How to Calculate Profit and Loss Account for Income Tax Return in Pakistan (Step-by-Step Guide with Templates)
For business taxpayers in Pakistan, preparing the Profit & Loss Account (P&L) is one of the most important steps before filing the Income Tax Return.
If you maintain basic records of sales, purchases, opening/closing stock, and business expenses, your P&L is very easy to calculate — especially with the templates commonly used by tax practitioners.
Below is a complete explanation of how to prepare the Trading Account, Gross Profit, Net Profit, and final taxable business income using the same templates shown in the picture.
1. Step 1: Start With the Trading Account
The Trading Account helps you calculate Gross Profit (GP).
The formula is simple:
Trading Account Format
Debit Side (Costs):
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Opening Stock
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Purchases
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Direct Expenses (freight inwards, wages, packing, etc.)
Credit Side (Income):
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Sales
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Closing Stock
Gross Profit Formula
Example:
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Opening Stock: Rs. 200,000
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Purchases: Rs. 1,000,000
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Direct Expenses: Rs. 20,000
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Sales: Rs. 1,400,000
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Closing Stock: Rs. 250,000
Gross Profit = (1,400,000 + 250,000) – (200,000 + 1,000,000 + 20,000)
Gross Profit = 1,650,000 – 1,220,000 = Rs. 430,000
This GP is then transferred to the Profit & Loss Account.
2. Step 2: Prepare the Profit & Loss Account (P&L)
Once Gross Profit is calculated, you deduct all business expenses to calculate Net Profit.
Common Expense Categories (as in your template):
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Rent / Rates / Taxes
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Salaries & Wages
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Traveling / Conveyance
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Electricity / Water / Gas
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Communication (mobile / internet)
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Repairs & Maintenance
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Office Supplies
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Advertisement / Publicity
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Insurance
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Professional Charges
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Bank Charges
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Depreciation
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Bad Debts
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Misc. Business Expenses
Net Profit Formula
Example:
Gross Profit = Rs. 430,000
Total Business Expenses = Rs. 200,000
Net Profit = 430,000 – 200,000 = Rs. 230,000
This is your business income before adjustments and is entered directly into the FBR Business Income section of the tax return.
3. Step 3: Household & Direct Expenses (If applicable)
In the template, two extra schedules exist:
1. Household Expense Detail
These are personal living expenses (electricity, gas, vehicle fuel, phone, rent, etc.) used to justify drawings.
They are not deducted from business income, but they support your wealth statement.
2. Direct Expense Detail
These are expenses directly linked to business production/sales.
Many are already included in the Trading Account, but if separate, they reduce gross profit.
4. Step 4: Balance Sheet (Mandatory for Business Return)
The balance sheet template includes:
Assets
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Land
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Building
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Plant / Machinery
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Equipment
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Advance / Debtors
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Stock
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Cash / Bank
Liabilities
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Creditors
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Loans
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Payables
The balance sheet ensures that your assets = liabilities + capital, which must match with your return’s Wealth Statement.
5. Step 5: Put the Values Into the FBR Online Return
In the Business Income section of the FBR return, you only need:
✔ Opening Stock
✔ Purchases
✔ Direct Expenses
✔ Gross Profit
✔ Rent / Salaries / Utility Bills etc.
✔ Net Profit (auto-calculated)
Exactly the same fields as your templates.
here are two Excel Templates to Fill income tax return easily.
TEMPLATE 1 DOWNLOAD
TEMPLATE 2 DOWNLOAD
TEMPLATE 3 DOWNLOAD RANA ATIF
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