Pakistan with foreign tax credit only
B. exempt in Pakistan
C. taxable only if remitted to Pakistan
D. taxable under income from other sources
MCQ 14 — Government Employee Abroad
A Pakistan Government employee is posted abroad throughout Tax Year 2027 and receives salary in a foreign bank account.
The salary is:
A. foreign-source and exempt
B. taxable in Pakistan
C. taxable only when remitted to Pakistan
D. exempt if foreign tax is not deducted
MCQ 15 — Allowance Trap
An employee is paid a fixed monthly travelling allowance of Rs. 25,000. He actually incurs travelling expenditure solely for employment duties.
Which treatment is most appropriate under the study text?
A. Entire allowance is exempt because travelling relates to employment
B. Only actual expenditure is taxable
C. Fixed allowance is not covered by the exemption for allowance solely expended in performance of duties
D. Allowance is exempt up to 50%
Admin Answer Key
1 — A ⭐
For a leased vehicle used partly personally and partly officially, perquisite = 5% of FMV at commencement of lease.
Rs.4,000,000 × 5% = Rs.200,000. CAF-2-ST(1)
2 — B
Higher of:
- amount that would have been paid: Rs.420,000
- 45% of basic salary: Rs.1,200,000 × 45% = Rs.540,000
Therefore taxable value = Rs.540,000. CAF-2-ST(1)
3 — C ⭐
Properly supported medical reimbursement may be exempt. However, where medical allowance is provided in addition to exempt medical facility/reimbursement, the allowance is fully taxable. CAF-2-ST(1)
4 — C
Rs.1,800,000 × 10% = Rs.180,000. CAF-2-ST(1)
5 — B
Benchmark interest = 10% × Rs.2m = Rs.200,000
Actual interest = 4% × Rs.2m = Rs.80,000
Perquisite = Rs.120,000. CAF-2-ST(1)
6 — C ⭐
Loan-perquisite provision does not apply to loans of Rs.1,000,000 or less. CAF-2-ST(1)
7 — B
Unapproved gratuity exemption = lower of:
- Rs.75,000; or
- 50% of Rs.140,000 = Rs.70,000
Exempt = Rs.70,000, therefore taxable = Rs.70,000. CAF-2-ST(1)
8 — B
The normal unapproved-gratuity exemption does not apply where the payment is not received in Pakistan, among other specified cases. CAF-2-ST(1)
9 — B ⭐
Pension up to Rs.10m = 0%. For a recipient below 70, excess over Rs.10m is taxed at 5%:
Rs.2m × 5% = Rs.100,000.
So option B describes the correct tax base. CAF-2-ST(1)
10 — C ⭐
Where the pensioner continues to work for the former employer or its associate, pension is taxed under NTR at applicable slab rates. CAF-2-ST(1)
11 — B
Exempt employer contribution limit is lower of:
- Rs.150,000; or
- 10% × Rs.1,500,000 = Rs.150,000
Contribution = Rs.210,000
Taxable excess = Rs.60,000. CAF-2-ST(1)
12 — B
PF interest exemption = lower of:
- 16% × Rs.1m = Rs.160,000
- 1/3 × Rs.1.2m = Rs.400,000
Exempt = Rs.160,000.
Interest credited = Rs.180,000.
Taxable = Rs.20,000. CAF-2-ST(1)
13 — B
Foreign-source salary of a resident individual is exempt where foreign income tax has been paid, including through employer withholding paid to the foreign revenue authority. CAF-2-ST(1)
14 — B ⭐
Salary of a Pakistan Government employee remains taxable in Pakistan even where employment is exercised abroad. CAF-2-ST(1)
15 — C
The book specifically excludes an allowance paid on a fixed monthly basis or percentage of salary from the concept of an allowance solely expended in performance of employment duties. CAF-2-ST(1)
CAF 2 — Chapter 6: Income from Property
Difficult ICAP-Level MCQs
MCQ 1 — Fair Market Rent Trap
Mr. A lets out a building for 9 months during Tax Year 2027 at Rs. 80,000 per month. Fair market rent is Rs. 95,000 per month.
Rent chargeable under the head Income from Property is:
A. Rs. 720,000
B. Rs. 760,000
C. Rs. 855,000
D. Rs. 1,140,000
MCQ 2 — Advance Rent
On 1 July 2026, Mr. B receives two years’ advance rent of Rs. 2,400,000 for a building.
Amount chargeable as rent in Tax Year 2027 is:
A. Rs. 2,400,000
B. Rs. 1,200,000
C. Rs. 240,000
D. Nil until the rent is earned in cash terms
MCQ 3 — Composite Lease Trap
A factory building is leased together with plant and machinery for a single composite rent of Rs. 5,000,000.
The whole amount is chargeable under:
A. Income from Property
B. Income from Business
C. Income from Other Sources
D. Capital Gains
MCQ 4 — Amenities
A landlord receives:
- Rent of building: Rs. 2,000,000
- Separate amount for utilities and services connected with renting: Rs. 300,000
Correct treatment is:
A. Entire Rs. 2.3m under Income from Property
B. Rs. 2m Property; Rs. 0.3m Other Sources
C. Entire Rs. 2.3m Other Sources
D. Rs. 2m Property; Rs. 0.3m exempt
MCQ 5 — Repairs Numerical
Rent chargeable before deductions is Rs. 3,000,000. Actual repair expenditure incurred is Rs. 900,000.
Deduction allowable for repairs is:
A. Rs. 180,000
B. Rs. 600,000
C. Rs. 900,000
D. Lower of actual expense and Rs.600,000
MCQ 6 — Administration / Collection Cap
Gross rent chargeable before deductions is Rs. 2,500,000. Actual eligible administration and collection expenditure is Rs. 130,000.
Deduction allowed is:
A. Rs. 50,000
B. Rs. 100,000
C. Rs. 130,000
D. Rs. 500,000
MCQ 7 — Non-adjustable Amount
An owner receives a non-adjustable amount of Rs. 600,000 from a tenant in Tax Year 2027.
Amount included in property income for Tax Year 2027 is:
A. Rs. 60,000
B. Rs. 120,000
C. Rs. 300,000
D. Rs. 600,000
MCQ 8 — Refund Before 10 Years
A non-adjustable amount of Rs. 600,000 was received in Tax Year 2025. Rs. 60,000 was taxed in each of TY2025, TY2026 and TY2027. The amount is refunded to the tenant in TY2028 upon termination.
Which treatment is correct?
A. Rs. 60,000 will still be taxed in TY2028
B. Earlier Rs.180,000 taxed will be reversed
C. No amount will be allocated from TY2028 onward, but earlier amounts taxed are not reversed
D. Entire Rs.600,000 becomes deductible in TY2028
MCQ 9 — New Tenant Trap
An earlier tenant had paid a non-adjustable amount of Rs. 300,000. By the time tenancy ended, Rs. 90,000 had already been taxed.
A new tenant now pays a non-adjustable amount of Rs. 500,000.
Annual amount chargeable from the new receipt is:
A. Rs. 20,000
B. Rs. 30,000
C. Rs. 41,000
D. Rs. 50,000
MCQ 10 — Agricultural Land
Mr. X owns agricultural land but does not cultivate it himself. He lets it to a farmer who uses it for agricultural purposes and pays annual rent.
The rent is:
A. Income from Property
B. Income from Other Sources
C. Agricultural income
D. Income from Business
MCQ 11 — Co-ownership
A building is owned equally by two brothers. Their ownership shares are definite and ascertainable.
For tax purposes, rental income will generally be:
A. assessed as income of an AOP
B. taxed entirely in the hands of the elder brother
C. divided according to their shares and taxed individually
D. exempt because the property is jointly owned
MCQ 12 — Bad Rent
Which condition is necessary for deduction of irrecoverable unpaid rent?
A. Tenant must still occupy another property of the same landlord
B. The unpaid rent must never have been included in taxable income
C. The tenancy should be bona fide and prescribed recovery conditions should be satisfied
D. Legal proceedings must always have resulted in a court decree
MCQ 13 — Recovery of Bad Rent
A landlord was previously allowed deduction of Rs. 200,000 for irrecoverable rent. In Tax Year 2027 he recovers Rs. 80,000 from that tenant.
The Rs. 80,000 is:
A. exempt
B. taxable in the year of recovery
C. adjusted against repair allowance
D. added back to the earlier tax year
MCQ 14 — Unpaid Liability Trap
A deduction was allowed against property income for an expense, but the liability remained unpaid for three years after the end of the tax year in which deduction was allowed.
The unpaid amount will generally be:
A. ignored permanently
B. charged to tax in the first tax year following the end of those three years
C. charged to tax immediately in the original year
D. converted into capital gain
MCQ 15 — Withholding on Rent
An individual pays annual gross rent of Rs. 1,600,000 for immovable property.
Under the definition of prescribed person in the study text:
A. the individual is outside section 155 because only companies deduct tax
B. the individual is a prescribed person because annual gross rent is Rs.1.5m or above
C. withholding applies only if the landlord is a company
D. withholding tax is final tax on property income
Admin Answer Key
1 — C ⭐
Where actual rent is below fair market rent, fair market rent is deemed received for the period the property is let.
Rs.95,000 × 9 = Rs.855,000. CAF-2-ST(1)
2 — B
Rent is taxed in the tax year to which it relates, not simply when cash is received. Therefore one year’s portion = Rs.1,200,000. CAF-2-ST(1)
3 — C ⭐
Where a building is leased together with plant and machinery, the whole composite rent is Income from Other Sources. CAF-2-ST(1)
4 — B
Building rent remains under Income from Property, whereas amounts for amenities/utilities/services are under Income from Other Sources. CAF-2-ST(1)
5 — B
Repair allowance = 1/5 of rent chargeable before deductions, not actual repairs.
Rs.3m × 20% = Rs.600,000. CAF-2-ST(1)
6 — B
Maximum = 4% × Rs.2.5m = Rs.100,000. Actual Rs.130,000 exceeds the statutory cap. CAF-2-ST(1)
7 — A
Non-adjustable amount is spread equally over 10 tax years.
Rs.600,000 ÷ 10 = Rs.60,000. CAF-2-ST(1)
8 — C ⭐
Once refunded before completion of ten years, no further portion is allocated from the year of refund onward. Amounts already taxed are not reversed. CAF-2-ST(1)
9 — C ⭐
New amount = Rs.500,000
Less earlier amount already taxed = Rs.90,000
Balance = Rs.410,000
÷ 10 = Rs.41,000 per year. CAF-2-ST(1)
10 — C
Rent from land used for agricultural purposes is agricultural income; owner himself does not need to cultivate it. CAF-2-ST(1)
11 — C
Where co-owners’ shares are definite and ascertainable, they are not assessed as an AOP for that property; each is taxed on his own share. CAF-2-ST(1)
12 — C
The tenancy must be bona fide and the specified conditions concerning vacancy/recovery and prior taxation must be met. CAF-2-ST(1)
13 — B
Any previously deducted bad rent subsequently recovered becomes taxable in the year of recovery. CAF-2-ST(1)
14 — B ⭐
An allowed liability remaining unpaid beyond the specified three-year period becomes chargeable in the first tax year following the end of those three years. CAF-2-ST(1)
15 — B ⭐
An individual or AOP paying gross annual rent of Rs.1.5 million or above is included in prescribed persons. The tax withheld is adjustable, because property income is under NTR. CAF-2-ST(1)
CAF 2 — Chapter 7: Income from Business – Part One
Difficult ICAP-Level MCQs
MCQ 1 — Unrealised Gain Trap
A company records an unrealised foreign exchange gain of Rs. 600,000 on revaluation of a foreign-currency debtor at year-end.
For purposes of section 18, the gain is generally:
A. taxable because it is recognised in accounting profit
B. taxable only for companies
C. not taxable until actually realised
D. taxable under Capital Gains
MCQ 2 — Accounting Method
Which statement is correct?
A. Every taxpayer must use accrual accounting.
B. A company must account for business income on accrual basis.
C. A company may freely choose cash basis.
D. An individual must always use cash basis.
MCQ 3 — Change in Accounting Method
A taxpayer regularly follows cash basis but wishes to shift to accrual basis.
The change may be made:
A. merely by disclosure in the tax return
B. only after written approval of the Commissioner where necessary to clearly reflect business income
C. only after approval of the Board
D. without any adjustment for duplicated/omitted items
MCQ 4 — Salary Payment Trap
A business pays an employee monthly salary of Rs. 32,000 in cash.
The salary is:
A. disallowed because every salary must be paid through bank
B. allowable because the restriction applies where salary exceeds Rs.32,000 per month
C. only 50% allowable
D. allowable only if employee is on ATL
MCQ 5 — Cash Expense Numerical
A business pays the following otherwise than through banking channels:
- Office rent: Rs. 400,000
- Air travel fare: Rs. 500,000
Assuming no other issue exists, amount disallowed solely because of the banking-channel rule is:
A. Rs. 900,000
B. Rs. 500,000
C. Rs. 400,000
D. Nil
MCQ 6 — Cash Receipt Trap
A trader sells goods under a single invoice for Rs. 500,000 and receives the entire amount in cash. The corresponding expenditure relating to that transaction is Rs. 320,000.
Amount of corresponding expenditure disallowed is:
A. Rs. 80,000
B. Rs. 160,000
C. Rs. 250,000
D. Rs. 320,000
MCQ 7 — AOP Payment
An AOP pays Rs. 700,000 as salary to one of its members for managing the business.
The amount is:
A. fully deductible because services were actually rendered
B. deductible up to Rs.32,000 per month
C. inadmissible in computing income of the AOP
D. treated as depreciation
MCQ 8 — Bad Debt Conditions
A trading debt may qualify for deduction where:
I. It was previously included in taxable business income.
II. It is written off in the accounts during the tax year.
III. Reasonable grounds exist for believing it to be irrecoverable.
Which is correct?
A. I only
B. I and II only
C. II and III only
D. I, II and III
MCQ 9 — Bad Debt Recovery Numerical
A debt of Rs.100,000 was written off. The taxpayer was allowed deduction of only Rs.60,000. In a later tax year, Rs.70,000 is recovered.
Amount treated as business income on recovery is:
A. Rs.10,000
B. Rs.30,000
C. Rs.60,000
D. Rs.70,000
MCQ 10 — Provision vs Actual Bad Debt
Accounting profit before tax is Rs. 800,000 after charging:
- Provision for doubtful debts: Rs. 50,000
Actual qualifying bad debt written off against taxable sales is Rs. 35,000.
Taxable business income is:
A. Rs. 765,000
B. Rs. 800,000
C. Rs. 815,000
D. Rs. 850,000
MCQ 11 — Stock Valuation
Closing stock has:
- Cost: Rs. 1,500,000
- Net realisable value: Rs. 1,350,000
Value of closing stock for tax purposes is:
A. Rs. 1,350,000
B. Rs. 1,425,000
C. Rs. 1,500,000
D. Fair market value regardless of cost
MCQ 12 — Costing Method Trap
Which statement is correct?
A. A taxpayer on accrual basis may use either prime-cost or absorption-cost method.
B. A taxpayer on cash basis must use absorption-cost method only.
C. A taxpayer on cash basis may use prime-cost or absorption-cost method, whereas accrual basis requires absorption-cost method.
D. Prime-cost method is compulsory for companies.
MCQ 13 — Scientific Research
Which expenditure would not qualify as scientific research expenditure deduction under section 26 merely as research expenditure?
A. Revenue expenditure on scientific research in Pakistan for development of taxpayer’s business
B. Contribution to a Board-certified scientific research institution for taxpayer’s business
C. Purchase of a depreciable laboratory machine
D. Qualifying research expenditure incurred wholly and exclusively for taxable business
MCQ 14 — Digital Transactions: Updated Rule
A seller supplies digitally ordered goods from within Pakistan through a locally operated online marketplace. Its annual turnover is Rs. 240 million, and payment is received digitally through a payment intermediary.
Which treatment is correct?
A. 2% final tax
B. 1% final tax in all circumstances
C. 1% tax, but it is adjustable because turnover exceeds Rs.200 million
D. No tax applies because payment was digital
MCQ 15 — E-Commerce Trap
Which statement is correct under the updated Chapter 7 provisions?
A. Cash-on-delivery transactions are subject to 1% tax.
B. A seller with turnover up to Rs.200 million can never leave the final tax regime.
C. Export proceeds already subject to withholding under sections 154/154A are excluded from these digital-transaction provisions.
D. Online marketplaces may freely allow unregistered vendors to transact.
Admin Answer Key
1 — C
Section 18 deals with real profits. Unrealised revaluation/foreign-exchange gains are not taxable merely because they appear in accounting profit; they are recognised for tax when realised. CAF-2-ST(1)
2 — B
Companies are required to use the accrual basis for business income; other persons may use cash or accrual basis. CAF-2-ST(1)
3 — B ⭐
Change in method requires an application and written approval of the Commissioner, who must be satisfied that the change is necessary to clearly reflect business income. Necessary transitional adjustments must also avoid omission or double counting. CAF-2-ST(1)
4 — B ⭐
The specific disallowance applies where salary exceeds Rs.32,000 per month and is not paid through the prescribed banking/digital means. CAF-2-ST(1)
5 — C
The Rs.400,000 office rent falls within the banking-channel restriction. Travel fare is specifically an exception, so Rs.500,000 is not disallowed merely because it was paid otherwise than through banking channel. CAF-2-ST(1)
6 — B ⭐
Where payment exceeding Rs.200,000 against a single invoice is received otherwise than through banking/digital means, 50% of corresponding expenditure is disallowed.
Rs.320,000 × 50% = Rs.160,000. CAF-2-ST(1)
7 — C
Profit on debt, brokerage, commission, salary or other remuneration paid by an AOP to its member is inadmissible. CAF-2-ST(1)
8 — D
All three conditions are required for the normal bad-debt deduction. CAF-2-ST(1)
9 — B ⭐
Whole debt = Rs.100,000
Deduction previously allowed = Rs.60,000
Difference not previously allowed = Rs.40,000
Recovery = Rs.70,000
Income = Rs.70,000 − Rs.40,000 = Rs.30,000. CAF-2-ST(1)
10 — C
Accounting profit = Rs.800,000
Add back provision = Rs.50,000
Less actual qualifying bad debt = Rs.35,000
Taxable income = Rs.815,000. CAF-2-ST(1)
11 — A
Closing stock is valued at the lower of cost and net realisable value. Therefore Rs.1,350,000. CAF-2-ST(1)
12 — C ⭐
Cash basis → prime-cost or absorption-cost method.
Accrual basis → absorption-cost method. CAF-2-ST(1)
13 — C
Acquisition of a depreciable asset is specifically excluded from scientific-research expenditure under section 26. Its tax treatment follows the relevant asset/depreciation provisions instead. CAF-2-ST(1)
14 — C ⭐
Digital/banking payment → 1%. However, where turnover exceeds Rs.200 million, that tax is adjustable, not final. CAF-2-ST(1)
15 — C ⭐
Export proceeds subject to withholding under sections 154 and 154A are excluded. The book also states COD rate is 2%, qualifying persons up to Rs.200m may opt out of FTR from TY2027 onward, and marketplaces must allow registered vendors. CAF-2-ST(1)
CAF 2 — Chapter 8
Difficult ICAP-Level MCQs
MCQ 1 — Initial Allowance + Depreciation
A new eligible plant costing Rs. 4,000,000 is placed into service in Pakistan during TY 2027. It is wholly used for taxable business. Initial allowance is 25% and depreciation rate is 15%.
Total deduction for TY 2027 is:
A. Rs. 600,000
B. Rs. 1,000,000
C. Rs. 1,450,000
D. Rs. 1,600,000
MCQ 2 — Vehicle Cost Cap
A business purchases a passenger motor vehicle, not plying for hire, for Rs. 10,000,000. It is used wholly for business.
Maximum normal depreciation at 15% for the year of acquisition is:
A. Rs. 1,125,000
B. Rs. 1,500,000
C. Rs. 750,000
D. Rs. 375,000
MCQ 3 — Partial Business Use Trap
Computer equipment has opening tax WDV of Rs. 1,000,000 and depreciation rate of 30%. It is used 70% for business and 30% privately.
Which combination is correct?
A. Deduction Rs.300,000; closing WDV Rs.700,000
B. Deduction Rs.210,000; closing WDV Rs.790,000
C. Deduction Rs.210,000; closing WDV Rs.700,000
D. Deduction Rs.300,000; closing WDV Rs.790,000
MCQ 4 — Disposal Year
Opening WDV of machinery is Rs. 2,000,000. It is sold during TY 2027 for Rs. 2,400,000.
Which is correct?
A. Depreciation is allowed first and remaining gain calculated thereafter.
B. No depreciation is allowed in the year of disposal and Rs.400,000 is business income.
C. Rs.400,000 is capital gain.
D. No gain arises because sale proceeds do not exceed original cost.
MCQ 5 — Immovable Property Disposal Trap
A depreciable building:
- Original cost: Rs. 10 million
- WDV: Rs. 7 million
- Sale proceeds: Rs. 15 million
Gain chargeable under Income from Business is:
A. Rs. 3 million
B. Rs. 5 million
C. Rs. 8 million
D. Rs. 15 million
MCQ 6 — Asset Exported Abroad
A machine previously used in Pakistan has:
- Cost: Rs. 5 million
- WDV: Rs. 3.5 million
- Actual proceeds on export: Rs. 6 million
Tax gain on disposal is:
A. Rs. 1 million
B. Rs. 1.5 million
C. Rs. 2.5 million
D. Nil
MCQ 7 — Initial Allowance Eligibility
Which asset may qualify for initial allowance, assuming all other conditions are fulfilled?
A. New furniture
B. New office building
C. New bus plying for hire
D. Plant previously used in Pakistan
MCQ 8 — Overseas Asset Trap
A resident Pakistani company opens a branch in France and purchases new depreciable machinery for use exclusively by that foreign branch.
According to the study text:
A. Both normal depreciation and initial allowance are available.
B. Initial allowance is available but normal depreciation is not.
C. Normal depreciation may be available, but initial allowance is not available because the asset is not used in Pakistan.
D. Neither deduction is available.
MCQ 9 — Impairment
A company records an accounting impairment loss of Rs. 2 million against business machinery.
For tax purposes:
A. impairment is deductible and reduces tax WDV
B. impairment is not deductible but reduces WDV
C. impairment is not deductible and tax WDV is unaffected
D. impairment is treated as initial allowance
MCQ 10 — Intangible Useful Life
A business acquires an eligible intangible costing Rs. 3,000,000. Its useful life cannot be ascertained.
For amortisation purposes, normal useful life will be treated as:
A. 5 years
B. 10 years
C. 15 years
D. 20 years
MCQ 11 — Partial-Year Amortisation
On 1 January 2027, a business acquires software costing Rs. 3,650,000. Its useful life is 10 years and it remains available for business use until 30 June 2027.
Ignoring any private use, amortisation for TY 2027 is approximately:
A. Rs. 181,000
B. Rs. 365,000
C. Rs. 182,500
D. Nil because a full year has not passed
MCQ 12 — Pre-Commencement Expenditure
A taxpayer incurs qualifying pre-commencement expenditure of Rs. 2,500,000 before starting business.
Annual deduction under section 25 is:
A. Rs. 250,000
B. Rs. 500,000
C. Rs. 625,000
D. Rs. 2,500,000
MCQ 13 — Disposal of Intangible
An intangible has:
- Cost: Rs. 1,200,000
- Total amortisation previously allowed: Rs. 500,000
- Disposal proceeds: Rs. 900,000
Tax treatment in year of disposal is:
A. Rs.200,000 business income
B. Rs.200,000 deductible loss
C. Rs.400,000 business income
D. No tax effect
MCQ 14 — Finance Lease Trap
A machine is held under finance lease from a scheduled bank. At maturity during TY 2027, ownership transfers to the taxpayer at residual value. The machine had already been used during the lease period.
Which treatment is correct according to the study text?
A. Taxpayer claims depreciation throughout lease term and initial allowance on transfer.
B. Lease rentals are deductible during lease term; after transfer, depreciation may be claimed on residual value but no initial allowance is available.
C. Lease rentals and depreciation are both deductible throughout.
D. No deduction is available after transfer.
MCQ 15 — Exempt Business Period
A depreciable plant costing Rs. 1,000,000 is used in a business whose income is exempt during the year. Depreciation rate is 15%.
For determining WDV after expiry of the exemption:
A. depreciation during exempt year is ignored
B. depreciation is treated as having been allowed, so WDV becomes Rs.850,000
C. entire cost remains WDV until taxable income starts
D. asset must be revalued at FMV
Admin Answer Key
1 — C ⭐
Initial allowance = Rs.4m × 25% = Rs.1m.
WDV for depreciation = Rs.3m.
Depreciation = Rs.3m × 15% = Rs.450,000.
Total = Rs.1,450,000. CAF-2-ST(1)
2 — A
For a passenger transport vehicle not plying for hire, depreciable cost is capped at Rs.7.5 million.
Rs.7.5m × 15% = Rs.1,125,000. Initial allowance is also unavailable for such road transport vehicle. CAF-2-ST(1) CAF-2-ST(1)
3 — C ⭐
Annual depreciation = Rs.1m × 30% = Rs.300,000.
Allowable business portion = 70% = Rs.210,000.
However, WDV is reduced by the full Rs.300,000, including the private portion, so closing WDV = Rs.700,000. CAF-2-ST(1)
4 — B
No depreciation is allowed in year of disposal. Sale proceeds exceed WDV by Rs.400,000, therefore Rs.400,000 Income from Business. CAF-2-ST(1)
5 — A ⭐
For depreciable immovable property, where consideration exceeds cost, consideration is restricted to cost for this computation. Therefore gain equals depreciation previously allowed:
Rs.10m − Rs.7m = Rs.3m. CAF-2-ST(1)
6 — B ⭐
Where an asset previously used in Pakistan is exported/transferred abroad, deemed consideration = original cost, i.e. Rs.5m.
Rs.5m − Rs.3.5m = Rs.1.5m gain. CAF-2-ST(1)
7 — C
Road transport vehicles are excluded from initial allowance unless plying for hire. Furniture, immovable property and previously used plant in Pakistan are excluded. CAF-2-ST(1)
8 — C ⭐
Initial allowance requires the eligible asset to be placed in service in Pakistan. Normal depreciation, however, may still be claimed on depreciable assets of the overseas branch according to the study-text example. CAF-2-ST(1)
9 — C
Accounting impairment is not tax-deductible and does not reduce tax WDV. Depreciation continues on tax WDV as if impairment had not occurred. CAF-2-ST(1)
10 — C
An intangible with no ascertainable useful life is deemed to have a useful life of 15 years. CAF-2-ST(1)
11 — A ⭐
Annual amortisation:
Rs.3,650,000 ÷ 10 = Rs.365,000.
Used/available from 1 January to 30 June 2027 = 181 days.
Rs.365,000 × 181/365 = Rs.181,000. Intangibles are amortised proportionately where not used for the whole tax year. CAF-2-ST(1)
12 — B
Pre-commencement expenditure is deducted at 20% per annum on straight-line basis.
Rs.2.5m × 20% = Rs.500,000. CAF-2-ST(1)
13 — A
WDV = Rs.1.2m − Rs.0.5m = Rs.700,000.
Consideration = Rs.900,000.
Gain = Rs.200,000, chargeable as Income from Business. No amortisation is allowed in disposal year. CAF-2-ST(1)
14 — B ⭐
During the finance lease, lease rentals are deductible rather than depreciation. When ownership transfers, normal depreciation can be claimed on the residual value, but initial allowance is unavailable because the asset was previously used. CAF-2-ST(1)
15 — B ⭐
Even where business income is exempt, admissible depreciation is treated as having been allowed for WDV purposes.
Rs.1m − 15% = Rs.850,000 WDV. CAF-2-ST(1)
Ye Chapter 8 ka strongest numerical set hai — specially MCQ 1, 3, 5, 6, 8, 11, 14 aur 15 proper ICAP-level traps hain.
CAF 2 — Chapter 9: Capital Gains
Difficult ICAP-Level MCQs
MCQ 1 — Timing of Capital Gain
Mr. A disposes of a capital asset on 25 June 2027 for Rs. 2,000,000. Entire sale consideration is received in August 2027. Mr. A maintains books on cash basis.
Capital gain is chargeable in:
A. Tax Year 2027
B. Tax Year 2028
C. the year in which 50% consideration is received
D. either year at taxpayer’s option
MCQ 2 — Personal Asset Trap
Which disposal may result in taxable capital gain even though the asset was held for personal use?
A. Personal motor car
B. Household sofa
C. Antique coin collection
D. Personal refrigerator
MCQ 3 — Consideration Numerical
A capital asset is sold for Rs. 4,500,000 when its fair market value is Rs. 5,000,000. Its tax cost is Rs. 3,200,000.
Capital gain is:
A. Rs. 1,300,000
B. Rs. 1,800,000
C. Rs. 500,000
D. Rs. 3,200,000
MCQ 4 — Destroyed Asset
A capital asset costing Rs. 900,000 is destroyed. The owner receives:
- Insurance compensation: Rs. 700,000
- Scrap value: Rs. 250,000
Ignoring other adjustments, capital gain is:
A. Nil
B. Rs. 50,000
C. Rs. 200,000
D. Rs. 950,000
MCQ 5 — Loss on Specified Personal Asset
Mr. B purchased an antique for Rs. 600,000 and later sold it for Rs. 450,000.
The Rs.150,000 loss is:
A. deductible against all income
B. deductible against other capital gains
C. carried forward for six years
D. not recognised as a capital loss
MCQ 6 — Listed Shares: Off-Market Trap
An active taxpayer sells shares of a listed company otherwise than through PSX, and the transaction is not settled through NCCPL.
The gain will generally be dealt with under:
A. Section 37A separate-block regime
B. Section 37 under the normal tax regime
C. Income from Business automatically
D. Income from Other Sources
MCQ 7 — NCCPL Numerical
An active taxpayer disposes of listed securities through PSX/NCCPL.
- Sale proceeds: Rs. 800,000
- Cost: Rs. 600,000
Ignore any other issue. For a market-based transaction, capital gain after the prescribed notional expenses is:
A. Rs. 193,000
B. Rs. 194,000
C. Rs. 196,000
D. Rs. 200,000
MCQ 8 — TY 2027 Active Taxpayer
A taxpayer appearing on ATL both on the date of acquisition and disposal purchases listed securities on 15 August 2025 and disposes of them during TY 2027.
Applicable capital-gain tax rate is:
A. 10%
B. 12.5%
C. 15%
D. 30%
MCQ 9 — TY 2027 Non-Active Taxpayer
A non-active taxpayer acquired securities after 1 July 2025 and disposes of them during TY 2027.
Applicable rate under the updated study text is:
A. 15%
B. progressive slab rates subject to minimum 15%
C. 30%
D. 12.5%
MCQ 10 — Older Securities Rate
Listed securities were acquired on 1 January 2024 and disposed of on 30 September 2026.
The holding period exceeds two years but does not exceed three years.
Applicable rate is:
A. 7.5%
B. 10%
C. 12.5%
D. 15%
MCQ 11 — Pre-July 2013 Securities
A security acquired before 1 July 2013 is disposed of during TY 2027.
Applicable capital-gain rate under the study text is:
A. 0%
B. 5%
C. 12.5%
D. 15%
MCQ 12 — FIFO Trap
An investor owns identical shares purchased on different dates. Some shares are disposed of through the applicable securities regime.
Which method generally applies?
A. LIFO
B. Weighted average in every case
C. FIFO, except shares purchased and sold on the same trading day where average method applies
D. Specific identification at taxpayer’s discretion
MCQ 13 — Securities Loss
A taxpayer incurs a loss on disposal of securities governed by section 37A.
The loss:
A. may be adjusted against salary income
B. may be adjusted against business income
C. may only be set off against gains from other chargeable securities and may be carried forward up to three tax years
D. may be carried forward for six years against any capital gain
MCQ 14 — General Capital Loss Trap
Which statement is correct?
A. A general capital loss can be adjusted against salary income.
B. General capital loss may be carried forward for up to six tax years and used only against capital gains.
C. Section 37A securities loss may always be adjusted against gain on private-company shares.
D. All capital losses expire after three years.
MCQ 15 — Immovable Property: New Regime
An active taxpayer acquired an immovable property in Pakistan after 1 July 2024 and subsequently disposes of it.
Under the updated study text, the capital-gain tax rate applicable to an active taxpayer is:
A. 5% after five years
B. 10% after three years
C. 15%, irrespective of holding period
D. progressive slab rates
Admin Answer Key
1 — A ⭐
Capital gain is taxed in the tax year in which disposal takes place, even where consideration is received later and the taxpayer maintains books on cash basis. CAF-2-ST(1)
2 — C
Normal movable personal-use assets such as a personal car or furniture are excluded from capital assets. However, specified items including antiques, coins, jewellery, paintings and postage stamps remain within the capital-gain rules. CAF-2-ST(1)
3 — B ⭐
Consideration is the higher of actual amount received and FMV.
Higher amount = Rs.5,000,000
Less cost = Rs.3,200,000
Capital gain = Rs.1,800,000. CAF-2-ST(1)
4 — B
Consideration for lost/destroyed asset includes compensation plus scrap value:
Rs.700,000 + Rs.250,000 = Rs.950,000
Less cost Rs.900,000
Gain = Rs.50,000. CAF-2-ST(1)
5 — D ⭐
Although gains on specified items such as antiques may be taxable, the study text specifically provides that a loss on disposal of these specified assets is not recognised. CAF-2-ST(1)
6 — B ⭐
Shares of a listed company disposed of otherwise than through PSX and not settled through NCCPL fall outside section 37A; section 37 applies. CAF-2-ST(1)
7 — A
Notional expense:
0.5% × Rs.800,000 = Rs.4,000
0.5% × Rs.600,000 = Rs.3,000
Gain = Rs.800,000 − Rs.600,000 − Rs.7,000
= Rs.193,000. CAF-2-ST(1)
8 — C
For securities acquired on/after 1 July 2024, an active taxpayer appearing on ATL at both acquisition and disposal is taxed at 15% regardless of holding period. CAF-2-ST(1)
9 — C ⭐
For TY 2027, a non-active taxpayer disposing of securities acquired after 1 July 2025 is subject to 30%. CAF-2-ST(1)
10 — B
For securities acquired between 1 July 2022 and 30 June 2024, a holding period exceeding 2 years but not exceeding 3 years carries a 10% rate. CAF-2-ST(1)
11 — A
Securities acquired before 1 July 2013 carry a 0% rate under the TY 2027 table. CAF-2-ST(1)
12 — C ⭐
General rule is FIFO. However, for shares purchased and sold on the same trading day, the average method applies. CAF-2-ST(1)
13 — C
Section 37A securities loss may be set off only against gain on other chargeable securities and may be carried forward for three tax years. CAF-2-ST(1)
14 — B ⭐
A normal capital loss cannot be set off against other heads and may be carried forward for six tax years, to be used against capital gains. CAF-2-ST(1)
15 — C ⭐
For immovable property acquired after 1 July 2024, the updated book provides a 15% rate for active taxpayers, irrespective of the holding-period bands applicable to older properties.
CAF 2 — Chapter 10
Difficult ICAP-Level MCQs
MCQ 1 — Receipt Basis Trap
Mr. A became entitled to royalty of Rs. 900,000 during TY 2027, but received only Rs. 600,000 during the year. The balance was received in TY 2028.
Amount chargeable under Income from Other Sources in TY 2027 is:
A. Rs. 300,000
B. Rs. 600,000
C. Rs. 900,000
D. Nil
MCQ 2 — Head of Income Trap
A bank earns profit on debt as part of its ordinary business activity.
Such profit is chargeable under:
A. Income from Other Sources
B. Income from Business
C. Capital Gains
D. Separate block in every case
MCQ 3 — Profit on Debt
An individual receives Rs. 4,800,000 profit on debt from a prescribed bank during TY 2027.
According to the study text, it is generally taxable at:
A. 5%
B. 10%
C. 15% under section 7B
D. normal slab rates only
MCQ 4 — Rs. 5 Million Trap
An individual receives Rs. 6,000,000 profit on debt from prescribed sources.
Which treatment is correct?
A. Entire amount is always final tax at 15%
B. It is taxable under NTR under Income from Other Sources at applicable slab rates, subject to tax not being less than withholding tax
C. Only Rs.1 million is taxable
D. Entire amount is exempt
MCQ 5 — Composite Lease
Mr. B leases out a building together with installed machinery for a single inseparable rent.
The composite rental income is chargeable under:
A. Income from Property
B. Income from Business
C. Income from Other Sources
D. Capital Gains
MCQ 6 — Amenities Trap
A landlord receives:
- Building rent: Rs. 2,400,000
- Amount for electricity, security and other services: Rs. 360,000
Correct classification is:
A. Entire Rs.2.76m — Income from Property
B. Entire Rs.2.76m — Other Sources
C. Rs.2.4m — Property; Rs.360,000 — Other Sources
D. Rs.2.4m — Other Sources; Rs.360,000 — Property
MCQ 7 — Vacating Possession Numerical
Mr. X receives Rs. 4,000,000 for vacating possession of a building. He had originally paid Rs. 1,000,000 to acquire possession.
Amount chargeable under Other Sources in the first tax year is:
A. Rs. 100,000
B. Rs. 300,000
C. Rs. 400,000
D. Rs. 3,000,000
MCQ 8 — Cash Gift from Relative
According to the specific note contained in the updated study text, an individual receives a cash gift of Rs. 500,000 from his father.
Treatment under Chapter 10 is:
A. exempt because father is a relative
B. taxable under Income from Other Sources
C. taxable as capital gain
D. taxable only if father has no NTN
MCQ 9 — Property Gift from Relative
An individual receives a property as a gift from his mother without consideration.
Under the Chapter 10 rule for gifts, the receipt is:
A. taxable at FMV under Other Sources
B. outside the gift charge because it is received from a relative
C. taxable as salary
D. taxable only at disposal
MCQ 10 — Loan Trap
Mr. A receives Rs. 2,000,000 in cash as a loan from a person who:
- is not a banking company or financial institution; and
- does not hold an NTN.
Under the Chapter 10 provision, the amount is:
A. necessarily exempt because it is a loan
B. chargeable under Income from Other Sources
C. capital receipt with no tax treatment
D. taxable only when repaid
MCQ 11 — Advance Against Sale of Goods
A trader receives Rs. 1,500,000 as an advance from a customer against supply of goods.
For the special loan/advance provision in Chapter 10, this amount:
A. is automatically taxable under Other Sources
B. is specifically outside the scope of that clause
C. is taxable as a gift
D. is subject to final tax at 15%
MCQ 12 — Prize Bond
An active taxpayer wins Rs. 1,000,000 on a prize bond.
Final tax under the study text is:
A. Rs. 100,000
B. Rs. 150,000
C. Rs. 200,000
D. Rs. 300,000
MCQ 13 — Promotional Prize Trap
An active taxpayer wins a Rs. 500,000 cash prize offered by a company as part of a sales promotion.
Final tax is:
A. Rs. 50,000
B. Rs. 75,000
C. Rs. 100,000
D. Rs. 200,000
MCQ 14 — Deduction Basis
Income from Other Sources of Rs. 1,000,000 is received during TY 2027. The taxpayer incurs Rs. 180,000 revenue expenditure wholly to earn that income, but only Rs. 120,000 is actually paid during the year.
Deduction generally allowable in TY 2027 is:
A. Rs. 60,000
B. Rs. 120,000
C. Rs. 180,000
D. Nil
MCQ 15 — Composite Lease Numerical
Mr. Z leases a building together with second-hand plant previously used in Pakistan.
During TY 2027:
- Composite rent received: Rs. 1,800,000
- Building cost: Rs. 4,000,000
- Plant cost: Rs. 2,000,000
- Actual building repairs paid: Rs. 100,000
- Plant repairs paid: Rs. 40,000
- Collection charges paid: Rs. 20,000
- Insurance paid: Rs. 30,000
Depreciation rates: Building 10%, Plant 15%.
Taxable Income from Other Sources is:
A. Rs. 710,000
B. Rs. 910,000
C. Rs. 1,210,000
D. Rs. 1,500,000
Admin Answer Key
1 — B ⭐
Income from Other Sources is generally taxable on receipt basis. Therefore only Rs.600,000 received in TY 2027 is chargeable. CAF-2-ST(1)
2 — B
Where a person’s business itself is to derive profit on debt, the income is charged under Income from Business, not Other Sources. CAF-2-ST(1)
3 — C
For an individual/AOP, profit on debt up to Rs.5 million from prescribed persons is taxable at 15% under section 7B according to the study text. CAF-2-ST(1)
4 — B ⭐
Where profit on debt exceeds Rs.5 million, it moves to NTR under Income from Other Sources, at applicable slab rates, while the resulting liability cannot be less than applicable withholding tax. CAF-2-ST(1)
5 — C
Lease of a building together with plant/machinery is chargeable under Income from Other Sources. CAF-2-ST(1)
6 — C
Building rent remains Income from Property, while amenities/utilities/services connected with renting are Income from Other Sources. CAF-2-ST(1)
7 — B ⭐
Net consideration:
Rs.4m − Rs.1m = Rs.3m
Spread over 10 years:
Rs.3m ÷ 10 = Rs.300,000 per year. CAF-2-ST(1)
8 — B ⭐
The updated study text specifically notes that a cash gift is taxable under IFOS even where received from the specified relatives. This answer follows the study text wording. CAF-2-ST(1)
9 — B
The general gift rule excludes property received as a gift from a relative as defined in Chapter 10. CAF-2-ST(1)
10 — B
The chapter includes qualifying loans/advances/deposits/gifts received outside the specified banking/NTN conditions within Income from Other Sources. Here both adverse conditions exist. CAF-2-ST(1)
11 — B ⭐
An advance for sale of goods or supply of services is specifically outside the scope of this particular clause. CAF-2-ST(1)
12 — B
Prize bond winnings for an active taxpayer are subject to 15% final tax.
Rs.1,000,000 × 15% = Rs.150,000. CAF-2-ST(1)
13 — C
“All other prizes and winnings” carry 20% final tax for an active taxpayer.
Rs.500,000 × 20% = Rs.100,000. CAF-2-ST(1)
14 — B ⭐
Other Sources follows receipt basis for income and paid basis for deductions. Therefore only Rs.120,000 actually paid is deductible. CAF-2-ST(1)
15 — B ⭐
Depreciation:
- Building: Rs.4m × 10% = Rs.400,000
- Plant: Rs.2m × 15% = Rs.300,000
Other deductions:
- Building repairs = Rs.100,000
- Plant repairs = Rs.40,000
- Collection = Rs.20,000
- Insurance = Rs.30,000
Total deductions = Rs.890,000
Taxable IFOS:
Rs.1,800,000 − Rs.890,000 = Rs.910,000. For composite building + plant rent, actual eligible expenditure and depreciation are deductible; initial allowance on the second-hand plant previously used in Pakistan has not been assumed. CAF-2-ST(1)
CAF 2 — Chapter 11
Difficult ICAP-Level MCQs
MCQ 1 — Salary Set-Off Trap
Mr. A has the following for TY 2027:
- Salary income: Rs. 900,000
- Loss from Income from Other Sources: Rs. 250,000
The loss may be:
A. fully adjusted against salary
B. adjusted only up to 50% of salary
C. not adjusted against salary
D. carried forward for six years
MCQ 2 — Business Loss vs Property
Mr. B has:
- Income from Property: Rs. 1,200,000
- Business loss: Rs. 500,000
For TY 2027, the business loss:
A. must be adjusted against property income
B. cannot be adjusted against property income
C. is converted into capital loss
D. can only be adjusted if property income exceeds Rs.10 million
MCQ 3 — Speculation Loss
A taxpayer has:
- Normal business profit: Rs. 2,000,000
- Speculation loss: Rs. 700,000
The speculation loss is:
A. deductible from normal business profit
B. deductible from salary income
C. adjustable only against income from another speculation business
D. deductible against capital gain
MCQ 4 — Reverse Adjustment Trap
A taxpayer has:
- Normal business loss: Rs. 300,000
- Speculation business profit: Rs. 500,000
According to the study text:
A. normal business loss can be adjusted against speculation profit
B. no adjustment is possible in either direction
C. speculation profit is automatically exempt
D. normal business loss must be carried forward
MCQ 5 — Business Loss Carry Forward
A normal business loss first arose in TY 2027 and could not be fully adjusted.
It may generally be carried forward for:
A. 3 tax years
B. 5 tax years
C. 6 tax years
D. indefinitely
MCQ 6 — Earliest Loss First
A taxpayer has unabsorbed normal business losses from TY 2025 and TY 2026 and earns sufficient business income in TY 2027.
Which loss is adjusted first?
A. TY 2026 loss
B. TY 2025 loss
C. either, at taxpayer’s option
D. both proportionately
MCQ 7 — Capital Loss Inter-Adjustability
Which statement is correct under the updated study text?
A. Section 37A securities loss may be adjusted against Section 37 capital gain
B. Section 37 capital loss may be adjusted against Section 37A capital gain, but not vice versa
C. both losses are freely interchangeable
D. neither type of capital loss can ever be set off
MCQ 8 — Securities Loss Carry Forward
A loss arises on disposal of securities governed by Section 37A.
Maximum carry-forward period is:
A. 2 tax years
B. 3 tax years
C. 6 tax years
D. 8 tax years
MCQ 9 — AOP Loss Trap
An AOP incurs a tax loss of Rs. 1,000,000. One member has substantial personal business income.
The member:
A. may adjust his share of AOP loss against personal income
B. may carry forward his share for six years
C. cannot set off or carry forward the AOP’s loss against his own income
D. may adjust the loss only against salary
MCQ 10 — Unabsorbed Depreciation
A taxpayer has taxable income of Rs. 15 million and brought-forward unabsorbed depreciation qualifying under Section 57(4).
In the relevant year, the unabsorbed amount may generally be set off against:
A. 100% of balance business income
B. 75% of balance business income
C. 50% of balance business income
D. 25% of balance business income
MCQ 11 — Donation Credit Numerical
An individual has:
- Tax assessed before tax credits: Rs. 600,000
- Taxable income: Rs. 4,000,000
- Qualifying donation paid through crossed cheque: Rs. 1,500,000
Ignoring associate-donation rules, tax credit is:
A. Rs. 135,000
B. Rs. 180,000
C. Rs. 225,000
D. Rs. 600,000
MCQ 12 — Donation to Associate Trap
An individual donates Rs. 1,000,000 to an associate qualifying institution. His taxable income is Rs. 4,000,000.
For component C of the tax-credit formula, the percentage cap is:
A. 10% of taxable income
B. 15% of taxable income
C. 20% of taxable income
D. 30% of taxable income
MCQ 13 — Approved Pension Credit
An eligible person has taxable income of Rs. 5,000,000 and contributes Rs. 1,500,000 to an approved pension fund.
For component C in the tax-credit formula, the amount is:
A. Rs. 500,000
B. Rs. 750,000
C. Rs. 1,000,000
D. Rs. 1,500,000
MCQ 14 — Low-Cost Housing Loan
An individual has taxable income of Rs. 6,000,000 and pays qualifying profit on debt of Rs. 2,000,000 on an eligible low-cost housing loan.
For component C of the Section 63A tax-credit formula, the amount is:
A. Rs. 600,000
B. Rs. 1,200,000
C. Rs. 1,800,000
D. Rs. 2,000,000
MCQ 15 — Updated Section 64D
A person required to integrate with the Board’s computerized system invests Rs. 12,000,000 in qualifying hardware/software and completes installation, integration and configuration during TY 2027.
Tax credit under updated Section 64D is:
A. Rs. 600,000
B. Rs. 1,000,000
C. Rs. 1,200,000
D. Rs. 12,000,000
Admin Answer Key
1 — C ⭐
No loss under another head is allowed to be set off against salary income. CAF-2-ST(1)
2 — B
The study text specifically provides that business loss cannot be adjusted against Income from Property for the tax year. CAF-2-ST(1)
3 — C
A speculation loss may only be set off against profits from another speculation business. CAF-2-ST(1)
4 — A ⭐
This is an important reverse-direction trap: speculation loss cannot reduce normal business income, but a normal business loss may be adjusted against speculation profit in the same year. CAF-2-ST(1)
5 — C
Normal business loss can generally be carried forward for six tax years immediately succeeding the year in which it was first computed. CAF-2-ST(1)
6 — B
Where losses from more than one year exist, the earliest tax year’s loss is set off first. CAF-2-ST(1)
7 — B ⭐
The updated study text states:
Section 37 capital loss → may adjust against Section 37A gain
but
Section 37A loss → cannot adjust against Section 37 gain. CAF-2-ST(1)
8 — B
Section 37A securities loss can be carried forward for a maximum of three tax years. CAF-2-ST(1)
9 — C
The AOP itself gets the loss treatment. A member cannot use the AOP’s loss against his own income. CAF-2-ST(1)
10 — C ⭐
Where taxable income is Rs.10 million or more, unabsorbed depreciation/initial allowance/amortisation covered by Section 57(4) is set off against 50% of balance business income. CAF-2-ST(1)
11 — B ⭐
For an individual, normal donation cap = 30% of taxable income.
30% × Rs.4m = Rs.1.2m
Qualifying donation = lower of Rs.1.5m and Rs.1.2m = Rs.1.2m
Tax credit:
Rs.600,000 / Rs.4,000,000 × Rs.1,200,000
= Rs.180,000. CAF-2-ST(1)
12 — B
Where donation is made to an associate, the cap for an individual/AOP falls from 30% to 15% of taxable income. CAF-2-ST(1)
13 — C
Approved pension contribution credit uses the lower of:
- actual contribution Rs.1.5m; or
- 20% × Rs.5m = Rs.1m
Therefore C = Rs.1,000,000. CAF-2-ST(1)
14 — C ⭐
Low-cost housing credit uses lower of:
- qualifying profit paid = Rs.2m
- 30% of taxable income = Rs.6m × 30% = Rs.1.8m
Therefore C = Rs.1,800,000. CAF-2-ST(1)
15 — C ⭐
Updated Section 64D gives tax credit equal to 10% of actual qualifying investment.
Rs.12m × 10% = Rs.1.2 million.
It is allowed in the year the electronic resource is installed, integrated and configured with the Board’s system. CAF-2-ST(1)
CAF 2 — Chapter 12
Difficult ICAP-Level MCQs
MCQ 1 — Salaried Status
Mr. A has the following taxable income for TY 2027:
- Salary: Rs. 4,000,000
- Other taxable income: Rs. 1,000,000
Mr. A will be treated as:
A. Non-salaried individual
B. Salaried individual
C. AOP
D. Salaried only if other income is below Rs.600,000
MCQ 2 — Updated Salaried Tax Numerical
A salaried individual has taxable income of Rs. 6,500,000 for TY 2027.
His income tax liability before credits is:
A. Rs. 1,136,000
B. Rs. 1,264,000
C. Rs. 1,424,000
D. Rs. 1,456,000
MCQ 3 — Salary Surcharge Trap
A salaried individual has taxable income of Rs. 12,000,000 in TY 2027.
Which statement is correct according to the updated study text?
A. 9% surcharge applies
B. 10% surcharge applies
C. Both 9% and 10% surcharge apply
D. No surcharge applies merely because taxable salary exceeds Rs.10 million
MCQ 4 — Non-Salaried Surcharge Numerical
A non-salaried individual has taxable income of Rs. 12,000,000.
Ignoring tax credits, total tax including surcharge is:
A. Rs. 4,490,000
B. Rs. 4,939,000
C. Rs. 5,610,000
D. Rs. 6,090,000
MCQ 5 — Deceased Person
Mr. X dies leaving an estate worth Rs. 4 million. Tax payable relating to the deceased and his estate amounts to Rs. 5 million.
The legal representative’s liability is generally:
A. Rs.5 million without limitation
B. Rs.4 million, limited to the extent the estate can meet the liability
C. Nil because tax liability ends on death
D. Rs.2.5 million only
MCQ 6 — Author Royalty Trap
An author takes 30 months to complete a literary work and receives a lump-sum royalty of Rs. 3,000,000 in TY 2027.
If the author makes the permitted election, the royalty may be treated as:
A. Rs.3m entirely in TY 2027
B. Rs.1m each in TY 2025, TY 2026 and TY 2027
C. Rs.1.5m each in TY 2026 and TY 2027
D. spread over five tax years
MCQ 7 — AOP Residence
An AOP is formed outside Pakistan. Its control and management is partly exercised in Pakistan during TY 2027.
The AOP is:
A. non-resident because it was formed abroad
B. resident only if all control is in Pakistan
C. resident because control and management is wholly or partly in Pakistan at any time during the year
D. resident only where majority members are Pakistani
MCQ 8 — AOP Share Exemption Trap
A resident AOP has paid tax on its income. A member receives his share of the AOP’s normal-tax-regime profit.
The share is generally:
A. taxed again fully in the member’s hands
B. exempt in the member’s hands but included for rate purposes
C. completely ignored for all tax purposes
D. treated as dividend income
MCQ 9 — Rs.300 Million Audit Trap
An AOP had turnover of Rs. 320 million in the preceding tax year. It does not file duly audited financial statements with its income tax return.
The consequence for the member’s share is:
A. it remains exempt without condition
B. it will not qualify for exemption merely under the normal AOP-share rule
C. only 50% of the share is exempt
D. the AOP itself becomes exempt
MCQ 10 — Payment to Member Numerical
An AOP reports accounting profit of Rs. 3,000,000 after charging:
- Salary paid to member: Rs. 300,000
- Profit on debt paid to member: Rs. 200,000
Taxable income of the AOP before any other adjustment is:
A. Rs. 2,500,000
B. Rs. 3,000,000
C. Rs. 3,300,000
D. Rs. 3,500,000
MCQ 11 — Company as Member of AOP
An AOP has three members, one of whom is a company.
According to Chapter 12:
A. company’s share is always taxed only in the AOP
B. company’s share is excluded in computing AOP total income and taxed separately at rates applicable to the company
C. company cannot legally be a member of an AOP
D. entire AOP becomes a company for tax purposes
MCQ 12 — AOP Loss
An AOP sustains a tax loss of Rs. 2,000,000. One member has personal business income of Rs. 5,000,000.
The member may:
A. deduct his proportionate share of AOP loss from personal income
B. use the AOP loss only for rate purposes
C. neither adjust the AOP loss against personal income nor use it for rate purposes
D. carry his share forward for six years
MCQ 13 — FTR Share Trap
An AOP earns income falling under the Final Tax Regime. A member receives his share from such FTR income.
For the member:
A. the share is included for rate purposes
B. the share is added to normal taxable income
C. the share is not added to taxable income for rate purposes
D. the share is treated as salary
MCQ 14 — Rate-Purpose Numerical
Mr. A has:
- Personal taxable business income: Rs. 1,000,000
- Exempt share of after-tax AOP profit: Rs. 320,000
Tax on Rs.1,320,000 under non-salaried rates is Rs.114,000.
Tax payable on Mr. A’s actual taxable income is approximately:
A. Rs. 86,364
B. Rs. 90,000
C. Rs. 114,000
D. Rs. 150,000
MCQ 15 — Professional Firm Trap
An AOP is a professional firm which is legally prohibited from incorporating. Its taxable income exceeds Rs.5.6 million.
The maximum applicable rate on income exceeding Rs.5.6 million is:
A. 35%
B. 40%
C. 45%
D. 50%
Admin Answer Key
1 — B
Salary is Rs.4m out of total Rs.5m = 80%, therefore salary exceeds 75% of taxable income and salaried rates apply. CAF-2-ST(1)
2 — A ⭐
For taxable income between Rs.5.6m and Rs.7m:
Tax = Rs.976,000 + 32% of amount exceeding Rs.5.6m.
Excess = Rs.900,000
32% = Rs.288,000
Total = Rs.1,264,000.
⚠️ Therefore correct answer is B, Rs.1,264,000. CAF-2-ST(1)
3 — D ⭐
The updated book specifically states that the 9% salaried surcharge ceases from TY 2027 onwards. The 10% surcharge applicable to high-income non-salaried individuals/AOPs does not apply merely because a salaried individual exceeds Rs.10m. CAF-2-ST(1) CAF-2-ST(1)
4 — B ⭐
Non-salaried tax:
Rs.1,610,000 + 45% × (Rs.12m − Rs.5.6m)
= Rs.1,610,000 + Rs.2,880,000
= Rs.4,490,000
10% surcharge = Rs.449,000
Total = Rs.4,939,000. CAF-2-ST(1)
5 — B
Legal representative is liable for tax of the deceased/estate, but liability is limited to the extent that the deceased’s estate is capable of meeting it. CAF-2-ST(1)
6 — B
Where completion of literary/artistic work takes more than 24 months, the author may elect to spread the lump-sum royalty equally over the year of receipt and the preceding two tax years. CAF-2-ST(1)
7 — C
An AOP is resident where control and management is wholly or partly in Pakistan at any time during the tax year. A resident AOP is taxable on worldwide income. CAF-2-ST(1)
8 — B ⭐
Where the AOP has paid tax, the member’s share is generally exempt, but the after-tax share is included for determining the rate applicable to the member’s other taxable income. CAF-2-ST(1)
9 — B ⭐
Where AOP turnover is Rs.300 million or more in the current or any preceding tax year, member-share exemption is conditional on filing duly audited financial statements with the return. CAF-2-ST(1)
10 — D
Salary, profit on debt, commission, brokerage or other remuneration paid by an AOP to its member is inadmissible.
Accounting profit = Rs.3m
Add salary = Rs.0.3m
Add profit on debt = Rs.0.2m
Taxable income = Rs.3.5 million. CAF-2-ST(1)
11 — B
Where at least one AOP member is a company, the company’s share is excluded from AOP total income and taxed separately at the company rate according to its share. CAF-2-ST(1)
12 — C
AOP itself carries its losses. A member cannot adjust the AOP’s loss against personal income, and that share of loss is not considered for rate purposes. CAF-2-ST(1)
13 — C ⭐
A member’s share from AOP income falling under FTR is not added to the member’s taxable income for rate purposes. CAF-2-ST(1)
14 — A ⭐
Rate-purpose formula:
Tax = A/B × C
= Rs.114,000 / Rs.1,320,000 × Rs.1,000,000
= Rs.86,364 approximately. CAF-2-ST(1) CAF-2-ST(1)
15 — B
For a professional AOP legally prohibited from incorporation, the maximum rate applicable on income exceeding Rs.5.6m is 40% instead of 45%. CAF-2-ST(1)
CAF 2 — Chapter 13
Difficult ICAP-Level MCQs
MCQ 1 — Worldwide Income
A resident person earns:
- Pakistan-source business income: Rs. 3,000,000
- Foreign-source business income: Rs. 1,200,000
Ignoring exemptions and losses, the amount potentially chargeable in Pakistan is:
A. Rs. 3,000,000 only
B. Rs. 1,200,000 only
C. Rs. 4,200,000
D. Foreign income only if remitted to Pakistan
MCQ 2 — Expense Allocation Trap
A resident taxpayer incurs Rs. 600,000 expenditure exclusively to earn foreign-source business income. During the same year, he also earns Pakistan-source business income.
The Rs.600,000 expenditure:
A. may be deducted from either source at taxpayer’s option
B. must be deducted only against foreign-source income
C. must be deducted against Pakistan-source income first
D. is never deductible
MCQ 3 — Separate Head Trap
A resident individual has:
- Foreign business loss: Rs. 800,000
- Foreign Income from Other Sources: Rs. 1,000,000
The foreign business loss may:
A. be fully adjusted against foreign Other Sources
B. be adjusted up to 50% against foreign Other Sources
C. not be adjusted against foreign Other Sources and should remain under the relevant foreign head
D. be adjusted against Pakistan-source income
MCQ 4 — Foreign Tax Credit Numerical
A resident taxpayer has:
- Total taxable income: Rs. 4,000,000
- Pakistan income tax before foreign tax credit: Rs. 970,000
- Net foreign-source income under Other Sources: Rs. 1,250,000
- Foreign income tax paid on that income: Rs. 187,500
Foreign tax credit allowed is:
A. Rs. 187,500
B. Rs. 242,500
C. Rs. 303,125
D. Rs. 970,000
MCQ 5 — FTC Limitation Trap
Using the same facts as MCQ 4, assume foreign tax paid was Rs. 350,000 instead of Rs.187,500.
Maximum foreign tax credit would be:
A. Rs. 187,500
B. Rs. 242,500
C. Rs. 303,125
D. Rs. 350,000
MCQ 6 — Multiple Foreign Heads
A taxpayer earns taxable foreign-source business income and foreign-source Income from Other Sources, and foreign tax has been paid on both.
Foreign tax credit limitation should generally be computed:
A. on aggregate foreign income only
B. separately for each head of foreign-source income
C. only on the head producing the higher income
D. only against Pakistan-source income
MCQ 7 — Order of Tax Credits
Where a taxpayer is entitled to:
I. Foreign tax credit
II. Donation/pension-type tax credit
III. Advance tax and tax deducted at source
Correct order is:
A. III → II → I
B. II → I → III
C. I → II → III
D. I → III → II
MCQ 8 — Unused Foreign Tax Credit
Foreign tax paid is Rs. 500,000 but foreign tax credit allowable under the limitation is only Rs. 360,000.
The remaining Rs.140,000:
A. is refunded by Pakistan tax authorities
B. is carried forward for six years
C. may be carried back one year
D. is neither refunded, carried back nor carried forward
MCQ 9 — Time Limit Trap
Foreign-source income is derived in a particular tax year. Foreign income tax relating to that income is paid within two years after the end of that tax year.
For foreign tax credit purposes:
A. the payment satisfies the timing requirement
B. credit is available only if tax was paid in the same tax year
C. credit is available only if paid within 90 days
D. no credit can ever be claimed for tax paid later
MCQ 10 — Foreign Loss Carry Forward
A foreign loss under a particular head cannot be fully set off.
Maximum carry-forward period is:
A. 3 tax years
B. 5 tax years
C. 6 tax years
D. indefinitely
MCQ 11 — Earliest Foreign Loss First
A taxpayer has foreign business losses brought forward from TY 2025 and TY 2026 and sufficient foreign business income in TY 2027.
Which loss should be used first?
A. TY 2026
B. TY 2025
C. both proportionately
D. taxpayer may choose either
MCQ 12 — Speculation Business Trap
For foreign-loss and foreign-tax-credit purposes, income from a speculation business is:
A. merged with all foreign business income
B. treated as a separate head
C. treated as Capital Gains
D. ignored if earned outside Pakistan
MCQ 13 — Short-Term Resident
Mr. A becomes resident in Pakistan solely because of employment. He remains present in Pakistan for two years. During that period, he earns foreign rental income which remains abroad and is not received in Pakistan.
Assuming no other exception applies, the foreign rental income is:
A. taxable in Pakistan because all residents are always taxed on worldwide income without exception
B. exempt under the short-term resident provision
C. taxable only at 15%
D. taxable as salary
MCQ 14 — Short-Term Resident: Remittance Trap
Using the facts in MCQ 13, assume Mr. A receives the foreign rental income in Pakistan during the year.
The short-term resident exemption:
A. continues because he has been in Pakistan for less than three years
B. does not apply to that foreign-source income brought into/received in Pakistan
C. converts the income into exempt salary
D. applies only if foreign tax is paid
MCQ 15 — Returning Expatriate
Mr. B, a Pakistani citizen, becomes resident in Pakistan in TY 2027 after having been non-resident in each of the four preceding tax years.
His foreign-source income is generally exempt:
A. only in TY 2027
B. in TY 2027 and TY 2028
C. for three tax years
D. indefinitely while retained abroad
Admin Answer Key
1 — C
A resident person is generally taxable on worldwide income, covering both Pakistan-source and foreign-source income. CAF-2-ST(1)
2 — B ⭐
Expenditure incurred in deriving foreign-source income is deductible only against foreign-source income and not against Pakistan-source income. CAF-2-ST(1)
3 — C ⭐
Foreign-source income is computed separately for each head. A foreign loss under one head cannot simply be adjusted against foreign income under another head. CAF-2-ST(1)
4 — A ⭐
Average Pakistan tax rate:
Rs.970,000 ÷ Rs.4,000,000 = 24.25%
Pakistan tax attributable to foreign income:
Rs.1,250,000 × 24.25% = Rs.303,125
Foreign tax paid = Rs.187,500
Credit = lower of Rs.187,500 and Rs.303,125
= Rs.187,500. CAF-2-ST(1)
5 — C
Pakistan tax attributable to foreign income remains Rs.303,125. Even though foreign tax paid is Rs.350,000, credit is restricted to the lower amount, i.e. Rs.303,125. CAF-2-ST(1)
6 — B
Where foreign income falls under more than one head, the foreign-tax-credit limitation is applied separately to each head. CAF-2-ST(1)
7 — C ⭐
Order:
- Foreign tax credit
- Other tax credits/rebates
- Advance tax and tax deducted/collected at source. CAF-2-ST(1)
8 — D
Unused foreign tax credit is not refundable and cannot be carried backward or forward. CAF-2-ST(1)
9 — A ⭐
Foreign tax credit is available where the foreign income tax is paid within two years after the end of the tax year in which the related foreign income was derived. CAF-2-ST(1)
10 — C
Foreign loss can generally be carried forward for six tax years immediately succeeding the year in which it arose. CAF-2-ST(1)
11 — B
Where losses from more than one year exist, the earliest year’s foreign loss is set off first. CAF-2-ST(1)
12 — B ⭐
A foreign speculation business is treated as a separate head for these purposes. CAF-2-ST(1)
13 — B
Foreign-source income of a short-term resident is exempt where the individual is resident solely by reason of employment and remains in Pakistan for not more than three years, subject to the stated exceptions. CAF-2-ST(1)
14 — B ⭐
The exemption does not cover foreign-source income that is brought into or received in Pakistan by the short-term resident. CAF-2-ST(1)
15 — B ⭐
For a returning Pakistani expatriate who was non-resident in all four preceding tax years, foreign-source income is exempt in the year he becomes resident and the following tax year. CAF-2-ST(1)
CAF 2 — Chapter 14: Returns
Difficult ICAP-Level MCQs
MCQ 1 — Filing Requirement Trap
Mr. A has taxable income below the maximum amount not chargeable to tax. However, he obtained an NTN during the year.
Which statement is correct?
A. He is not required to file because his taxable income is below the threshold.
B. He is required to file a return because he has obtained an NTN.
C. He is required to file only if he owns immovable property.
D. He may file only if directed by the Board.
MCQ 2 — Final Tax Regime
Mr. B has no income chargeable under NTR. His entire income is subject to final taxation under the Ordinance.
Mr. B:
A. is not required to file any return
B. is required to furnish a return of income
C. files only a wealth statement
D. files only if his income exceeds Rs.600,000
MCQ 3 — Motor Vehicle Trap
An individual owns a motor vehicle having engine capacity of exactly 1,000 CC and has no other basis requiring filing.
Under the specific vehicle-based filing requirement:
A. he must file because capacity is 1,000 CC or above
B. he must file because every motor vehicle owner files
C. he is not required solely on this basis because the requirement applies where capacity is above 1,000 CC
D. he must file only if the vehicle is imported
MCQ 4 — Business Bank Account
A sole proprietor uses Bank Account X exclusively for business transactions but does not declare it to the Commissioner through the prescribed registration process.
Which consequence is specifically identified in Chapter 14?
A. All business income becomes exempt
B. Business expenditure may become inadmissible under section 21
C. The bank account automatically becomes a personal account
D. Only depreciation is disallowed
MCQ 5 — Return Attachments
Which of the following may be required to accompany a return of income?
I. Due payment of tax as per return
II. Wealth statement where required under section 116
III. Foreign income and assets statement where required under section 116A
IV. Prescribed annexures/statements/documents
A. I and II only
B. II and III only
C. I, II and IV only
D. I, II, III and IV
MCQ 6 — Revised Return: 60-Day Trap
A taxpayer discovers an omission 45 days after filing the original return and wants to revise it.
Assuming other conditions are satisfied, written approval of the Commissioner:
A. is compulsory in every case
B. is not required because the revision is within 60 days of filing
C. is deemed rejected after 30 days
D. is required only for salaried persons
MCQ 7 — Deemed Approval
A taxpayer seeks the Commissioner’s approval to revise a return in a case where approval is required. The Commissioner makes no order for 60 days from the date revision is sought.
The approval is:
A. deemed refused
B. deemed granted
C. automatically referred to the Chief Commissioner
D. unnecessary only if tax payable decreases
MCQ 8 — Voluntary Revision Before Audit Notice
A taxpayer voluntarily files a revised return before receiving notice under section 177 or section 122(9), and deposits the short-paid/tax sought to be evaded together with applicable default surcharge.
According to Chapter 14:
A. 50% penalty must also be paid
B. 25% penalty must also be paid
C. no penalty shall be recovered in the stated circumstances
D. revision is prohibited before an audit notice
MCQ 9 — Company Filing Deadline
A company has a tax year ending 30 June 2027.
Its return is generally due on or before:
A. 30 September 2027
B. 31 December 2027
C. 31 January 2028
D. 30 June 2028
MCQ 10 — Special-Year Company Trap
A company has a tax year ending 31 December 2026.
Its return is generally due on or before:
A. 31 December 2026
B. 30 September 2027
C. 31 December 2027
D. 30 June 2027
MCQ 11 — Wealth Statement: Spouse
A resident individual files his return. His spouse owns substantial personal assets but is financially independent and not dependent on him.
For purposes of his wealth statement:
A. spouse’s assets must always be included
B. spouse’s assets are included only where the spouse is dependent
C. spouse’s assets are excluded only if spouse separately files a return
D. 50% of spouse’s assets must be included
MCQ 12 — Wealth Statement Revision
A person discovers a bona fide omission in his wealth statement.
According to the study text, a wealth statement cannot be revised after:
A. 2 years from filing
B. 3 years from filing
C. 5 years from the due date of filing the return for that tax year
D. 6 years from the end of tax year
MCQ 13 — Foreign Income & Assets Statement
A resident individual has:
- Foreign income: USD 8,000
- Foreign assets: USD 120,000
He:
A. is not required to file because foreign income is below USD10,000
B. is required to furnish a foreign income and assets statement because foreign assets are at least USD100,000
C. files only if both limits are exceeded
D. files only if foreign assets are brought into Pakistan
MCQ 14 — Discontinuance of Business
A taxpayer permanently discontinues business on 15 March.
Notice of discontinuance should generally be given to the Commissioner:
A. within 7 days
B. within 15 days
C. within 30 days
D. by the normal return filing date
MCQ 15 — Extension Trap
A taxpayer validly obtains an extension of 15 days for furnishing the return.
Which statement is correct?
A. The tax-payment due date also automatically extends by 15 days.
B. No default surcharge can arise during the extension.
C. Extension of filing time does not change the due date for payment of tax payable on the return.
D. Extension can only be granted where the taxpayer is outside Pakistan.
Admin Answer Key
1 — B ⭐
A person who has obtained an NTN is among the persons required to furnish a return, even if taxable income itself does not exceed the basic tax-free threshold. CAF-2-ST(1)
2 — B
The updated study text specifically includes a person whose income is subject to final taxation among persons required to furnish a return. CAF-2-ST(1)
3 — C ⭐
The vehicle-based trigger applies where engine capacity is above 1,000 CC. Exactly 1,000 CC does not meet that specific condition. CAF-2-ST(1)
4 — B
Every taxpayer carrying on business must declare the bank account used for business transactions. Non-declaration can result in the related business expense becoming inadmissible under section 21. CAF-2-ST(1)
5 — D
A return may have to be accompanied by prescribed annexures/documents, due payment of tax, wealth statement and foreign income/assets statement where applicable. CAF-2-ST(1)
6 — B ⭐
Commissioner’s written approval is generally not required where the revised return is filed within 60 days of filing the original return, subject to the other revision conditions. CAF-2-ST(1)
7 — B
Where Commissioner does not make an order on the revision request before expiry of 60 days, the required approval is treated as deemed granted. CAF-2-ST(1)
8 — C ⭐
Where the taxpayer voluntarily revises before receipt of notice under section 177 or 122(9) and deposits the required short-paid/tax sought to be evaded plus default surcharge, no penalty is recovered under the stated rule. CAF-2-ST(1)
9 — B
For a company whose tax year ends between 1 January and 30 June, the return is due by 31 December next following the end of the tax year. CAF-2-ST(1)
10 — B ⭐
A company whose year does not end between 1 January and 30 June falls within the other cases; the general due date is 30 September next following the end of tax year. Therefore a 31 December 2026 year-end points to 30 September 2027. CAF-2-ST(1)
11 — B
The book specifically clarifies that the spouse’s assets are included in the taxpayer’s wealth statement only where the spouse is dependent. CAF-2-ST(1)
12 — C ⭐
A wealth statement cannot be revised after expiry of five years from the due date of filing the return for that tax year. CAF-2-ST(1)
13 — B
A resident individual must furnish the statement where either:
- foreign income is not less than USD10,000, or
- foreign assets are not less than USD100,000.
Here the asset threshold is met. CAF-2-ST(1)
14 — B
A person discontinuing a business must give written notice to the Commissioner within 15 days of discontinuance. CAF-2-ST(1)
15 — C ⭐
An extension for filing does not extend the due date for payment of income tax. Delayed payment can therefore attract default surcharge. CAF-2-ST(1)
CAF 2 — Chapter 15
Difficult ICAP-Level MCQs
MCQ 1 — Normal Assessment Trap
A taxpayer furnishes a complete original return of income. Under section 120, the return is generally:
A. merely an information statement until separately approved by Commissioner
B. treated as an assessment order for the amounts determined under the applicable processing provisions
C. treated as a best judgment assessment
D. valid only after audit
MCQ 2 — Incomplete Return
A taxpayer files an incomplete return. Commissioner issues a valid deficiency notice and the taxpayer fully complies within the specified time.
The return will be treated as:
A. filed on the date deficiencies were removed
B. complete on the day it was originally furnished
C. revised return
D. best judgment assessment
MCQ 3 — Deficiency Notice Time Limit
A return is incomplete.
A notice requiring the taxpayer to remove deficiencies under the relevant section cannot generally be issued after:
A. 90 days from filing
B. 120 days from filing
C. 180 days from the end of the financial year in which the return was furnished
D. 6 years from the tax year
MCQ 4 — Automated Adjustment Trap
Before making an adjustment under section 120(2A), the automated system generates a notice. The taxpayer does not respond.
Adjustment may generally be made after:
A. 7 days
B. 15 days
C. 30 days
D. 60 days
MCQ 5 — Best Judgment Assessment
Which failure may lead to a best judgment assessment under section 121?
I. Failure to furnish return in response to specified notice
II. Failure to furnish required wealth statement
III. Failure to produce required books and records during audit
IV. Failure to claim a tax credit
A. I and II only
B. I, II and III only
C. II, III and IV only
D. I, II, III and IV
MCQ 6 — Effect of Best Judgment
Where a valid best judgment assessment is made under section 121:
A. the earlier deemed assessment based on return necessarily continues unchanged
B. the return-based deemed assessment becomes of no legal effect
C. only penalties may be changed
D. taxpayer must first revise the return
MCQ 7 — Best Judgment Time Limit
Ordinarily, an assessment order under section 121 may be issued within:
A. 3 years from filing of return
B. 5 years from end of financial year
C. 6 years from end of the tax year to which it relates
D. 10 years in every case
MCQ 8 — Provisional Assessment Trap
An undeclared offshore asset is discovered before issuance of a best judgment or amended assessment.
The Commissioner may:
A. only wait until the next return is filed
B. issue a provisional assessment/provisional amended assessment taking the offshore asset into account
C. automatically confiscate the asset
D. treat the asset as exempt until appeal
MCQ 9 — Amendment of Assessment
An assessment order was treated as issued during a particular financial year.
Ordinarily, amendment under section 122 cannot be made after:
A. 3 years from filing of return
B. 5 years from the end of the financial year in which the order was issued or treated as issued
C. 6 years from the relevant tax year
D. 10 years from assessment
MCQ 10 — Grounds for Amendment
Which may constitute a ground for amendment where the statutory conditions are met?
I. Taxable income escaped assessment
II. Income was assessed at too low a rate
III. Excessive relief or refund was allowed
IV. An amount was misclassified under a head of income
A. I and II only
B. I, II and III only
C. II, III and IV only
D. I, II, III and IV
MCQ 11 — Records Retention Trap
A taxpayer’s normal domestic records relate to TY 2027 and no proceedings are pending.
The records are generally required to be retained for:
A. 3 years after the tax year
B. 5 years after the tax year
C. 6 years after the end of the tax year
D. indefinitely in every case
MCQ 12 — Foreign Records
Records relating to foreign-source income, assets and expenses are:
A. subject to the normal six-year limit only
B. required to be maintained for an indefinite period according to the study text
C. maintained for three years only
D. required only where foreign income exceeds USD10,000
MCQ 13 — Audit Selection Trap
A taxpayer’s income tax affairs were selected for audit in one of the preceding three tax years.
Under section 177, the normal selection provision:
A. always applies again automatically
B. does not normally apply, although Commissioner may select with approval of the Board
C. can never apply again under any circumstances
D. applies only if the taxpayer is a company
MCQ 14 — Faceless Proceedings: Updated Rule
Which proceedings may be conducted in a faceless manner under section 122E as prescribed by the Board?
I. Audit under sections 177 or 214C
II. Order under section 111
III. Assessment under Part II of Chapter X
IV. Rectification under section 221
A. I and II only
B. I, II and III only
C. I, III and IV only
D. I, II, III and IV
MCQ 15 — Faceless E-Hearing Trap
During a faceless audit, the taxpayer must be given an opportunity of being heard.
According to the updated study text:
A. hearing must necessarily be physical
B. hearing may be conducted through E-hearing, and the officer’s facial and voice identity is kept confidential
C. identity of the officer must be publicly disclosed
D. no hearing can be given in a faceless proceeding
Admin Answer Key
1 — B
A complete original return is generally treated under section 120 as the basis of assessment, and the return operates as the assessment order for the relevant adjusted amounts. CAF-2-ST(1)
2 — B ⭐
If the taxpayer fully cures the deficiencies within the required time, the return is treated as complete on the date it was originally furnished. CAF-2-ST(1)
3 — C
The deficiency notice for an incomplete return cannot generally be issued after 180 days from the end of the financial year in which the return was furnished. CAF-2-ST(1)
4 — C
Where no response is received to the system-generated adjustment notice within 30 days, the adjustment may be made. CAF-2-ST(1)
5 — B ⭐
Failure to file specified returns, furnish the wealth statement, or produce required records/documents can trigger best judgment assessment. Mere failure to claim a tax credit is not one of those triggers. CAF-2-ST(1)
6 — B
Once best judgment assessment is validly made, the assessment previously treated as made on the basis of the return/revised return becomes of no legal effect. CAF-2-ST(1)
7 — C
Ordinarily, section 121 assessment may be issued within six years from the end of the tax year to which it relates. CAF-2-ST(1)
8 — B ⭐
Where an undeclared offshore asset is discovered, the Commissioner may issue a provisional assessment or provisional amended assessment before the relevant final assessment order. CAF-2-ST(1)
9 — B
An assessment generally cannot be amended after five years from the end of the financial year in which the assessment order was issued or treated as issued. CAF-2-ST(1)
10 — D
All four are specifically identified grounds for amendment where the relevant statutory conditions and definite information exist. CAF-2-ST(1)
11 — C
Normal accounts/documents are generally retained for six years after the end of the relevant tax year. CAF-2-ST(1)
12 — B ⭐
The updated study text states that the six-year limitation does not apply to records relating to foreign-source income, assets, expenses, etc., which are to be maintained for an indefinite period. CAF-2-ST(1)
13 — B ⭐
The normal audit-selection provision does not apply where income-tax affairs were selected for audit in any of the preceding three tax years. However, the Commissioner may still select the person with Board approval. CAF-2-ST(1)
14 — D ⭐
Section 122E covers:
- audits under sections 177/214C,
- orders under section 111,
- assessments under Part II of Chapter X, and
- rectification under section 221. CAF-2-ST(1)
15 — B ⭐
Where hearing or statement under oath is required in faceless proceedings, it may be conducted through E-hearing under section 227E, while the officer’s facial and voice identity remains confidential.
CAF 2 — Chapter 16
Difficult ICAP-Level MCQs
MCQ 1 — Direct Appeal Trap
Mr. A is aggrieved by an assessment order passed by the Commissioner. He does not wish to approach the Commissioner (Appeals).
Under the study text, Mr. A may:
A. only file before Commissioner (Appeals) as first appellate forum
B. surrender his right of appeal before Commissioner (Appeals) and appeal directly to the Appellate Tribunal
C. file directly before the High Court
D. approach ADR only
MCQ 2 — SOE Trap
Which statement regarding an appeal to Commissioner (Appeals) is correct?
A. Every aggrieved person including an SOE may file there under section 127
B. An SOE is specifically excluded from the stated right to file appeal before Commissioner (Appeals)
C. Only companies may appeal
D. SOEs can appeal only after paying 50% disputed tax
MCQ 3 — Appeal Fee Numerical
ABC Ltd. files an appeal before Commissioner (Appeals) against an assessment order.
The prescribed appeal fee is:
A. Rs. 1,000
B. Rs. 2,500
C. Rs. 5,000
D. Rs. 20,000
MCQ 4 — Non-Company Fee Trap
An individual files an appeal before Commissioner (Appeals) against an order other than an assessment order.
The prescribed fee is:
A. Rs. 1,000
B. Rs. 2,500
C. Rs. 5,000
D. Rs. 20,000
MCQ 5 — Admitted Tax
A taxpayer files an appeal against an assessment order but has not paid the tax that was payable with his return under section 137(1).
The appeal:
A. can proceed because disputed tax is never payable before appeal
B. cannot be filed until the tax due under section 137(1) has been paid
C. can proceed on payment of 30% tax only
D. can only be filed directly before the High Court
MCQ 6 — Time Limit Trap
Notice of demand in respect of an assessment order is served on Mr. X on 5 August.
Subject to condonation provisions, an appeal to Commissioner (Appeals) should generally be filed:
A. within 15 days
B. within 30 days of service of notice of demand
C. within 60 days
D. before the end of the tax year
MCQ 7 — Stay by Commissioner (Appeals)
Commissioner (Appeals) is satisfied that recovery would cause undue hardship and initially stays recovery.
What is the maximum stay structure stated in the study text?
A. 30 days only in all circumstances
B. 60 days initially
C. 30 days initially plus a further 30 days, subject to the stated conditions
D. 90 days automatically
MCQ 8 — Additional Evidence Trap
During appeal, a taxpayer produces documents that were never produced before the Commissioner.
Commissioner (Appeals):
A. must admit all new evidence
B. can never admit new evidence
C. may admit it if satisfied that sufficient cause prevented the taxpayer from producing it earlier
D. may admit it only with approval of the Tribunal
MCQ 9 — Disposal Timeline
An appeal is filed before Commissioner (Appeals).
The order should generally be passed:
A. within 30 days only
B. within 90 days with no extension
C. within 120 days, with a possible extended period of 60 days for recorded reasons
D. within six months plus unlimited extension
MCQ 10 — Tribunal Fee + Time Trap
A company receives an order of Commissioner (Appeals) and wants to appeal to the Appellate Tribunal.
Which combination is correct?
A. 30 days; fee Rs. 20,000
B. 60 days; fee Rs. 20,000
C. 30 days; fee Rs. 5,000
D. 60 days; fee Rs. 50,000
MCQ 11 — Tribunal Stay
The Appellate Tribunal grants stay of tax recovery in a particular appeal.
The initial stay period under the study text is:
A. 30 days
B. 60 days
C. 90 days
D. 180 days
MCQ 12 — Tribunal Adjournment Trap
An appeal is before the Appellate Tribunal. The taxpayer seeks an adjournment despite a hearing schedule having been fixed.
An adjournment may be granted where compelling reasons exist, but the mandatory cost imposed by the Tribunal shall be:
A. at least Rs. 5,000
B. at least Rs. 20,000
C. at least Rs. 50,000
D. exactly Rs. 100,000
MCQ 13 — High Court Reference
An order of the Appellate Tribunal gives rise to a question of law.
The aggrieved person may generally file a reference before the High Court:
A. within 30 days of communication of the Tribunal order
B. within 60 days of communication of the Tribunal order
C. within 90 days
D. within six months
MCQ 14 — High Court Stay Numerical Trap
The Appellate Tribunal determines tax of Rs. 20,000,000. The taxpayer applies to the High Court for stay of recovery in the reference proceedings.
Minimum deposit specified in the study text is:
A. Rs. 2,000,000
B. Rs. 4,000,000
C. Rs. 6,000,000
D. Rs. 10,000,000
MCQ 15 — Algorithmic Settlement
The Board’s algorithmic settlement mechanism presents a settlement offer to a taxpayer.
To avail the offer, the taxpayer must, within the prescribed period:
I. Accept the offer on IRIS
II. Deposit the settlement amount
III. File the revised return incorporating the settled amount
The prescribed period is:
A. 7 days
B. 10 days
C. 15 days
D. 30 days
Admin Answer Key
1 — B ⭐
The updated study text allows an aggrieved person to surrender the right of appeal before Commissioner (Appeals) and directly approach the Appellate Tribunal.
2 — B
The Chapter 16 wording specifically states that a person other than an SOE may appeal before Commissioner (Appeals).
3 — C
For an appeal against an assessment order before Commissioner (Appeals):
- Company = Rs.5,000
- Non-company = Rs.2,500.
4 — A ⭐
For an appeal against an order other than assessment:
- Company = Rs.5,000
- Other person = Rs.1,000.
5 — B
No appeal against the assessment order may be filed unless the taxpayer has paid the amount of tax due under section 137(1), i.e. tax payable with the return.
6 — B
Assessment/penalty appeal → generally 30 days from service of notice of demand. Commissioner (Appeals) may condone delay where the statutory conditions are met.
7 — C ⭐
Commissioner (Appeals) may initially stay recovery for up to 30 days, and after hearing the Commissioner may grant a further 30 days, with the appeal order to be passed within that further period.
8 — C
New documentary evidence is generally not admitted unless Commissioner (Appeals) is satisfied that the appellant was prevented by sufficient cause from producing it earlier.
9 — C ⭐
Appeal order: generally within 120 days, with extension of up to 60 days for reasons recorded in writing. Specified excluded periods are not counted.
10 — A
Appeal to Tribunal:
- Time = 30 days
- Company fee = Rs.20,000
- Other cases = Rs.5,000.
11 — C
The Tribunal may stay recovery for 90 days, subject to the relevant conditions and hearing schedule.
A further ICAP trap: where the appeal is not decided within the statutory period, the study text states that the stay does not cease merely for that reason until finalisation of the appeal.
12 — C ⭐
Tribunal adjournment requires compelling reasons and mandatory cost of not less than Rs.50,000.
13 — B
A reference on a question of law may be filed before the High Court within 60 days of communication of the Tribunal order. The complete Tribunal record is to be filed within 15 days of filing the reference.
14 — C ⭐
High Court may stay recovery subject to deposit of not less than 30% of tax determined by the Tribunal.
Rs.20,000,000 × 30% = Rs.6,000,000.
Also remember: such High Court stay generally ceases after six months unless the reference has been decided or the stay is withdrawn earlier.
15 — B ⭐
Algorithmic settlement offer must be availed within 10 days by:
- accepting on IRIS;
- depositing the settlement amount; and
- revising the relevant return.
Extra ICAP Traps from Chapter 16
- High Court reference fee for an aggrieved person other than Commissioner = Rs.50,000.
- High Court reference is heard by a Special Bench of at least two judges and should be decided within six months.
- A Commissioner-side reference/appeal/review requiring the new Independent Case Scrutiny Committee approval cannot proceed without that approval; the qualifying waiting period for committee approval is excluded from limitation.
- ADR normally covers, among other matters, tax liability of Rs.50 million or above; that monetary threshold does not apply to an SOE, for which ADR application is mandatory under the stated rule.
- ADR is unavailable where criminal proceedings have been initiated.
- Normal ADR Committee decision period = 90 days.
- Algorithmic settlement can operate before an assessment/amendment order under sections 121, 122 or 122E.
Ye Chapter 16 ka proper difficult ICAP set hai — specially MCQ 1, 5, 7, 8, 9, 11, 12, 14 aur 15 high-value traps hain.
CAF 2 — Chapter 17
Difficult ICAP-Level MCQs
MCQ 1 — Taxable Supply Trap
Which of the following is included within the definition of a taxable supply?
A. Only supplies charged at 18%
B. Exempt supplies under section 13
C. Zero-rated supplies under section 4
D. Supply of every service rendered in Pakistan
MCQ 2 — Supply Concept
A manufacturer produces goods in the course of taxable activity and withdraws part of those goods for private use.
For sales tax purposes, the withdrawal:
A. is not a supply because no consideration is received
B. is treated as supply under the definition of supply
C. becomes an exempt supply automatically
D. is taxable only when subsequently sold
MCQ 3 — Goods Definition Trap
Which of the following is not included in “goods” for purposes of Chapter 17?
A. Machinery
B. Inventory
C. Shares and securities
D. Movable finished goods
MCQ 4 — Registered Person
A manufacturer is legally required to be registered but has failed to obtain registration.
Which statement is correct?
A. He is outside the definition of registered person until registration is actually issued.
B. He may avoid sales tax for the unregistered period.
C. He is treated as a registered person for liability purposes but cannot claim benefits available to a registered person.
D. He may claim input tax even without filing returns.
MCQ 5 — Taxable Activity
Which activity is excluded from taxable activity?
A. One-off adventure in the nature of trade
B. Business carried on without profit motive
C. Employee providing services in that capacity to his employer
D. Activity undertaken at commencement of an economic activity
MCQ 6 — Associated Persons / Value of Supply
A registered supplier sells goods to an associated person for Rs. 700,000 when the open market price is Rs. 1,000,000. The reduced price does not represent a normal trade discount.
Value of supply is:
A. Rs. 700,000
B. Rs. 850,000
C. Rs. 1,000,000
D. whichever amount the parties declare
MCQ 7 — Time of Supply
Goods are delivered on 25 August, but the supplier had already received an advance payment on 10 August.
Time of supply is:
A. 25 August
B. 10 August
C. date of tax invoice only
D. end of August
MCQ 8 — Cottage Industry Trap
A manufacturing concern:
- has no industrial gas/electricity connection;
- is located in a residential area;
- employs 10 workers; and
- has annual turnover of Rs. 8,000,000.
Under Chapter 17, it:
A. does not qualify as cottage industry because it employs 10 workers
B. does not qualify because turnover is Rs.8 million
C. may qualify as cottage industry because all stated limits are satisfied
D. must register merely because it manufactures goods
MCQ 9 — Tier-1 Retailer
Which retailer will fall within Tier-1 category merely on the basis of its electricity consumption?
A. Cumulative electricity bills of exactly Rs.1,000,000 for preceding 12 months
B. Cumulative electricity bills of exactly Rs.1,200,000
C. Cumulative electricity bills exceeding Rs.1,200,000
D. Any retailer using commercial electricity
MCQ 10 — Zero Rated vs Exempt
Which statement is correct?
A. Input tax relating to exempt supplies is generally refundable.
B. A person making only exempt supplies must register.
C. Input tax relating to zero-rated supplies may be refundable, while input tax relating to exempt supplies is inadmissible.
D. Zero-rated supplies do not fall within taxable supplies.
MCQ 11 — Registration Trap
Which of the following is required to register irrespective of turnover, assuming the person is carrying on the relevant taxable activity?
A. Distributor
B. Cottage industry
C. Person engaged exclusively in exempt supplies
D. Small hobby activity
MCQ 12 — Digital Transactions
A non-Tier-1 retailer supplies digitally ordered goods from within Pakistan through an online marketplace.
Sales tax withholding on gross value is:
A. 1% and adjustable
B. 2%, treated as final discharge for such retailer
C. 4% further tax
D. 18% final tax
MCQ 13 — Digital Payment vs COD
Who bears responsibility to collect and pay the 2% sales tax withholding on digitally ordered goods?
A. Courier in every case
B. Payment intermediary in every case
C. Courier for COD and payment intermediary for digital payments
D. Online marketplace only
MCQ 14 — Registration Application Trap
A new manufacturer applies for sales tax registration.
Which information/document is specifically required under the study text?
A. Only CNIC and NTN
B. GPS-tagged photographs of business premises, machinery and industrial electricity/gas meter
C. Audited accounts for preceding five years
D. Foreign asset statement
MCQ 15 — Deregistration
A registered person ceases business and applies for deregistration. All outstanding dues are cleared 20 days after application.
Assuming no audit/inquiry complication, deregistration order should generally be issued not later than:
A. 30 days from application
B. 60 days from application only
C. 60 days from the later of application date or date outstanding dues are deposited
D. 90 days in every case
Admin Answer Key
1 — C ⭐
A taxable supply includes a supply chargeable at zero percent under section 4. Exempt supplies under section 13 are excluded. CAF-2-ST(1)
2 — B
Putting goods produced/manufactured in the course of taxable activity to private or other non-taxable use is specifically included within “supply.” CAF-2-ST(1)
3 — C
“Goods” include movable property but specifically exclude, among other items, money, stocks, shares and securities. CAF-2-ST(1)
4 — C ⭐
A person liable to be registered falls within the definition of registered person and may still be liable for sales tax for the unregistered period. However, he is not entitled to benefits such as input tax credit available to a properly registered person. CAF-2-ST(1)
5 — C
An employee providing services in that capacity to an employer is specifically excluded from taxable activity. CAF-2-ST(1)
6 — C ⭐
Where associated persons transact for no consideration or below open market value, the value of supply is generally the open market price excluding sales tax. CAF-2-ST(1)
7 — B ⭐
For ordinary goods, time of supply is the earlier of:
- delivery/making goods available; or
- receipt of payment.
Therefore 10 August. CAF-2-ST(1)
8 — C
Cottage industry requires all of the following:
- no industrial gas/electricity connection;
- residential location;
- labour force not more than 10 workers; and
- annual turnover not exceeding Rs.8 million.
The facts satisfy all four. CAF-2-ST(1)
9 — C
A retailer becomes Tier-1 where cumulative electricity bills for the immediately preceding 12 consecutive months exceed Rs.1,200,000. Exactly Rs.1.2m does not satisfy “exceeds.” CAF-2-ST(1)
10 — C ⭐
Zero-rated supply remains taxable at 0%, and related input tax may be refundable. For exempt supplies, related input tax is generally inadmissible — neither adjustable nor refundable. CAF-2-ST(1)
11 — A
A wholesaler, dealer or distributor is required to register. The study-text exercise specifically confirms that a distributor is required to register irrespective of turnover. CAF-2-ST(1)
12 — B ⭐
Digitally ordered goods are subject to 2% withholding on gross value. For cottage industry and retailers other than Tier-1, this is the final discharge of sales tax liability, with no input adjustment and no registration requirement. CAF-2-ST(1)
13 — C
The liability is on:
- courier for COD transactions; and
- payment intermediary for digital payments. CAF-2-ST(1)
14 — B
For manufacturers, registration information includes GPS-tagged photographs of the business premises, machinery, and industrial electricity/gas meter, along with other prescribed information. CAF-2-ST(1)
15 — C ⭐
The Commissioner may issue deregistration/cancellation order not later than 60 days from the application or the date all outstanding dues are deposited, whichever is later. CAF-2-ST(1)
Ye Chapter 17 ka strong ICAP-level set hai — especially MCQ 4, 6, 7, 8, 9, 10, 12 aur 15 mein wording/application traps hain.
CAF 2 — Chapter 19
Difficult ICAP-Level MCQs
MCQ 1 — Electronic Return Date Trap
A registered person’s sales tax return is due for a month where the statutory due date is the 15th of the following month.
If the return is filed electronically:
A. both tax and return must be submitted by the 15th
B. tax must be deposited by the 15th and electronic return filed by the 18th
C. tax must be deposited by the 18th and return filed by the 20th
D. both are due by the 18th
MCQ 2 — Annual Return
ABC (Pvt.) Ltd. is registered for sales tax.
Its annual sales tax return for a financial year is due by:
A. 30 June of the same year
B. 31 August of the following year
C. 30 September of the following financial year
D. 31 December of the following year
MCQ 3 — Multiple Sectors Trap
A registered person operates in two sectors for which different return filing dates apply.
The person should generally:
A. file separate returns for each sector
B. file a single return by the due date applicable to its major activity in terms of sales tax/FED payable
C. use the later of the two dates automatically
D. file only for the sector generating higher turnover
MCQ 4 — Buyer’s Provisional Return
A buyer files its return and claims input tax on an invoice issued by a registered seller. The seller has not yet filed its return.
The buyer’s return is initially treated in IRIS as:
A. invalid
B. final
C. provisional
D. revised
MCQ 5 — Seller Non-Filing Trap
The seller fails to file its return by the last day of the month in which the return filing due date falls.
What happens to the corresponding invoice in the buyer’s provisional return?
A. It remains permanently available as input tax.
B. IRIS deletes the seller’s invoice and recalculates the buyer’s liability without corresponding input tax.
C. Only 50% input tax is removed.
D. The buyer’s entire return becomes invalid.
MCQ 6 — Seller Eventually Files
The seller files its return and pays the applicable sales tax by the last day of the month in which the due date falls.
The buyer’s provisional return may then:
A. remain valid with the invoice and corresponding input-tax claim
B. automatically lose the input claim
C. require Commissioner’s approval in every case
D. be converted into an annual return
MCQ 7 — Withholding Credit Trap
A registered supplier’s sales tax has been withheld by a withholding agent. However, the supplier does not declare the corresponding sale to that withholding agent in its return.
The supplier:
A. may still claim the entire withheld amount
B. cannot claim the withheld tax/reduction in output tax relating to that undeclared sale
C. may claim 50% of withheld tax
D. can claim it in the annual return
MCQ 8 — Extension of Filing
A registered person obtains a valid 15-day extension to furnish its sales tax return.
Which statement is correct?
A. The tax payment due date also automatically extends by 15 days.
B. Default surcharge cannot apply during the extension.
C. Extension of return filing does not change the due date for payment for default-surcharge purposes.
D. Extension is only available to companies.
MCQ 9 — Revised Return within 60 Days
A registered person discovers an omission and files a revised return within 50 days of the original return. The revision increases tax payable.
Unless restricted by the FBR compliance risk management system:
A. Commissioner’s approval is still compulsory
B. Commissioner’s approval is not required in the stated circumstances
C. revision is not allowed until audit starts
D. only annual returns may be revised
MCQ 10 — Voluntary Revision Before Audit
A registered person discovers previously short-paid sales tax and voluntarily revises the return before receipt of an audit notice. It deposits the short-paid tax and applicable default surcharge.
Under the study text:
A. full penalty must also be paid
B. 25% penalty must also be paid
C. no penalty shall be recovered in the stated circumstances
D. revision is invalid
MCQ 11 — Special Return
Which information may be required in a special return under section 27?
I. Quantity of goods manufactured
II. Purchases made
III. Goods supplied
IV. Payment of arrears
A. I and II only
B. II and III only
C. I, II and III only
D. I, II, III and IV
MCQ 12 — Final Return
A registered person applies for deregistration.
Before deregistration, the person is required to furnish:
A. only an annual return
B. a final return in the form/manner/time directed by Commissioner
C. no further return
D. only a nil return
MCQ 13 — Tax Invoice Trap
Which statement is correct?
A. Any unregistered person may issue a tax invoice under section 23.
B. More than one tax invoice may routinely be issued for a single taxable supply.
C. A registered person making taxable or exempt supply issues the prescribed invoice, and not more than one tax invoice may be issued for a taxable supply.
D. Tax invoice need not contain value exclusive of tax.
MCQ 14 — Electronic Invoicing / e-Bilty
Where the relevant integration requirements apply, which statement is correct?
A. Debit and credit notes may remain purely manual in all cases.
B. Tax invoices need not be linked with transport documentation.
C. The electronic invoicing system may be integrated with the Board for real-time reporting, and the tax invoice is to be linked with the e-Bilty where goods are transported/supplied.
D. Only exporters can be required to integrate.
MCQ 15 — Records Retention
A sales-tax record relates to a tax period for which no proceeding is pending.
It should generally be retained for:
A. 3 years after the tax period
B. 5 years after the tax period
C. 6 years after the end of the tax period
D. indefinitely in every case
Admin Answer Key
1 — B ⭐
Where due date is prescribed as the 15th, tax must be deposited by the 15th, while the electronically filed return may be submitted by the 18th. CAF-2-ST(1)
2 — C
A private or public limited company is required to file its annual sales tax return by 30 September of the following financial year. CAF-2-ST(1)
3 — B ⭐
Where different sectors have different filing dates, one single return is filed by the due date applicable to the major activity in terms of sales tax/FED payable. CAF-2-ST(1)
4 — C
The buyer’s return is initially treated as a provisional return in IRIS until the seller’s corresponding filing position is established. CAF-2-ST(1)
5 — B ⭐
If the seller fails to file by the last day of the relevant month, IRIS deletes the invoices of the non-filer seller and recomputes the buyer’s liability without the corresponding input tax. CAF-2-ST(1)
6 — A
Where the seller files the return along with applicable tax payment by the last day of the month, the buyer’s provisional return may be taken as valid with the invoice and corresponding input tax. CAF-2-ST(1)
7 — B ⭐
Sales tax withheld may only be claimed where the supplier declares the corresponding sales to that withholding agent in its return. CAF-2-ST(1)
8 — C
An extension for return filing does not change the tax-payment due date for default-surcharge purposes. CAF-2-ST(1)
9 — B ⭐
Unless restricted by the FBR compliance risk management system, Commissioner approval is not required where revision is within 60 days and the revision increases tax payable or reduces the refund claimed. CAF-2-ST(1)
10 — C
Where a registered person voluntarily revises before receipt of audit notice and deposits short-paid/evaded tax plus default surcharge, no penalty is recovered in the stated circumstances. CAF-2-ST(1)
11 — D
Special return information may include:
- quantity manufactured/produced;
- purchases;
- supplies; and
- arrears paid. CAF-2-ST(1)
12 — B
A person applying for deregistration must furnish a final return before deregistration, in the form, manner and time directed by Commissioner. CAF-2-ST(1)
13 — C ⭐
The study text provides that a registered person making taxable as well as exempt supply issues the prescribed tax invoice, and not more than one tax invoice may be issued for a taxable supply. CAF-2-ST(1)
14 — C ⭐
The Board may require integration of electronic invoicing for real-time sales reporting; debit/credit notes are also to be generated digitally, and relevant tax invoices must be linked with the e-Bilty where goods are transported or supplied. CAF-2-ST(1) CAF-2-ST(1)
15 — C
Records/documents are generally retained for six years after the end of the relevant tax period, or longer where proceedings remain pending until final decision. CAF-2-ST(1)
Ye Chapter 19 final chapter ka strong ICAP-level set hai — specially MCQ 3, 5, 7, 8, 9, 10, 13 aur 14 proper exam traps hain.