Income Tax MCQs Pakistan — 200+ Practice Questions

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Practice Pakistan income tax with free multiple-choice questions based on the Income Tax Ordinance, 2001 and the Sales Tax Act, 1990. Each question is tagged with its relevant section reference and comes with a detailed explanation, so you learn the reasoning — not just the right option. The questions are useful for CA, ICMAP, ACCA, CSS and FBR exam preparation, as well as for taxpayers who simply want to understand Pakistan's tax rules better.

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Question 41 of 52 Advance Tax – Transitional Phase

Basic

📖 Section 231B. Advance tax on private motor vehicles - ITO, 2001

Which section of the Income Tax Ordinance, 2001 deals with Advance tax on private motor vehicles ?

1 Section 235 ❌

2 Section 234 ❌

3 Section 231B ✅

4 Section 210 ❌

✅ Correct Answer!

✅

Correct Answer

📝 Explanation

Every registering authority of the Excise and Taxation Department shall collect advance tax when a motor vehicle is registered.

⚖️ Legal Reference

📖 Income Tax Ordinance, 2001 — Section 231B. Advance tax on private motor vehicles - ITO, 2001

💡 Why This Matters

Understanding this provision is essential for tax compliance and frequently tested in CA, ICMAP & ACCA Pakistan exams.

Question 42 of 52 Exemptions and Tax Concessions

Basic

📖 Section 43. Foreign government officials - ITO, 2001

Which section of the Income Tax Ordinance, 2001 deals with Foreign government officials ?

1 Section 41 ❌

2 Section 42 ❌

3 Section 43 ✅

4 Section 44 ❌

✅ Correct Answer!

✅

Correct Answer

📝 Explanation

Any salary received by an employee of a foreign government as remuneration for services rendered to such government shall be exempt from tax under the ITO, 2001.

⚖️ Legal Reference

📖 Income Tax Ordinance, 2001 — Section 43. Foreign government officials - ITO, 2001

💡 Why This Matters

Understanding this provision is essential for tax compliance and frequently tested in CA, ICMAP & ACCA Pakistan exams.

Question 43 of 52 Exempted Income

Basic

📖 Section 43. Foreign government officials - ITO, 2001

Salary received by an employee of a foreign government is exempt from tax if :

1 The employee is a Pakistani citizen ❌

2 The employee holds dual nationality ❌

3 The employee works in Pakistan ❌

4 Foreign citizen doing similar work qualifies for tax exemption under reciprocal agreement. ✅

✅ Correct Answer!

✅

Correct Answer

📝 Explanation

Salary received by an employee of a foreign government is exempt from tax if employee is a foreign citizen, performs similar services as Federal Government employees abroad, and reciprocal exemption is granted

⚖️ Legal Reference

📖 Income Tax Ordinance, 2001 — Section 43. Foreign government officials - ITO, 2001

💡 Why This Matters

Understanding this provision is essential for tax compliance and frequently tested in CA, ICMAP & ACCA Pakistan exams.

Question 44 of 52 Rates of Tax for Companies

Basic

📖 First Schedule – Part I, Division II – Income Tax Ordinance, 2001

What is the income tax rate applicable to a banking company for Tax Year 2026?

1 44% ❌

2 43% ✅

3 42% ❌

4 41% ❌

✅ Correct Answer!

✅

Correct Answer

📝 Explanation

A banking company, as defined in the Banking Companies Ordinance, 1962, is required to pay income tax at 43% for Tax Year 2026.

⚖️ Legal Reference

📖 Income Tax Ordinance, 2001 — First Schedule – Part I, Division II – Income Tax Ordinance, 2001

💡 Why This Matters

Understanding this provision is essential for tax compliance and frequently tested in CA, ICMAP & ACCA Pakistan exams.

Question 45 of 52 Rates of Tax for Companies

Basic

📖 First Schedule – Part I, Division II – Income Tax Ordinance, 2001

What is the income tax rate applicable to a banking company for Tax Year 2025?

1 41% ❌

2 42% ❌

3 43% ❌

4 44% ✅

✅ Correct Answer!

✅

Correct Answer

📝 Explanation

A banking company, as defined in the Banking Companies Ordinance, 1962, is required to pay income tax at 44% for Tax Year 2025.

⚖️ Legal Reference

📖 Income Tax Ordinance, 2001 — First Schedule – Part I, Division II – Income Tax Ordinance, 2001

💡 Why This Matters

Understanding this provision is essential for tax compliance and frequently tested in CA, ICMAP & ACCA Pakistan exams.

Question 46 of 52 Rates of Tax for Companies

Basic

📖 First Schedule – Part I, Division II – Income Tax Ordinance, 2001

What is the income tax rate applicable to a banking company for Tax Year 2027?

1 42% ✅

2 44% ❌

3 43% ❌

4 41% ❌

✅ Correct Answer!

✅

Correct Answer

📝 Explanation

A banking company, as defined in the Banking Companies Ordinance, 1962, is required to pay income tax at 42% for Tax Year 2027.

⚖️ Legal Reference

📖 Income Tax Ordinance, 2001 — First Schedule – Part I, Division II – Income Tax Ordinance, 2001

💡 Why This Matters

Understanding this provision is essential for tax compliance and frequently tested in CA, ICMAP & ACCA Pakistan exams.

Question 47 of 52 Rates of Tax for Companies

Basic

📖 Tax rate applicable : First Schedule – Part I, Division II – Income Tax Ordinance, 2001

What is the income tax rate applicable to a small company for Tax Year 2026?

1 20% ✅

2 25% ❌

3 29% ❌

4 21% ❌

✅ Correct Answer!

✅

Correct Answer

📝 Explanation

Section 2(59AB). Small Company refers to a company that is registered on or after 1st July 2005 under the Companies Act, 2017

⚖️ Legal Reference

📖 Income Tax Ordinance, 2001 — Tax rate applicable : First Schedule – Part I, Division II – Income Tax Ordinance, 2001

💡 Why This Matters

Understanding this provision is essential for tax compliance and frequently tested in CA, ICMAP & ACCA Pakistan exams.

Question 48 of 52 Rates of Tax for Companies

Basic

📖 First Schedule – Part I, Division II – Income Tax Ordinance, 2001

What is the income tax rate applicable to a Any Other company for Tax Year 2026?

1 29% ✅

2 20% ❌

3 25% ❌

4 30% ❌

✅ Correct Answer!

✅

Correct Answer

📝 Explanation

Any Other Company refers to a company that is not classified as a Small Company or Banking Company under the Income Tax Ordinance, 2001.

⚖️ Legal Reference

📖 Income Tax Ordinance, 2001 — First Schedule – Part I, Division II – Income Tax Ordinance, 2001

💡 Why This Matters

Understanding this provision is essential for tax compliance and frequently tested in CA, ICMAP & ACCA Pakistan exams.

Question 49 of 52 Company Taxation

Intermediate

📖 Section 2(59A) - ITO, 2001

The tax rate of a Small Company is prescribed under:

1 Section 9 ❌

2 Section 2(59A) ❌

3 Section 4 ❌

4 First Schedule, Part I, Division II ✅

✅ Correct Answer!

✅

Correct Answer

📝 Explanation

The applicable tax rate is provided in the First Schedule, Part I, Division II of the Income Tax Ordinance, 2001.

⚖️ Legal Reference

📖 Income Tax Ordinance, 2001 — Section 2(59A) - ITO, 2001

💡 Why This Matters

Understanding this provision is essential for tax compliance and frequently tested in CA, ICMAP & ACCA Pakistan exams.

Question 50 of 52 Company Taxation

Basic

📖 Section 2(59AB). Small Company - ITO, 2001

The paid-up capital plus undistributed reserves of a Small Company must not exceed:

1 Rs. 100 million ❌

2 Rs. 75 million ❌

3 Rs. 50 million ✅

4 Rs. 250 million ❌

✅ Correct Answer!

✅

Correct Answer

📝 Explanation

Under Section 2(59AB)(i), a Small Company must have paid-up capital plus undistributed reserves not exceeding Rs. 50 million.

⚖️ Legal Reference

📖 Income Tax Ordinance, 2001 — Section 2(59AB). Small Company - ITO, 2001

💡 Why This Matters

Understanding this provision is essential for tax compliance and frequently tested in CA, ICMAP & ACCA Pakistan exams.

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