What expenses can a doctor or lawyer deduct: clinic or chamber rent, staff salaries, council fees, books?

Practice income is taxed on profit, not gross fees. The Income Tax Ordinance, 2001 decides which costs count in three steps: a broad permission in section 20, exceptions in section 21, and a record-keeping condition in section 174.

What does the law say?

Section 20: the general test. Section 20(1) allows a deduction for any expenditure incurred in the tax year “wholly and exclusively for the purposes of business”. A profession is a business under the Ordinance, so this test applies to a clinic, a dental practice or a law chamber. There is no list of approved professional expenses. Each cost is judged against that one test.

Section 20(2): assets are depreciated, not expensed. Where the expenditure buys a depreciable asset or an intangible with a useful life of more than one year, it is not deducted at once. It is depreciated or amortised under the special provisions that follow. Section 22(2) applies the rate in Part I of the Third Schedule to the asset’s written down value each year.

Section 21: what is never deductible. Section 21 lists items that are not allowed even if they relate to the practice. The clauses most relevant to a professional are:

Clause	What is disallowed
21(a)	Income tax itself, or any tax levied on profits
21(c)	An expense from which the payer was required to deduct or collect tax, unless that tax was deducted and paid as required
21(d)	Entertainment spending above the limits or outside the conditions that are prescribed
21(e)	Contributions to a fund that is not a recognised provident fund or an approved pension, superannuation or gratuity fund
21(g)	Any fine or penalty for breaking a law, rule or regulation
21(h)	Personal expenditure
21(l)	An expense under one account head above Rs. 250,000 in aggregate not paid through the business bank account by a crossed or banking instrument, with exceptions
21(m)	A salary above Rs. 32,000 a month not paid by crossed cheque, direct transfer to the employee’s bank account or digital means
21(n)	Capital expenditure, except as allowed through depreciation
21(q)	Ten percent of expenditure attributable to purchases from persons who are not National Tax Number holders

Section 174: records. Every taxpayer must keep the accounts, documents and records that are prescribed. Section 174(2) allows the Commissioner to disallow or reduce a deduction where the taxpayer cannot, without reasonable cause, produce a receipt or other evidence of it. Records are kept for six years after the end of the tax year, and longer while a proceeding is pending.

How does it work for common practice costs?

• Clinic or chamber rent. Rent for premises used for the practice meets the section 20 test. If part of a house is used as a clinic, only the practice part is spent “wholly and exclusively” for the practice; the household share is personal under section 21(h). Where the Ordinance requires tax to be withheld from the rent, section 21(c) disallows the rent unless it was.
• Staff salaries. Pay to a receptionist, nurse, clerk or munshi is a practice expense. Section 21(m) disallows any salary above Rs. 32,000 a month paid in cash. Section 21(c) applies to salaries too where tax had to be deducted from them.
• Council, bar association and PMDC fees. The Ordinance does not mention them. They stand or fall on the section 20(1) test and are not listed in section 21.
• Books and law reports. Books with a useful life of more than one year are depreciable assets. The Third Schedule lists “technical or professional books” in the 15% class.
• Medicines and consumables. Items used up in the practice are ordinary expenses. Section 21(q) cuts ten percent of the expenditure attributable to purchases from suppliers without a National Tax Number.
• Utility bills. These are ordinary expenses and are expressly exempt from the banking-channel rule in section 21(l).

Worked example (illustrative figures)

Bilal Ahmed is an advocate with a chamber in Lahore. His made-up figures for tax year 2027 (1 July 2026 to 30 June 2027) are:

Item	Amount	Treatment
Fees received	Rs. 4,800,000	Income
Chamber rent, paid by bank transfer	Rs. 720,000	Allowed, section 20
Clerk’s salary, Rs. 35,000 a month in cash	Rs. 420,000	Disallowed, section 21(m)
Munshi’s salary, Rs. 25,000 a month in cash	Rs. 300,000	Allowed, below Rs. 32,000 a month
Electricity bills	Rs. 180,000	Allowed, utility bill
Bar association annual fee	Rs. 15,000	Allowed on the assumption it meets the section 20 test
Family dinner charged to the chamber	Rs. 60,000	Disallowed, personal, section 21(h)
Traffic fine	Rs. 5,000	Disallowed, section 21(g)
New law reports and textbooks	Rs. 100,000	Depreciated, not expensed

Step by step:

1. Depreciation on the books: 15% of Rs. 100,000 = Rs. 15,000.
2. Allowed deductions: Rs. 720,000 + Rs. 300,000 + Rs. 180,000 + Rs. 15,000 + Rs. 15,000 = Rs. 1,230,000.
3. Income from Business: Rs. 4,800,000 minus Rs. 1,230,000 = Rs. 3,570,000.

Had the clerk been paid by bank transfer, the Rs. 420,000 would also have been deductible and business income would have been Rs. 3,150,000. The example assumes no tax had to be withheld from the rent or salaries; if it did and was not, section 21(c) would disallow those amounts as well.

What if …?

What if I pay a large bill in cash? Section 21(l) disallows an expense under a single account head above Rs. 250,000 in aggregate unless it goes through the business bank account by crossed or banking instrument, online transfer or credit card. Expenses up to Rs. 25,000, utility bills, freight, travel fare, postage and payments of taxes, duties, fees or fines are outside that clause.

What if I have no receipt? Section 174(2) lets the Commissioner disallow or reduce the deduction unless there was reasonable cause.

Common mistakes

• Deducting equipment or books in full. Section 20(2) sends assets with a life over one year to depreciation.
• Treating the practice as a household account. Personal and family costs are disallowed by section 21(h), even if paid from the practice account.
• Paying staff in cash. Above Rs. 32,000 a month, section 21(m) removes the salary from deductions entirely, not just the excess.

What to check in the official text

Read section 20 and every clause of section 21, since several clauses (such as 21(d), 21(p) and 21(r)) depend on limits or conditions to be prescribed that are not set out in the Ordinance itself. Rule 30(3) of the Income Tax Rules, 2002 lists the minimum records for professionals, including numbered receipts and vouchers for expenses. Provincial sales tax on services is outside this corpus and is not covered here.