INCOME TAX ORDINANCE, 2001

INCOME TAX ORDINANCE, 2001 – AMENDED UPTO 30th JUNE, 2022

GOVERNMENT OF PAKISTAN FEDERAL BOARD OF REVENUE (REVENUE DIVISION)
….

 

INCOME TAX MANUAL PART I

 

INCOME TAX ORDINANCE, 2001

AMENDED UPTO 30th JUNE, 2022

INCOME TAX ORDINANCE, 2001 AMENDED UPTO 30.06.2022 TABLE OF CONTENTS

SECTIONS CHAPTER 1
PRELIMINARY PAGE
NO.
1. Short title, extent and commencement 1
2. Definitions 1
3. Ordinance to override other laws 30
CHAPTER II CHARGE OF TAX
4. Tax on taxable income 30
4B. Super tax for rehabilitation of temporary displaced persons. 31
4C. Super tax on high earning persons. 32
5. Tax on dividends 33
5A. Tax on undistributed Profits. 34
5AA. Tan on return on investments in Sukuks. 34
6. Tax on certain payments to non-residents 35
7. Tax on shipping and air transport income of a non-
resident person 36
7A. Tax on shipping of a resident person. 36
7B. Tax on profit on debt 37
7C. Tax on builders 37
7D. Tax on developers 38
7E. Tax on deemed income. 39
8. General provisions relating to taxes imposed under
sections 5, 6 and 7 41
CHAPTER III
TAX ON TAXABLE INCOME
PART I COMPUTATION OF TAXABLE INCOME
9. Taxable income 43
10. Total income 43
11. Heads of income 43
PART II HEAD OF INCOME
SALARY
12. Salary 45
13. Value of perquisites 47
14. Employee share schemes 51

PART III HEAD OF INCOME
INCOME FROM PROPERTY
15. Income from property 53
15A. Deductions in computing income chargeable under
the head “Income from Property” 54
16. Omitted by the Finance Act, 2021. 57
17. Non-adjustable amounts received in relation to
buildings 57
PART IV HEAD OF INCOME
INCOME FROM BUSINESS
Division I Income from Business
18. Income from business 58
19. Speculation business 60
Division II Deductions General Principles
20. Deductions in computing income chargeable under
the head “Income from Business” 61
21. Deductions not allowed 61
Division III Deductions Special Provisions
22. Depreciation 66
23. Initial allowance 70
23A. Omitted by the Finance Act, 2021. 71
23B. Accelerated depreciation to alternate energy
projects. 71
24. Intangibles 72
25. Pre-commencement expenditure 74
26. Scientific research expenditure 74
27. Employee training and facilities 75
28. Profit on debt, financial costs and lease payments 75
29. Bad debts 78
29A Provision regarding consumer loans 79

30. Profit on non-performing debts of a banking
company or development finance institution 79
31. Transfer to participatory reserve 80
Division IV Tax Accounting
32. Method of accounting 81
33. Cash-basis accounting 81
34. Accrual-basis accounting 81
35. Stock-in-trade 82
36. Long-term contracts 84
PART V HEAD OF INCOME CAPITAL GAINS
37. Capital gains 85
37A. Capital gain on disposal of securities 88
38. Deduction of losses in computing the amount
chargeable under the head “Capital Gains” 90
PART VI HEAD OF INCOME
INCOME FROM OTHER SOURCES
39. Income from other sources 91
40. Deductions in computing income chargeable under
the head “Income from Other Sources” 93
PART VII
EXEMPTIONS AND TAX CONCESSIONS
41. Agricultural income 95
42. Diplomatic and United Nations exemptions 96
43. Foreign government officials 96
44. Exemptions under international agreements 96
45. President’s honours 97
46. Profit on debt 98
47. Scholarships 98
48. Support payments under an agreement to live apart 98
49. Federal Governments, Provincial Government and
Local Government 98
50. Foreign-source income of short-term resident
individuals 99
51. Foreign-source income of returning expatriates 99
52. Omitted by Finance Ordinance, 2002 100
53. Exemptions and tax concessions in the Second
Schedule 100

54. Exemptions and tax provisions in other laws 102
55. Limitation of exemption 102
PART VIII LOSSES
56. Set off of losses 103
56A. Set off of losses of companies operating hotels. 103
57. Carry forward of business losses 103
57A. Set off of business loss consequent to
amalgamation 105
58. Carry forward of speculation business losses 106
59. Carry forward of capital losses 106
59A. Limitations on set off and carry forward of losses 107
59AA. Group Taxation. 108
59B. Group relief 109
59C. Carry forward of business losses of sick industrial
units. 111
PART IX DEDUCTIBLE ALLOWANCES
60. Zakat 112
60A. Workers’ Welfare Fund 112
60B. Workers’ Participation Fund 112
60C. Omitted by the Finance Act, 2022. 113
60D. Deductible allowance for education expenses 113
PART X TAX CREDITS
61. Charitable donations 114
62. Omitted by the Finance Act, 2022. 116
62A. Omitted by the Finance Act, 2022. 117
63. Contribution to an Approved Pension Fund. 117
64. Omitted by Finance Act, 2015. 119
64A Section re-numbered as 60C 120
64AB Section re-numbered as 60D 120
64B. Tax credit for employment generation by
manufacturers 120
64D. Tax credit for point of sale machine 121
65. Miscellaneous provisions relating to tax credits 122
65A. Omitted by the Finance Act, 2017 123
65B. Tax credit for investment 123
65C. Omitted by the Finance Act, 2021 125
65D. Omitted by the Finance Act, 2021 125

65E. Tax credit for industrial undertakings established
before the first day of July, 2011 126
65F. Tax credit for certain persons 129
65G. Tax credit for specified industrial
undertakings 129
65H. Omitted by the Finance Act, 2022. 130
CHAPTER-IV COMMON RULES
PART I GENERAL
66. Income of joint owners 131
67. Apportionment of deductions 131
68. Fair market value 132
69. Receipt of income 133
70. Recouped expenditure 133
71. Currency conversion 133
72. Cessation of source of income 134
73. Rules to prevent double derivation and double
deductions 134
PART II TAX YEAR
74. Tax year 135
PART III ASSETS
75. Disposal and acquisition of assets 137
75A. Purchase of assets through banking channel 137
76. Cost 138
77. Consideration received 139
78. Non-arm’s length transactions 140
79. Non-recognition rules 141
CHAPTER V PROVISIONS GOVERNING PERSONS
PART I CENTRAL CONCEPTS
Division I Persons
80. Person 142

Division II
Resident and Non-resident Persons
81. Resident and non-resident persons 144
82. Resident individual 144
83. Resident company 145
84. Resident association of persons 145
Division III Associates
85. Associates 145
PART II INDIVIDUALS
Division I Taxation of Individuals
86. Principle of taxation of individuals 147
87. Deceased individuals 147
Division II
Provisions Relating to Averaging
88. An individual as a member of an association of
persons 148
88A. Omitted by Finance Act, 2014 148
89. Authors 148
Division III Income Splitting
90. Transfers of assets 149
91. Income of a minor child 150
PART III ASSOCIATIONS OF PERSONS
92. Principles of taxation of associations of persons 151
93. Omitted by the Finance Act, 2007. 152
PART IV COMPANIES
94. Principles of taxation of companies 152
95. Disposal of business by individual to wholly-owned
company 152
96. Disposal of business by association of persons to
wholly-owned company 154

97. Disposal of asset between wholly-owned
companies 156
97A. Disposal of asset under a scheme of arrangement
and reconstruction. 157
PART V
COMMON PROVISIONS APPLICABLE TO ASSOCIATIONS OF PERSONS AND COMPANIES
98. Change in control of an entity 159
PART VA
TAX LIABILITY IN CERTAIN CASES
98A. Change in the constitution of an association of
persons 160
98B. Discontinuance of business or dissolution of an
association of persons 160
98C. Succession to business, otherwise than on death 160
CHAPTER-VI SPECIAL INDUSTRIES
PART I INSURANCE BUSINESS
99. Special provisions relating to insurance business 162
99A. Special provisions relating to payment of tax
through electricity connections 162
99B. Special procedure for small traders and
shopkeepers 163
99C. Special procedure for certain persons 163
PART II
OIL, NATURAL GAS AND OTHER MINERAL DEPOSITS
100. Special provisions relating to the production of oil and natural gas, and exploration and extraction of
other mineral deposits 164
100A. Special provisions relating to banking business. 164
100B. Special provision relating to capital gain tax. 165
100BA. Special provisions relating to persons not
appearing in active taxpayers’ list.- 165
100C. Tax credit for certain persons 166
100D. Special provisions relating to builders and
developers 170
100E. Special provisions relating to small and medium
enterprises 177

100F Special provisions relating to investment for
industrial promotion 177
CHAPTER VII INTERNATIONAL
PART I GEOGRAPHICAL SOURCE OF INCOME
101. Geographical source of income 180
101A Gain on disposal of assets outside Pakistan 184
PART II
TAXATION OF FOREIGN-SOURCE INCOME OF
RESIDENTS
102. Foreign source salary of resident individuals 186
103. Foreign tax credit 186
104. Foreign losses 187
PART III
TAXATION OF NON-RESIDENTS
105. Taxation of a permanent establishment in Pakistan
of a non-resident person 188
106. Thin capitalization 190
106A. Restriction on deduction of profit on debt payable
to associated enterprise 191
PART IV
AGREEMENTS FOR THE AVOIDANCE OF DOUBLE TAXATION AND
PREVENTION OF FISCAL EVASION
107. Agreements for the avoidance of double taxation
and prevention of fiscal evasion 194
CHAPTER VIII ANTI-AVOIDANCE
108. Transactions between associates 196
108A. Report from independent chartered accountant or
cost and management accountant 197
108B. Transactions under dealership arrangements 197
109. Recharacterisation of income and deductions 197
109A Controlled foreign company. 198
110. Salary paid by private companies 200
111. Unexplained income or assets 200
112. Liability in respect of certain security transactions 204
CHAPTER IX MINIMUM TAX

113. Minimum tax on the income of certain persons. 205
113A. Omitted by the Finance Act, 2016 208
113B. Omitted by the Finance Act, 2016 208
113C. Alternative Corporate Tax 209
CHAPTER X PROCEDURE
PART I RETURNS
114. Return of income 212
114A. Business bank account 219
114B. Powers to enforce filing of returns. 220
115. Persons not required to furnish a return of income 221
116. Wealth statement 222
116A Foreign income and assets statement 224
117. Notice of discontinued business 225
118. Method of furnishing returns and other documents 225
119. Extension of time for furnishing returns and other
documents 227
PART II ASSESSMENTS
120. Assessments 229
120A. Omitted by Finance Act, 2013 232
120B. Restriction of proceedings 232
121. Best judgment assessment 233
122. Amendment of assessments 234
122A. Revision by the Commissioner 238
122B. Revision by the Chief Commissioner 238
122C. Provisional assessment 238
122D. Agreed assessment in certain cases 240
123. Provisional assessment in certain cases 241
124. Assessment giving effect to an order 241
124A. Powers of tax authorities to modify orders, etc. 243
125. Assessment in relation to disputed property 243
126. Evidence of assessment 243
PART III APPEALS
127. Appeal to the Commissioner (Appeals) 245
128. Procedure in appeal 247
129. Decision in appeal 248
130. Appointment of the Appellate Tribunal 249

131. Appeal to the Appellate Tribunal 252
132. Disposal of appeals by the Appellate Tribunal 253
133. Reference to High Court 255
134. Omitted by Finance Act, 2005 256
134A. Alternative Dispute Resolution 258
135. Omitted by the Finance Ordinance, 2002 262
136. Burden of proof 262
PART IV
COLLECTION AND RECOVERY OF TAX
137. Due date for payment of tax 263
138. Recovery of tax out of property and through arrest
of taxpayer 264
138A. Recovery of tax by District Officer (Revenue) 265
138B. Estate in bankruptcy 265
139. Collection of tax in the case of private companies
and associations of persons 266
140. Recovery of tax from persons holding money on
behalf of a taxpayer 267
141. Liquidators 268
142. Recovery of tax due by non-resident member of an
association of persons 269
143. Non-resident ship owner or charterer 269
144. Non-resident aircraft owner or charterer 270
145. Assessment of persons about to leave Pakistan 271
146. Recovery of tax from persons assessed in Azad
Jammu and Kashmir 272
146A. Initiation, validity, etc., of recovery proceedings. 273
146B. Tax arrears settlement incentives scheme 273
146C. Assistance in the recovery and collection of taxes 273
PART V
ADVANCE TAX AND DEDUCTION OF TAX AT SOURCE
Division I
Advance Tax Paid by the Taxpayer
147. Advance tax paid by the taxpayer 276
147A. Advance tax from provincial sales tax registered
person 280
Division II
Advance Tax Paid to a Collection Agent
148. Imports 281

148A. omitted through Finance Act, 2020 dated 30th
June, 2020 284
Division III Deduction of Tax at Source
149. Salary 285
150. Dividends 286
150A omitted by the Finance Act, 2021 286
151. Profit on debt 286
152. Payments to non-residents 288
152A. Payment for foreign produced commercials 294
153. Payments for goods, services and contracts 296
153A. Omitted by Finance Act, 2013 303
153B. Omitted by Finance Act, 2021 303
154. Exports 303
154A. Export of Services 305
155. [Rent of immoveable] property 306
156. Prizes and winnings 307
156A. Petroleum products 308
156B. Omitted by Finance Act, 2020 308
157. Omitted by the Finance Ordinance, 2002 308
158. Time of deduction of tax 308
Division IV
General Provisions Relating to the Advance Payment of Tax or the Deduction of Tax at Source
159. Exemption or lower rate certificate 310
160. Payment of tax collected or deducted 311
161. Failure to pay tax collected or deducted 312
162. Recovery of tax from the person from whom tax was not collected or deducted 313
163. Recovery of amounts payable under this Division 313
164. Certificate of collection or deduction of tax 313
164A. Payment of tax collected or deducted by SWAPS
agents 314
165. Statements 315
165A. Furnishing of information by banks 318
165B. Furnishing of information by financial institutions
including banks 320
166. Priority of tax collected or deducted 320
167. Indemnity 321
168. Credit for tax collected or deducted 321

169. Tax collected or deducted as a final tax 324
PART VI REFUNDS
170. Refunds 327
170A. Electronic processing and electronic issuance of
Refunds by the Board 328
171. Additional payment for delayed refunds 328
171A. Payment of refund through income tax refund
bonds.- 329
PART VII REPRESENTATIVES
172. Representatives 331
173. Liability and obligations of representatives 333
PART VIII
RECORDS, INFORMATION COLLECTION AND AUDIT
174. Records 334
175. Power to enter and search premises 335
175A. Real-time access to information and databases 336
175B. National Database and Registration Authority
(NADRA) 337
176. Notice to obtain information or evidence 339
177. Audit 341
178. Assistance to Commissioner 346
179. Accounts, documents, records and computer-
stored information not in Urdu or English language 346
180. Power to collect information regarding exempt
income 346
PART IX TAXPAYER’S REGISTRATION
181. Taxpayer’s Registration 347
181A. Active taxpayers’ list 347
181AA. Compulsory registration in certain cases 347
181B. Taxpayer card 348
181C. Displaying of National Tax Number 348
181D. Business licence scheme 348
181E. Record of beneficial owners. 349
PART X

PENALTY
182. Offences and penalties 350
182A Return not filed within due date. 364
183. Exemption from penalty and default surcharge 365
184. Omitted by the Finance Act, 2010. 366
185. Omitted by the Finance Act, 2010. 366
186. Omitted by the Finance Act, 2010. 366
187. Omitted by the Finance Act, 2010. 366
188. Omitted by the Finance Act, 2010. 367
189. Omitted by the Finance Act, 2010. 367
190. Omitted by the Finance Act, 2010. 367
PART XI
OFFENCES AND PROSECUTIONS
191. Prosecution for non-compliance with certain
statutory obligations 368
192. Prosecution for false statement in verification 369
192A. Prosecution for concealment of income. 369
192B Prosecution for concealment of and offshore assets 369
193. Prosecution for failure to maintain records 370
194. Prosecution for improper use of National Tax
Number Certificate 370
195. Prosecution for making false or misleading
statements 370
195A. Prosecution for non-compliance with notice under
section 116A.— 371
195B. Prosecution for enabling offshore tax evasion 371
196. Prosecution for obstructing an income tax authority 371
197. Prosecution for disposal of property to prevent
attachment 371
198. Prosecution for unauthorised disclosure of
information by a public servant 371
199. Prosecution for abetment 372
200. Offences by companies and associations of
persons 372
201. Institution of prosecution proceedings without
prejudice to other action 372
202. Power to compound offences 372
203. Trial by Special Judge 373
203A. Appeal against the order of a Special Judge 374
203B. Power to arrest and prosecute 374
203C. Procedure to be followed on arrest of a person 375
203D. Special Judges 377

203E. Cognizance of offences by Special Judges 377
203F. Special Judge, etc. to have exclusive jurisdiction 378
203G. Provisions of Code of Criminal Procedure, 1898, to
apply 379
203H. Transfer of cases 379
203I. Place of sittings 379
204. Power to tender immunity from prosecution 379
PART XII DEFAULT SURCHARGE
205. Default surcharge 380
205A. Reduction in default surcharge, consequential to
reduction in tax or penalty 383
PART XIII CIRCULARS
206. Circulars 384
206A. Advance ruling 384
CHAPTER XI ADMINISTRATION
PART I GENERAL
207. Income tax authorities 385
208. Appointment of income tax authorities 387
209. Jurisdiction of income tax authorities 388
209A. Uniform 390
210. Delegation 391
211. Power or function exercised 392
212. Authority of approval 392
213. Guidance to income tax authorities 393
214. Income tax authorities to follow orders of the Board 393
214A. Condonation of time limit 393
214B. Power of the Board to call for records 394
214C. Selection for audit by the Board 394
214D. Omitted by the Finance Act, 2018 395
214E. Inserted by the Finance Supplementary
(Amendment) Act, 2018 395
215. Furnishing of returns, documents etc. 396
216. Disclosure of information by a public servant 397
216A. Omitted by the Finance Act, 2022 402
217. Forms and notices; authentication of documents 402
218. Service of notices and other documents 402

219. Tax or refund to be computed to the nearest Rupee 404
220. Receipts for amounts paid 404
221. Rectification of mistakes 404
222. Appointment of expert 405
222A. Fee and service charges 405
223. Appearance by authorized representative 405
224. Proceedings under the Ordinance to be judicial
proceedings 408
225. Proceedings against companies under liquidation 408
226. Computation of limitation period 408
227. Bar of suits in Civil Courts 409
227A. Reward to officers and officials of Inland Revenue 409
227B. Reward of whistleblowers 409
227BA. Reward and benefits for certain persons 410
227C omitted through Finance Act 2019 410
227D Automated impersonal tax regime 411
227E E-hearing 411
PART II DIRECTORATES-GENERAL
228. The Directorate-General of Internal Audit 412
229. Directorate General of Training and Research 412
230. Directorate General (Intelligence and
Investigation), Inland Revenue 413
PART III DIRECTORATES-GENERAL
230A. Directorate-General of Withholding Taxes 413
230B. Directorate-General of Law 413
230C. Directorate-General of Research and Development 414
230D Directorate-General of Broadening of Tax Base 414
230E Directorate-General of Transfer Pricing 415
230F Directorate General of Immovable Property. 419
230G Directorate General of Special Initiative 419
230H Directorate General of Valuation 419
230I Directorate General of Compliance Risk
Management 419
231. Omitted by Finance Act, 2005 421
CHAPTER XII TRANSITIONAL ADVANCE TAX PROVISIONS
231A. omitted by the Finance Act, 2021 421

231AA. omitted by the Finance Act, 2021 422
231B. Advance tax on private motor vehicles 422
232. Omitted by the Finance Ordinance, 2002 422
233. Brokerage and Commission 424
233A. omitted by the Finance Act, 2021 424
233AA. Collection of tax by NCCPL 424
234. Tax on motor vehicles 427
234A. omitted by the Finance Act, 2021 427
235. Electricity Consumption 428
235A. omitted by the Finance Act, 2021 429
235B. omitted through Finance Act, 2020 dated 30th
June, 2020 429
236. Telephone and internet users 430
236A. Advance tax at the time of sale by auction 431
236B. omitted by the Finance Act, 2021 432
236C. Advance Tax on sale or transfer of immovable
Property 432
236CA Advance Tax on TV plays and advertisements 434
236D. omitted through Finance Act, 2020 dated 30th
June, 2020 434
236E Omitted by the Finance Act, 2016 434
236F. omitted through Finance Act, 2020 dated 30th
June, 2020 434
236G. Advance tax on sales to distributors, dealers and
wholesalers 435
236H. Advance tax on sales to retailers 435
236HA omitted by the Finance Act, 2021 436
236I. Omitted by the Finance Act, 2022 436
236J. omitted through Finance Act, 2020 dated 30th
June, 2020 436
236K. Advance tax on purchase or transfer of immovable
property 436
236L. Omitted by the Finance Act, 2021 436
236M. Omitted by the Finance Act, 2018 436
236N. Omitted by the Finance Act, 2018 436
236O. Advance tax under this chapter 439
236P. omitted by the Finance Act, 2021 439
236Q. Omitted by the Finance Act, 2022 440
236R. Omitted through Finance Act, 2020 dated 30th
June, 2020 440
236S. omitted by the Finance Act, 2021 440
236T. Omitted by the Finance Act, 2016 441
236U. omitted through Finance Act, 2020 dated 30th June,
2020 441

236V. Omitted by the Finance Act, 2021 441
236W. Omitted through Finance Act, 2019 441
236X. omitted through Finance Act, 2020 dated 30th June,
2020 442
236Y Omitted by the Finance Act, 2021 442
236Y. Advance tax on persons remitting amounts abroad through credit or debit or prepaid cards 442
CHAPTER XIII MISCELLANEOUS
237. Power to make rules 442
237A. Electronic record 444
237B. Prize schemes to promote tax culture 444
238. Repeal 444
239. Savings 444
239A. Transition to Federal Board of Revenue. 448
239B. Reference to authorities 448
240. Removal of difficulties 448
241. Validation 449
242. Benefits of repealed provisions 449
FIRST SCHEDULE PART I
RATES OF TAX 450
Division I 450
Rates of Tax for Individuals 451
Rates of Tax for Association of Persons 452
Division IA
(Omitted by the Finance Act, 2013) 455
Division IB
(Omitted by the Finance Act, 2012) 455
Division II
Rates of Tax for Companies 452
Division IIA Rates of Super Tax 457

Division IIB
Super Tax on high earning persons 458
Division III
Rate of Dividend Tax 458
Division IIIA
Rate for Profit on Debt 460
Division IIIB
Rate of Tax on Return on investment in Sukuks received from a special purpose vehicle 460
Division IV
Rate of Tax on Certain Payments to Non- residents 461
Division V
Rate of Tax on Shipping or Air Transport Income of a Non-resident Person 461
Division VI
(Omitted by the Finance Act, 2013) 461
Division VIA Income from Property 462
Division VII
Capital Gains on disposal of Securities 464
Division VIII
Capital Gains on Disposal of Immovable Property 467
Division VIIIA Tax on Builders 468
Division VIIIB Tax on Developers 469
Division VIIIC
Tax on deemed income 469

Division IX
Minimum tax under section 113 469
PART II
Rates of Advance Tax 471
PART IIA
Collection of Tax from Distributors, Dealers, And Wholesalers
Omitted by the Finance Act, 2014 474
PART III DEDUCTION OF TAX AT SOURCE 474
Division I Advance Tax on Dividend 474
Division IA Profit on Debt 475
Division IB
Return on Investment in Sukuks 476
Division II Payments to non-residents 476
Division III
Payments for Goods or Services 478
Division III A
(Omitted by the Finance Act, 2012) 482
Division III B
(Omitted by the Finance Act, 2012) 482
Division IV Exports 482
Division IVA Exports of Services 482
Division V 483

Income from Property
Division VI Prizes and Winnings 485
Division VIA Petroleum Products 485
Division VIB
Omitted by the Finance Act, 2021 485
Division VII
Omitted by the Finance Act, 2002 486
PART IV DEDUCTION OR COLLECTION OF
ADVANCE TAX 486
Division I
Omitted by the Finance Act, 2002 486
Division II Brokerage and Commission 486
Division IIA
omitted by the Finance Act, 2021 487
Division IIB
omitted by the Finance Act, 2021 487
Division III
Tax on motor vehicles 487
Division IV Electricity Consumption 490
Division V Telephone users 4491
Division VI
omitted by the Finance Act, 2021 493
Division VIA
omitted by the Finance Act, 2021 493

Division VII
Advance tax on Purchase, Registration and Transfer Motor Vehicles 493
Division VIII
Advance tax at the time of sale by auction 496
Division IX
omitted by the Finance Act, 2021 496
Division X
Advance tax on sale or transfer of Immovable property 496
Division XA
Advance tax on TV plays and advertisements 496
Division XI
omitted through Finance Act, 2020 dated 30th June, 2020 496
Division XII
Omitted by the Finance Act, 2016 497
Division XIII
omitted through Finance Act, 2020 dated 30th June, 2020 498
Division XIV
Advance tax on sale to distributors, dealers or wholesalers 498
Division XV
Advance tax on sale to retailers 499
Division XVA
omitted by the Finance Act, 2021 500
Division XVI
Omitted by the Finance Act, 2022 500
Division XVII
omitted through Finance Act, 2020 dated 30th June, 2020 500
Division XVIII 500

Advance Tax on purchase of immoveable
property
Division XIX
omitted by the Finance Act, 2021 505
Division XX
omitted by the Finance Act, 2021 505
Division XXI
omitted by the Finance Act, 2021 505
Division XXII
Omitted by the Finance Act, 2016 505
Division XXIII
Omitted by the Finance Act, 2022 505
Division XXIV
omitted through Finance Act, 2020 dated 30th June, 2020 505
Division XXV
omitted through Finance Act, 2020 dated 30th June, 2020 506
Division XXVI
omitted by the Finance Act, 2021 506
Division XXVII
Advance tax on amount remitted abroad through credit, debit or prepaid cards 506
Division XXVII
omitted by the Finance Act, 2021 506
THE SECOND SCHEDULE EXEMPTIONS AND TAX CONCESSIONS 507
PART I
EXEMPTIONS FROM TOTAL INCOME 507

PART II REDUCTION IN TAX RATES 559
PART III REDUCTION IN TAX LIABILITY 574
PART IV
EXEMPTION FROM SPECIFIC PROVISIONS 580
THE THIRD SCHEDULE 649
PART I DEPRECIATION 649
PART II
INITIAL ALLOWANCE AND FIRST YEAR ALLOWANCE 651
PART III
PRE-COMMENCEMENT EXPENDITURE 651
THE FOURTH SCHEDULE
RULES FOR THE COMPUTATION OF THE PROFITS AND GAINS OF INSURANCE BUSINESS 652
THE FIFTH SCHEDULE 657
PART I
RULES FOR THE COMPUTATION OF THE PROFITS AND GAINS FROM THE
EXPLORATION AND PRODUCTION OF PETROLEUM 657
PART II
RULES FOR THE COMPUTATION OF THE PROFITS AND GAINS FROM THE EXPLORATION AND EXTRACTION OF MINERALS DEPOSITS (OTHER THAN PETROLEUM) 663
THE SIXTH SCHEDULE 666

PART I RECOGNIZED PROVIDENT FUNDS 666
PART II
APPROVED SUPERANNUATION FUNDS 675
PART III APPROVED GRATUITY FUNDS 679
THE SEVENTH SCHEDULE 682
RULES FOR THE COMPUTATION OF THE PROFITS AND GAINS OF A BANKING COMPANY AND TAX PAYABLE
THEREON
682
THE EIGHTH SCHEDULE 696
RULES FOR THE COMPUTATION OF CAPITAL GAINS ON LISTED SECURITIES 696
THE NINTH SCHEDULE 700
PART I
RULES FOR THE COMPUTATION OF THE PAYABLE ON PROFITS AND GAINS OF A TRADER FALLING UNDER SUB-SECTION (1) OF SECTION 99A 700
PART II
RULES FOR THE COMPUTATION OF THE PAYABLE ON PROFITS AND GAINS OF A TRADER FALLING UNDER SUB-SECTION (2) OF SECTION 99A 701
PART III
GENERAL PROVISIONS FOR THE TRADERS UNDER PART I AND PART II 702
THE TENTH SCHEDULE
RULES FOR PERSONS NOT APPEARING IN THE ACTIVE TAXPAYERS’ LIST 706

ELEVENTH SCHEDULE
RULES FOR COMPUTATION OF PROFITS AND GAINS OF BUILDERS AND DEVELOPERS AND TAX PAYABLE THEREON 711
THE TWELFTH SCHEDULE 717
THE THIRTEENTH SCHEDULE 738
FOURTEENTH SCHEDULE
RULES FOR COMPUTATION OF PROFIT AND GAINS FOR SMALL AND MEDIUM
ENTERPRISES 740

F.No.2(1)/2001—Pub.— The following Ordinance promulgated by the President is hereby published for general information:—

AN ORDINANCE
To consolidate and amend the law relating to income tax

WHEREAS it is expedient to consolidate and amend the law relating to income tax and to provide for matters ancillary thereto or connected therewith;

WHEREAS the President is satisfied that circumstances exist which render it necessary to take immediate action;

NOW, THEREFORE, in pursuance of the Proclamation of Emergency of the fourteenth day of October, 1999, and the Provisional Constitution Order No. 1 of 1999, read with Provisional Constitutional Amendment Order No. 9 of 1999, and in exercise of all powers enabling him in that behalf, the President of the Islamic Republic of Pakistan is pleased to make and promulgate the following Ordinance:—

CHAPTER I PRELIMINARY

1. Short title, extent and commencement.—(1) This Ordinance may be called the Income Tax Ordinance, 2001.

(2) It extends to the whole of Pakistan.

(3) It shall come into force on such date as the Federal Government may, by notification in official Gazette, appoint🞳.

2. Definitions. — In this Ordinance, unless there is anything repugnant in the subject or context —

(1) “accumulated profits” in relation to 1[distribution or payment of] a dividend, 2[include] —

 

*Vide notification S.R.O.381(I)/2002 dated 15.06.2002 the Federal Government appointed the first day of July, 2002 on which the Ordinance shall come into force.
1 Inserted by the Finance Act, 2003.
2 The word “includes” substituted by the Finance Act, 2005.

(a) any reserve made up wholly or partly of any allowance, deduction, or exemption admissible under this Ordinance;-
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(b) for the purposes of 1[sub-clauses (a), (b) and (e) of clause (19)”] all profits of the company including income and gains of a trust up to the date of such distribution or such payment, as the case may be; and

(c) for the purposes of 2[sub-clause (c) of clause (19)], includes all profits of the company including income and gains of a trust up to the date of its liquidation;

3[(1A) “active taxpayer’ list” means the list instituted by the Board under Section 181A and includes such list issued by the Azad Jammu and Kashmir Central Board of Revenue or Gilgit-Baltistan Council Board of Revenue;]

4[5(1B) “amalgamation” means the merger of one or more banking companies or non-banking financial institutions, 6[or insurance companies,] 7[or companies owning and managing industrial undertakings] 8[or companies engaged in providing services and not being a trading company or companies] in either case 9[at least one of them] being a public company, or a company incorporated under any law, other than 10[Companies Act, 2017 (XIX of 2017)], for the time being in force, (the company or companies which so merge being referred to as the “amalgamating company” or companies and the company with which they merge or which is formed as a result of merger, as the “amalgamated company”) in such manner that –

(a) the assets of the amalgamating company or companies immediately before the amalgamation become the assets of the amalgamated company by virtue of the amalgamation, otherwise than by purchase of such assets by the amalgamated

1 Clauses (a), (d) and (e) of sub-section (20) substituted by the Finance Act, 2002.
2 Clause (c) of sub-section (20) substituted by the Finance Act, 2002.
3 Clause 1A inserted through Finance Act, 2019.
4 Inserted by the Finance Act, 2002.
51A renumbered by 1B by the Finance Act, 2019.
6 Inserted by the Finance Act, 2004. 7 Inserted by the Finance Act, 2005. 8Inserted by the Finance Act, 2007. 9 Inserted by the Finance Act, 2005.
10 The expression “Companies Ordinance, 1984 (XLVII of 1984)” substituted by the Finance Act, 2021.

company or as a result of distribution of such assets to the amalgamated company after the winding up of the amalgamating company or companies; 1[and]

(b) the liabilities of the amalgamating company or companies immediately before the amalgamation become the liabilities of the amalgamated company by virtue of the amalgamation 2[.]
3[ ]

4[(2) “Appellate Tribunal” means the Appellate Tribunal Inland Revenue established under section 130;]

(3) “approved gratuity fund” means a gratuity fund approved by the Commissioner in accordance with Part III of the Sixth Schedule;

5[(3A) “Approved Annuity Plan” means an Annuity Plan approved by Securities and Exchange Commission of Pakistan (SECP) under Voluntary Pension System Rules, 2005 and offered by a Life Insurance Company registered with the SECP under Insurance Ordinance, 2000 (XXXIX of 2000);]

6[(3B) “Approved Income Payment Plan” means an Income Payment Plan approved by Securities and Exchange Commission of Pakistan (SECP) under Voluntary Pension System Rules, 2005 and offered by a Pension Fund Manager registered with the SECP under Voluntary Pension System Rules, 2005;]

7[(3C) “Approved Pension Fund” means Pension Fund approved by Securities and Exchange Commission of Pakistan (SECP) under Voluntary Pension System Rules, 2005, and managed by a Pension

1 Added by the Finance Act, 2005.
2 The semi-colon and word “and” substituted by the Finance Act, 2005.
3 Clause (c) omitted by the Finance Act, 2005. The omitted clause (c) read as follows: –
“(c) the scheme of amalgamation is approved by the State Bank of Pakistan or by the Securities and Exchange Commission of Pakistan on or before thirtieth day of June, 2006;”
4 Substituted by the Finance Act, 2010. The substituted provision has been made effective from 05.06.2010 by sub-clause (77) of clause 8 of the Finance Act, 2010. Earlier the substitution was made through Finance (Amendment) Ordinance, 2009 which was re-promulgated as Finance (Amendment) Ordinance, 2010 and remained effective till 05.06.2010. Clause (2) before substitution by the Finance (Amendment) Ordinance, 2009 read as follows:
“(2) “Appellate Tribunal” means the Appellate Tribunal Inland Revenue established under section 130;”.
5 Inserted by the Finance Act, 2005. 6 Inserted by the Finance Act, 2005. 7 Inserted by the Finance Act, 2005.

Fund Manager registered with the SECP under Voluntary Pension System Rules, 2005;]

1[(3D) “Approved Employment Pension or Annuity Scheme” means any employment related retirement scheme approved under this Ordinance, which makes periodical payment to a beneficiary i.e. pension or annuity such as approved superannuation fund, public sector pension scheme and Employees Old-Age Benefit Scheme;]

2[(3E) “Approved Occupational Savings Scheme” means any approved gratuity fund or recognized provident fund;]

(4) “approved superannuation fund” means a superannuation fund, or any part of a superannuation fund, approved by the Commissioner in accordance with Part II of the Sixth Schedule;

3[(5) “assessment” includes 4[provisional assessment,] re-assessment and amended assessment and the cognate expressions shall be construed accordingly;]

5[(5A) “assessment year” means assessment year as defined in the repealed Ordinance;]

6[(5B) “asset management company” means an asset management company as defined in the Non-Banking Finance Companies and Notified Entities Regulations, 2007;]

7[(5C) “assets move” means the transfer of an offshore asset to an unspecified jurisdiction by or on behalf of a person who owns,

1Inserted by the Finance Act, 2006.
2Inserted by the Finance Act, 2006
3 Clause (5) substituted by the Finance Act, 2002. The substituted clause read as follows: “(5) “assessment” means –
(a) an assessment referred to in section 120;
(b) an assessment raised under section 121;
(c) an amended assessment under section 122;
(d) a demand for an amount due under sections 141, 142, 143 and 144; or
(e) an assessment of penalty under section 190;”.
4Inserted by the Finance Act, 2011.
5Inserted by the Finance Act, 2002
6Clause (5B) substituted by the Finance Act, 2008. The substituted clause (5B) read as follows:
“(5B) “assets management company” means a company registered under the Assets Management companies Rules, 1995;”
7 Clause (5C) inserted by Finance Act, 2019

possesses, controls or is the beneficial owner of such offshore assets for the purpose of tax evasion;]

(6) “association of persons” means an association of persons as defined in section 80;

(7) “banking company” means a banking company as defined in the Banking Companies Ordinance, 1962 (LVII of 1962) and includes anybody corporate which transacts the business of banking in Pakistan;

1[(7A) “beneficial owner” means a natural person who –
(a) ultimately owns or controls a Company or association of persons, whether directly or indirectly, through at least twenty five percent shares or voting rights; or

(b) exercise ultimate effective control, through direct or indirect means, over the company or association of persons including control over the finances or decisions or other affairs of the company or association of persons;]

2[(8) “Board” means the Central Board of Revenue established under the Central Board of Revenue Act, 1924 (IV of 1924), and on the commencement of Federal Board of Revenue Act, 2007, the Federal Board of Revenue established under section 3 thereof;
(9) “bonus shares” includes bonus units in a unit trust;
(10) “business” includes any trade, commerce, manufacture, profession, vocation or adventure or concern in the nature of trade, commerce, manufacture, profession or vocation, but does not include employment;

3[(10A) “business bank account” means a bank account utilized by the taxpayer for business transaction declared to the Commissioner through original or modified registration form prescribed under section 181;]
(11)] “capital asset” means a capital asset as defined in section 37;
4[(11A) “charitable purpose” includes relief of the poor, education, medical relief and the advancement of any other object of general public utility;]

1 Clause (7A) Inserted by the Finance Act, 2022.
2Clauses (8), (9), (10) and (11) re-numbered as clauses (9), (10), (11) and (8) respectively by the
Finance Act, 2014.
3 Clause (10A) inserted by the Finance Act, 2021.
4Inserted by the Finance Act, 2002.

1[(11B) “Chief Commissioner” means a person appointed as Chief Commissioner Inland Revenue under section 208 and includes a Regional Commissioner of Income Tax and a Director-General of Income Tax and Sales Tax;]
2[(11C) “Collective Investment Scheme” shall have the same meanings as are assigned under the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003;]
(12) “company” means a company as defined in section 80;
3[(13) “Commissioner” means a person appointed as Commissioner Inland Revenue under section 208 and includes any other authority vested with all or any of the powers and functions of the Commissioner;]

4[(13A) “Commissioner (Appeals)” means a person appointed as Commissioner Inland Revenue (Appeals) under section 208;]

5[(13AA) concealment of income includes –
(a) the suppression of any item of receipt liable to tax in whole or in part, or failure to disclose income chargeable to tax;
(b) claiming any deduction or any expenditure not actually incurred;
(c) any act referred to in sub-section (1) of section 111; and

1 Substituted by the Finance Act, 2010. The substituted provision has been made effective from 05.06.2010 by sub-clause (77) of clause 8 of the Finance Act, 2010. Earlier the substitution was made through Finance (Amendment) Ordinance, 2009 which was re-promulgated as Finance (Amendment) Ordinance, 2010 and remained effective till 05.06.2010. The substituted clause (11B) read as follows:
“(11B) “Chief Commissioner” means a person appointed as Chief Commissioner Inland Revenue under section 208 and includes a Regional Commissioner of Income Tax and a Director-General of Income Tax and Sales Tax.”
2Inserted by the Finance Act, 2011.
3Substituted by the Finance Act, 2010. The substituted provision has been made effective from 05.06.2010 by sub-clause (77) of clause 8 of the Finance Act, 2010. Earlier the substitution was made through Finance (Amendment) Ordinance, 2009 which was re-promulgated as Finance (Amendment) Ordinance, 2010 and remained effective till 05.06.2010. The substituted Clause (13) read as follows:
“(13) Commissioner” means a person appointed as Commissioner Inland Revenue under section 208, and includes any other authority vested with all or any of the powers and functions of the Commissioner;”.
4Substituted by the Finance Act, 2010. The substituted provision has been made effective from 05.06.2010 by sub-clause (77) of clause 8 of the Finance Act, 2010. Earlier the substitution was made through Finance (Amendment) Ordinance, 2009 which was re-promulgated as Finance (Amendment) Ordinance, 2010 and remained effective till 05.06.2010. The substituted Clause (13A) read as follows:
“(13A) “Commissioner (Appeals)” means a person appointed as Commissioner Inland Revenue (Appeals) under section 208;
5 New clause (13AA) inserted by the Finance Act, 2021.

(d) claiming of any income or receipt as exempt which is otherwise taxable.
Explanation.- For removal of doubt it is clarified that none of the aforementioned acts would constitute concealment of income unless it is proved that taxpayer has knowingly and willfully committed these acts;]
1[2[(13AB)] “consumer goods” means goods that are consumed by the end consumer rather than used in the production of another good;”]
3[(13B) “Contribution to an Approved Pension Fund” means contribution as defined in rule 2(j) of the Voluntary Pension System Rules, 20054[ ];]
(14) “co-operative society” means a co-operative society registered under the Co-operative Societies Act, 1925 (VII of 1925) or under any other law for the time being in force in Pakistan for the registration of co- operative societies;
(15) “debt” means any amount owing, including accounts payable and the amounts owing under promissory notes, bills of exchange, debentures, securities, bonds or other financial instruments;
(16) “deductible allowance” means an allowance that is deductible from total income under Part IX of Chapter III;
(17) “depreciable asset” means a depreciable asset as defined in section 22;

5[17A. ”Developmental REIT Scheme” means Developmental REIT Scheme as defined under the Real Estate Investment Trust Regulations, 2015;]

6[(17B) “digital means” means digital payments and financial services including but not limited to— online portals or platforms for digital payments/receipts; online interbank fund transfer services; online bill or invoice presentment and payment services; over the Counter digital payment services or facilities; card payments using Point of Sale terminals, QR codes, mobile devices, ATMs, Kiosk or any other digital; payments enabled devices; or any other digital or online payment modes.]

1Inserted by the Finance Act, 2015
2 Clause (13AA) re-numbered as clause (13AB) by the Finance Act, 2021.
3 Inserted by the Finance Act, 2005.
4The comma and words “, but not exceeding five hundred thousand rupees in a tax year” omitted by the Finance Act, 2006.
5Inserted by the Finance Act, 2015
6 Clause (17B) Inserted through Finance (Supplementary) Act, 2022.

(18) “disposal” in relation to an asset, means a disposal as defined in section 75;

1[(18A) “distributor” means a person appointed by a manufacturer, importer or any other person for a specified area to purchase goods from him for further supply;]
(19) “dividend” includes —
(a) any distribution by a company of accumulated profits to its shareholders, whether capitalised or not, if such distribution entails the release by the company to its shareholders of all or any part of the assets including money of the company;
(b) any distribution by a company, to its shareholders of debentures, debenture-stock or deposit certificate in any form, whether with or without profit, 2[ ] to the extent to which the company possesses accumulated profits whether capitalised or not;

(c) any distribution made to the shareholders of a company on its liquidation, to the extent to which the distribution is attributable to the accumulated profits of the company immediately before its liquidation, whether capitalised or not;
(d) any distribution by a company to its shareholders on the reduction of its capital, to the extent to which the company possesses accumulated profits, whether such accumulated profits have been capitalised or not; 3[ ]

(e) any payment by a private company 4[as defined in the 5[Companies Act, 2017 (XIX of 2017)] ] or trust of any sum (whether as representing a part of the assets of the company or trust, or otherwise) by way of advance or loan to a shareholder or any payment by any such company or trust on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company or trust, in either case, possesses accumulated profits;6[or]

1 Clause (18A) Inserted by the Finance Act, 2022.
2 The words “and any distribution to its shareholders of shares by way of bonus or bonus shares”, omitted by the Finance Act, 2002
3The word ‘or’ omitted by Finance Act, 2008.
4 Inserted by the Finance Act, 2003.
5 The expression “Companies Ordinance, 1984 (XLVII of 1984)” substituted by the Finance Act, 2021.
6The word ‘or’ added by the Finance Act, 2008.

1[(f) 2[remittance of] after tax profit of a branch of a foreign company operating in Pakistan;]

but does not include —

(i) a distribution made in accordance with 3[sub-clause] (c) or (d) in respect of any share for full cash consideration, or redemption of debentures or debenture stock, where the holder of the share or debenture is not entitled in the event of liquidation to participate in the surplus assets;

(ii) any advance or loan made to a shareholder by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company; 4[ ]

(iii) any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of 5[sub-clause] (e) to the extent to which it is so set off;6[and]

7[(iv) remittance of after tax profit by a branch of Petroleum Exploration and Production (E&P) foreign company, operating in Pakistan.]

8[(19A) “Eligible Person”, for the purpose of Voluntary Pension System Rules, 2005, means an individual Pakistani who 9[holds] a valid National Tax Number10[or Computerized National Identity Card11[or National

 

1Inserted by the Finance Act, 2008.
2The word “any” substituted by the Finance Act, 2009. 3 Substituted for “clause” by the Finance Act, 2002 4The word “and” omitted by the Finance Act, 2009.
5 The word “clause” substituted by the Finance Act, 2002
6The word “and” inserted by the Finance Act, 2009.
7Added by the Finance Act, 2009.
8 Inserted by the Finance Act, 2005.
9 The words “has obtained” substituted by the Finance Act, 2007.
10 Inserted by the Finance Act, 2007.

Identity Card for Overseas Pakistanis] issued by the National Database and Registration Authority] 1[ ]2[:]]

3[Provided that the total tax credit available for the contribution made to approved employment pension or annuity scheme and approved pension fund under Voluntary Pension System Rules, 2005, should not exceed the limit prescribed or specified in section 63.]

4[(19B) The expressions “addressee”, “automated”, “electronic”, “electronic signature”, “information”, “information system”, “originator” and “transaction”, shall have the same meanings as are assigned to them in the Electronic Transactions Ordinance, 2002 (LI of 2002);]

5[(19C) “electronic record” includes the contents of communications, transactions and procedures under this Ordinance, including attachments, annexes, enclosures, accounts, returns, statements, certificates, applications, forms, receipts, acknowledgements, notices, orders, judgments, approvals, notifications, circulars, rulings, documents and any other information associated with such communications, transactions and procedures, created, sent, forwarded, replied to, transmitted, distributed, broadcast, stored, held, copied, downloaded, displayed, viewed, read, or printed, by one or several electronic resources and any other information in electronic form;]
6[(19D) “electronic resource” includes telecommunication systems, transmission devices, electronic video or audio equipment, encoding or decoding equipment, input, output or connecting devices, data processing or storage systems, computer systems, servers, networks and related computer programs, applications and software including databases, data warehouses and web portals as may be prescribed by the Board from time to time, for the purpose of creating electronic record;]
7[(19E) “telecommunication system” includes a system for the conveyance, through the agency of electric, magnetic, electro-magnetic, electro- chemical or electro-mechanical energy, of speech, music and other sounds, visual images and signals serving for the impartation of any

1The words “but does not include an individual who is entitled to benefit under any other approved employment pension or annuity scheme” omitted by the Finance Act, 2006.
2The semicolon substituted by the Finance Act, 2006.
3Inserted by the Finance Act, 2006.
4 Inserted by the Finance Act, 2008.
5New clause (19C) inserted by Finance Act, 2008.
6Inserted by the Finance Act, 2008.

matter otherwise than in the form of sounds or visual images and also includes real time online sharing of any matter in manner and mode as may be prescribed by the Board from time to time.]
(20) “employee” means any individual engaged in employment;
(21) “employer” means any person who engages and remunerates an employee;
(22) “employment” includes –
(a) a directorship or any other office involved in the management of a company;
(b) a position entitling the holder to a fixed or ascertainable remuneration; or
(c) the holding or acting in any public office;

1[(22A) “fast moving consumer goods” means consumer goods which are supplied in retail marketing as per daily demand of a consumer2[excluding durable goods].

3[(22AA) “fair market value” means value as provided in section 68;]

4[(22B) ”fee for offshore digital services” means any consideration for providing or rendering services by a non-resident person for online advertising including digital advertising space, designing, creating, hosting or maintenance of websites, digital or cyber space for websites, advertising, e-mails, online computing, blogs, online content and online data, providing any facility or service for uploading, storing or distribution of digital content including digital text, digital audio or digital video, online collection or processing of data related to users in Pakistan, any facility for online sale of goods or services or any other online facility.]

5[(22C) “FBR Refund Settlement Company Limited” means the company with this name as incorporated under the Companies Act, 2017 (XIX of 2017), for the purposes of settlement of income tax refund claims including payment by way of issuing refund bonds under section 171A;]

1Inserted by the Finance Act 2015
2Inserted by the Finance Act 2017
3 Clause (22AA) Inserted by the Finance Act, 2022.
4Inserted by the Finance Act 2018
5Clause (22C) Inserted by the Finance Act 2019

(23) “fee for technical services” means any consideration, whether periodical or lump sum, for the rendering of any managerial, technical or consultancy services including the services of technical or other personnel, but does not include —
(a) consideration for services rendered in relation to a construction, assembly or like project undertaken by the recipient; or

(b) consideration which would be income of the recipient chargeable under the head “Salary”;

1[ ]

(24) “financial institution” means an institution 2[as defined] under the
3[Companies Act, 2017 (XIX of 2017)] ] 4[ ];

(25) “finance society” includes a co-operative society which accepts money on deposit or otherwise for the purposes of advancing loans or making investments in the ordinary course of business;

(26) “firm” means a firm as defined in section 80;
(27) “foreign-source income” means foreign-source income as defined in sub-section (16) of section 101.

5[(27A) “greenfield industrial undertaking” means –

(a) a new industrial undertaking which is –

(i) setup on land which has not previously been utilized for any commercial, industrial or manufacturing activity and is free from constraints imposed by any prior work;

(ii) built without demolishing, revamping, renovating, upgrading, remodeling or modifying any existing structure, facility or plant;

1Omitted by Finance Act 2019. The Omitted clause read as follow:
(23A) “filer” means a taxpayer whose name appears in the active taxpayers’ list issued by the Board 1[or Azad Jammu and Kashmir Council Board of Revenue or Gilgit-Baltistan Council Board of Revenue] from time to time or is holder of a taxpayer’s card;
2 The word “notified” substituted by the Finance Act, 2005.
3 The expression “Companies Ordinance, 1984 (XLVII of 1984)” substituted by the Finance Act, 2021.
4 The words “by the Federal Government in the official Gazette as a financial institution” omitted by the Finance Act, 2003.
5 New clause (27A) inserted through Tax Laws (Second Amendment) Ordinance 2019 dated 26th
December, 2019

(iii) not formed by the splitting up or reconstitution of an undertaking already in existence or by transfer of machinery, plant or building from an undertaking established in Pakistan prior to commencement of the new business and is not part of an expansion project;
(iv) using any process or technology that has not earlier been used in Pakistan and is so approved by the Engineering Development Board; and

(b) is approved by the Commissioner on an application made in the prescribed form and manner, accompanied by the prescribed documents and, such other documents as may be required by the Commissioner:

Provided that this definition shall be applicable from the 1st July, 2019 and onwards.]

(28) “House Building Finance Corporation” means the Corporation constituted under the House Building Finance Corporation Act, 1952 (XVIII of 1952);

1[(28A) “imputable income” in relation to an amount subject to final tax means the income which would have resulted in the same tax, had this amount not been subject to final tax;”]

2[(29) “income” includes any amount chargeable to tax under this Ordinance, any amount subject to collection 3[or deduction] of tax under section 148, 4[150, 152(1), 153, 154, 156, 156A, 233, 5[ ] ] 6[,] sub-section (5)
of section 234 7[ ] 8[and] 9[any amount treated as income under any provision of this Ordinance] and any loss of income10[ ];

1Inserted by the Finance Act, 2015
2 Clause (29) substituted by the Finance Act, 2002. The substituted clause read as follows:
“(29) “income” includes any amount chargeable to tax under this Ordinance, any amount subject to collection of tax under Division II of Part V of Chapter X, sub-section (5) of 234 Division III of Chapter XII, and any loss of income;”
3 Inserted by the Finance Act, 2003.
4 The figures, commas and word “153, 154 and 156,” substituted by the Finance Act, 2005.
5 The expression “233A,” omitted by the Finance Act, 2021.
6 The word “and” substituted by a comma by the Finance Act, 2014.
7The word and figure “and 236M” substituted by a comma by the Finance Act, 2015
8The expression “, 236M and 236N,” substituted by the Finance Act, 2018
9 Inserted by the Finance Act, 2003.
10Omitted by the Finance Act, 2014. The omitted text read as follows:

1[(29A) “income year” means income year as defined in the repealed Ordinance;]

2[(29B) “Individual Pension Account” means an account maintained by an eligible person with a Pension Fund Manager approved under the Voluntary Pension System Rules, 2005;]
3[(29C) “Industrial undertaking” means —
(a) an undertaking which is set up in Pakistan and which employs,—
(i) ten or more persons in Pakistan and involves the use of electrical energy or any other form of energy which is mechanically transmitted and is not generated by human or animal energy; or
(ii) twenty or more persons in Pakistan and does not involve the use of electrical energy or any other form of energy which is mechanically transmitted and is not generated by human or animal energy:
and which is engaged in,—
(i) the manufacture of goods or materials or the subjection of goods or materials to any process which substantially changes their original condition; or

“but does not include, in case of a shareholder of a company, the amount representing the face value of any bonus share or the amount of any bonus declared, issued or paid by the company to the shareholders with a view to increasing its paid up share capital.”
1 Inserted by the Finance Act, 2002.
2 Inserted by the Finance Act, 2005.
3Clause (29C) substituted by the Finance Act, 2010. The substituted clause (29C) read as follows:- “(29C) “Industrial undertaking” means –
(a) an undertaking which is set up in Pakistan and which employs, (i) ten or more persons in
Pakistan and involves the use of electrical energy or any other form of energy which is mechanically transmitted and is not generated by human or animal energy; or (ii) twenty or more persons in Pakistan and does not involve the use of electrical energy or any other form of energy which is mechanically transmitted and is not generated by human or animal energy and which is engaged in,-
(i) the manufacture of goods or materials or the subjection of goods or materials to any process which substantially changes their original condition;
(ii) ship-building;
(iii) generation, conversion, transmission or distribution of electrical energy, or the supply of hydraulic power; or
(iv) the working of any mine, oil-well or any other source of mineral deposits; and
(b) any other industrial undertaking which the Board may by notification in the official Gazette, specify;”.

(ii) ship-building; or
(iii) generation, conversion, transmission or distribution of electrical energy, or the supply of hydraulic power; or
(iv) the working of any mine, oil-well or any other source of mineral deposits; 1[ ]
2[(aa) from the 1st day of May, 2020, a person directly involved in the construction of buildings, roads, bridges and other such structures or the development of land, to the extent and for the purpose of import of plant and machinery to be utilized in such activity, subject to such conditions as may be notified by the Board;
(ab) from the first day of July, 2020 a resident company engaged in the hotel business in Pakistan;] 3[and]
4[ ] ]

5[(c) telecommunication companies operating under the license of Pakistan Telecommunication Authority (PTA).;]
(30) “intangible” means an intangible as defined in section 24;
6[(30A) “integrated enterprices” means a person integrated with the Board through approved fiscal electronic device and software, and who fulfills obligations and requirements for integration as may be prescribed;]
7[8[(30AA)] “investment company” means an investment company as defined in the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003;]

 

1 The word “and” omitted through Finance Act, 2020 dated 30.06.2020.
2 New sub-clauses inserted through Finance Act, 2020 dated 30th June, 2020.
3 The word “and” added by the Finance Act, 2021.
4 Sub-clause (b) omitted by the Finance Act, 2021. Earlier this sub-clause was omitted through Tax Laws (Second Amendment) Ordinance, 2021. The omitted sub-clause read as follows:
“(b) any other industrial undertaking which the Board may by notification in the official gazette, specify.”
5 Clause (c) added by the Finance Act, 2021.
6 New sub-clause (30A) inserted through Finance Act, 2020 dated 30th June, 2020
7 Clause (30A) substituted by the Finance Act, 2008. The substituted clause (30A) read as follows: “ (30A) “investment company” means a company registered under the Investment Companies and
Investment Advisors Rules, 1971;”
8 Clause (30A) renumbered as clause (30AA) through Finance Act, 2020 dated 30th June, 2020

1[2[(30AB)] KIBOR means Karachi Inter Bank Offered Rate prevalent on the first day of each quarter of the financial year;]
3[(30AC) “Iris” means a web based computer programme for operation and management of Inland Revenue taxes and laws administered by the Board;]

4[(30AD) Information Technology (IT) services include 5[but not limited to] software development, software maintenance, system integration, web design, web development, web hosting and network design; and

(30AE) IT enabled services include 6[but not limited to] inbound or outbound call centres, medical transcription, remote monitoring, graphics design, accounting services, Human Resource (HR) services, telemedicine centers, data entry operations, cloud computing services, data storage services, locally produced television programs and insurance claims processing;]

7[(30B) “leasing company” means a leasing company as defined in the Non- Banking Finance Companies and Notified Entities Regulation, 2007;]

8[(30C) “liaison office” means a place of business acting for the principal, head office or any entity of which it is a part, and

(a) its activities do not result in deriving income in Pakistan; and

(b) maintains itself out of any amount remitted from outside Pakistan received through normal banking channels.

Explanation,— It is clarified that—

(i) a place of business shall not be treated as liaison office if it engages in –

1Inserted by the Finance Act, 2009.
2 Clause (30AA) renumbered as (30AB) through Finance Act, 2020 dated 30th June, 2020
3 New clause (30AC) inserted through Finance Act, 2020 dated 30th June,2020
4 Clauses (30AD) and (30AE) inserted by the Finance Act, 2021.
5 Inserted by the Finance Act, 2022.
6 Inserted by the Finance Act, 2022.
7Clause (30B) substituted by the Finance Act, 2008. The substituted clause (30B) read as follows:
“ (30B) “leasing company” means a company licensed under the Leasing Companies (Establishment and Regulation) Rules, 2000;
8Inserted by the Finance Act, 2017.

(a) commercial activities;
(b) trading or industrial activities; or
(c) the negotiation and conclusion of contracts;

(ii) the activities shall be treated to be commercial activities, if these include—

(a) providing after sales services for goods or services; or

(b) marketing or promoting pharmaceutical and medical products or services;

(iii) subject to clause (i), a place of business shall be treated as a liaison office, if it undertakes activities of—

(a) an exploratory or preparatory nature, to investigate the possibilities of trading with, or in, Pakistan;

(b) exploring the possibility of joint collaboration and export promotion;

(c) promoting products where such products are yet to be supplied to, or sold in, Pakistan;

(d) promoting technical and financial collaborations between its principal and taxpayers in Pakistan; or

(e) provision of technical advice and assistance.]

(31) “liquidation” in relation to a company, includes the termination of a trust;

1[(31A) “Local Government” shall have the same meaning for respective provisions and Islamabad Capital Territory as contained in the Balochistan Local Government Act,2010 (V of 2010), the Khyber Pakhtunkhwa Local Government Act, 2013 (XXVIII of 2013), the Sindh Local Government Act, 2013 (XLII of 2013), the Islamabad Capital Territory Local Government Act, 2015 (X of 2015) and the Punjab Local Government Act, 2019(XIII of 2019)]

1 Clause (31A) is substituted through Finance Act 2020 dated 30th June, 2020 the substituted clause read as follows: “(31A) “Local Government” shall have the same meaning as defined in the Punjab Local Government Ordinance, 2001 (XIII of 2001), the Sindh Local Government Ordinance, 2001 (XXVII of 2001), the NWFP Local Government Ordinance, 2001 (XIV of 2001) and the Balochistan Local Government Ordinance, 2001 (XVIII of 2001);”

(32) “member” in relation to an association of persons, includes a partner in a firm;

(33) “minor child” means an individual who is under the age of eighteen years at the end of a tax year;

(34) “modaraba” means a modaraba as defined in the Modaraba Companies and Modarabas (Floatation and Control) Ordinance, 1980 (XXXI of 1980);

(35) “modaraba certificate” means a modaraba certificate as defined in the Modaraba Companies and Modarabas (Floatation and Control) Ordinance, 1980 (XXXI of 1980);

1[(35A) “Mutual Fund” means a mutual fund 2[registered or approved by the Securities and Exchange Commission of Pakistan];]
3[(35AA) “NCCPL” means National Clearing Company of Pakistan Limited, which is a company incorporated under the 4[Companies Act, 2017 (XIX of 2017)] and licensed as “Clearing House” by the Securities and Exchange Commission of Pakistan,5[or any subsidiary of NCCPL notified by the Board for the purpose of this clause]
6[(35B) “non-banking finance company” means an NBFC as defined in the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003;]
7[ ]

 

 

 

1 Inserted by the Finance Act, 2002
2 The words “set up by the Investment Corporation of Pakistan or by an investment company” substituted by the Finance Act, 2003.
3Inserted by the Finance Act, 2012.
4 The expression “Companies Ordinance, 1984 (XLVII of 1984)” substituted by the Finance Act, 2021.
5Inserted by the Finance Act, 2017
6Clause (35B) substituted by the Finance Act, 2008. The substituted clause (35B) read as follows:
“ (35B) “non-banking finance company” means an institution notified under the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003.”
7Omitted by Finance Act, 2019. Omitted clause read as follow: (35C)“non-filer” means a person who is not a filer;

1[(36) “non-profit organization” means any person other than an individual, which is —
(a) established for religious, educational, charitable, welfare 2[purposes for general public], or for the promotion of an amateur sport;
(b) formed and registered 3[by or] under any law as a non-profit organization;
(c) approved by the Commissioner for specified period, on an application made by such person in the prescribed form and manner, accompanied by the prescribed documents and, on requisition, such other documents as may be required by the Commissioner;
and none of the assets of such person confers, or may confer, a private benefit to any other person;]

(37) “non-resident person” means a non-resident person as defined in Section 81;

(38) “non-resident taxpayer” means a taxpayer who is a non-resident person;

4[(38A) “Officer of Inland Revenue” means any Additional Commissioner Inland Revenue, Deputy Commissioner Inland Revenue, Assistant Commissioner Inland Revenue, Inland Revenue Officer, Inland

1 Clause (36) substituted by the Finance Act, 2002. The substituted clause (36) read as follows: “(36) “non-profit organization” means any person –
(a) established for religious, charitable or educational purposes, or for the promotion of amateur sport;
(b) which is registered under any law as a non-profit organization and in respect of which the Commissioner has issued a ruling certifying that the person is a non- profit organization for the purposes of this Ordinance; and
(c) none of the income or assets of the person confers, or may confer a private benefit on any other person”;.
2 The expressions “or development purposes” substituted through Finance Act,2020 dated 30th June, 2020
3 Words “by or” inserted through Finance Act, 2020 dated 30th June, 2020
4Substituted by the Finance Act, 2010. The substituted provision has been made effective from 05.06.2010 by sub-clause (77) of clause 8 of the Finance Act, 2010. Earlier the substitution was made through Finance (Amendment) Ordinance, 2009 which was re-promulgated as Finance (Amendment) Ordinance, 2010 and remained effective till 05.06.2010. The substituted clause (38A) read as follows:
“(38A) “Officer of Inland Revenue” means any Additional Commissioner Inland Revenue, Deputy Commissioner Inland Revenue, Assistant Commissioner Inland Revenue, Inland Revenue Officer, Special Officer Inland Revenue or any other officer however designated or appointed by the Board for the purposes of this Ordinance.”

Revenue Audit Officer,1[District Taxation Officer Inland Revenue, Assistant Director Audit,]or any other officer however designated or appointed by the Board for the purposes of this Ordinance;]

2[(38AA) “offshore asset” in relation to a person, includes any movable or immovable asset held, any gain, profit, or income derived, or any expenditure incurred outside Pakistan;

(38AB) “offshore evader” means a person who owns, possesses, controls, or is the beneficial owner of an offshore asset and does not declare, or under declares or provides inaccurate particulars of such asset to the Commissioners.;

(38AC) “offshore enabler” includes any person who, enables, assists, or advises any person to plan, design, arrange or manage a transaction or declaration relating to an offshore asset, which has resulted or may result in tax evasion;]

3[(38B) “online marketplace” means an information technology platform run by e-commerce entity over an electronic network that acts as a facilitator in transactions that occur between a buyer and a seller;]

(39) “Originator” means Originator as defined in the Asset Backed Securitization Rules, 1999;

(40) “Pakistan-source income” means Pakistan-source income as defined in section 101;

4[(40A) “Pension Fund Manager” means an asset management company registered under the Non-Banking Finance Companies (Establishment and Regulations) Rules, 2003, or a life insurance company registered under Insurance Ordinance, 2000 (XXXIX of 2000), duly authorized by the Securities and Exchange Commission of Pakistan and approved under the Voluntary Pension System Rules, 2005, to manage the Approved Pension Fund;]

(41) “permanent establishment” in relation to a person, means a 5[fixed] place of business through which the business of the person is wholly or partly carried on, and includes –

1Inserted by the Finance Act, 2017
2New clauses (38AA), (38AB) & (38AC) inserted by Finance Act, 2019
3Inserted by the Finance Act, 2017 4 Inserted by the Finance Act, 2005. 5 Inserted by the Finance Act, 2006.

(a) a place of management, branch, office, factory or workshop, 1[premises for soliciting orders, warehouse, permanent sales exhibition or sales outlet,] other than a liaison office except where the office engages in the negotiation of contracts (other than contracts of purchase);
(b) a mine, oil or gas well, quarry or any other place of extraction of natural resources;
2[(ba) an agricultural, pastoral or forestry property;]
(c) a building site, a construction, assembly or installation project or supervisory activities 3[connected] with such site or project 4[but only where such site, project and its 5[connected] supervisory activities continue for a period or periods aggregating more than ninety days within any twelve-months period] ;

(d) the furnishing of services, including consultancy services, by any person through employees or other personnel engaged by the person for such purpose 6[ ];

(e) a person acting in Pakistan on behalf of the person (hereinafter referred to as the “agent 7[”),] other than an agent of independent status acting in the ordinary course of business as such, if the agent –

8[(i) has and habitually exercises an authority to conclude contracts on behalf of the other person or habitually concludes contracts or habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the person and these contracts are─

(a) in the name of the person; or

1 Inserted by the Finance Act, 2003.
2 Inserted by the Finance Act, 2003.
3The word “connect” substituted by the Finance Act, 2010.
4 Inserted by the Finance Act, 2006.
5The word “connect” substituted by the Finance Act, 2010.
6 The words “, but only where activities of that nature continue for the same or a connected project within Pakistan for a period or periods aggregating more than ninety days within any twelve-month period” omitted by the Finance Act, 2003.
7 Comma substituted by the Finance Act, 2002
8Paragraph (i) substituted by Finance Act 2018, the substituted Paragraph (i) is read as under: “has and habitually exercises an authority to conclude contracts on behalf of the other person;”

(b) for the transfer of the ownership of or for the granting of the right to use property owned by that enterprise or that the enterprise has the right to use; or
(c) for the provision of services by that person; or”]

(ii) has no such authority, but habitually maintains a stock- in-trade or other merchandise from which the agent regularly delivers goods or merchandise on behalf of the other person; or

1[Explanation.—For removal of doubt, it is clarified that an agent of independent status acting in the ordinary course of business does not include a person acting exclusively or almost exclusively on behalf of the person to which it is an associate; or ”;]
(f) any substantial equipment installed, or other asset or property capable of activity giving rise to income;

2[(g) a fixed place of business that is used or maintained by a person if the person or an associate of a person carries on business at that place or at another place in Pakistan and─

(i) that place or other place constitutes a permanent establishment of the person or an associate of the person under this sub-clause; or

(ii) business carried on by the person or an associate of the person at the same place or at more than one place constitute complementary functions that are part of a cohesive business operation.

Explanation.—For the removal of doubt, it is clarified that─

(A) the term ”cohesive business operation” includes an overall arrangement for the supply of goods, installation, construction, assembly, commission, guarantees or supervisory activities and all or principal activities are undertaken or performed either by the person or the associates of the person; and

1Added by the Finance Act, 2018
2Added by the Finance Act, 2018

(B) supply of goods include the goods imported in the name of the associate or any other person, whether or not the title to the goods passes outside Pakistan.]
(42) “person” means a person as defined in section 80;

1[(42A) “PMEX” means Pakistan Mercantile Exchange Limited a futures commodity exchange company incorporated under the 2[Companies Act, 2017 (XIX of 2017)] and is licensed and regulated by the Securities and Exchange Commission of Pakistan;”]
(43) “pre-commencement expenditure” means a pre-commencement expenditure as defined in section 25;
(44) “prescribed” means prescribed by rules made under this Ordinance;

3[(44A) “principal officer” used with reference to a company or association of persons includes –
(a) a director, a manager, secretary, agent, accountant or any similar officer; and

(b) any person connected with the management or administration of the company or association of persons upon whom the Commissioner has served a notice of treating him as the principal officer thereof;]

(45) “private company” means a company that is not a public company;

4[ ]

5[ ]

(46) “profit on a debt” 6[whether payable or receivable, means] —

1Inserted by the Finance Act, 2015.
2 The expression “Companies Ordinance, 1984 (XLVII of 1984)” substituted by the Finance Act, 2021.
3 Inserted by the Finance Act, 2003.
4Clause (45A) omitted by the Finance Act, 2008. The omitted clause (45A) read as follows:
“ (45A) “Private Equity and Venture Capital Fund” means a fund registered with the Securities and Exchange Commission of Pakistan under the Private Equity and Venture Capital Fund Rules, 2007;”
5Clause (45B) omitted by the Finance Act, 2008. The omitted clause (45B) read as follows:
“(45B) “Private Equity and Venture Capital Fund Management Company” means a company licensed by the Securities and Exchange Commission of Pakistan under the Private Equity and Venture Capital Fund Rules, 2007;”
6 The word “means” substituted by the Finance Act, 2003.

(a) any profit, yield, interest, discount, premium or other amount 1[,] owing under a debt, other than a return of capital; or

(b) any service fee or other charge in respect of a debt, including any fee or charge incurred in respect of a credit facility which has not been utilized;

(47) “public company” means —

(a) a company in which not less than fifty per cent of the shares are held by the Federal Government 2[or Provincial Government];

3[(ab) a company in which 4[not less than fifty per cent of the] shares are held by a foreign Government, or a foreign company owned by a foreign Government 5[;]]

(b) a company whose shares were traded on a registered stock exchange in Pakistan at any time in the tax year and which remained listed on that exchange 6[ ] at the end of that year; or

7[(c) a unit trust whose units are widely available to the public and any other trust as defined in the Trusts Act, 1882 (II of 1882);]

8[(47A) “REIT Scheme” means a REIT Scheme as defined in the Real Estate Investment Trust Regulations, 2015;”]

 

 

 

1 Comma inserted by the Finance Act, 2002.
2 Inserted by the Finance Act, 2003. 3 Inserted by the Finance Act, 2003. 4 Inserted by the Finance Act, 2005.
5 The full stop substituted by the Finance Act, 2005.
6 The words “and was on the Central Depository System,” omitted by the Finance Act, 2002. 7 Clause (c) substituted by the Finance Act, 2003. The substituted clause (c) read as follows: “(c) a unit trust whose units are widely available to the public and any other public trust;” 8Clause (47A) substituted by the Finance Act, 2015. The substituted clause read as follows:
“(47A) “Real Estate Investment Trust (REIT) Scheme” means a REIT Scheme as defined in the Real Estate Investment Trust Regulations, 2008;

1[(47B) “Real Estate Investment Trust Management Company 2[RMC]means 3[RMC] as defined under the Real Estate Investment Trust Regulations, 4[2015];]

5[(47C) “Rental REIT Scheme” means a Rental REIT Scheme as defined under the Real Estate Investment Trust Regulations, 2015;”]

(48) “recognised provident fund” means a provident fund recognised by the Commissioner in accordance with Part I of the Sixth Schedule;

6[ ]

(49) “rent” means rent as defined in sub-section (2) of section 15 and includes an amount treated as rent under section 16;

7[(49A) “repealed Ordinance” means Income Tax Ordinance, 1979 (XXXI of 1979);]

(50) “resident company” means a resident company as defined in section 83;

(51) “resident individual” means a resident individual as defined in section 82;

(52) “resident person” means a resident person as defined in section 81;

(53) “resident taxpayer” means a taxpayer who is a resident person;

(54) 8[“royalty”]means any amount paid or payable, however described or computed, whether periodical or a lump sum, as consideration for —

 

1Clause (47B) substituted by the Finance Act, 2008. The substituted clause (47B) read as follows: “(47B) “Real Estate Investment Trust Management Company” means a company licensed by the
Security and Exchange Commission of Pakistan under the Real Estate Investment Trust Rules,
2006.”
2Inserted by the Finance Act, 2015.
3Inserted by the Finance Act, 2015.
4 The figure “2008” substituted by the Finance Act, 2015.
5Inserted by the Finance Act, 2015.
6Clause (48A) omitted by the Finance Act, 2010. The omitted clause (48A) read as follows:
“(48) “Regional Commissioner” means a person appointed as a Regional Commissioner of Income Tax under section 208 and includes a Director-General of Income Tax and Sales Tax.”
7 Inserted by the Finance Act, 2002
8 The word “royalties” substituted by the Finance Act, 2002.

(a) the use of, or right to use any patent, invention, design or model, secret formula or process, trademark or other like property or right;

(b) the use of, or right to use any copyright of a literary, artistic or scientific work, including films or video tapes for use in connection with television or tapes in connection with radio broadcasting, but shall not include consideration for the sale, distribution or exhibition of cinematograph films;

(c) the receipt of, or right to receive, any visual images or sounds, or both, transmitted by satellite, cable, optic fibre or similar technology in connection with television, radio or internet broadcasting;

(d) the supply of any technical, industrial, commercial or scientific knowledge, experience or skill;

(e) the use of or right to use any industrial, commercial or scientific equipment;

(f) the supply of any assistance that is ancillary and subsidiary to, and is furnished as a means of enabling the application or enjoyment of, any such property or right as mentioned in 1[sub- clauses] (a) through (e); 2[and]

(g) the disposal of any property or right referred to in 3[sub-clauses]
(a) through (e);

(55) “salary” means salary as defined in section 12;

(56) “Schedule” means a Schedule to this Ordinance;

(57) “securitization” means securitization as defined in the Asset Backed Securitization Rules, 1999;

(58) “share” in relation to a company, includes a modaraba certificate and the interest of a beneficiary in a trust (including units in a trust);

1 The word “clauses” substituted by the Finance Act, 2002.
2 Added by the Finance Act, 2005.
3 The word “clauses” substituted by the Finance Act, 2002

(59) “shareholder” in relation to a company, includes a modaraba certificate holder, 1[a unit holder of a unit trust] and a beneficiary of a trust;

2[(59A) “small and medium enterprise” means a person who is engaged in manufacturing as defined in clause (iv) of sub-section (7) of section 153 of the Ordinance and his business turnover in a tax year does not exceed two hundred and fifty million rupees:

Provided that if annual business turnover of a small and medium enterprise exceeds two hundred and fifty million rupees, it shall not qualify as small and medium enterprise in the tax year in which annual turnover exceeds that turnover or any subsequent tax year.]

3[4[(59AB)] “Small Company” means a company registered on or after the first day of July, 2005, under the 5[Companies Act, 2017 (XIX of 2017)], which,—

(i) has paid up capital plus undistributed reserves not exceeding 6[fifty]million rupees;

7[(ia) has employees not exceeding two hundred and fifty any time during the year;]

(ii) has annual turnover not exceeding two hundred 8[and fifty] million rupees; 9[ ]

(iii) is not formed by the splitting up or the reconstitution of company already in existence;] 10[and]

11[(iv) is not a small and medium enterprise as defined in clause (59A);]

1 Inserted for “, a unit holder of a unit trust” by the Finance Act, 2002
2 New clause (59A) inserted by the Finance Act, 2021.
3 Inserted by the Finance Act, 2005.
4 Clause (59A) re-numbered as clause (59AB) by the Finance ACT, 2021.
5 The expression “Companies Ordinance, 1984 (XLVII of 1984)” substituted by the Finance Act, 2021.
6The word “twenty-five” substituted by the Finance Act, 2015
7Inserted by the Finance Act, 2007.
8Inserted by the Finance Act, 2007.
9 The word “and “ omitted by the Finance Act, 2021.
10 The word “and “ added by the Finance Act, 2021.
11 New sub-clause (iv) added by the Finance Act, 2021.

1[(59B) “Special Judge” means the Special Judge appointed under section 203;]

(60) “Special Purpose Vehicle” means a Special Purpose Vehicle as defined in the Asset Backed Securitization Rules, 1999;

2[(60A) “specified jurisdiction” means any jurisdiction which has committed to automatically exchange information under the Common Reporting Standard with Pakistan;]

(61) “speculation business” means a speculation business as defined in section 19;

3[(61A) “stock fund” means a collective investment scheme or a mutual fund where the investible funds are invested by way of equity shares in companies, to the extent of more than seventy per cent of the investment;]

(62) “stock-in-trade” means stock-in-trade as defined in section 35;

4[(62A) “startup” means,—

(i) a business of a resident individual, AOP or a company that commenced on or after first day of July, 2012 and the person is engaged in or intends to offer technology driven products or services to any sector of the economy provided that the person is registered with and duly certified by the Pakistan Software Export Board (PSEB) and has turnover of less than one hundred million in each of the last five tax years; or

(ii) any business of a person or class of persons, subject to the conditions as the 5[Board with the approval of Federal Minister- in-charge] may, by notification in the official Gazette, specify.;]

6[(62B) “Synchronized Withholding Administration and Payment System agent” or “SWAPS agent” means any person or class of persons notified by Board to collect or deduct withholding taxes through Synchronized Withholding Administration and Payment System;]

1Inserted by the Finance Act, 2014. 2(60A)Inserted by the Finance Act, 2019 3Inserted by the Finance Act, 2014..
4Inserted by the Finance Act, 2017
5 The words “Federal Government” substituted by the Finance Act, 2021.

(63) “tax” means any tax imposed under Chapter II, and includes any penalty, fee or other charge or any sum or amount leviable or payable under this Ordinance;

(64) “taxable income” means taxable income as defined in section 9;

1[ ]

(66) “taxpayer” means any person who derives an amount chargeable to tax under this Ordinance, and includes —

(a) any representative of a person who derives an amount chargeable to tax under this Ordinance;

(b) any person who is required to deduct or collect tax under Part V of Chapter X 2[and Chapter XII;] or

(b) any person required to furnish a return of income or pay tax under this Ordinance;
3[(66A) “tax invoice” means an invoice as prescribed under the Income Tax Rules, 2002;]

(67) “tax treaty” means an agreement referred to in section 107;

(68) “tax year” means the tax year as defined in sub-section (1) of section 74 and, in relation to a person, includes a special year or a transitional year that the person is permitted to use under section 74;
(69) “total income” means total income as defined in section 10;

(70) “trust” means a “trust” as defined in section 80;

4[(70A) “turnover” means turnover as defined in sub-section (3) of section 113;]
(71) “underlying ownership” means an underlying ownership as defined in section 98;

(72) “units” means units in a unit trust;
(73) “unit trust” means a unit trust as defined in section 80; and

1Clause (65) omitted by the Finance Act, 2010. The omitted Clause (65) read as follows:
“(65) “taxation officer” means any Additional Commissioner of Income Tax, Deputy Commissioner of Income Tax, Assistant Commissioner of Income Tax, Income Tax Officer, Special Officer or any other officer however designated appointed by the Board for the purposes of this Ordinance;”
2 Inserted by the Finance Act, 2002
3 Inserted by the Finance Act, 2022.

1[(73A) “unspecified jurisdiction” means a jurisdiction which is not a specified jurisdictions.]

2[(74) “Venture Capital Company” and “Venture Capital Fund” shall have the same meanings as are assigned to them under the 3[Non-Banking Finance 4[Companies] (Establishment and Regulation) Rules, 2003];

5[(75) “whistleblower” means whistleblower as defined in section 227B;”]

3. Ordinance to override other laws.—The provisions of this Ordinance shall apply notwithstanding anything to the contrary contained in any other law for the time being in force.
CHAPTER II CHARGE OF TAX

4. Tax on taxable income.— (1) Subject to this Ordinance, income tax shall be imposed for each tax year, at the rate or rates specified in 6[Division I 7[ ] or II] of Part I of the First Schedule, as the case may be, on every person who has taxable income for the year.

(2) The income tax payable by a taxpayer for a tax year shall be computed by applying the rate or rates of tax applicable to the taxpayer under this Ordinance to the taxable income of the taxpayer for the year, and from the resulting amount shall be subtracted any tax credits allowed to the taxpayer for the year.

(3) Where a taxpayer is allowed more than one tax credit for a tax year, the credits shall be applied in the following order –

(a) any foreign tax credit allowed under section 103; then
(b) any tax credit allowed under Part X of Chapter III; and then

(c) any tax credit allowed under sections 8[ ] 147 and 168.
(4) Certain classes of income (including the income of certain classes of persons) may be subject to –

1(73A) inserted through Finance Act, 2019.
2 Added by Finance Act, 2002
3 The words, brackets, comma and figure “Venture Capital Company and Venture Capital Fund Rules, 2001” substituted by the Finance Act, 2004.
4 The word “Company” substituted by the Finance Act, 2005.
5 Inserted by the Finance Act, 2015.
6The words and letters “Division I or II” substituted by the Finance Act, 2010. 7The expression “IB” omitted through Finance Act, 2020 dated 30th June, 2020 8 The figure and comma “140,” omitted by the Finance Act, 2003.

(a) separate taxation as provided 1[under this chapter]; or

(b) collection of tax under Division II of Part V of Chapter X or deduction of tax under Division III of Part V of Chapter X as a final tax on the income 2[of] the person.

(5) Income referred to in sub-section (4) shall be subject to tax as provided for 3[under this chapter], or Part V of Chapter X, as the case may be, and shall not be included in the computation of taxable income in accordance with section 8 or 169, as the case may be.

4[(6) Where, by virtue of any provision of this Ordinance, income tax is to be deducted at source or collected or paid in advance, it shall, as the case may be, be so deducted, collected or paid, accordingly 5[.] ]

6[ ]
7[4B. Super tax for rehabilitation of temporarily displaced persons.― (1) A super tax shall be imposed for rehabilitation of temporarily displaced persons, for tax years 2015 8[and onwards], at the rates specified in Division IIA of Part I of the First Schedule, on income of every person specified in the said Division.
(2) For the purposes of this section, “income” shall be the sum of the following:—

 

1 The expression “in sections 5, 6 and 7” substituted by the Finance Act, 2022.
2The word “or” substituted by the Finance Act, 2010.
3 The expression “in sections 5, 6 and 7” substituted by the Finance Act, 2022.
4 Added by the Finance Act, 2003.
5 The semicolon substituted by the Finance Act, 2005.
6Omitted by the Finance Act, 2014. Section 4A was added by Income Tax (Amendment) Ordinance, dated 30.05.2011. Earlier the identical section 4A was added by Income Tax (Amendment) Ordinance, dated 16.03.2011. The omitted section 4A read as follows: —
“4A Surcharge. — (1) Subject to this Ordinance, a surcharge shall be payable by every taxpayer at the rate of fifteen per cent of the income tax payable under this Ordinance including the tax payable under Part V of Chapter X of Chapter XIII, as the case may be, for the period commencing from the promulgation of this Ordinance, till the 30th June, 2011.
(2) Surcharge shall be paid, collected, educated and deposited at the same time and in the same manner as the tax is paid, collected, deducted and deposited under this Ordinance including Chapter X or XII as the case may be:
Provided that this surcharge shall not be payable for the tax year 2010 and prior tax years and shall be applicable, subject to the provisions of sub-section (1), for the tax year 2011 only.”
7Inserted by the Finance Act, 2015.
8The “expression” “to 2020” substituted by “and onwards” through Finance Supplementary (Second Amendment) Act, 2019.

(i) profit on debt, dividend, capital gains, brokerage and commission;
(ii) taxable income1[(other than brought forward depreciation and brought forward business losses)] under section (9) of this Ordinance, if not included in clause (i);
(iii) imputable income as defined in clause (28A) of section 2 excluding amounts specified in clause (i); and
(iv) income computed, 2[other than brought forward depreciation, brought forward amortization and brought forward business lossess] under Fourth, Fifth, Seventh and Eighth Schedules.
(3) The super tax payable under sub-section (1) shall be paid, collected and deposited on the date and in the manner as specified in sub-section (1) of section 137 and all provisions of Chapter X of the Ordinance shall apply.

(4) Where the super tax is not paid by a person liable to pay it, the Commissioner shall by an order in writing, determine the super tax payable, and shall serve upon the person, a notice of demand specifying the super tax payable and within the time specified under section 137 of the Ordinance.

(5) Where the super tax is not paid by a person liable to pay it, the Commissioner shall recover the super tax payable under subsection (1) and the provisions of Part IV,X, XI and XII of Chapter X and Part I of Chapter XI of the Ordinance shall, so far as may be, apply to the collection of super tax as these apply to the collection of tax under the Ordinance.
(6) The Board may, by notification in the official Gazette, make rules for carrying out the purposes of this section.]

3[4C. Super tax on high earning persons.― (1) A super tax shall be imposed for tax year 2022 and onwards at the rates specified in Division IIB of Part I of the First Schedule, on income of every person:

Provided that this section shall not apply to a banking company for tax year 2022.

(2) For the purposes of this section, “income” shall be the sum of the following:—

(i) profit on debt, dividend, capital gains, brokerage and commission;

1Inserted by the Finance Act, 2016.
2Inserted by the Finance Act, 2019.

(ii) taxable income (other than brought forward depreciation and brought forward business losses) under section 9 of the Ordinance, excluding amounts specified in clause (i);

(iii) imputable income as defined in clause (28A) of section 2 excluding amounts specified in clause (i); and

(iv) income computed, other than brought forward depreciation, brought forward amortization and brought forward business losses under Fourth, Fifth and Seventh Schedules.

(3) The tax payable under sub-section (1) shall be paid, collected and deposited on the date and in the manner as specified in sub-section (1) of section 137 and all provisions of Chapter X of the Ordinance shall apply.

(4) Where the tax is not paid by a person liable to pay it, the Commissioner shall by an order in writing, determine the tax payable, and shall serve upon the person, a notice of demand specifying the tax payable and within the time specified under section 137 of the Ordinance.

(5) Where the tax is not paid by a person liable to pay it, the Commissioner shall recover the tax payable under sub-section (1) and the provisions of Part IV, X, XI and XII of Chapter X and Part I of Chapter XI of the Ordinance shall, so far as may be, apply to the collection of tax as these apply to the collection of tax under the Ordinance.

(6) The Board may, by notification in the official Gazette, make rules for carrying out the purposes of this section.]
5. Tax on dividends.— (1) Subject to this Ordinance, a tax shall be imposed, at the rate specified in Division III of Part I of the First Schedule, on every person who receives a dividend from a 1[ ] company 2[or treated as dividend under clause
(19) of section 2].
(2) The tax imposed under sub-section (1) on a person who receives a dividend shall be computed by applying the relevant rate of tax to the gross amount of the dividend.
(3) This section shall not apply to a dividend that is exempt from tax under this Ordinance.

 

 

1The word “resident” omitted by the Finance Act, 2003.

1[5A. Tax on undistributed profits.—(1) For tax 2[years 2017 to 2019], a tax shall be imposed at the rate of 3[five] percent of its accounting profit before tax on every public company, other than a scheduled bank or a modaraba, that derives profit for a tax year but does not distribute at least 4[twenty] percent of its after tax profits within six months of the end of the tax year through cash 5[ ]:

Provided that for tax year 2017, bonus shares or cash dividends may be distributed before the due date mentioned in sub-section (2) of section 118, for filing of a return.

(2) The provisions of sub-section (1) shall not apply to—

(a) a company qualifying for exemption under clause (132) of Part I of the Second Schedule; and

(b) a company in which not less than fifty percent shares are held by the Government.]

6[5AA. Tax on return on investments in sukuks.—(1) Subject to this Ordinance, a tax shall be imposed, at the rate specified in Division IIIB of Part I of the First

 

1 section 5A substituted by the Finance Act, 2017. The substituted section read as follows:-
“5A. Tax on undistributed reserves.—(1) Subject to this Ordinance, a tax shall be imposed at the rate of ten percent, on every public company other than a scheduled bank or a modaraba, that derives profits for a tax year but does not distribute cash dividends within six months of the end of the said tax year or distributes dividends to such an extent that its reserves, after such distribution, are in excess of hundred percent of its paid up capital, so much of its reserves as exceed hundred per cent of its paid up capital shall be treated as income of the said company:
Provided that for tax year 2015, cash dividends may be distributed before the due date mentioned in sub-section (2) of section 118, for filing of return for tax year 2015.
(2) The provisions of sub-section (1) shall not apply to—
(a) a public company which distributes profit equal to either forty per cent of its after tax profits or fifty per cent of its paid up capital, whichever is less, within six months of the end of the tax year;
(a) a company qualifying for exemption under clause (132) of Part I of the Second Schedule; and
(b) a company in which not less than fifty percent shares are held by the Government.
(3) For the purpose of this section, ‘reserve‘ includes amounts setaside out of revenue or other surpluses excluding capital reserves, share premium reserves and reserves required to be created under any law, rules or regulations.”]
2 The “expression” “year 2017 and onwards” substituted by “years 2017 to 2019” through Finance Supplementary (Second Amendment) Act, 2019
5The word “seven and half” substituted by the Finance Act, 2018
4The word “forty” substituted by the Finance Act, 2018
5The word “or bonus shares” omitted by the Finance Act, 2018
6Inserted by the Presidential Order No. F.2(1)/2016-Pub dated 31.08.2016.

Schedule, on every person who receives a return on investment in sukuks from a special purpose vehicle1[, or a company].

(2) The tax imposed under sub-section (1) on a person who receives a return on investment in sukuks shall be computed by applying the relevant rate of tax to the gross amount of the return on investment in sukuks.

(3) This section shall not apply to a return on investment in sukuks that is exempt from tax under this Ordinance.”]

6. Tax on certain payments to non-residents.— (1) Subject to this Ordinance, a tax shall be imposed, at the rate specified in Division IV of Part I of the First Schedule, on every non-resident person who receives any Pakistan- source royalty 2[, fee for offshore digital services 3[, fee for money transfer operations, card network services, payment gateway services, interbank financial telecommunication services] ] or fee for technical services.

(2) The tax imposed under sub-section (1) on a non-resident person shall be computed by applying the relevant rate of tax to the gross 4[amounts of receipts mentioned in sub-section (1)].

(3) This section shall not apply to —

(a) any royalty where the property or right giving rise to the royalty is effectively connected with a permanent establishment in Pakistan of the non-resident person;

(b) any fee 5[ ] where the services giving rise to the fee are rendered through a permanent establishment in Pakistan of the non-resident person; or

(c) any royalty or fee for technical services that is exempt from tax under this Ordinance.

 

 

1Inserted by the Finance Act, 2017
2Inserted by the Finance Act, 2018
3 The expression inserted by the Finance Act, 2022.
4 The expression “amount of the royalty 4[,free for offshore digital services] or fee for technical services” substituted by the Finance Act, 2022.
5 The expression “for technical services 5[or fee for offshore digital services” omitted by the Finance Act, 2022.

(4) Any Pakistani-source royalty 1[ 2[or fee] received by a non-resident person to which this section does not apply by virtue of clause (a) or (b) of sub- section (3) shall be treated as income from business attributable to the permanent establishment in Pakistan of the person.

7. Tax on shipping and air transport income of a non-resident person.—
(1) Subject to this Ordinance, a tax shall be imposed, at the rate specified in Division V of Part I of the First Schedule, on every non-resident person carrying on the business of operating ships or aircrafts as the owner or charterer thereof in respect of –

(a) the gross amount received or receivable (whether in or out of Pakistan) for the carriage of passengers, livestock, mail or goods embarked in Pakistan; and

(b) the gross amount received or receivable in Pakistan for the carriage of passengers, livestock, mail or goods embarked outside Pakistan.

(2) The tax imposed under sub-section (1) on a non-resident person shall be computed by applying the relevant rate of tax to the gross amount referred to in sub-section (1).

(3) This section shall not apply to any amounts exempt from tax under this Ordinance.

3[7A. Tax on shipping of a resident person.—(1) In the case of any resident person engaged in the business of shipping, a presumptive income tax shall be charged in the following manner, namely:—

(a) ships and all floating crafts including tugs, dredgers, survey vessels and other specialized craft purchased or bare-boat chartered and flying Pakistan flag shall pay tonnage tax of an amount equivalent to one US $ per gross registered tonnage per annum; 4[ ]

(b) ships, vessels and all floating crafts including tugs, dredgers, survey vessels and other specialized craft not registered in Pakistan and hired under any charter other than bare-boat charter shall pay tonnage tax of an amount equivalent to fifteen

1Inserted by the Finance Act, 2018
2 The expression “, fee for offshore digital services] or fee for technical services” substituted by the Finance Act, 2022.
3Inserted by the Finance Act, 2015
4The word “and” omitted through Finance Act, 2020 dated 30th June, 2020

US cents per ton of gross registered tonnage per chartered voyage provided that such tax shall not exceed one US $ per ton of gross registered tonnage per annum:

Explanation.—For the purpose of this section, the expression “equivalent amount” means the rupee equivalent of a US dollar according to the exchange rate prevalent on the first day of December in the case of a company and the first day of September in other cases in the relevant assessment year 1[;and

(c) A Pakistan resident ship owning company registered with the Securities and Exchange Commission of Pakistan after the 15th day of November, 2019 and having its own sea worthy vessel registered under Pakistan Flag shall pay tonnage tax of an amount equivalent to seventy five US Cents per ton of gross registered tonnage per annum.]
(2) The provisions of this section shall not be applicable after the 30thJune, 2[2030].”]
3[7B. Tax on profit on debt.—(1) Subject to this Ordinance, a tax shall be imposed, at the rate specified in Division IIIA of Part I of the First Schedule, on every person, other than a company, who receives a profit on debt from any person mentioned in clauses (a) to (d) of sub-section (1)of section 151.
(2) The tax imposed under sub-section (1) on a person, other than a company, who receives a profit on debt shall be computed by applying the relevant rate of tax to the gross amount of the profit on debt.
4[(3) This section shall not apply to a profit on debt that –

(a) is exempt from tax under this Ordinance; or

(b) exceeds 5[five] million Rupees.]

6[7C. Tax on builders.— (1) Subject to this Ordinance, a tax shall be imposed on the profits and gains of a person deriving income from the business of

1 Full stop at the end substituted by sami-colon and the word “and” thereafter new clause “(c)” shall be added namely through Finance Act, 2020 dated 30th June, 2020
2 The word 2020 substituted by 2030 through Finance Act 2020 dated 30th June, 2020
3Inserted by the Finance Act, 2015
4Sub clause 3 of 7B substituted by Finance Act, 2019, substituted clause read as follow:
“(3) This section shall not apply to a profit on debt that is exempt from tax under this Ordinance.”
5 The words “thirty six” substituted by the Finance Act, 2021.

construction and sale of residential, commercial or other buildings at the rates specified in Division VIIIA of Part I of the First Schedule.
(2) The tax imposed under sub-section (1) shall be computed by applying the relevant rate of tax to the area of the residential, commercial or other building being constructed for sale.
(3) The Board may prescribe:
(a) the mode and manner for payment and collection of tax under this section;
(b) the authorities granting approval for computation and payment plan of tax; and
(c) responsibilities and powers of the authorities approving, suspending and cancelling no objection certificate to sell and the matters connected and ancillary thereto.

1[(4) This section shall apply to projects undertaken for construction and sale of residential and commercial buildings initiated and approved.─
(a) during tax year 2017 only;
(b) for which payment under rule 13S of the Income Tax Rules, 2002 has been made by the developer during tax year 2017; and
(c) the Chief Commissioner has issued online schedule of advance tax installments to be paid by the developer in accordance with rule 13U of the Income Tax Rules, 2002.]
2[7D. Tax on developers.—(1) Subject to this Ordinance, a tax shall be imposed on the profits and gains of a person deriving income from the business of development and sale of residential, commercial or other plots at the rates specified in Division VIIIB of Part I of the First Schedule.
(2) The tax imposed under sub-section (1) shall be computed by applying the relevant rate of tax to the area of the residential, commercial or other plots for sale.
(3) The Board may prescribe:
(a) the mode and manner for payment and collection of tax under this section;

 

1Section 4 substituted by the Finance Act, 2017. The substituted section read as follows:
“This section shall apply to business or projects undertaken for construction and sale of residential, commercial or other buildings initiated and approved after the 1st July, 2016.”]

(b) the authorities granting approval for computation and payment plan of tax; and
(c) responsibilities and powers of the authorities approving, suspending and cancelling no objection certificate to sell and the matters connected and ancillary thereto.
1[(4) This section shall apply to projects undertaken for development and sale of residential and commercial plots initiated and approved.─
(a) during tax year 2017 only;
(b) for which payment under rule 13S of the Income Tax Rules, 2002 has been made by the developer during tax year 2017; and
(c) the Chief Commissioner has issued online schedule of advance tax installments to be paid by the developer in accordance with rule 13ZB of the Income Tax Rules, 2002.”;

2[7E. Tax on deemed income.- (1) For tax year 2022 and onwards, a tax shall be imposed at the rates specified in Division VIIIC of Part-I of the First Schedule on the income specified in this section.

(2) A resident person shall be treated to have derived, as income chargeable to tax under this section, an amount equal to five percent of the fair market value of capital assets situated in Pakistan held on the last day of tax year excluding the following, namely:–

(a) one capital asset owned by the resident person;

(b) self-owned business premises from where the business is carried out by the persons appearing on the active taxpayers’ list at any time during the year;

(c) self-owned agriculture land where agriculture activity is carried out by person excluding farmhouse and land annexed thereto;

(d) capital asset allotted to –

(i) a Shaheed or dependents of a shaheed belonging to Pakistan Armed Forces;

 

1Section 4 substituted by the Finance Act, 2017. The substituted section read as follows: “This section shall apply to projects undertaken for development and sale of residential, commercial or other plots initiated and approved after the 1st July, 2016.”

(ii) a person or dependents of the person who dies while in the service of Pakistan armed forces or Federal or provincial government;

(iii) a war wounded person while in service of Pakistan armed forces or Federal or provincial government; and

(iv) an ex-serviceman and serving personal of armed forces or ex-employees or serving personnel of Federal and provincial governments, being original allottees of the capital asset duly certified by the allotment authority;

(e) any property from which income is chargeable to tax under the Ordinance and tax leviable is paid thereon;

(f) capital asset in the first tax year of acquisition where tax under section 236K has been paid;

(g) where the fair market value of the capital assets in aggregate excluding the capital assets mentioned in clauses (a), (b), (c), (d), (e) and (f) does not exceed Rupees twenty-five million;

(h) capital assets owned by a provincial government or a local government; or

(i) capital assets owned by a local authority, a development authority, builders and developers for land development and construction, subject to the condition that such persons are registered with Directorate General of Designated Non- Financial Businesses and Professions.

(3) The Federal Government may include or exclude any person or property for the purpose of this section.

(4) In this section–

(a) “capital asset” means property of any kind held by a person, whether or not connected with a business, but does not include

(i) any stock-in-trade, consumable stores or raw materials held for the purpose of business;
(ii) any shares, stocks or securities;
(iii) any property with respect to which the person is entitled to a depreciation deduction under section 22 or amortization deduction under section 24; or
(iv) any movable asset not mentioned in clauses (i), (ii) or (iii);

(b) “farmhouse” means a house constructed on a total minimum area of 2000 square yards with a minimum covered area of 5000 square feet used as a single dwelling unit with or without an annex:

Provided that where there are more than one dwelling units in a compound and the average area of the compound is more than 2000 square yards for a dwelling unit, each one of such dwelling units shall be treated as a separate farmhouse.
8. General provisions relating to taxes imposed under sections 1[ 2[5, 5A, 5AA, 6, 7, 7A, 7B and 7E].– (1)-Subject to this Ordinance, the tax imposed under Sections 3[5, 5A, 5AA, 6, 7, 7A, 7B and 7E] shall be a final tax on the amount in respect of which the tax is imposed and—
(a) such amount shall not be chargeable to tax under any head of income in computing the taxable income of the person who derives it for any tax year;
(b) no deduction shall be allowable under this Ordinance for any expenditure incurred in deriving the amount;
(c) the amount shall not be reduced by —
(i) any deductible allowance; or
(ii) the set off of any loss;
(d) the tax payable by a person under4[section] 5, 5[5A,6[“, 5AA”] 6, 7, 7[7A, 7B and 7E] shall not be reduced by any tax credits allowed under this Ordinance; and
(e) the liability of a person under8[section] 5, 6 or 7 shall be discharged to the extent that —
(i) in the case of shipping and air transport income, the tax has been paid in accordance with section 143 or 144, as the case may be; or

1 The expression “5, 6 and 7” substituted by the Finance Act, 2021.
2 The expression “5, 5AA, 6, 7, 7A and 7B” substituted by the Finance Act, 2022.
3 The expression ”5, 3[ ] 3[ ] 3[“, 5AA”] 6, 7, 7A 3[and 7B]”” substituted by the Finance Act, 2022.
4The word “sections” substituted by the word “section”by the Finance Act, 2014.
5The word and figure “6 or 7” substituted by the Finance Act, 2015.
6 Inserted by the Presidential Order No.F.2(1)/2016-Pub dated 31.08.2016.
7 The expression “7A and 7B” substituted by the Finance Act, 2022.
8The word “sections” substituted by the word “section”by the Finance Act, 2014.

(ii) in any other case, the tax payable has been deducted at source under Division III of Part V of Chapter X 1[.]

2[ ]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1 Colon substituted by the Finance Act, 2013.
2 Proviso omitted by the Finance Act, 2013. The omitted proviso read as follows:
“Provided that the provision of this section shall not apply to dividend received by a company.”

CHAPTER III
TAX ON TAXABLE INCOME

PART I
COMPUTATION OF TAXABLE INCOME

9. Taxable income.—The taxable income of a person for a tax year shall be the total income 1[under clause (a) of section 10] of the person for the year reduced (but not below zero) by the total of any deductible allowances under Part IX of this Chapter of the person for the year.

10. Total Income.— The total income of a person for a tax year shall be the sum of the 2[—]

3[(a) person’s income under all heads of income for the year; and]

4[(b) person’s income exempt from tax under any of the provisions of this Ordinance.]

11. Heads of income.— (1) For the purposes of the imposition of tax and the computation of total income, all income shall be classified under the following heads, namely: —

(a) Salary;
5[(b) Income from Property;] 6[(c) Income from Business;] 7[(d) Capital Gains; and]
8[(e) Income from Other Sources.]

1Inserted by the Finance Act, 2012.
2The words “person’s income under each of the heads of income for the year” substituted by the Finance Act, 2012.
3Inserted by the Finance Act, 2012.
4Inserted by the Finance Act, 2012.
5 Clause (b) substituted by the Finance Act, 2002. The substituted clause (b) read as follows: “(b) income from property;”
6 Clause (c) substituted by the Finance Act, 2002. The substituted clause (c) read as follows:
“(c) income from business;”
7 Clause (d) substituted by the Finance Act, 2002. The substituted clause (d) read as follows: “(d) capital gains; and”
8 Clause (e) substituted by the Finance Act, 2002. The substituted clause (e) read as follows:
“(e) income from other sources.”

(2) Subject to this Ordinance, the income of a person under a head of income for a tax year shall be the total of the amounts derived by the person in that year that are chargeable to tax under the head as reduced by the total deductions, if any, allowed under this Ordinance to the person for the year under that head.

(3) Subject to this Ordinance, where the total deductions allowed under this Ordinance to a person for a tax year under a head of income exceed the total of the amounts derived by the person in that year that are chargeable to tax under that head, the person shall be treated as sustaining a loss for that head for that year of an amount equal to the excess.

(4) A loss for a head of income for a tax year shall be dealt with in accordance with Part VIII of this Chapter.

(5) The income of a resident person under a head of income shall be computed by taking into account amounts that are Pakistan-source income and amounts that are foreign-source income.

(6) The income of a non-resident person under a head of income shall be computed by taking into account only amounts that are Pakistan-source income.

PART II
HEAD OF INCOME: SALARY
12. Salary.— (1) Any salary received by an employee in a tax year, other than salary that is exempt from tax under this Ordinance, shall be chargeable to tax in that year under the head “Salary”.
(2) Salary means any amount received by an employee from any employment, whether of a revenue or capital nature, including —
(a) any pay, wages or other remuneration provided to an employee, including leave pay, payment in lieu of leave, overtime payment, bonus, commission, fees, gratuity or work condition supplements (such as for unpleasant or dangerous working conditions)1[;]
2[ ]
(b) any perquisite, whether convertible to money or not;
(c) the amount of any allowance provided by an employer to an employee including a cost of living, subsistence, rent, utilities, education, entertainment or travel allowance, but shall not include any allowance solely expended in the performance of the employee’s duties of employment.

3[Explanation.– For removal of doubt, it is clarified that the allowance solely expended in the performance of employee’s duty does not include –

(i) allowance which is paid in monthly salary on fixed basis or percentage of salary; or

(ii) allowance which is not wholly, exclusively, necessarily or actually spent on behalf of the employer;]
(d) the amount of any expenditure incurred by an employee that is paid or reimbursed by the employer, other than expenditure incurred on behalf of the employer in the performance of the employee’s duties of employment;

1Semi-colon substituted by the Finance Act, 2015.
2 Omitted by the Finance Act, 2015. The omitted proviso read as follows:-
Provided that any bonus paid or payable to corporate employees receiving salary income of one million rupees or more (excluding bonus) in tax year 2010, shall be chargeable to tax at the rate provided in paragraph (2) of Division I of Part I of the First Schedule;
3 Explanation added by the Finance Act, 2021.

(e) the amount of any profits in lieu of, or in addition to, salary or wages, including any amount received —
(i) as consideration for a person’s agreement to enter into an employment relationship;
(ii) as consideration for an employee’s agreement to any conditions of employment or any changes to the employee’s conditions of employment;
(iii) on termination of employment, whether paid voluntarily or under an agreement, including any compensation for redundancy or loss of employment and golden handshake payments;
(iv) from a provident or other fund, to the extent to which the amount is not a repayment of contributions made by the employee to the fund in respect of which the employee was not entitled to a deduction; and
(v) as consideration for an employee’s agreement to a restrictive covenant in respect of any past, present or prospective employment;
(f) any pension or annuity, or any supplement to a pension or annuity; and
(g) any amount chargeable to tax as “Salary” under section 14.
(3) Where an employer agrees to pay the tax chargeable on an employee’s salary, the amount of the employee’s income chargeable under the head “Salary” shall be grossed up by the amount of tax payable by the employer.
(4) No deduction shall be allowed for any expenditure incurred by an employee in deriving amounts chargeable to tax under the head “Salary”.
(5) For the purposes of this Ordinance, an amount or perquisite shall be treated as received by an employee from any employment regardless of whether the amount or perquisite is paid or provided —
(a) by the employee’s employer, an associate of the employer, or by a third party under an arrangement with the employer or an associate of the employer;
(b) by a past employer or a prospective employer; or
(c) to the employee or to an associate of the employee 1[or to a third party under an agreement with the employee or an associate of the employee.]

1 Inserted by the Finance Act, 2002

(6) An employee who has received an amount referred to in sub-clause
(iii) of clause (e) of sub-section (2) in a tax year may, by notice in writing to the Commissioner, elect for the amount to be taxed at the rate computed in accordance with the following formula, namely: —
A/B%
where —
A is the total tax paid or payable by the employee on the employee’s total taxable income for the three preceding tax years; and
B is the employee’s total taxable income for the three preceding tax years.

(7) Where —
(a) any amount chargeable under the head “Salary” is paid to an employee in arrears; and
(b) as a result the employee is chargeable at higher rates of tax than would have been applicable if the amount had been paid to the employee in the tax year in which the services were rendered,
the employee may, by notice in writing to the Commissioner, elect for the amount to be taxed at the rates of tax that would have been applicable if the salary had been paid to the employee in the tax year in which the services were rendered.
(8) An election under sub-section (6) or (7) shall be made by the due date for furnishing the employee’s return of income or employer certificate, as the case may be, for the tax year in which the amount was received or by such later date as the Commissioner may allow.
13. Value of perquisites.— (1) For the purposes of computing the income of an employee for a tax year chargeable to tax under the head “Salary”, the value of any perquisite provided by an employer to the employee in that year that is included in the employee’s salary under section 12 shall be determined in accordance with this section.
(2) This section shall not apply to any amount referred to in clause (c) or
(d) of sub-section (2) of section 12.
1(3) Where, in a tax year, a motor vehicle is provided by an employer to an employee wholly or partly for the private use of the employee, the amount

1Substituted by the Finance Ordinance, 2002. The substituted sub-section (3) read as follows:-
“ (3) Subject to sub-section (4), where, in a tax year, a motor vehicle is provided by an employer to an employee wholly or partly for the private use of the employee, the amount chargeable to tax to the employee under the head “Salary” for that year shall include the amount computed in accordance with the following formula, namely:-
(A*B)-C
Where,

chargeable to tax to the employee under the head “Salary” for that year shall include an amount computed as may be prescribed.]
1[ ]
(5) Where, in a tax year, the services of a housekeeper, driver, gardener or other domestic assistant is provided by an employer to an employee, the amount chargeable to tax to the employee under the head “Salary” for that year shall include the total salary paid to the domestic assistant 2[such house keeper, driver, gardener or other domestic assistant] in that year for services rendered to the employee, as reduced by any payment made 3[to the employer]for such services.

(6) Where, in a tax year, utilities are provided by an employer to an employee, the amount chargeable to tax to the employee under the head “Salary” for that year shall include the fair market value of the utilities provided, as reduced by any payment made by the employee for the utilities.

4[(7) Where a loan is made, on or after the 1st day of July, 2002, by an employer to an employee and either no profit on loan is payable by the employee or the rate of profit on loan is less than the benchmark rate, the amount chargeable to tax to the employee under the head “Salary” for a tax year shall include an amount equal to—

(a) the profit on loan computed at the benchmark rate, where no profit on loan is payable by the employee, or

(c) the difference between the amount of profit on loan paid by the employee in that tax year and the amount of profit on loan computed at the benchmark rate,

A is the cost to the employer of acquiring the motor vehicle or, if the vehicle is leased by the employer, the fair market value of the vehicle at the commencement of the lease;
B is-
(a) where the vehicle is wholly for private use, fifteen per cent;
(b) where the vehicle is only partly for private use, seven and a half per cent; and
C is any payment made by the employee for the use of the motor vehicle or for its running costs.”
1 Sub-section (4) omitted by the Finance Act, 2002. The omitted sub-section (4) read as follows:
“(4) Where a motor vehicle referred to in sub-section (3) is available to more than one employee for a tax year, the amount chargeable to tax under the head “Salary” for each such employee for that year shall be the amount determined under sub-section (3) divided by the number of employees permitted to use the vehicle.”
2 The words “domestic assistant” substituted by the Finance Act, 2002
3 The words “by the employee” substituted by the Finance Act, 2002
4 Sub-section (7) substituted by the Finance Act, 2002. The substituted sub-section (7) read as follows:
“(7) Where, in a tax year, a loan is made by an employer to an employee, the amount
chargeable to tax to the employee under the head “Salary” for that year shall include the difference between the profit paid by the employee on the loan in the tax year, if any, and the profit which would have been paid by the employee on the loan for the year if the loan had been made at the benchmark rate for that year.”

as the case may be1[:] ]

2[Provided that this sub-section shall not apply to such benefit arising to an employee due to waiver of interest by such employee on his account with the employer3[:] ]

4[Provided further that this sub-section shall not apply to loans not exceeding 5[one million]rupees.]

(8) For the purposes of this Ordinance not including sub-section (7), where the employee uses a loan referred to in sub-section (7) wholly or partly for the acquisition of 6[any asset or property]producing income chargeable to tax under any head of income, the employee shall be treated as having paid an amount as profit equal to the benchmark rate on the loan or that part of the loan used to acquire 7[ ][asset or property.]

(9) Where, in a tax year, an obligation of an employee to pay or repay an amount owing by the employee to the employer is waived by the employer, the amount chargeable to tax to the employee under the head “Salary” for that year shall include the amount so waived.

(10) Where, in a tax year, an obligation of an employee to pay or repay an amount 8[owing]by the employee to another person is paid by the employer, the amount chargeable to tax to the employee under the head “Salary” for that year shall include the amount so paid.

(11) Where, in a tax year, property is transferred or services are provided by an employer to an employee, the amount chargeable to tax to the employee under the head “Salary” for that year shall include the fair market value of the property or services determined at the time the property is transferred or the services are provided, as reduced by any payment made by the employee for the property or services.

 

 

1Full stop substituted by the Finance Act, 2010.
2Added by the Finance Act, 2010.
3Full stop substituted by the Finance Act, 2012.
4Added by the Finance Act, 2012.
5The word “five hundred thousand” substituted by Finance Act, 2017
6 The word “property” substituted by the Finance Act, 2002
7The word “the” omitted by the Finance Act, 2014
8 The word “owed” substituted by the Finance Act, 2002

1[(12) Where, in the tax year, accommodation or housing is provided by an employer to an employee, the amount chargeable to tax to the employee under the head “Salary” for that year shall include an amount computed as may be prescribed.]
(13) Where, in a tax year, an employer has provided an employee with a perquisite which is not covered by sub-sections (3) through (12), the amount chargeable to tax to the employee under the head “Salary” for that year shall include the fair market value of the perquisite, 2[except where the rules, if any, provide otherwise,] determined at the time it is provided, as reduced by any payment made by the employee for the perquisite.
3[(14) In this section,—
(a) “benchmark rate” means —-
(i) for the tax year commencing on the first day of July, 2002, a rate of five per cent per annum; and
(ii) for the tax years next following the tax year referred to in sub-clause (i), the rate for each successive year taken at one per cent above the rate applicable for the immediately preceding tax year, but not exceeding 4[ten per cent per annum] in respect of any tax year;
(b) “services” includes the provision of any facility; and
(c) “utilities” includes electricity, gas, water and telephone.]

 

1 Sub-section (12) substituted by the Finance Act, 2002. The substituted sub-section (12) read as follows:
“(12) Where, in a tax year, accommodation or housing is provided by an employer to an
employee, the amount chargeable to tax to the employee under the head “Salary” for that year shall include –
(a) where the employer or an associate owns the accommodation or housing, the fair market rent of the accommodation or housing; or
(b) in any other case, the rent paid by the employer for the accommodation or housing, as reduced by any payment made by the employee for the accommodation or housing.”
2Inserted by the Finance Act, 2002
3 Sub-section (14) substituted by the Finance Act, 2002. The substituted sub-section (14) read as follows:
“(14) In this section, –
“benchmark rate” means the State Bank of Pakistan discount rate at the commencement of the tax year;
“services” includes the making available of any facility; and “utilities” includes electricity, gas, water and telephone.”
4The words “such rate, if any, as the Federal. Government may, by notification, specify” substituted by the Finance Act, 2012

14. Employee share schemes.— (1) The value of a right or option to acquire shares under an employee share scheme granted to an employee shall not be chargeable to tax.
(2) Subject to sub-section (3), where, in a tax year, an employee is issued with shares under an employee share scheme including as a result of the exercise of an option or right to acquire the shares, the amount chargeable to tax to the employee under the head “Salary” for that year shall include the fair market value of the shares determined at the date of issue, as reduced by any consideration given by the employee for the shares including any amount given as consideration for the grant of a right or option to acquire the shares.
(3) Where shares issued to an employee under an employee share scheme are subject to a restriction on the transfer of the shares —
(a) no amount shall be chargeable to tax to the employee under the head “Salary” until the earlier of —
(i) the time the employee has a free right to transfer the shares; or
(ii) the time the employee disposes of the shares; and
(b) the amount chargeable to tax to the employee shall be the fair market value of the shares at the time the employee has a free right to transfer the shares or disposes of the shares, as the case may be, as reduced by any consideration given by the employee for the shares including any amount given as consideration for the grant of a right or option to acquire the shares.
(4) For purposes of this Ordinance, where sub-section (2) or (3) applies, the cost of the shares to the employee shall be the sum of —
(a) the consideration, if any, given by the employee for the shares;
(b) the consideration, if any, given by the employee for the grant of any right or option to acquire the shares; and
(c) the amount chargeable to tax under the head “Salary” under those sub-sections.
(5) Where, in a tax year, an employee disposes of a right or option to acquire shares under an employee share scheme, the amount chargeable to tax to the employee under the head “Salary” for that year shall include the amount of any gain made on the disposal computed in accordance with the following formula, namely:—
A—B
where —

A is the consideration received for the disposal of the right or option; and

B is the employee’s cost in respect of the right or option.

(6) In this sub-section, “employee share scheme” means any agreement or arrangement under which a company may issue shares in the company to —

(a) an employee of the company or an employee of an associated company; or

(b) the trustee of a trust and under the trust deed the trustee may transfer the shares to an employee of the company or an employee of an associated company.

PART III
HEAD OF INCOME: INCOME FROM PROPERTY

15. Income from property.— (1) The rent received or receivable by a person 1[for] a tax year, other than rent exempt from tax under this Ordinance, shall be chargeable to tax in that year under the head “Income from Property”.

(2) Subject to sub-section (3), “rent” means any amount received or receivable by the owner of land or a building as consideration for the use or occupation of, or the right to use or occupy, the land or building, and includes any forfeited deposit paid under a contract for the sale of land or a building.

(3) This section shall not apply to any rent received or receivable by any person in respect of the lease of a building together with plant and machinery and such rent shall be chargeable to tax under the head “Income from Other Sources”.

2[(3A) Where any amount is included in rent received or receivable by any person for the provision of amenities, utilities or any other service connected with the renting of the building, such amount shall be chargeable to tax under the head “Income from Other Sources”.]
(4) Subject to sub-section (5), where the rent received or receivable by a person is less than the fair market rent for the property, the person shall be treated as having derived the fair market rent for the period the property is let on rent in the tax year.
(5) Sub-section (4) shall not apply where the fair market rent is included in the income of the lessee chargeable to tax under the head “Salary”.
3[ ]
4[ ]

5[ ]

1 Substituted for the word “in” by the Finance Act, 2003.
2 Inserted by the Finance Act, 2003.
3 Sub-section (6) omitted by the Finance Act, 2013. The omitted sub-section (6) read as follows:
“(6) Income under this section shall be liable to tax at the rate specified in Division VI of Part I of the First Schedule.”
4Sub-section (7) omitted by the Finance Act, 2013. The omitted sub-section (6) read as follows: “(7) the provisions of sub-section (1), shall not apply in respect of a taxpayer who—
(i) is an individual or association of persons;
(ii) derives income chargeable to tax under this section not exceeding Rs. 150,000 in a tax year; and
(iii) does not derive taxable income under any other head.”
5 Clause (6) inserted by the Finance Act, 2016.

1[ ]
2[ ]
3[ ]
4[15A. Deductions in computing income chargeable under the head “Income from Property”.— (1) In computing the income of a 5[ ] 6[person] chargeable to tax under the head “Income from Property” for a tax year, a deduction shall be allowed for the following expenditures or allowances, namely:-

(a) In respect of repairs to a building, an allowance equal to one-fifth of the rent chargeable to tax in respect of the building for the year, computed before any deduction allowed under this section;

(b) any premium paid or payable by the 7[ ] 8[person] in the year to insure the building against the risk of damage or destruction;

(c) any local rate, tax, charge or cess in respect of the property or the rent from the property paid or payable by the 9[ ] 10[person] to any local authority or government in the year, not being any tax payable under this Ordinance;

(d) any ground rent paid or payable by the 11[ ] 12[person] in the year in respect of the property;

(e) any profit paid or payable by the 13[ ] 14[person] in the year on any money borrowed including by way of mortgage, to acquire, construct, renovate, extend or reconstruct the property;

1 Clause (6) omitted by the Finance Act, 2021. The omitted clause read as follows:
“(6) Income under this section derived by an individual or an association of persons shall be liable to tax at the rate specified in Division VIA of Part I of the First Schedule.”
2 Clause (7) inserted by the Finance Act, 2016.
3 Clause (7) omitted by the Finance Act, 2021. The omitted clause read as follows:
“(7) The provisions of sub-section (1), shall not apply in respect of an individual or association of persons who derive income chargeable to tax under this section not exceeding two hundred thousand rupees in a tax year and does not derive taxable income under any other head.”
4Inserted by the Finance Act, 2013.
5 The word “person” substituted by the Finance Act, 2016.
6 The word “company” substituted by the Finance Act, 2021.

(f) where the property has been acquired, constructed, renovated, extended, or reconstructed by the 1[ ] 2[person] with capital contributed by the House Building Finance Corporation or a scheduled bank under a scheme of investment in property on the basis of sharing the rent made by the Corporation or bank, the share in rent and share towards appreciation in the value of property (excluding the return of capital, if any) from the property paid or payable by the 3[ ] 4[person] to the said Corporation or the bank in the year under that scheme;
(g) where the property is subject to mortgage or other capital charge, the amount of profit or interest paid on such mortgage or charge;

5[(h) any expenditure, not exceeding 6[four] per cent of the rent chargeable to tax in respect of the property for the year computed before any deduction allowed under this section, paid or payable by the 7[ ] 8[person] in the year wholly and exclusively for the purpose of deriving rent chargeable to tax under the head, “Income from Property” including administration and collection charges;”]

(i) any expenditure paid or payable by the 9[ ] 10[person] in the tax year for legal services acquired to defend the 11[ ] 12[persons]’s title to the property or any suit connected with the property in a court; and

(j) where there are reasonable grounds for believing that any unpaid rent in respect of the property is irrecoverable, an allowance equal to the unpaid rent where—

(i) the tenancy was bona fide, the defaulting tenant has vacated the property or steps have been taken to compel the tenant to vacate the property and the defaulting tenant is not in occupation of any other property of the 13[ ] 14[person];

1The word “person” substituted by the Finance Act, 2016.
2 The word “company” substituted by the Finance Act, 2021.
3The word “person” substituted by the Finance Act, 2016.
4 The word “company” substituted by the Finance Act, 2021.
5Clause (h) substituted by the Finance Act, 2015. The substituted (h) read as follows:-
“(h) any expenditure (not exceeding six per cent of the rent chargeable to tax in respect of the property for the year computed before any deduction allowed under this section) paid or payable by the person in the year for the purpose of collecting the rent due in respect of the property;”
6The word “six” substituted by “four” through Finance Act, 2020 dated 30th June, 2020

(ii) the 1[ ] 2[persons] has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or has reasonable grounds to believe that legal proceedings would be useless; and
(iii) the unpaid rent has been included in the income of the 3[ ] 4[persons] chargeable to tax under the head “Income from Property” for the tax year in which the rent was due and tax has been duly paid on such income.

(2) Where any unpaid rent allowed as a deduction under clause (j) of sub-section (1) is wholly or partly recovered, the amount recovered shall be chargeable to tax in the tax year in which it is recovered.

(3) Where a person has been allowed a deduction for any expenditure incurred in deriving rent chargeable to tax under the head “Income from Property” and the person has not paid the liability or a part of the liability to which the deduction relates within three years of the end of the tax year in which the deduction was allowed, the unpaid amount of the liability shall be chargeable to tax under the head “Income from Property” in the first tax year following the end of the three years.

(4) Where an unpaid liability is chargeable to tax as a result of the application of sub-section (3) and the person subsequently pays the liability or a part of the liability, the person shall be allowed a deduction for the amount paid in the tax year in which the payment is made.

(5) Any expenditure allowed to a person under this section as a deduction shall not be allowed as a deduction in computing the income of the person chargeable to tax under any other head of income.

(6) The provisions of section 21 shall apply in determining the deductions allowed to a person under this section in the same manner as they apply in determining the deductions allowed in computing the income of a person chargeable to tax under the head “Income from Business”.]

5[ ]

6[ ]

16. Non-adjustable amounts received in relation to buildings.— (1) Where the owner of a building receives from a tenant an amount which is not adjustable against the rent payable by the tenant, the amount shall be treated as rent chargeable to tax under the head “Income from Property” in the tax year in which it was received and the following nine tax years in equal proportion.

(2) Where an amount (hereinafter referred to as the “earlier amount”) referred to in sub-section (1) is refunded by the owner to the tenant on termination of the tenancy before the expiry of ten years, no portion of the amount shall be allocated to the tax year in which it is refunded or to any subsequent tax year except as provided for in sub-section (3).
(3) Where the circumstances specified in sub-section (2) occur and the owner lets out the building or part thereof to another person (hereinafter referred to as the “succeeding tenant”) and receives from the succeeding tenant any amount (hereinafter referred to as the “succeeding amount”) which is not adjustable against the rent payable by the succeeding tenant, the succeeding amount as reduced by such portion of the earlier amount as was charged to tax shall be treated as rent chargeable to tax under the head “Income from Property” as specified in sub-section (1).
1[ ]

“(7) Notwithstanding sub-section (6) of section 15, the provisions of this section shall apply to an individual or an association of persons,6[ ] who opts to pay tax at the rate specified in Division I of Part I of the First Schedule.”
1 Section 17 omitted by the Finance Act, 2006. The omitted section 17 read as follows:
“17. Deductions in computing income chargeable under the head “Income from Property”.- (1) In computing the income of a person chargeable to tax under the head “Income from Property” for a tax year, a deduction shall be allowed for the following expenditures or allowances, namely:–
(a) In respect of repairs to a building, an allowance equal to one-fifth of the rent chargeable to tax in respect of the building for the year, computed before any deduction allowed under this section;
(b) any premium paid or payable by the person in the year to insure the building against the risk of damage or destruction;
(c) any local rate, tax, charge, or cess in respect of the property or the rent from the property paid or payable by the person to any local authority or government in the year, not being any tax payable under this Ordinance;
(d) any ground rent paid or payable by the person in the year in respect of the property;
(e) any profit paid or payable by the person in the year on any money borrowed including by way of mortgage, to acquire, construct, renovate, extend, or reconstruct the property;
(f) where the property has been acquired, constructed, renovated, extended, or reconstructed by the person with capital contributed by the House Building Finance Corporation or a scheduled bank under a scheme of investment in property on the basis of sharing the rent made by the Corporation or bank, the share in rent and share towards appreciation in the value of property (excluding the return of capital, if any) from the property paid or payable by the person to the said Corporation or the bank in the year under that scheme;
(fa) where the property is subject to mortgage or other capital charge, the amount of profit or interest paid on such mortgage or charge;
(g) any expenditure (not exceeding six per cent of the rent chargeable to tax in respect of the property for the year computed before any deduction allowed under this section) paid or payable by the person in the year for the purpose of collecting the rent due in respect of the property;

PART IV
HEAD OF INCOME: INCOME FROM BUSINESS
Division I
Income from Business
18. Income from business.— (1) The following incomes of a person for a tax year, other than income exempt from tax under this Ordinance, shall be chargeable to tax under the head “Income from Business” —

(a) the profits and gains of any business carried on by a person at any time in the year;

(b) any income derived by any trade, professional or similar association from the sale of goods or provision of services to its members 1[.

Explanation.– For the removal of doubt, it is clarified that income derived by co-operative societies from the sale of goods, immoveable property or provision of services to its members is

(h) any expenditure paid or payable by the person in the tax year for legal services acquired to defend the person’s title to the property or any suit connected with the property in a Court; and
(i) where there are reasonable grounds for believing that any unpaid rent in respect of the property is irrecoverable, an allowance equal to the unpaid rent where –
(i) the tenancy was bona fide, the defaulting tenant has vacated the property or steps have been taken to compel the tenant to vacate the property, and the defaulting tenant is not in occupation of any other property of the person;
(ii) the person has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or has reasonable grounds to believe that legal proceedings would be useless; and
(iii) the unpaid rent has been included in the income of the person chargeable to tax under the head “Income from Property” for the tax year in which the rent was due and tax has been duly paid on such income.
(2) Where any unpaid rent allowed as a deduction under clause (i) of sub-section (1) is wholly or partly recovered, the amount recovered shall be chargeable to tax in the tax year in which it is recovered.
(3) Where a person has been allowed a deduction for any expenditure incurred in deriving rent chargeable to tax under the head “Income from Property” and the person has not paid the liability or a part of the liability to which the deduction relates within three years of the end of the tax year in which the deduction was allowed, the unpaid amount of the liability shall be chargeable to tax under the head “Income from Property” in the first tax year following the end of the three years.
(4) Where an unpaid liability is chargeable to tax as a result of the application of sub-section
(3) and the person subsequently pays the liability or a part of the liability, the person shall be allowed a deduction for the amount paid in the tax year in which the payment is made.
(5) Any expenditure allowed to a person under this section as a deduction shall not be allowed as a deduction in computing the income of the person chargeable to tax under any other head of income.
(6) The provisions of section 21 shall apply in determining the deductions allowed to a person under this section in the same manner as they apply in determining the deductions allowed in computing the income of a person chargeable to tax under the head “Income from Business”.”
1 Semi colon substituted and Explanation added by the Finance Act, 2021.

and has always been chargeable to tax under the provisions of this Ordinance;]

(c) any income from the hire or lease of tangible movable property;

(d) the fair market value of any benefit or perquisite, whether convertible into money or not, derived by a person in the course of, or by virtue of, a past, present, or prospective business relationship1[.]

2[Explanation. — For the purposes of this clause, it is declared that the word ‘benefit’ includes any benefit derived by way of waiver of profit on debt or the debt itself under the State Bank of Pakistan Banking Policy Department’s Circular No.29 of 2002 or in any other scheme issued by the State Bank of Pakistan;]
(e) any management fee derived by a management company (including a modaraba 3[management company] ).]
4[Explanation.—For the removal of doubt it is clarified that income subject to taxation under sections 5A, 5AA, 6, 7 and 7A shall not be chargeable to tax under this section.”]
(2) Any profit on debt derived by a person where the person’s business is to derive such income shall be chargeable to tax under the head “Income from Business” and not under the head “Income from Other Sources”.

5[(3) Where a 6[lessor], being a scheduled bank or an investment bank or a development finance institution or a modaraba or a leasing company has leased out any asset, whether owned by it or not, to another person, any amount paid or payable by the said person in connection with the lease of said asset shall be treated as the income of the said 7[lessor] and shall be chargeable to tax under the head “Income from Business”.]
8[(4) Any amount received by a banking company or a non-banking finance company, where such amount represents distribution by a mutual fund 9[or a

1The semi-colon and the word “and” substituted by the Finance Act, 2011.
2Inserted by the Finance Act, 2011. 3 Inserted by the Finance Act, 2002 4 Added by the Finance Act, 2018
5 Added by the Finance Act, 2003.
6The word “lesser” substituted by the word “lessor” by the Finance Act, 2014. 7The word “lesser” substituted by the word “lessor” by the Finance Act, 2014. 8Added by the Finance Act, 2003.
9Inserted by the Finance Act, 2007.

Private Equity and Venture Capital Fund] out of its income from profit on debt, shall be chargeable to tax under the head “Income from Business” and not under the head “Income from Other Sources”.]
19. Speculation business.— (1) Where a person carries on a speculation business –
(a) that business shall be treated as distinct and separate from any other business carried on 1[by]the person;

(b) this Part shall apply separately to the speculation business and the other business of the person; b head “Income from Business” for that year; and
(e) any loss of the person arising from the speculation business sustained for a tax year computed in accordance with this Part shall be dealt with under section 58.
(2) In this section, “speculation business” means any business in which a contract for the purchase and sale of any commodity (including 2[stocks] and shares) is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity, but does not include a business in which —
(a) a contract in respect of raw materials or merchandise is entered into by a person in the course of a manufacturing or mercantile business to guard against loss through future price fluctuations for the purpose of fulfilling the person’s other contracts for the actual delivery of the goods to be manufactured or merchandise to be sold;
(b) a contract in respect of stocks and shares is entered into by a dealer or investor therein to guard against loss in the person’s holding of stocks and shares through price fluctuations; or

(c) a contract is entered into by a member of a forward market or stock exchange in the course of any transaction in the nature of jobbing 3[arbitrage] to guard against any loss which may arise in the ordinary course of the person’s business as such member.

 

 

 

1Inserted by the Finance Act, 2002
2 The word “stock” substituted by the Finance Act, 2005.
3 The word “arbitrate” substituted by the Finance Act, 2005.

Division II
Deductions: General Principles

20. Deductions in computing income chargeable under the head “Income from Business”.— (1) Subject to this Ordinance, in computing the income of a person chargeable to tax under the head “Income from Business” for a tax year, a deduction shall be allowed for any expenditure incurred by the person in the year 1[wholly and exclusively for the purposes of business].

2[(1A) Subject to this Ordinance, where animals which have been used for the purposes of the business or profession otherwise than as stock-in-trade and have died or become permanently useless for such purposes, 3[a deduction shall be allowed equal to] the difference between the actual cost to the taxpayer of the animals and the amount, if any, realized in respect of the carcasses or animals.]

(2) Subject to this Ordinance, where the expenditure referred to in sub- section (1) is incurred in acquiring a depreciable asset or an intangible with a useful life of more than one year or is pre-commencement expenditure, the person must depreciate or amortise the expenditure in accordance with sections 22, 23, 24 and 25.

4[(3) Subject to this Ordinance, where any expenditure is incurred by an amalgamated company on legal and financial advisory services and other administrative cost relating to planning and implementation of amalgamation, a deduction shall be allowed for such expenditure.]

21. Deductions not allowed.— Except as otherwise provided in this Ordinance, no deduction shall be allowed in computing the income of a person under the head “Income from Business” for —

(a) any cess, rate or tax paid or payable by the person in Pakistan or a foreign country that is levied on the profits or gains of the business or assessed as a percentage or otherwise on the basis of such profits or gains;
(b) any amount of tax deducted under Division III of Part V of Chapter X from an amount derived by the person;

 

1 The words “to the extent the expenditure is incurred in deriving income from business chargeable to tax” substituted by the Finance Act, 2004.
2Inserted by the Finance Act, 2009.
3 Inserted by the Finance Act, 2021.
4 Added by the Finance Act, 2002

1[(c) any expenditure from which the person is required to deduct or collect tax under Part V of Chapter X or Chapter XII, unless the person has paid or deducted and paid the tax as required by Division IV of Part V of Chapter X:
Provided that disallowance in respect of purchases of raw materials and finished goods under this clause shall not exceed twenty per cent of purchases of raw materials and finished goods:
Provided further that recovery of any amount of tax under sections 161 or 162 shall be considered as tax paid.]
2[(ca) any amount of commission paid or payable in respect of supply of products listed in the Third Schedule of the Sales Tax Act, 1990, where the amount of commission paid or payable exceeds 0.2 percent of gross amount of supplies thereof unless the person to whom commission is paid or payable, as the case may be, is appearing in the active taxpayer list under this Ordinance;]
(d) any entertainment expenditure in excess of such limits 3[or in violation of such conditions] as may be prescribed;
(e) any contribution made by the person to a fund that is not a recognized provident fund4[,]5[approved pension fund], approved superannuation fund or approved gratuity fund;
6[(ea) an amount in excess of fifty percent of contribution made by a person to an approved gratuity fund, an approved pension fund or an approved superannuation fund.]
(f) any contribution made by the person to any provident or other fund established for the benefit of employees of the person, unless the person has made effective arrangements to secure that tax is deducted under section 149 from any payments made

 

1Clause (c) substituted by the Finance Act, 2016. The substituted clause (c) read as follows:
“(c) any salary, rent, brokerage or commission, profit on debt, payment to non-resident, payment for services or fee paid by the person from which the person is required to deduct tax under Division III of Part V of Chapter X or section 233 of chapter XII, 1[unless] the person has 1[paid or] deducted and paid the tax as required by Division IV of Part V of Chapter X”
2New clause (ca) inserted by Finance Act, 2019.
3 Inserted by the Finance Act, 2003.
4Inserted by Finance Act, 2014.
5 Inserted by the Finance Act, 2005.
6 Clause (ea) inserted by the Finance Act, 2022.

by the fund in respect of which the recipient is chargeable to tax under the head “Salary”;
(g) any fine or penalty paid or payable by the person for the violation of any law, rule or regulation;
(h) any personal expenditures incurred by the person;
(i) any amount carried to a reserve fund or capitalised in any way;
(j) any profit on debt, brokerage, commission, salary or other remuneration paid by an association of persons to a member of the association;
1[ ]
2[(l) any expenditure for a transaction, paid or payable under a single account head which, in aggregate, exceeds 3[two hundred and fifty] thousand rupees, made other than by a crossed cheque drawn on a bank or by crossed bank draft or crossed pay order or any other crossed banking instrument showing transfer of amount from the business bank account of the taxpayer:
Provided that online transfer of payment from the business account of the payer to the business account of payee as well as payments through credit card shall be treated as transactions through the banking channel, subject to the condition that such transactions are verifiable from the bank statements of the respective payer and the payee:
Provided further that this clause shall not apply in the case of—
(a) expenditures not exceeding 4[twenty-five] thousand rupees;
(b) expenditures on account of —

1 Clause (k) omitted by the Finance Act, 2006. The omitted clause (k) read as follows:
“(k) any expenditure paid or payable by an employer on the provision of perquisites and allowances to an employee where the sum of the value of the perquisites computed under section 13 and the amount of the allowances exceeds fifty per cent of the employee’s salary for a tax year (excluding the value of the perquisites or amount of the allowances);”
2 Clause (l) substituted by the Finance Act, 2006. The substituted clause (l) read as follows:
“(l) any expenditure paid or payable under a single account head which, in aggregate, exceeds fifty thousand rupees made other than by a crossed bank cheque or crossed bank draft, except expenditures not exceeding ten thousand rupees or on account of freight charges, travel fare, postage, utilities or payment of taxes, duties, fee, fines or any other statutory obligation;”
3 Expression substituted through Finance Act, 2020 dated 30th June, 2020
4 Expression substituted through Finance Act, 2020 dated 30th June, 2020

(i) utility bills;
(ii) freight charges;
(iii) travel fare;
(iv) postage; and
(v) payment of taxes, duties, fee, fines or any other statutory obligation 1[:]]
2[Provided further also that this clause shall not apply to a company from the date clause (la) has been made effective through the notification issued by the Board.

(la) any expenditure by a taxpayer being a company for a transaction, paid or payable under a single account head which, in aggregate, exceeds rupees two hundred and fifty thousand, made other than by digital means from business bank account of the taxpayer notified to the Commissioner under section 114A:

Provided that this clause shall not apply in the case of-

(a) expenditures not exceeding Rupees twenty-five thousand; and
(b) expenditures on account of —
(i) utility bills;
(ii) freight charges;
(iii) travel fare;
(iv) postage; and
(v) payment of taxes, duties, fee, fines or any other statutory obligation:

Provided further that this clause shall be effective from such date as the Board may notify.]

(m) any salary paid or payable exceeding 3[twenty-five] thousand rupees per month other than by a crossed cheque or direct

 

 

1 Semi colon substituted by the Finance Act, 2022.
2 Inserted by the Finance Act, 2022.
3The word “fifteen” substituted by the Finance Act, 2020 dated 30th June, 2020.

transfer of funds to the employee’s bank account 1[or through digital means]; 2[ ]
(n) except as provided in Division III of this Part, any expenditure paid or payable of a capital nature; 3[ ]
4[“(o) any expenditure in respect of sales promotion, advertisement and publicity in excess of 5[ten] per cent of turnover incurred by pharmaceutical manufacturers 6[;]”]
7[(p) any expenditure on account of utility bill in excess of such limits and in violation of such conditions as may be prescribed; and
(q) any expenditure attributable to sales made to persons required to be registered but not registered under the Sales Tax Act, 1990 by an industrial undertaking computed according to the following formula, namely:-

(A/B) x C
Where—
A is the total amount of deductions claimed under this Part; B is the turnover for the tax year; and
C is the total amount of sales exclusive of sales tax and federal excise duty to persons required to be registered but not registered under the Sales Tax, 1990 where sales equal or exceed rupees one hundred million per person:
Provided that disallowance of expenditure under this clause shall not exceed ten percent of total deductions claimed under this Part:
Provided further that the Board may, by notification in the official Gazette, exempt persons or classes of persons from this clause subject to such conditions and limitations as may be specified therein:

 

1 Inserted by the Finance Act, 2022.
2The word “and” omitted by the Finance Act, 2016.
3The word “and” omitted by the Finance Act, 2020 dated 30th June, 2020.
4Inserted by the Finance Act, 2016
5The word “five” substituted by the Finance Act, 2017
6 Full stop substituted by semi colon through Finance Act, 2020 dated 30th June, 2020
7 New clauses (p) and (q) added through Finance Act, 2020 dated 30th June, 2020

Provided also that this clause shall come into force with effect from the first day of October, 2020.]
1[(r) any expenditure attributable to sales claimed by any person who is required to integrate but fails to integrate his business with the Board through approved fiscal electronic device and software:

Provided that disallowance of expenditure under this clause shall not exceed eight percent of the allowable deduction.]

Division III
Deductions: Special Provisions

22. Depreciation.— (1) Subject to this section, a person shall be allowed a deduction for the depreciation of the person’s depreciable assets used in the person’s business in the tax year.
(2) Subject to 2[sub-section] (3) 3[ ], the depreciation deduction for a tax year shall be computed by applying the rate specified in Part I of the Third Schedule against the written down value of the asset at the beginning of the year 4[:]
5[ ]

(3) Where a depreciable asset is used in a tax year partly in deriving income from business chargeable to tax and partly for another use, the deduction allowed under this section for that year shall be restricted to the fair proportional part of the amount that would be allowed if the asset 6[was] wholly used to 7[derive] income from business chargeable to tax.

 

 

 

1 Inserted by the Finance Act, 2022.
2 The word “sub-sections” substituted by the Finance Act, 2005.
3 The word, brackets and figure “and (4)” omitted by Finance Act, 2004.
4 Full stop substituted by colon and thereafter the new proviso added through Finance Act, 2020 dated 30th June, 2020
5 Proviso omitted by the Finance Act, 2022. The omitted proviso read as follows:
“Provided that where a depreciable asset is used in the person’s business for the first time in a tax year commencing on or after the 1st day of July, 2020, the depreciation deduction shall be reduced by fifty percent.”
6The word “were” substituted by the Finance Act, 2010.
7 The word “derived” substituted by the Finance Act, 2003.

1[ ]

(5) The written down value of a depreciable asset of a person at the beginning of the tax year shall be —

(a) where the asset was acquired in the tax year, the cost of the asset to the person as reduced by any initial allowance in respect of the asset under section 23; or

(b) in any other case, the cost of the asset to the person as reduced by the total depreciation deductions (including any initial allowance under section 23) allowed to the person in respect of the asset in previous tax years.
2[“Explanation,- For the removal of doubt, it is clarified that where any building, furniture, plant or machinery is used for the purposes of business during any tax year for which the income from such business is exempt, depreciation admissible under sub-section (1) shall be treated to have been allowed in respect of the said tax year and after expiration of the exemption period, written down value of such assets shall be determined after reducing total depreciation deductions (including any initial allowance under section 23) in accordance with clauses (a) and (b) of this sub-section.”]
(6) Where sub-section (3) applies to a depreciable asset for a tax year, the written down value of the asset shall be computed on the basis that the asset has been solely used to derive income from business chargeable to tax.
(7) The total deductions allowed to a person during the period of ownership of a depreciable asset under this section and section 23 shall not exceed the cost of the asset.
(8) Where, in any tax year, a person disposes of a depreciable asset, no depreciation deduction shall be allowed under this section for that year and —

 

1 Sub-section (4) omitted by the Finance Act, 2004. The omitted sub-section (4) reads as follows:
“(4) Where a depreciable asset is not used for the whole of the tax year in deriving income from business chargeable to tax, the deduction allowed under this section shall be computed according to the following formula, namely:–
A x B/C
where –
A is the amount of depreciation computed under sub-section (2) or (3), as the case may be;
B is the number of months in the tax year the asset is used in deriving income from business chargeable to tax; and
C is the number of months in the tax year.”
2 Inserted by the Finance Act, 2016.

(a) if the consideration received exceeds the written down value of the asset at the time of disposal, the excess shall be chargeable to tax in that year under the head “Income from Business”; or
(b) if the consideration received is less than the written down value of the asset at the time of disposal, the difference shall be allowed as a deduction in computing the person’s income chargeable under the head “Income from Business” for that year 1[:]
2[ ]
(9) Where sub-section (3) applies, the written down value of the asset for the purposes of sub-section (8) shall be increased by the amount that is not allowed as a deduction as a result of the application of sub-section (3).
(10) Where clause (a) of sub-section (13) applies, the 3[consideration received on disposal] of the passenger transport vehicle for the purposes of sub- section (8) shall be computed according to the following formula —
A x B/C
where –
A is the 4[amount] received on disposal of the vehicle;
B is the amount referred to in clause (a) of sub-section (13); and
C is the actual cost of acquiring the vehicle.
(11) Subject to sub-sections (13) and (14), the rules in Part III of Chapter IV shall apply in determining the cost and consideration received in respect of a depreciable asset for the purposes of this section.

5[(12) The depreciation deductions allowed to a leasing company or an investment bank or a modaraba or a scheduled bank or a development finance institution in respect of assets owned by the leasing company or an investment bank or a modaraba or a scheduled bank or a development finance institution and

1 Full stop substituted by colon and thereafter the new proviso added through Finance Act, 2020 dated 30th June, 2020
2 Proviso omitted by the Finance Act, 2022. The omitted proviso read as follows:
“Provided that where a depreciable asset is used in the person’s business for the first time in a tax year commencing on or after the 1st day of July, 2020, depreciation deduction equal to fifty percent of the rate specified in Part I of the Third Schedule shall be allowed in the year of disposal.”.
3 The words “written down value” substituted by the Finance Act, 2004.
4 The word “consideration” substituted by the Finance Act, 2004.
5 Sub-section (12) substituted by the Finance Act, 2002. The substituted sub-section (12) read as follows:
“(12) The depreciation deductions allowed to a leasing company in respect of assets owned by the company and leased to another person shall be deductible only against the lease rental
income derived in respect of such assets.”

leased to another person shall be deductible only against the lease rental income derived in respect of such assets.]

(13) For the purposes of this section, —

(a) the cost of a depreciable asset being a passenger transport vehicle not plying for hire shall not exceed 1[seven and a half] million rupees;
2[ ]
(b) the cost of immovable property or a structural improvement to immovable property shall not include the cost of the land;
3[(c) any asset owned by a leasing company or an investment bank or a modaraba or a scheduled bank or a development finance institution and leased to another person is treated as used in the leasing company or the investment bank or the modaraba or the scheduled bank or the development finance institution’s business; and]

(d) where the consideration received on the disposal of immovable property exceeds the cost of the property, the consideration received shall be treated as the cost of the property.
(14) Where a depreciable asset that has been used by a person in Pakistan is exported or transferred out of Pakistan, the person shall be treated as having disposed of the asset at the time of the export or transfer for a consideration received equal to the cost of the asset.
(15) In this section, —
“depreciable asset” means any tangible movable property, immovable property (other than unimproved land), or structural improvement to immovable property, owned by a person that —
(a) has a normal useful life exceeding one year;
(b) is likely to lose value as a result of normal wear and tear, or obsolescence; and

1 The expression “1[two]1[and half]” substituted by the Finance Act, 2022.
2Proviso omitted by the Finance Act, 2009. The omitted proviso read as follows:
“Provided that the prescribed limit of one million rupees shall not apply to passenger transport vehicles, not plying for hire, acquired on or after the first day of July, 2005.”
3Clause (c) substituted by the Finance Act, 2002. The substituted clause read as follows:
“(c) an asset owned by a financial institution or leasing company and leased to another person is treated as used in the financial institution or leasing company’s business; and”.

(c) is used wholly or partly by the person in deriving income from business chargeable to tax,
but shall not include any tangible movable property, immovable property, or structural improvement to immovable property in relation to which a deduction has been allowed under another section of this Ordinance for the entire cost of the property or improvement in the tax year in which the property is acquired or improvement made by the person; and

“structural improvement” in relation to immovable property, includes any building, road, driveway, car park, railway line, pipeline, bridge, tunnel, airport runway, canal, dock, wharf, retaining wall, fence, power lines, water or sewerage pipes, drainage, landscaping or dam1[:]

2[“Provided that where a depreciable asset is jointly owned by a taxpayer and an Islamic financial institution licensed by the State Bank of Pakistan or Securities and Exchange Commission of Pakistan, as the case may be, pursuant to an arrangement of Musharika financing or diminishing Musharika financing, the depreciable asset shall be treated to be wholly owned by the taxpayer.”;]

23. Initial allowance.—(1) A person who places an eligible depreciable asset into service in Pakistan for the first time in a tax year shall be allowed a deduction (hereinafter referred to as an “initial allowance”) computed in accordance with sub- section (2), provided the asset is 3[used by the person for the purposes of his business for the first time or the tax year in which commercial production is commenced, whichever is later].
(2) The amount of the initial allowance of a person shall be computed by applying the rate specified in Part II of the Third Schedule against the cost of the asset.
(3) The rules in section 76 shall apply in determining the cost of an eligible depreciable asset for the purposes of this section.
4[(4) A deduction allowed under this section to a leasing company or an investment bank or a modaraba or a scheduled bank or a development finance institution in respect of assets owned by the leasing company or the investment

1Fullstop substituted by Finance Act, 2017.
2Added by the Finance Act, 2017.
3Substituted for “wholly and exclusively used by the person in deriving income from business chargeable to tax” by Finance Act,2004 dated June 24,2004 w.e.f July 1,2004
4 Sub-section (4) substituted by the Finance Act, 2002. The substituted sub-section (4) read as follows: “(4) A deduction allowed under this section to a leasing company in respect of assets owned
by the company and leased to another person shall be deductible only against the lease rental income derived in respect of such assets.”

bank or the modaraba or the scheduled bank or the development finance institution and leased to another person shall be deducted only against the leased rental income derived in respect of such assets.]
(5) In this section, “eligible depreciable asset” means a depreciable asset
1[ ] other than —
(a) any road transport vehicle unless the vehicle is plying for hire;
(b) any furniture, including fittings;
(c) any plant or machinery2[that has been used previously in Pakistan]; 3[ ]
(d) any plant or machinery in relation to which a deduction has been allowed under another section of this Ordinance for the entire cost of the asset in the tax year in which the asset is acquired 4[; or
(e) immovable property or structural improvement to the immovable property.]

5[ ]
6[ ]
7[23B. Accelerated depreciation to alternate energy projects.— (1) Any plant, machinery and equipments installed for generation of alternate energy by an industrial undertaking set up anywhere in Pakistan and owned and managed by a company shall be allowed first year allowance in lieu of initial allowance under

 

1 The words and comma “that is plant and machinery,” omitted by the Finance Act, 2003.
2The words “that is acquired second hand” substituted by the Finance Act.2003
3 The word “or” omitted by the Finance Act, 2022.
4 The full stop substituted with semi colon and the word “or” and thereafter clause (e) added by the Finance Act, 2022.
5Inserted by the Finance Act, 2008.
6 Section 23A omitted by the Finance Act, 2021. Earlier this omission was made through Tax Laws (Second Amendment) Ordinance, 2021. The omitted section read as follows:
“23A. First Year Allowance.— (1) Plant, machinery and equipment installed by any industrial
undertaking set up in specified rural and under developed areas 6[or engaged in the manufacturing of cellular mobile phones and qualifying for exemption under clause (126N) of Part I of the Second Schedule] and owned and managed by a company shall be allowed first year allowance in lieu of initial allowance under section 23 at the rate specified in Part II of the Third Schedule against the cost of the “eligible depreciable assets” put to use after July 1, 2008.
(2) The provisions of section 23 except sub-sections (1) and (2) thereof, shall mutatis mutandis
apply.
(3) The Federal Government may notify “specified areas” for the purposes of sub-section (1).]
7Inserted by the Finance Act, 2009.

section 23, at the rate specified in Part II of the Third Schedule against the cost of the eligible depreciation assets put to use after first day of July, 2009.
(2) The provisions of section 23 except sub-sections (1) and (2) thereof, shall mutatis mutandis apply.]
24. Intangibles.—(1) A person shall be allowed an amortisation deduction in accordance with this section in a tax year for the cost of the person’s intangibles–
(a) that are wholly or partly used by the person in the tax year in deriving income from business chargeable to tax; and
(b) that have a normal useful life exceeding one year.
(2) No deduction shall be allowed under this section where a deduction has been allowed under another section of this Ordinance for the entire cost of the intangible in the tax year in which the intangible is acquired.
(3) Subject to sub-section (7), the amortization deduction of a person for a tax year shall be computed according to the following formula, namely:—

A B
where —
A is the cost of the intangible; and
B is the normal useful life of the intangible in whole years.
1[(4) An intangible that does not have an ascertainable useful life shall be treated as if it had a normal useful life of twenty-five years.]

(5) Where an intangible is used in a tax year partly in deriving income from business chargeable to tax and partly for another use, the deduction allowed under this section for that year shall be restricted to the fair proportional part of the amount that would be allowed if the intangible were wholly used to derive income from business chargeable to tax.

(6) Where an intangible is not used for the whole of the tax year in deriving income from business chargeable to tax, the deduction allowed under this section shall be computed according to the following formula, namely: —

 

1 In sub-section 4 of section 24 is substituted by the Finance Act, 2019, the substituted sub-section read as follow:
(4) An intangible —
(a) with a normal useful life of more than ten years; or
(b) that does not have an ascertainable useful life, shall be treated as if it had a normal useful life of ten years.

A x B/C
where —

A is the amount of 1[amortization] computed under sub-section (3) or (5), as the case may be;

B is the number of days in the tax year the intangible is used in deriving income from business chargeable to tax; and

C is the number of days in the tax year.

(7) The total deductions allowed to a person under this section in the current tax year and all previous tax years in respect of an intangible shall not exceed the cost of the intangible.

(8) Where, in any tax year, a person disposes of an intangible, no amortisation deduction shall be allowed under this section for that year and —

(a) if the consideration received by the person exceeds the written down value of the intangible at the time of disposal, the excess shall be income of the person chargeable to tax in that year under the head “Income from Business”; or

(b) if the consideration received is less than the written down value of the intangible at the time of disposal, the difference shall be allowed as a deduction in computing the person’s income chargeable under the head “Income from Business” in that year.

(9) For the purposes of sub-section (8) —

(a) the written down value of an intangible at the time of disposal shall be the cost of the intangible reduced by the total deductions allowed to the person under this section in respect of the intangible or, where the intangible is not wholly used to derive income chargeable to tax, the amount that would be allowed under this section if the intangible were wholly so used; and

(b) the consideration received on disposal of an intangible shall be determined in accordance with section 77.

(10) For the purposes of this section, an intangible that is available for use on a day (including a non-working day) is treated as used on that day.

1 The word “depreciation” substituted by the Finance Act, 2002

(11) In this section, —

“cost” in relation to an intangible, means any expenditure incurred in acquiring or creating the intangible, including any expenditure incurred in improving or renewing the intangible; and

“intangible” means any patent, invention, design or model, secret formula or process, copyright 1[, trade mark, scientific or technical knowledge, computer software, motion picture film, export quotas, franchise, licence, intellectual property], or other like property or right, contractual rights and any expenditure that provides an advantage or benefit for a period of more than one year (other than expenditure incurred to acquire a depreciable asset or unimproved land, 2[but shall not include self-generated goodwill or any adjustment arising on account of accounting treatment in the manner as may be prescribed]

25. Pre-commencement expenditure.—(1) A person shall be allowed a deduction for any pre-commencement expenditure in accordance with this section.
(2) Pre-commencement expenditure shall be amortized on a straight-line basis at the rate specified in Part III of the Third Schedule.
(3) The total deductions allowed under this section in the current tax year and all previous tax years in respect of an amount of pre-commencement expenditure shall not exceed the amount of the expenditure.
(4) No deduction shall be allowed under this section where a deduction has been allowed under another section of this Ordinance for the entire amount of the pre-commencement expenditure in the tax year in which it is incurred.
(5) In this section, “pre-commencement expenditure” means any expenditure incurred before the commencement of a business wholly and exclusively to derive income chargeable to tax, including the cost of feasibility studies, construction of prototypes, and trial production activities, but shall not include any expenditure which is incurred in acquiring land, or which is depreciated or amortised under section 22 or 24.

26. Scientific research expenditure.— (1) A person shall be allowed a deduction for scientific research expenditure incurred in Pakistan in a tax year wholly and exclusively for the purpose of deriving income from business chargeable to tax.

(2) In this section —

1 Inserted by the Finance Act, 2003.
2The words Inserted by the Finance Act, 2019.

“scientific research” means any 1[activity] 2[undertaken in Pakistan] in the fields of natural or applied science for the development of human knowledge;

“scientific research expenditure” means any expenditure incurred by a person on scientific research 3[undertaken in Pakistan] for the purposes of developing the person’s business, including any contribution to a scientific research institution to undertake scientific research for the purposes of the person’s business, other than expenditure incurred –

(a) in the acquisition of any depreciable asset or intangible;

(b) in the acquisition of immovable property; or

(c) for the purpose of ascertaining the existence, location, extent or quality of a natural deposit; and

“scientific research institution” means any institution certified by the
4[Board] as conducting scientific research in Pakistan.

27. Employee training and facilities.— A person shall be allowed a deduction for any expenditure (other than capital expenditure) incurred in a tax year in respect of—

(a) any educational institution or hospital in Pakistan established for the benefit of the person’s employees and their dependents;

(b) any institute in Pakistan established for the training of industrial workers recognized, aided, or run by the Federal Government 5[or a Provincial Government] or a 6[Local Government]; or
(c) the training of any person, being a citizen of Pakistan, in connection with a scheme approved by the 7[Board] for the purposes of this section.

28. Profit on debt, financial costs and lease payments.— (1) Subject to this Ordinance, a deduction shall be allowed for a tax year for —

1 The word “activities” substituted by the Finance Act, 2002
2 Inserted by the Finance Act, 2003.
3 Inserted by the Finance Act, 2003.
4The words “Central Board of Revenue” substituted by the Finance Act, 2007.
5Inserted by the Finance Act, 2003.
6The words “local authority” substituted by the Finance Act, 2008.
7The words “Central Board of Revenue” substituted by the Finance Act, 2007.

(a) any profit on debt incurred by a person in the tax year to the extent that the proceeds or benefit of the debt have been used by the person 1[for the purposes of business];

(b) any lease rental incurred by a person in the tax year to a scheduled bank, financial institution, an approved modaraba, an approved leasing company or a Special Purpose Vehicle on behalf of the Originator for an asset used by the person 2[for the purposes of business] 3[:]

4[Provided that for the purpose of determining the deduction on account of lease rentals the cost of a passenger transport vehicle not paying for hire to the extent of principal amount shall not exceed two and a half million rupees;]
(c) any amount incurred by a person in the tax year to a modaraba or a participation term certificate holder for any funds borrowed and used by the person 5[for the purposes of business];
(d) any amount incurred by a scheduled bank in the tax year to a person maintaining a profit or loss sharing account or a deposit with the bank as a distribution of profits by the bank in respect of the account or deposit;
(e) any amount incurred by the House Building Finance Corporation (hereinafter referred to as “the Corporation”) constituted under the House Building Finance Corporation Act, 1952 (XVIII of 1952), in the tax year to the State Bank of Pakistan (hereinafter referred to as “the Bank”) as the share of the Bank in the profits derived by the Corporation on its investment in property made under a scheme of partnership in profit and loss, where the investment is provided by the Bank under the House Building Finance Corporation (Issue and Redemption of Certificates) Regulations, 1982;

 

1 The words “in deriving income chargeable to tax under the head “Income from Business” substituted by the Finance Act, 2004.
2 The words “in deriving income chargeable to tax under the head “Income from Business”
substituted by the Finance Act, 2004.
3 Sami colon substituted by colon and thereafter the new proviso added through Finance Act, 2020 dated 30th June, 2020

4 Proviso added through Finance Act, 2020 dated 30th June, 2020
5 The words “in deriving income chargeable to tax under the head “Income from Business” substituted by the Finance Act, 2004.

(f) any amount incurred by the National Development Leasing Corporation Limited (hereinafter referred to as “the Corporation”) in the tax year to the State Bank of Pakistan (hereinafter referred to as “the Bank”) as the share of the Bank in the profits derived by the Corporation on its leasing operations financed out of a credit line provided by the Bank on a profit and loss sharing basis;
(g) any amount incurred by the 1[Small and Medium Enterprises Bank (hereinafter referred to as “the SME Bank”)]in the tax year to the State Bank of Pakistan (hereinafter referred to as the “Bank”) as the share of the Bank in the profits derived by the 2[SME Bank] on investments made in small business out of a credit line provided by the Bank on a profit and loss sharing basis;
(h) any amount incurred by a person in the tax year to a banking company under a scheme of musharika representing the bank’s share in the profits of the musharika;

(i) any amount incurred by a person in the tax year to a certificate holder under a musharika scheme approved by the Securities and Exchange Commission and Religious Board formed under the Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980 (XXXI of 1980) representing the certificate holder’s share in the profits of the musharika; or

(j) the financial cost of the securitization of receivables incurred by an Originator in the tax year from a Special Purpose Vehicle being the difference between the amount received by the Originator and the amount of receivables securitized from a Special Purpose Vehicle.

(2) Notwithstanding any other provision in this Ordinance, where any assets are transferred by an Originator, as a consequence of securitisation3[“or issuance of sukuks”], to a Special Purpose Vehicle, it shall be treated as a financing transaction irrespective of the method of accounting adopted by the Originator.

(3) In this section, —

 

1The words “Small Business Finance Corporation (hereinafter referred to as “the Corporation”)” substituted by the Finance Act, 2009.
2The word “Corporation” substituted by the Finance Act, 2011.
3 Inserted by the Presidential Order No.F.2(1)/2016-Pub dated 31.08.2016.

“approved leasing company” means a leasing company approved by the 1[Board] for the purposes of clause (b) of sub-section (1); and “approved modaraba” means a modaraba approved by the 2[Board] for the purposes of clause (b) of sub-section (1).

29. Bad debts.— (1) A person shall be allowed a deduction for a bad debt in a tax year if the following conditions are satisfied, namely:—

(a) the amount of the debt was –

(i) previously included in the person’s income from business chargeable to tax; or

(ii) in respect of money lent by a financial institution in deriving income from business chargeable to tax;

(b) the debt or part of the debt is written off in the accounts of the person in the tax year; and

(c) there are reasonable grounds for believing that the debt is irrecoverable.

(2) The amount of the deduction allowed to a person under this section for a tax year shall not exceed the amount of the debt written off in the accounts of the person in the tax year.
(3) Where a person has been allowed a deduction in a tax year for a bad debt and in a subsequent tax year the person receives in cash or kind any amount in respect of that debt, the following rules shall apply, namely:–
(a) where the amount received exceeds the difference between the whole of such bad debt and the amount previously allowed as a deduction under this section, the excess shall be included in the person’s income under the head “Income from Business” for the tax year in which it was received; or
(b) where the amount received is less than the difference between the whole of such bad debt and the amount allowed as a deduction under this section, the shortfall shall be allowed as a bad debt deduction in computing the person’s income under the head “Income from Business” for the tax year in which it was received.

1The words “Central Board of Revenue” substituted by the Finance Act, 2007.
2The words “Central Board of Revenue” substituted by the Finance Act, 2007.

1[29A. Provision regarding consumer loans.— (1) A 2[ ] 3[non-banking
finance company or the House Building Finance Corporation] shall be allowed a deduction, not exceeding three per cent of the income for the tax year, arising out of consumer loans for creation of a reserve to off-set bad debts arising out of such loans.
(2) Where bad debt cannot be wholly set off against reserve, any amount of bad debt, exceeding the reserves shall be carried forward for adjustment against the reserve for the following years.]
4[Explanation.— In this section, “consumer loan” means a loan of money or its equivalent made by 5[ ] a non-banking finance company or the House Building Finance Corporation to a debtor (consumer) and the loan is entered primarily for personal, family or household purposes and includes debts created by the use of a lender credit card or similar arrangement as well as insurance premium financing.]
30. Profit on non-performing debts of a banking company or development finance institution.—(1) A banking company or development finance institution 6[or Non-Banking Finance Company (NBFC) or modaraba] shall be allowed a deduction for any profit accruing on a non-performing debt of the banking company or institution 7[or Non-Banking Finance Company (NBFC) or modaraba] where the profit is credited to a suspense account in accordance with the Prudential Regulations for Banks or 8[Non- Banking Finance Company or modaraba] Non-bank Financial Institutions, as the case may be, issued by the State Bank of Pakistan 9[or the Securities and Exchange Commission of Pakistan].
(2) Any profit deducted under sub-section (1) that is subsequently recovered by the banking company or development finance institution 10[or Non- Banking Finance Company (NBFC) or modaraba] shall be included in the income of the company or institution 11[or Non-Banking Finance Company (NBFC) or modaraba] chargeable under the head “Income from Business” for the tax year in which it is recovered.

1 Inserted by the Finance Act, 2003.
2The words “banking company or” omitted by the Finance Act, 2009.
3 Inserted by the Finance Act, 2004.
4 Added by the Finance Act, 2004.
5The words “a banking company or” omitted by the Finance Act, 2009.
6 Inserted by the Finance Act, 2003.
7 Inserted by the Finance Act, 2003.
8 The words “Non-bank Financial Institutions” substituted by the Finance Act, 2003.
9 Inserted by the Finance Act, 2003. 10 Inserted by the Finance Act, 2003. 11 Inserted by the Finance Act, 2003.

31. Transfer to participatory reserve.—(1) Subject to this section, a company shall be allowed a deduction for a tax year for any amount transferred by the company in the year to a participatory reserve created under 1[section 66 of the Companies Act, 2017 (XIX of 2017)] in accordance with an agreement relating to participatory redeemable capital entered into between the company and a banking company as defined in the2[Financial Institutions(Recovery of Finances) Ordinance,2001 (XLVI of 2001).]

(2) The deduction allowed under subsection (1) for a tax year shall be limited to five per cent of the value of the company’s participatory redeemable capital.

(3) No deduction shall be allowed under subsection (1) if the amount of the tax exempted accumulation in the participatory reserve exceeds ten per cent of the amount of the participatory redeemable capital.

(4) Where any amount accumulated in the participatory reserve of a company has been allowed as a deduction under this section is applied by the company towards any purpose other than payment of share of profit on the participatory redeemable capital or towards any purpose not allowable for deduction or exemption under this Ordinance the amount so applied shall be included in the income from business of the company in the tax year in which it is so applied.

 

 

 

 

 

 

 

 

 

 

1 The expression “section 120 of the Companies Ordinance, 1984 (XLVII of 1984)” substituted by the Finance Act, 2021.
2The words “Banking Tribunals Ordinance, 1984” substituted by the words “Financial Institutions
(Recovery Of Finances) Ordinance, 2001 (XLVI of 2001) by the Finance Act 2014”.

Division IV
Tax Accounting

32. Method of accounting.—1[(1) Subject to this Ordinance, a person’s income chargeable to tax shall be computed in accordance with the method of accounting regularly employed by such person.]

(2) Subject to sub-section (3), a company shall account for income chargeable to tax under the head “Income from Business” on an accrual basis, while other persons may account for such income on a cash or accrual basis.

(3) The 2[Board] may prescribe that any class of persons shall account for income chargeable to tax under the head “Income from Business” on a cash or accrual basis.

(4) A person may apply, in writing, for a change in the person’s method of accounting and the Commissioner may, by 3[order] in writing, approve such an application but only if satisfied that the change is necessary to clearly reflect the person’s income chargeable to tax under the head “Income from Business”.

(5) If a person’s method of accounting has changed, the person shall make adjustments to items of income, deduction, or credit, or to any other items affected by the change so that no item is omitted and no item is taken into account more than once.

33. Cash-basis accounting.—A person accounting for income chargeable to tax under the head “Income from Business” on a cash basis shall derive income when it is received and shall incur expenditure when it is paid.

34. Accrual-basis accounting.—(1) A person accounting for income chargeable to tax under the head “Income from Business” on an accrual basis shall derive income when it is due to the person and shall incur expenditure when it is payable by the person.

(2) Subject to this Ordinance, an amount shall be due to a person when the person becomes entitled to receive it even if the time for discharge of the entitlement is postponed or the amount is payable by instalments.

 

1 Sub-section (1) substituted by the Finance Act, 2003. The substituted sub-section (1) read as follows: “(1) A person’s income chargeable to tax under the head “Income from Business” shall be
computed in accordance with the method of accounting regularly employed by the person.”
2The words “Central Board of Revenue” substituted by the Finance Act, 2007.
3 Substituted for the word “notice” by the Finance Act, 2003.

(3) Subject to this Ordinance, an amount shall be payable by a person when all the events that determine liability have occurred and the amount of the liability can be determined with reasonable accuracy 1[ ].

2[ ]

(5) Where a person has been allowed a deduction for any expenditure incurred in deriving income chargeable to tax under the head “Income from Business” and the person has not paid the liability or a part of the liability to which the deduction relates within three years of the end of the tax year in which the deduction was allowed, the unpaid amount of the liability shall be chargeable to tax under the head “Income from Business” in the first tax year following the end of the three years.

3[(5A) Where a person has been allowed a deduction in respect of a trading liability and such person has derived any benefit in respect of such trading liability, the value of such benefit shall be chargeable to tax under 4[the] head “Income from Business” for the tax year in which such benefit is received.]

(6) Where an unpaid liability is chargeable to tax as a result of the application of sub-section (5) and the person subsequently pays the liability or a part of the liability, the person shall be allowed a deduction for the amount paid in the tax year in which the payment is made.

35. Stock-in-trade.— (1) For the purposes of determining a person’s income chargeable to tax under the head “Income from Business” for a tax year, the cost of stock-in-trade disposed of by the person in the year shall be computed in accordance with the following formula, namely:—

(A + B) – C
where —

A is the opening value of the person’s stock-in-trade for the year;

B is cost of stock-in-trade acquired by the person in the year; and

1The comma and words “, but not before economic performance occurs” omitted by the Finance Act, 2004.
2 Sub-section (4) omitted by the Finance Act, 2004. The omitted sub-section (4) read as follows: “(4) For the purposes of sub-section (3), economic performance shall occur –
(a) in the case of the acquisition of services or assets, at the time the services or
assets are provided;
(b) in the case of the use of assets, at the time the assets are used; and
(c) in any other case, at the time payment is made in full satisfaction of the liability.”
3 Inserted by the Finance Act, 2003.
4 Inserted by the Finance Act, 2005.

C is the closing value of stock-in-trade for the year.
(2) The opening value of stock-in-trade of a person for a tax year shall be —
(a) the closing value of the person’s stock-in-trade at the end of the previous year; or
(b) where the person commenced to carry on business in the year, the fair market value of any stock-in-trade acquired by the person prior to the commencement of the business.
(3) The fair market value of stock-in-trade referred to in clause (b) of sub- section (2) shall be determined at the time the stock-in-trade is ventured in the business.
(4) The closing value of a person’s stock-in-trade for a tax year shall be the lower of cost or 1[net realisable]value of the person’s stock-in-trade on hand at the end of the year.
(5) A person accounting for income chargeable to tax under the head “Income from Business” on a cash basis may compute the person’s cost of stock- in-trade on the prime-cost method or absorption-cost method, and a person accounting for such income on an accrual basis shall compute the person’s cost of stock-in-trade on the absorption-cost method.
(6) Where particular items of stock-in-trade are not readily identifiable, a person may account for that stock on the first-in-first-out method or the average- cost method but, once chosen, a stock valuation method may be changed only with the written permission of the Commissioner and in accordance with any conditions that the Commissioner may impose.
(7) In this section, —
“absorption-cost method” means the generally accepted accounting principle under which the cost of an item of stock-in-trade is the sum of direct material costs, direct labour costs, and factory overhead costs;
“average-cost method” means the generally accepted accounting principle under which the valuation of stock-in-trade is based on a weighted average cost of units on hand;
“direct labour costs” means labour costs directly related to the manufacture or production of stock-in-trade;

 

1 Substituted for the words “fair market” by the Finance Act, 2002

“direct material costs” means the cost of materials that become an integral part of the stock-in-trade manufactured or produced, or which are consumed in the manufacturing or production process;
“factory overhead costs” means the total costs of manufacturing or producing stock-in-trade, other than direct labour and direct material costs;

“first-in-first-out method” means the generally accepted accounting principle under which the valuation of stock-in-trade is based on the assumption that stock is sold in the order of its acquisition;

“prime-cost method” means the generally accepted accounting principle under which the cost of stock-in-trade is the sum of direct material costs, direct labour costs, and variable factory overhead costs;

“stock-in-trade” means anything produced, manufactured, purchased, or otherwise acquired for manufacture, sale or exchange, and any materials or supplies to be consumed in the production or manufacturing process, but does not include stocks or shares; and

“variable factory overhead costs” means those factory overhead costs which vary directly with changes in volume of stock-in-trade manufactured or produced.
36. Long-term contracts.— (1) A person accounting for income chargeable to tax under the head “Income from Business” on an accrual basis shall compute such income arising for a tax year under a long-term contract on the basis of the percentage of completion method.
(2) The percentage of completion of a long-term contract in a tax year shall be determined by comparing the total costs allocated to the contract and incurred before the end of the year with the estimated total contract costs as determined at the commencement of the contract.
(3) In this section, —
“long-term contract” means a contract for manufacture, installation, or construction, or, in relation to each, the performance of related services, which is not completed within the tax year in which work under the contract commenced, other than a contract estimated to be completed within six months of the date on which work under the contract commenced; and
“percentage of completion method” means the generally accepted accounting principle under which revenue and expenses arising under a long-term contract are recognised by reference to the stage of completion of the contract, as modified by sub-section (2).

PART V
HEAD OF INCOME: CAPITAL GAINS

37. Capital gains.— (1) Subject to this Ordinance, a gain arising on the disposal of a capital asset by a person in a tax year, other than a gain that is exempt from tax under this Ordinance, shall be chargeable to tax in that year under the head “Capital Gains”.

1[ ]

2[(1A) Notwithstanding anything contained in sub-section (1), gain arising on disposal of immovable property situated in Pakistan, to a person in a tax year shall be chargeable to tax under the head capital gains at the rates specified in Division VIII of Part I of the First Schedule.]

(2) Subject to 3[sub-section (4)], the gain arising on the disposal of a capital asset by a person shall be computed in accordance with the following formula, namely:–

A – B
where —

A is the consideration received by the person on disposal of the asset; and

B is the cost of the asset.

4[ ]

 

1Inserted by the Finance Act, 2012.
2 Sub-section (1A) substituted by the Finance Act, 2022. Substituted sub-section (1A) reads as follows:
“(1A) Notwithstanding anything contained in sub-sections (1) and (3) gain 2[under sub-section (3A) 2[ ] ] 2[ ] by a person in a tax year, shall be chargeable to tax in that year under the head Capital
Gains at the rates specified in Division VIII of Part I of the First Schedule.”
3 The expression “sub-sections (3) and” omitted by the Finance Act, 2022.
4 Sub-section (3) omitted by the Finance Act, 2022. Omitted sub-section (3) reads as follows:
“(3)Where a capital asset has been held by a person for more than one year,4[other than shares of public companies including the vouchers of Pakistan Telecommunication Corporation, modaraba certificates or any instrument of redeemable capital as defined in the 4[Companies Act, 2017 (XIX of 2017)], ] the amount of any gain arising on disposal of the asset shall be computed in accordance with the following formula, namely: —
A x ¾
where A is the amount of the gain determined under sub-section (2).”

1[ ]

2[ ]

3[ ]

 

1 The sub-section (3A) substituted through Finance Act, 2020 dated 30th June, 2020 the substituted sub-section read as follows:
(3A) Notwithstanding anything contained in sub-section (3), the amount of any gain arising on
disposal of immovable property being an open plot shall be computed in accordance with the formula specified in the Table below, namely:-
TABLE
S.No. Holding Period Gain
(1) (2) (3)
1. Where the holding period of open plot does not exceed one year A
2. Where the holding period of open plot exceeds one year but does not
exceed eight years A x 3/4
3. Where the holding period of open plot exceeds eight years 0
where A is the amount of the gain determined under sub-section (2).
2 Sub-sections (3A) omitted by the Finance Act, 2022. Omitted sub-section reads as follows:
(3A) Notwithstanding anything contained in sub-section (3), the amount of any gain arising on disposal of an immovable property shall be computed in accordance with the formula specified in the Table below, namely:-
TABLE
S.No. Holding period Gain
(1) (2) (3)
1. Where the holding period of an immovable property
does not exceed one year A
2. Where the holding period of an immovable property
exceeds one year but does not exceed two years A x 3/4
3. Where the holding period of an immovable property
exceeds two years but does not exceed three years A x 1/2
4. Where the holding period of an immovable property
exceeds three years but does not exceed four years A x 1/4
5. Where the holding period of an immovable property
exceeds four years 0
where A is the amount of gain determined under sub-section (2).]
3 Sub-section (3B) omitted through Finance Act, 2020 dated 30th June, 2020. The omitted clause read as follows: (3B) Notwithstanding anything contained in sub-section (3), the amount of any gain arising on disposal of immovable property being a constructed property shall be computed in accordance with the formula specified in the Table below, namely:-
TABLE
S.No. Holding Period Gain
(1) (2) (3)
1. Where the holding period of constructed property does not exceed one year A
2. Where the holding period of constructed property exceeds one year but does not exceed four years A x 3/4
3. Where the holding period of constructed property exceeds four years 0
where A is the amount of the gain determined under sub-section (2).]

(4) For the purposes of determining component B of the formula in sub- section (2), no amount shall be included in the cost of a capital asset for any expenditure incurred by a person –

(a) that is or may be deducted under another provision of this Chapter; or
(b) that is referred to in section 21.

1[ ]

2[ ]

(5) In this section, “capital asset” means property of any kind held by a person, whether or not connected with a business, but does not include —

3[(a) any stock-in-trade 4[ ], consumable stores or raw materials held for the purpose of business;]

(b) any property with respect to which the person is entitled to a depreciation deduction under section 22 or amortisation deduction under section 24; 5[or]

6[ ]

(d) any movable property 7[excluding capital assets specified in sub-section (5) of section 38] held for personal use by the

1 Inserted by the Finance Act, 2003.
2 Sub-section (4A) omitted through Finance Act, 2022. Omitted sub-section read as follows: “(4A)Where the capital asset becomes the property of the person —
(a) under a gift 2[from a relative as defined in sub section (5) of section 85], bequest or will;
(b) by succession, inheritance or devolution;
(c) a distribution of assets on dissolution of an association of persons; or
(d) on distribution of assets on liquidation of a company,
the fair market value of the asset, on the date of its transfer or acquisition by the person shall be treated to be the cost of the asset 2[:
Provided that, if the capital asset acquired through gift is disposed of within two years of acquisition and the Commissioner is satisfied that such gift arrangement is a part of tax avoidance scheme, then the provisions of sub-section (3) of section 79 shall apply for the purpose of determining the cost of asset in the hands of recipient of the gift.]
3 The brackets and words “(a) any stock-in-trade;” substituted by the Finance Act, 2002 4The brackets and words “(not being stocks and shares)” omitted by the Finance Act, 2010. 5Inserted by the Finance Act, 2012.
6Clause (c) omitted by the Finance Act, 2012. Omitted clause (c) read as follows:- “(c) any immovable property; or”
7 The brackets, commas and words “(including wearing apparel, jewellery, or furniture)” substituted
by the Finance Act, 2003.

person or any member of the person’s family dependent on the person1[.]

2[ ]

3[37A. Capital gain on disposal of securities.—(1) The capital gain arising on or after the first day of July 2010, from disposal of securities4[ ]5[, other than a gain that is exempt from tax under this Ordinance], shall be chargeable to tax at the rates specified in Division VII of Part I of the First Schedule:

6[ ]

Provided 7[ ] that this section shall not apply to a banking company and an insurance company.

8[(1A) The gain arising on the disposal of a security by a person shall be computed in accordance with the following formula, namely: —

A – B
Where —

(i) ‘A’ is the consideration received by the person on disposal of the security; and

(ii) ‘B’ is the cost of acquisition of the security.]

(2) The holding period of a security, for the purposes of this section, shall be reckoned from the date of acquisition (whether before, on or after the thirtieth day of June, 2010) to the date of disposal of such security falling after the thirtieth day of June, 2010.

 

1 The comma and word “; or” substituted by the Finance Act, 2002
2 Clause (e) omitted by the Finance Act, 2001. The omitted clause (e) read as follows:
“(e) any modaraba certificate or any instrument of redeemable capital listed on any stock exchange or shares of a public company.”
3Added by the Finance Act, 2010.
4 Omitted by Finance Act, 2015. The omitted words read as follows:- “ held for a period of less than a year,”
5Inserted by the Finance Act, 2012.
5 The First proviso omitted by Finance Act, 2014. The omitted proviso read as follows:
“Provided that this section shall not apply if the securities are held for a period of more than a year.”
7The word “further” omitted by Finance Act, 2014
8Inserted by the Finance Act,2012.

(3) For the purposes of this section “security” means share of a public company, voucher of Pakistan Telecommunication Corporation, Modaraba Certificate, an instrument of redeemable capital1[,debt Securities] 2[, unit of exchange traded fund] and derivative products.

3[(3A) For the purpose of this section, “debt securities” means –

(a) Corporate Debt Securities such as Term Finance Certificates (TFCs), Sukuk Certificates (Sharia Compliant Bonds), Registered Bonds, Commercial Papers, Participation Term Certificates (PTCs) and all kinds of debt instruments issued by any Pakistani or foreign company or corporation registered in Pakistan; and

(b) Government Debt Securities such as Treasury Bills (T-bills), Federal Investment Bonds (FIBs), Pakistan Investment Bonds (PIBs), Foreign Currency Bonds, Government Papers, Municipal Bonds, Infrastructure Bonds and all kinds of debt instruments issued by Federal Government, Provincial Governments, Local Authorities and other statutory bodies.]

4[“Explanation: For removal of doubt it is clarified that derivative products include future commodity contracts entered into by the members of Pakistan Mercantile Exchange whether or not settled by physical delivery.”]

5[(3B) For the purpose of this section, “shares of a public company” shall be considered as security if such company is a public company at the time of disposal of such shares.]

(4) Gain under this section shall be treated as a separate block of income.

(5) Notwithstanding anything contained in this Ordinance, where a person sustains a loss on disposal of securities in a tax year, the loss shall be set off only against the gain of the person from any other securities chargeable to tax under this section and no loss shall be carried forward to the subsequent tax year 6[:]

 

1Inserted by the Finance Act, 2014.
2 Inserted by the Finance Act, 2021.
3The sub-section (3A) inserted by the Finance Act, 2014.
4Inserted by the Finance Act, 2016.
5 New sub-section (3B) inserted through Finance Act, 2020 dated 30th June, 2020
6 Full stop substituted by colon through Finance Supplementary (Second Amendment) Act, 2019

1[Provided that so much of the loss sustained on disposal of securities in tax year 20l9 and onwards that has not been set off against the gain of the person from disposal of securities chargeable to tax under this section shall be carried forward to the following tax year and set off only against the gain of the person from disposal of securities chargeable to tax under this section, but no such loss shall be carried forward to more than three tax years immediately succeeding the tax year for which the loss was first computed.]
2[(6) To carry out purpose of this section, the Board may prescribe rules.]
38. Deduction of losses in computing the amount chargeable under the head “Capital Gains”.— (1) Subject to this Ordinance, in computing the amount of a person chargeable to tax under the head “Capital Gains” for a tax year, a deduction shall be allowed for any loss on the disposal of a capital asset by the person in the year.
(2) No loss shall be deducted under this section on the disposal of a capital asset where a gain on the disposal of such asset would not be chargeable to tax.
(3) The loss arising on the disposal of a capital asset by a person shall be computed in accordance with the following formula, namely: —

A – B
where —

A is the cost of the asset; and
B is the consideration received by the person on disposal of the asset.
(4) The provisions of sub-section (4) of section 37 shall apply in determining component A of the formula in sub-section (3).
(5) No loss shall be recognized under this Ordinance on the disposal of the following capital assets, namely:—

(a) A painting, sculpture, drawing or other work of art;
(b) jewellery;
(c) a rare manuscript, folio or book;
(d) a postage stamp or first day cover;
(e) a coin or medallion; or
(f) an antique.

 

1 New Proviso added through Finance Supplementary (Second Amendment) Act, 2019
2 Added by the Finance Act, 2021.

PART VI
HEAD OF INCOME: INCOME FROM OTHER SOURCES

39. Income from other sources. — (1) Income of every kind received by a person in a tax year, 1[if it is not included in any other head,] other than income exempt from tax under this Ordinance, shall be chargeable to tax in that year under the head “Income from Other Sources”, including the following namely: —

(a) 2[Dividend;]

(b) 3[royalty;]

(c) profit on debt;

4[(cc) additional payment on delayed refund under any tax law;]

(d) ground rent;

(e) rent from the sub-lease of land or a building;

(f) income from the lease of any building together with plant or machinery;

5[(fa) income from provision of amenities, utilities or any other service connected with renting of building;]

(g) any annuity or pension;

(h) any prize bond, or winnings from a raffle, lottery6[, prize on winning a quiz, prize offered by companies for promotion of sale] or cross-word puzzle;

(i) any other amount received as consideration for the provision, use or exploitation of property, including from the grant of a right to explore for, or exploit, natural resources;

 

1 Inserted by the Finance Act, 2002
2 The word “Dividends” substituted by the Finance Act, 2002 3 The word “royalties” substituted by the Finance Act, 2002 4Inserted by the Finance Act, 2012.
5 Inserted by the Finance Act, 2003.
6 Inserted by the Finance Act, 2003.

(j) the fair market value of any benefit, whether convertible to money or not, received in connection with the provision, use or exploitation of property; 1[ ]
(k) any amount received by a person as consideration for vacating the possession of a building or part thereof, reduced by any amount paid by the person to acquire possession of such building or part thereof; 2[ ]
3[(l) any amount received by a person from Approved Income Payment Plan or Approved Annuity Plan under Voluntary Pension System Rules, 20054[; and]

5[(Ia) subject to sub-section (3), any amount or fair market value of any property received without consideration or received as gift, other than gift received from 6[relative as defined in sub-section
(5) of section 85].]
7[ 8[ ] ]
(2) Where a person receives an amount referred to in clause (k) of sub- section (1), the amount shall be chargeable to tax under the head “Income from Other Sources” in the tax year in which it was received and the following nine tax years in equal proportion.
(3) Subject to sub-section (4), any amount received as a loan, advance, deposit 9[for issuance of shares] or gift by a person in 10[a tax year]from another person (not being a banking company or financial institution) otherwise than by a crossed cheque drawn on a bank or through a banking channel from a person holding a National Tax Number 11[ ] shall be treated as income chargeable to tax under the head “Income from Other Sources” for the tax year in which it was received.

1The word “and” omitted by the Finance Act, 2014. 2 The word “and” omitted by the Finance Act, 2019. 3 Added by the Finance Act, 2005.
4 The “full stop” substituted by word “;and” by the Finance Act, 2019.
5 New clause (Ia) inserted by the Finance Act, 2019.
6 The expression “grandparents, parents, spouse, brother, sister, son or a daughter” substituted by the Finance Act, 2021.
7 Clause (m) added by the Finance Act, 2014.
8 Clause (m) omitted by the Finance Act, 2018,the omitted clause(m) reads as follows:- “(m) income arising to the shareholder of a company, from the issuance of bonus shares”
9 Inserted by the Finance Act, 2003.
10 The words “an income year” substituted by the Finance Act, 2002
11 The word “Card” omitted by the Finance Act, 2006.

(4) Sub-section (3) shall not apply to an advance payment for the sale of goods or supply of services.
1[(4A) Where —
(a) any profit on debt derived from investment in National Savings Deposit Certificates including Defence Savings Certificate paid to a person in arrears or the amount received includes profit chargeable to tax in the tax year or years preceding the tax year in which it is received; and

(b) as a result the person is chargeable at higher rate of tax than would have been applicable if the profit had been paid to the person in the tax year to which it relates,

the person may, by notice in writing to the Commissioner, elect for the profit to be taxed at the rate of tax that would have been applicable if the profit had been paid to the person in the tax year to which it relates.]

2[(4B) An election under sub-section (4A) shall be made by the due date for furnishing the person’s return of income for the tax year in which the amount was received or by such later date as the Commissioner may allow by an order in writing.]
(5) This section shall not apply to any income received by a person in a tax year that is chargeable to tax under any other head of income or subject to tax under section 3[5, 5AA, 6, 7 or 7B].
4[ ]
40. Deductions in computing income chargeable under the head “Income from Other Sources”.— (1) Subject to this Ordinance, in computing the income of a person chargeable to tax under the head “Income from Other Sources” for a tax year, a deduction shall be allowed for any expenditure paid by the person in the year to the extent to which the expenditure is paid in deriving income chargeable to tax under that head, other than expenditure of a capital nature.
(2) A person receiving any profit on debt chargeable to tax under the head “Income from Other Sources” shall be allowed a deduction for any Zakat paid by the person 5[ ] under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980), at the time the profit is paid to the person.

1 Inserted by the Finance Act, 2003.
2 Inserted by the Finance Act, 2003.
3 The expression “5, 6 or 7” substituted by the Finance Act, 2021.
4 Sub-section (6) omitted by the Finance Act, 2002. The omitted sub-section (6) read as follows: “(6) Expenditure is of a capital nature if it has a normal useful life of more than one year.”
5 The words “on the profit” omitted by the Finance Act, 2003.

(3) A person receiving income referred to in clause 1[ ] (f) of sub-section
(1) of section 39 chargeable to tax under the head “Income from Other Sources” shall be allowed —
(a) a deduction for the depreciation of any plant, machinery or building used to derive that income in accordance with section 22; and
(b) an initial allowance for any plant or machinery used to derive that income in accordance with section 23.
(4) No deduction shall be allowed to a person under this section to the extent that the expenditure is deductible in computing the income of the person under another head of income.
(5) The provisions of section 21 shall apply in determining the deductions allowed to a person under this section in the same manner as they apply in determining the deductions allowed in computing the income of the person chargeable to tax under the head “Income from Business”.
2[(6) Expenditure is of a capital nature if it has a normal useful life of more than one year.]

 

 

 

 

 

 

 

 

 

 

 

1 The brackets, letter and word “(e) or” omitted by the Finance Act, 2003.
2 Added by the Finance Act, 2002.

PART VII
EXEMPTIONS AND TAX CONCESSIONS

41. Agricultural income. — (1) Agricultural income derived by a person shall be exempt from tax under this Ordinance.

(2) In this section, “agricultural income” means, —

(a) any rent or revenue derived by a person from land which is situated in Pakistan and is used for agricultural purposes;

(b) any income derived by a person from land situated in Pakistan from —

(i) agriculture;

(ii) the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by such person to render the produce raised or received by the person fit to be taken to market; or

(iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by such person, in respect of which no process has been performed other than a process of the nature described in sub-clause (ii); or

(c) any income derived by a person from —

(i) any building owned and occupied by the receiver of the rent or revenue of any land described in clause (a) or (b);

(ii) any building occupied by the cultivator, or the receiver of rent-in-kind, of any land in respect of which, or the produce of which, any operation specified in sub-clauses
(ii) or (iii) of clause (b) is carried on,

but only where the building is on, or in the immediate vicinity of the land and is a building which the receiver of the rent or revenue, or the cultivator, or the receiver of the rent-in-kind by reason of the person’s connection with the land, requires as a dwelling-house, a store-house, or other out-building.

42. Diplomatic and United Nations exemptions. — (1) The income of an individual entitled to privileges under the Diplomatic and Consular Privileges Act, 1972 (IX of 1972) shall be exempt from tax under this Ordinance to the extent provided for in that Act.

(2) The income of an individual entitled to privileges under the United Nations (Privileges and Immunities) Act, 1948 (XX of 1948), shall be exempt from tax under this Ordinance to the extent provided for in that Act.

(3) Any pension received by a person, being a citizen of Pakistan, by virtue of the person’s former employment in the United Nations or its specialised agencies (including the International Court of Justice) provided the person’s salary from such employment was exempt under this Ordinance.

43. Foreign government officials.— Any salary received by an employee of a foreign government as remuneration for services rendered to such government shall be exempt from tax under this Ordinance provided —

(a) the employee is a citizen of the foreign country and not a citizen of Pakistan;

(b) the services performed by the employee are of a character similar to those performed by employees of the Federal Government in foreign countries; 1[and]

(c) the foreign government grants a similar exemption to employees of the Federal Government performing similar services in such foreign country2[.]

3[ ]

44. Exemptions under international agreements.— (1) Any Pakistan-source income which Pakistan is not permitted to tax under a tax treaty shall be exempt from tax under this Ordinance.

(2) Any salary received by an individual (not being a citizen of Pakistan) shall be exempt from tax under this Ordinance to the extent provided for in an Aid Agreement between the Federal Government and a foreign government or public international organization, where –

 

1 Added by the Finance Act, 2002
2 The comma and word “,and” substituted by the Finance Act, 2002
3 Clause (d) omitted by the Finance Act, 2002. The omitted clause (d) read as under: “(d) the income is subject to tax in that foreign country.”

(a) the individual is either 1[not a resident] individual or a resident individual solely by reason of the performance of services under the Aid Agreement;

(b) if the Aid Agreement is with a foreign country, the individual is a citizen of that country; and

(c) the salary is paid by the foreign government or public international organisation out of funds or grants released as aid to Pakistan in pursuance of such Agreement.

(3) Any income received by 2[any person] engaged as a contractor, consultant, or expert on a project in Pakistan shall be exempt from tax under this Ordinance to the extent provided for in a bilateral or multilateral 3[ ] agreement between the Federal Government and a foreign government or public international organisation, where —

(a) the project is financed out of grant funds in accordance with the agreement;

(b) the person is either a non-resident person or a resident person solely by reason of the performance of services under the agreement; and

(c) the income is paid out of the funds of the grant in pursuance of the agreement.

4[(4) Federal Government may, in respect of an official development assistance financed loans and grants-in-aid, subject to such conditions and limitations as it may specify, exempt income of any person on a case to case basis through a notification in the official Gazette.]

45. President’s honours.— (1) Any allowance attached to any Honour, Award, or Medal awarded to a person by the President of Pakistan shall be exempt from tax under this Ordinance.

(2) Any monetary award granted to a person by the President of Pakistan shall be exempt from tax under this Ordinance.

 

1 The words “a non-resident” substituted by the Finance Act, 2003.
2 The expression “a person (not being a citizen of Pakistan)” substituted by the Finance Act, 2022.
3 The expression “technical assistance” omitted by the Finance Act, 2022.
4 Sub-section (4) inserted by the Finance Act, 2022.

46. Profit on debt.— Any profit received by a non-resident person on a security issued by a resident person shall be exempt from tax under this Ordinance where—

(a) the persons are not associates;

(b) the security was widely issued by the resident person outside Pakistan for the purposes of raising a loan outside Pakistan for use in a business carried on by the person in Pakistan;

(c) the profit was paid outside Pakistan; and
(d) the security is approved by the 1[Board] for the purposes of this section.
47. Scholarships.— Any scholarship granted to a person to meet the cost of the person’s education shall be exempt from tax under this Ordinance, other than where the scholarship is paid directly or indirectly by an associate.
48. Support payments under an agreement to live apart.—2[Any income received by a spouse as support payment under an agreement to live apart] shall be exempt from tax under this Ordinance.
49. Federal 3[Government,] Provincial Government, and 4[Local Government] income.— (1) The income of the Federal Government shall be exempt from tax under this Ordinance.
(2) The income of a Provincial Government or a 5[Local Government] in Pakistan shall be exempt from tax under this Ordinance, other than income chargeable under the head “Income from Business” derived by a Provincial Government or 6[Local Government] from a business carried on outside its jurisdictional area.
7[(3) Subject to sub-section (2), any payment received by the Federal Government, a Provincial Government or a 8[Local Government] shall not be liable to any collection or deduction of advance tax.]

1The words “Central Board of Revenue” substituted by the Finance Act, 2007.
2 The words “Any support payment received by a spouse under an agreement to live apart” substituted by the Finance Act, 2002.
3 The word “and” substituted by the Finance Act, 2009.
4The words “local authority” substituted by the Finance Act, 2008. 5The words “local authority” substituted by the Finance Act, 2008. 6The words “local authority” substituted by the Finance Act, 2008. 7Added by the Finance Act, 2006.
8The words “local authority” substituted by the Finance Act, 2008.

1[(4) Exemption under this section shall not be available in the case of corporation, company, a regulatory authority, a development authority, other body or institution established by or under a Federal law or a Provincial law or an existing law or a corporation, company, a regulatory authority, a development authority or other body or institution set up, owned and controlled, either directly or indirectly, by the Federal Government or a Provincial Government, regardless of the ultimate destination of such income as laid down in Article 165A of the Constitution of the Islamic Republic of Pakistan2[:]
3[Provided that the income from sale of spectrum licenses 4[and
renewal thereof] by Pakistan Telecommunication Authority on behalf of the Federal Government after the first day of March 2014 shall be treated as income of the Federal Government and not of the Pakistan Telecommunication Authority.]

50. Foreign-source income of short-term resident individuals.— (1) Subject to sub-section (2), the foreign-source income of an individual 5[ ] —

(a) who is a resident individual solely by reason of the individual’s employment; and

(b) who is present in Pakistan for a period or periods not exceeding three years,

shall be exempt from tax under this Ordinance.

(2) This section shall not apply to —

(a) any income derived from a business of the person established in Pakistan; or

(b) any foreign-source income brought into or received in Pakistan by the person.

51. Foreign-source income of returning expatriates.—6[(1)] Any foreign- source income derived by a citizen of Pakistan in a tax year who was not a resident individual in any of the four tax years preceding the tax year in which the individual

1Added by the Finance Act, 2007.
2Full stop substituted by a colon by the Finance Act, 2014.
3Added by the Finance Act, 2014.
4 The words “and renewal thereof” inserted through Finance Supplementary (Second Amendment) Act, 2019
5 The brackets and words “(other than a citizen of Pakistan)” omitted by the Finance Act, 2003.
6 Section 51 numbered as sub-section (1) of section 51 by the Finance Act, 2003.

became a resident shall be exempt from tax under this Ordinance in the tax year in which the individual became a resident individual and in the following tax year.

1[(2) Where a citizen of Pakistan leaves Pakistan during a tax year and remains abroad during that tax year, any income chargeable under the head “Salary” earned by him outside Pakistan during that year shall be exempt from tax under this Ordinance.]
2[ ]

53. Exemptions and tax concessions in the Second Schedule.—(1) The income or classes of income, or persons or classes of persons specified in the Second Schedule shall be —

(a) exempt from tax under this Ordinance, subject to any conditions and to the extent specified therein;

(b) subject to tax under this Ordinance at such rates, which are less than the rates specified in the First Schedule, as are specified therein;

(c) allowed a reduction in tax liability under this Ordinance, subject to any conditions and to the extent specified therein; or

(d) exempted from the operation of any provision of this Ordinance, subject to any conditions and to the extent specified therein.

3[ ]

 

 

 

1 Added by the Finance Act, 2003.
2 Section 52 omitted by the Finance Act, 2002. The omitted section 52 read as follows:
“52. Non-resident shipping and airline enterprises.- (1) Subject to sub-section (2), any income of a non- resident person, for the time being approved by the Federal Government for the purpose of this section, from the operation of ships and aircraft in international traffic shall be exempt from tax under this Ordinance, other than income from ships and aircraft operated principally to transport passengers, livestock, mail, or goods exclusively between places in Pakistan.
(2) Sub-section (1) shall not apply to a non-resident person where the person’s country of residence does not allow a similar exemption to a resident of Pakistan.”
3Sub-section (1A) omitted by the Finance Act, 2012. The omitted sub-section (1A) read as follows:- “(1A) Where any income which is exempt from tax under any provision of the Second
Schedule, such income, as may be specified in the said Schedule and subject to such conditions as may be specified therein, shall be included in the total income, however the tax shall not be
payable in respect of such income.”

(2) The 1[Federal Government or the] 2[ ] 3[ ] 4[ ] 5[Board with the approval of the Federal Minister-in-charge may, from time to time, pursuant to the approval of the Economic Coordination Committee of the Cabinet] whenever circumstances exist to take immediate action for the purposes of national security, natural disaster, national food security in emergency situations, protection of national economic interests in situations arising out of abnormal fluctuation in international commodity prices, 6[ ] 7[,] implementation of bilateral and multilateral agreements 8[or granting an exemption from any tax imposed under this Ordinance including a reduction in the rate of tax imposed under this Ordinance or a reduction in tax liability under this Ordinance or an exemption from the operation of any provision of this Ordinance to any international financial institution or foreign Government owned financial institution operating under an agreement, memorandum of understanding or any other arrangement with the Government of Pakistan] ], by notification in the official Gazette, make such amendment in the Second Schedule by —

(a) adding any clause or condition therein;
(b) omitting any clause or condition therein; or
(c) making any change in any clause or condition therein,
as the Government may think fit, and all such amendments shall have effect in respect of any tax year beginning on any date before or after the commencement of the financial year in which the notification is issued.

(3) The Federal Government shall place before the National Assembly all amendments made by it to the Second Schedule in a financial year.

9[“(4) Any notification issued under sub-section (2) after the commencement of the Finance Act, 2015, shall, if not earlier rescinded, stand rescinded on the expiry of the financial year in which it was issued10[:]

1Inserted by the Finance Act, 2022.
2 the expression “Federal Government” substituted by Finance Act, 2017.
3Inserted by the Finance Act, 2015.
4The expression “Board with the approval of Federal Minister-in-charge may, from time to time pursuant to the approval of the Economic Coordination Committee of Cabinet, ” substituted by the
Finance Act, 2018.
5 The words “Federal Government may” substituted by the Finance Act, 2021.
6 The words “removal of anomalies in taxes, development of backward areas” omitted by Finance Act, 2019.
7 Inserted by the Finance Act, 2016.
8Inserted by the Finance Act, 2016.
9Inserted by the Finance Act, 2015.
10Full stop substituted by the Finance Act, 2017.

1[Provided that all such notifications, except those earlier rescinded, shall be deemed to have been in force with effect from the first day of July, 2016 and shall continue to be in force till the thirtieth day of June, 2018, if not earlier rescinded:

Provided further that all notifications issued on or after the first day of July, 2016 and placed before the National Assembly as required under sub- section (3) shall continue to remain in force till the thirtieth day of June, 2018, if not earlier rescinded by the Federal Government or the National Assembly.]

54. Exemptions and tax provisions in other laws.—No provision in any other law providing for —

(a) an exemption from any tax imposed under this Ordinance;

(b) a reduction in the rate of tax imposed under this Ordinance;

(c) a reduction in tax liability of any person under this Ordinance; or

(d) an exemption from the operation of any provision of this Ordinance,

shall have legal effect unless also provided for in this Ordinance 2[.] 3[ ]
55. Limitation of exemption.— (1) Where any income is exempt from tax under this Ordinance, the exemption shall be, in the absence of a specific provision to the contrary contained in this Ordinance, limited to the original recipient of that income and shall not extend to any person receiving any payment wholly or in part out of that income.

4[ ]

1Added by the Finance Act, 2017
2The colon substituted by the Finance Act, 2008.
3Proviso omitted by the Finance Act, 2008. The omitted proviso read as follows:
“Provided that any exemption from income tax or a reduction in the rate of tax or a reduction in tax liability of any person or an exemption from the operation of any provision of this Ordinance provided in any other law and in force on the commencement of this Ordinance shall continue to be available unless withdrawn.”
4 Sub-section (2) omitted by the Finance Act, 2003. Omitted sub-section (2) read as follows: –
“(2) Where a person’s income from business is exempt from tax under this Ordinance as a result of a tax concession, any loss sustained in the period of the exemption shall not be set off against the person’s income chargeable to tax after the exemption expires.”

PART VIII
LOSSES

56. Set off of losses.— (1) Subject to sections 58 and 59, where a person sustains a loss for any tax year under any head of income specified in section 11, the person shall be entitled to have the amount of the loss set off against the person’s income, if any, chargeable to tax under any other head of income 1[except income under the head salary 2[ ] ] for the year.

(2) Except as provided in this Part, where a person sustains a loss under a head of income for a tax year that cannot be set off under sub-section (1), the person shall not be permitted to carry the loss forward to the next tax year.

(3) Where,3[in a tax year,]a person sustains a loss under the head “Income from Business” and a loss under another head of income, the loss under the head “Income from Business shall be set off last.

4[56A. Set off of losses of companies operating hotels.— Subject to sections 56 and 57, where a 5[public company as defined in the Companies Act, 2017 and] registered in Pakistan 6[,Gilgit-Baltistan] or Azad Jammu and Kashmir (AJ&K), operating hotels in Pakistan 7[,Gilgit-Baltistan] or AJ&K, sustains a loss in Pakistan 8[,Gilgit-Baltistan] or AJ&K for any tax year under the head “income from business” shall be entitled to have the amount of the loss set off against the company’s income in Pakistan 9[,Gilgit-Baltistan] or AJ&K, as the case may be, from the tax year 2007 10[onward].

57. Carry forward of business losses.—(1) Where a person sustains a loss for a tax year under the head “Income from Business” (other than a loss to which 11[sub-section (4) or] section 58 applies) and the loss cannot be wholly set off under section 56, so much of the loss that has not been set off shall be carried forward

1Inserted by the Finance Act, 2013.
2 The words “or income from property” omitted by the Finance Act, 2021.
3 Inserted by the Finance Act, 2002
4 Inserted by the Finance Act, 2007.
5 The word “company” substituted by the Finance Act, 2019.
6After word “Pakistan” the expression “, Gilgit-Baltistan” inserted by the Finance Act, 2019. 7After word “Pakistan” the expression “, Gilgit-Baltistan” inserted by the Finance Act, 2019. 8After word “Pakistan” the expression “, Gilgit-Baltistan” inserted by the Finance Act, 2019. 9After word “Pakistan” the expression “, Gilgit-Baltistan” inserted by the Finance Act, 2019. 10The word “onward” substituted by the word “onward” by the Finance Act, 2014.
11Inserted by the Finance Act, 2018.

to the following tax year and set off against the person’s income chargeable under the head “Income from Business” for that year.

(2) If a loss sustained by a person for a tax year under the head “Income from Business” is not wholly set off under sub-section (1), then the amount of the loss not set off shall be carried forward to the following tax year and applied as specified in sub-section (1) in that year, and so on, but no loss can be carried forward to more than six tax years immediately succeeding the tax year for which the loss was first computed.

1[(2A) Where a loss, referred to in sub-section (2), relating to any assessment year commencing on or after 1st day of July, 1995, and ending on the 30th day of June 2001, is sustained by a banking company wholly owned by the Federal Government as on first day of June, 2002, which is approved by the State Bank of Pakistan for the purpose of this sub-section, the said loss shall be carried forward for a period of ten years.]

2[(2B) Where a loss, referred to in sub-section (2), relating to a tax year commencing on or after the first day of July, 2020 is sustained by a resident company engaged in the hotel business in Pakistan, the said loss shall be carried forward for a period of eight years.]

(3) Where a person has a loss carried forward under this section for more than one tax year, the loss of the earliest tax year shall be set off first.

3[(4) The loss attributable to deductions allowed under sections 22, 23, 4[ ] 23B and 24 that has not been set off against income, the loss not set off shall be set off against fifty percent of the person’s balance income chargeable under the head “income from business” after setting off loss under sub-section (1), in the following tax year and so on until completely set off:

Provided that such loss shall be set off against hundred percent of the said balance income if the taxable income for the year is less than ten million Rupees.”]

 

1 Inserted by the Finance Act, 2002.
2 New sub-section (2B) inserted through Finance Act, 2020 dated 30th June, 2020
3Sub Section (4) substituted by the finance Act 2018,the substituted subsection (4) is read as follows
“(4) Where the loss referred to in sub-section (1) includes deductions allowed under sections 22, 23 3[23A, 23B] and 24 that have not been set off against income, the amount not set off shall be added to the deductions allowed under those sections in the following tax year, and so on until completely set off”.
4 The expression “23A” omitted by the Finance Act, 2021. Earlier this omission was made through Tax Laws (Second Amendment) Ordinance, 2021.

(5) In determining whether a person’s deductions under sections 22, 23, 1[ 2[ ] 23B] and 24 have been set off against income, the deductions allowed under those sections shall be taken into account last.
3[57A. Set off of business loss consequent to amalgamation.—4[(1) The assessed loss (excluding capital loss) for the tax year, other than brought forward and capital loss, of the amalgamating company or companies shall be set off against business profits and gains of the amalgamated company, and vice versa, in the year of amalgamation and where the loss is not adjusted against the profits and gains for the tax year the unadjusted loss shall be carried forward for adjustment upto a period of six tax years succeeding the year of amalgamation.]
(2) The provisions of sub-section (4) and (5) of section 57 shall, mutatis mutandis, apply for the purposes of allowing unabsorbed depreciation of amalgamating company or companies in the assessment of amalgamated company 5[and vice versa]6[:]

7[Provided that the losses referred to in sub-section (1) and unabsorbed depreciation referred to in sub-section (2) shall be allowed set off subject to the condition that the amalgamated company continues the business of the amalgamating company for a minimum period of five years from the date of amalgamation.]
8[(2A).In case of amalgamation of Banking Company or Non-banking Finance Company, modarabas or insurance company, the accumulated loss under the head “Income from Business” (not being speculation business losses) of an amalgamating company or companies shall be set off or carried forward against the business profits and gains of the amalgamated company and vice versa, up to a period of six tax years immediately succeeding the tax year in which the loss was first computed in the case of amalgamated company or amalgamating company or companies:

1Inserted by the Finance Act, 2009.
2 The expression “23A” omitted by the Finance Act, 2021. Earlier this omission was made through Tax Laws (Second Amendment) Ordinance, 2021.
3 Added by the Finance Act, 2002.
4Sub-section (1) substituted by the Finance Act, 2007. The substituted sub-section (1) read as follows: “(1) The accumulated loss under the head “Income from Business” (not being a loss to which section 58 applies) of an amalgamating company or companies shall be set off or carried forward against the business profits and gains of the amalgamated company and vice versa, up to a period of six tax years immediately succeeding the tax year in which the loss was first computed in the case of amalgamated company or amalgamating company or companies.”
5 Inserted by the Finance Act, 2005.
6 Full stop substituted by the Finance Act, 2005.
7 Inserted by the Finance Act, 2005.

Provided that the provisions of this sub-section shall in the case of Banking companies be applicable from July 1, 2007.]
(3) Where any of the conditions as laid down by the State Bank of Pakistan or the Securities and Exchange Commission of Pakistan 1[or any court], as the case may be, in the scheme of amalgamation, are not fulfilled, the set off of loss or allowance for depreciation made in any tax year of the amalgamated company 2[or the amalgamating company or companies] shall be deemed to be the income of that amalgamated company 3[or the amalgamating company or companies, as the case may be,] for the year in which such default is discovered by the Commissioner or taxation officer, and all the provisions of this Ordinance shall apply accordingly.]
58. Carry forward of speculation business losses.—(1) Where a person sustains a loss for a tax year in respect of a speculation business carried on by the person (hereinafter referred to as a “speculation loss”), the loss shall be set off only against the income of the person from any other speculation business of the person chargeable to tax for that year.
(2) If a speculation loss sustained by a person for a tax year is not wholly set off under sub-section (1), then the amount of the loss not set off shall be carried forward to the following tax year and applied against the income of any speculation business of the person in that year and applied as specified in sub-section (1) in that year, and so on, but no speculation loss shall be carried forward to more than six tax years immediately succeeding the tax year for which the loss was first computed.

(3) Where a person has a loss carried forward under this section for more than one tax year, the loss of the earliest tax year shall be set off first.

59. Carry forward of capital losses.— (1) Where a person sustains a loss for a tax year under the head “Capital Gains” (hereinafter referred to as a “capital loss”), the loss shall not be set off against the person’s income, if any, chargeable under any other head of income for the year, but shall be carried forward to the next tax year and set off against the capital gain, if any, chargeable under the head “Capital Gains” for that year.

(2) If a capital loss sustained by a person for a tax year under the head “Capital Gains” is not wholly set off under sub-section (1), then the amount of the loss not set off shall be carried forward to the following tax year, and so on, but no loss shall be carried forward to more than six tax years immediately succeeding the tax year for which the loss was first computed.

1 Inserted by the Finance Act, 2005.
2 Inserted by the Finance Act, 2005.

(3) Where a person has a loss carried forward under this section for more than one tax year, the loss of the earliest tax year shall be set off first.

1[59A. Limitations on set off and carry forward of losses.—
2[ ]
3[ ]
(3) In case of association of persons 4[any loss] shall be set off or carried forward and set off only against the income of the association.

(4) Nothing contained in section 56, 57, 58 or 59 shall entitle —

(a) any member of an association of persons 5[ ] to set off any loss sustained by such association of persons, as the case may be, or have it carried forward and set off, against his income; or
(b) any person who has succeeded, in such capacity, any other person carrying on any business or profession, otherwise than by inheritance, to carry forward and set off against his income, any loss sustained by such other person.

6[(5) Subject to sub-section (4) of section 57, sub-section (12) of section 22 and sub-section (6), where in computing the taxable income for any tax year, full effect cannot be given to the loss relating to deductions under section 22, 23, 24 or 25 owing to there being no profits or gains chargeable for that year or such profits or gains as mentioned in sub-section (4) of section 57, being less than the said loss, the loss or

1 Added by the Finance Act, 2003.
2Sub-section (1) omitted by the Finance Act, 2012. The omitted sub-section (1) read as follows:
“(1) In case of an association of persons to which sub-section (3) of section 92 applies, any loss which cannot be set off against any other income of the association of persons in accordance with section 56, shall be dealt with as provided under sub-section (2) of section 93.
3Sub-section (2) omitted by the Finance Act, 2012. The omitted sub-section (2) read as follows:
“(2) Nothing contained in section 57, section 58 or section 59 shall entitle an association of persons, to which sub-section (3) of section 92 applies to have its loss carried forward and set off thereunder.
4The words, figures, commas and brackets “, to which sub-section (3) of section 92 does not apply, any loss for such association” substituted by the Finance Act, 2012.
5 The words, figures, commas and brackets “to which sub-section (3) of section 92 does not apply,” omitted by the Finance Act, 2012.
6 Sub section (5) substituted by the finance Act 2018,the substituted sub section (5) is read as follows “(5) Where in computing the taxable income for any tax year, full effect cannot be given to a deduction mentioned in section 22, 23, 24 or 25 owing to there being no profits or gains chargeable for that year or such profits or gains being less than the deduction, then, subject to sub-section (12) of section 22, and sub-section (6), the deduction or part of the deduction to which effect has not been given, as the case may be, shall be added to the amount of such deduction for the following year and be treated to be part of that deduction, or if there is no such deduction for that year, be treated to be the deduction for that year and so on for succeeding years.”

part of the loss, as the case may be, shall be set off against fifty percent of the person’s income chargeable under the head “income from business” for the following year or if there is no “income from business” for that year, be set off against fifty percent of the person’s income chargeable under the head ”income from business” for the next following year and soon for succeeding years.]
(6) Where, under sub-section (5), deduction is also to be carried forward, effect shall first be given to the provisions of section 56 and sub-section (2) of section 58.
(7) Notwithstanding anything contained in this Ordinance, no loss which has not been assessed or determined in pursuance of an order made under section 59, 59A, 62, 63 or 65 of the repealed Ordinance or an order made or treated as made under section 120, 121 or 122 shall be carried forward and set off under section 57, sub-section (2)of section 58 or section 59.]
1[59AA. Group taxation.— (1) Holding companies and subsidiary companies of 100% owned group may opt to be taxed as one fiscal unit. In such cases, besides consolidated group accounts as required under the 2[Companies Act, 2017 (XIX of 2017)], computation of income and tax payable shall be made for tax purposes.
(2) The companies in the group shall give irrevocable option for taxation under this section as one fiscal unit.
(3) The group taxation shall be restricted to companies locally incorporated under the 3[Companies Act, 2017 (XIX of 2017)].
(4) The relief under group taxation would not be available to losses prior to the formation of the group.
(5) The option of group taxation shall be available to those group companies which comply with such corporate governance requirements 4[and group designation rules or regulations] as may be specified by the Securities and Exchange Commission of Pakistan from time to time and are designated as companies entitled to avail group taxation.

(6) Group taxation may be regulated through rules as may be made by the5[Board].

 

1 Inserted by the Finance Act, 2007.
2 The expression “Companies Ordinance, 1984 (XLVII of 1984)” substituted by the Finance Act, 2021. 3 The expression “Companies Ordinance, 1984 (XLVII of 1984)” substituted by the Finance Act, 2021. 4Inserted by the Finance Act, 2013.
5The words “Central Board of Revenue” substituted by the word “Board” by the Finance Act. 2014.

1[59B. Group relief.— (1) Subject to sub-section (2), any company, being a subsidiary 2[or] a holding company, may surrender its assessed loss3[“as computed in sub-section (1A)”] (excluding capital loss) for the tax year (other than brought forward losses and capital losses), in favour of its holding company or its subsidiary or between another subsidiary of the holding company:

Provided that where one of the company in the group is a public company listed on a registered stock exchange in Pakistan, the holding company shall directly hold fifty-five per cent or more of the share capital of the subsidiary company. Where none of the companies in the group is a listed company, the holding company shall hold directly seventy-five per cent or more of the share capital of the subsidiary company.

4[“(1A) The loss to be surrendered under sub-section (1) shall be allowed as per following formula, namely:-

(A/100) x B
where—

A is the percentage share capital held by the holding company of its subsidiary company; and

B is the assessed loss of the subsidiary company.”]

1Section 59B substituted by the Finance Act, 2007. The substituted section 59B read as follows: “59B. Group Relief.- (1) Subject to sub-section (2), any company, being a subsidiary of a public company listed on a registered stock exchange in Pakistan, owning and managing an industrial undertaking or an undertaking engaged in providing services, may surrender its assessed loss for the tax year other than brought forward losses, in favour of its holding company provided such holding company owns or acquires seventy-five per cent or more of the share capital of the subsidiary company.
(2) The loss surrendered by the subsidiary company may be claimed by the holding company for set off against its income under the head “income from Business” in the tax year and the following two tax years subject to the following conditions, namely:-
(a) there is continued ownership of share capital of the subsidiary company to the extent of seventy-five per cent or more for five years; and
(b) the subsidiary company continues the same business during the said period of five years.
(3) The subsidiary company shall not be allowed to surrender its assessed losses for set off against income of the holding company for more than three tax years.
(4) Where the losses surrendered by a subsidiary company are not adjusted against income of the holding company in the said three tax years, the subsidiary company shall carry forward the unadjusted losses in accordance with the provision of section 57.
(5) If there has been any disposal of shares by the holding company during the aforesaid period of five years to bring the ownership of the holding company to less than seventy-five per cent, the holding company shall, in the year of disposal, offer the amount of profit on which taxes have not been paid due to set off of losses surrendered by the subsidiary company.”
2 The word “of” substituted by the Finance Act, 2021.

(2) The loss surrendered by the subsidiary company may be claimed by the holding company or a subsidiary company for set off against its income under the head “Income from Business” in the tax year and the following two tax years subject to the following conditions, namely:—

(a) there is continued ownership for five years, of share capital of the subsidiary company to the extent of fifty-five per cent in the case of a listed company, or seventy-five per cent or more, in the case of other companies;

(b) a company within the group engaged in the business of trading shall not be entitled to avail group relief;

(c) holding company, being a private limited company with seventy- five per cent of ownership of share capital gets itself listed within three years from the year in which loss is claimed;
(d) the group companies are locally incorporated companies under the 1[Companies Act, 2017 (XIX of 2017)];

(e) the loss surrendered and loss claimed under this section shall have approval of the Board of Directors of the respective companies;
(f) the subsidiary company continues the same business during the said period of three years;

(g) all the companies in the group shall comply with such corporate governance requirements 2[and group designation rules or regulations] as may be specified by the Securities and Exchange Commission of Pakistan from time to time, and are designated as companies entitled to avail group relief; and
(h) any other condition as may be prescribed.

(3) The subsidiary company shall not be allowed to surrender its assessed losses for set off against income of the holding company for more than three tax years.

(4) Where the losses surrendered by a subsidiary company are not adjusted against income of the holding company in the said three tax years, the subsidiary company shall carry forward the unadjusted losses in accordance with section 57.

 

(5) If there has been any disposal of shares by the holding company during the aforesaid period of five years to bring the ownership of the holding company to less than fifty-five per cent or seventy-five per cent, as the case may be, the holding company shall, in the year of disposal, offer the amount of profit on which taxes have not been paid due to set off of losses surrendered by the subsidiary company.

(6) Loss claiming company shall, with the approval of the Board of Directors, transfer cash to the loss surrendering company equal to the amount of tax payable on the profits to be set off against the acquired loss at the applicable tax rate. The transfer of cash would not be taken as a taxable event in the case of either of the two companies.

(7) The transfer of shares between companies and the share holders, in one direction, would not be taken as a taxable event provided the transfer is to acquire share capital for formation of the group and approval of the Security and Exchange Commission of Pakistan or State Bank of Pakistan, as the case may be, has been obtained in this effect. Sale and purchase from third party would be taken as taxable event.]

1[ ]

1 Section 59C shall be omitted and shall be deemed to have been omitted with effect from 2nd March, 2022 through Finance Act, 2022. The omitted section read as follows:
59C. Carry forward of business losses of sick industrial units.- (I) Subject to sub-section (2),
where a company hereinafter referred to as acquiring company, acquires under a scheme of acquisition majority share capital of another company being a sick industrial unit, hereinafter referred to as acquired company, the acquiring company shall be entitled to adjust loss for the latest tax year and brought forward assessed business losses excluding capital loss of the acquired company subject to provisions of section 57 for a period of three years.
(2) Sub-section (I) shall apply subject to the following conditions, namely:– (a) there is continued ownership for five years starting from the 30th June, 2023 and there is no change in share capital of the acquiring company;
(b) the assets of the acquired company shall not be sold upto the 30″ June, 2026; and
(c) the acquired company continues the same business till the 30th June, 2026.
(3) Where the losses surrendered by the acquired company are not adjusted against income of the acquiring company in the said three tax years, the acquired company shall carry forward the unadjusted losses in accordance with section 57.
(4) The loss of the acquired company referred to in sub-section (1) shall be adjusted against income under the head “income from business” of the acquiring company as per following formula, namely:-
(A/I00) x B
where—
A is the percentage share capital held by the acquiring company of the acquired company; and B is the loss of the acquired company referred to in sub-section (I).
(5) If the acquiring company fails to revive the acquired company by tax year 2026, the acquiring company shall, in tax year 2027 offer the amount of profit on which taxes have not been paid due to set off of losses surrendered by the acquired company.
(6) For the removal of doubt, this section shall not apply to any scheme of amalgamation or merger.
(7) For the purposes of this section, –

PART IX
DEDUCTIBLE ALLOWANCES

60. Zakat.— (1) A person shall be entitled to a deductible allowance for the amount of any Zakat paid by the person in a tax year under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980).

(2) Sub-section (1) does not apply to any Zakat taken into account under sub-section (2) of section 40.

(3) Any allowance or part of an allowance under this section for a tax year that is not able to be deducted under section 9 for the year shall not be refunded, carried forward to a subsequent tax year, or carried back to a preceding tax year.

1[60A. Workers’ Welfare Fund.— A person shall be entitled to a deductible allowance for the amount of any Workers’ Welfare Fund paid by the person in tax year under Workers’ Welfare Fund Ordinance, 1971 (XXXVI of 1971) 2[or under any law relating to the Workers’ Welfare Fund enacted by Provinces after the eighteenth Constitutional amendment Act, 2010:

Provided that this section shall not apply in respect of any amount of Workers’ Welfare Fund paid to the Provinces by a trans-provincial establishment.]

3[60B. Workers’ Participation Fund.— A person shall be entitled to a deductible allowance for the amount of any Workers’ Participation Fund paid by the person in a tax year in accordance with the provisions of the Companies Profit (Workers’ Participation) Act, 1968 (XII of 1968) 4[or under any law relating to the Workers’

(a) a sick industrial unit referred to as acquired company in sub-section (I), shall be deemed to be revived if the said company attains maximum production capacity that was obtained before the industrial unit vent sick:
Provided that the acquired company produces a certificate to the effect that it stands revived, duly issued by Engineering Development Board, along with the return of income filed for tax year 2026.
(b) “sick industrial unit” means a company being an industrial undertaking, which –
(i) has accumulated losses, for a continuous period of three years prior to the I” July, 2022, equal to or exceeding its entire capital and reserves at the time of acquisition, as the ease may be; or
(ii) has defaulted towards repayment of outstanding debts owing to banking companies or non- banking financial institutions for a consecutive period of three years immediately before acquisition, as the case may be, or
(iii) has been declared as such by the Federal Government in a notification published in the official Gazette.”;

1Added by the Finance Act, 2003. 2 Added by the Finance Act, 2021. 3 Added by the Finance Act, 2004. 4 Added by the Finance Act, 2021.

Profit Participation Fund enacted by Provinces after the eighteenth Constitutional amendment Act, 2010:

Provided that this section shall not apply in respect of any amount of Workers’ Profit Participation Fund paid to the province by a trans-provincial establishment.]

1[ ]

2[ ]

3[60D. Deductible allowance for education expenses.— (1) Every individual shall be entitled to a deductible allowance in respect of tuition fee paid by the individual in a tax year provided that the taxable income of the individual is less than one 4[and a half]million rupees.

(2) The amount of an individual‘s deductible allowance allowed under sub-section (1) for a tax year shall not exceed the lesser of —

(a) five per cent of the total tuition fee paid by the individual referred to in sub-section (1) in the year;

(b) twenty-five per cent of the person’s taxable income for the year; and

(c) an amount computed by multiplying sixty thousand with number of children of the individual.

(3) Any allowance or part of an allowance under this section for a tax year that is not able to be deducted for the year shall not be carried forward to a subsequent tax year.

1 Section 64A is re-numbered by the Finance Act 2017.
2 Section 60C omitted by Finance Act, 2022 . Omitted section read as follows:
“60C. Deductible allowance for profit on debt.— (1) Every individual shall be entitled to a deductible allowance for the amount of any profit or share in rent and share in appreciation for value of house paid by the individual in a tax year on a loan by a scheduled bank or non-banking finance institution regulated by the Securities and Exchange Commission of Pakistan or advanced by Government or the Local Government, Provincial Government or a statutory body or a public company listed on a registered stock exchange in Pakistan where the individual utilizes the loan for the construction of a new house or the acquisition of a house.
(2) The amount of an individual‘s deductible allowance allowed under sub-section (1) for a tax year shall not exceed fifty percent of taxable income or 2[“two”] million rupees, whichever is lower.
(3) Any allowance or part of an allowance under this section for a tax year that is not able to be deducted for the year shall not be carried forward to a subsequent tax year.”

3 Section 64AB is re-numbered by the Finance Act, 2017.
4 Inserted by the Finance Act, 2017.

(4) Allowance under this section shall be allowed against the tax liability of either of the parents making payment of the feeon furnishing national tax number (NTN) or name of the educational institution.

(5) Allowance under this section shall not be taken into account for computation of tax deduction under section 149.]

PART X
TAX CREDITS

61. Charitable donations.—1[(1) A person shall be entitled to a tax credit in respect of any sum paid, or any property given by the person in the tax year as a donation 2[, voluntary contribution or subscription] to —

(a) any board of education or any university in Pakistan established by, or under, a Federal or a Provincial law;

(b) any educational institution, hospital or relief fund established or run in Pakistan by Federal Government or a Provincial Government or a3[Local Government]; or

(c) any non-profit organization 4[or any person eligible for tax credit under section 100C of this Ordinance; or
(d) entities, organizations and funds mentioned in the Thirteenth Schedule to this Ordinance.]

(2) The amount of a person’s tax credit allowed under sub-section (1) for a tax year shall be computed according to the following formula, namely:—

(A/B) x C
where —

 

1 Sub-section (1) substituted by the Finance Act, 2003. The substituted sub-section (1) read as follows:
“(1) A person shall be entitled to a tax credit for a tax year in respect of any amount paid, or
property given by the person in the tax year as a donation to a non-profit organization.”
2 Inserted by the Finance Act, 2021. Earlier this insertion was made through Tax Laws (Second Amendment) Ordinance, 2021.
3The words “local authority” substituted by the Finance Act, 2008.
4 Inserted by the Finance Act, 2021. Earlier this insertion was made through Tax Laws (Second Amendment) Ordinance, 2021.

A is the amount of tax assessed to the person for the tax year before allowance of any tax credit under this Part;
B is the person’s taxable income for the tax year; and
C is the lesser of —

(a) the total amount of the person’s donations referred to in sub- section (1) in the year, including the fair market value of any property given; or
(b) where the person is —

(i) an individual or association of persons, thirty per cent of the taxable income of the person for the year; or

(ii) a company, 1[twenty] per cent of the taxable income of the person for the year 2[:
Provided that where any sum is paid or any property is given to an associate by a donor, clause (b) of component C shall be, in the case of—
(i) an individual or association of persons, fifteen percent of the taxable income of the person for the year; or
(ii) a company, ten percent of the taxable income of the person for the year.]
(3) For the purposes of clause (a) of component C of the formula in sub- section (2), the fair market value of any property given shall be determined at the time it is given.
(4) A cash amount paid by a person as a donation shall be taken into account under clause (a) of component C3[of]sub-section (2) only if it was paid by a crossed cheque drawn on a bank.
4[(5) The 5[Board] may make rules regulating the procedure of the grant of approval under sub-clause (c) of clause (36) of section 2 and any other matter connected with, or incidental to, the operation of this section.]
6[ ]

1The word “fifteen” substituted by the Finance Act, 2009.
2 Full stop substituted by colon and thereafter new proviso added through Finance Act, 2020 dated 30th June, 2020
3 Inserted by the Finance Act, 2002.
4 Added by the Finance Act, 2003.
5The words “Central Board of Revenue” substituted by the Finance Act, 2007.
6Section 62 substituted by the Finance Act, 2011. The substituted section 62 read as follows:

1[ ]

“62. Investment in shares.— (1) A person 6[other than a company] shall be entitled to a tax credit for a tax year in respect of the cost of acquiring in the year new shares offered to the public by a public company listed on a stock exchange in Pakistan where the person 6[other than a company] is the original allottee of the shares or the shares are acquired from the Privatization Commission of Pakistan.
(2) The amount of a person’s tax credit allowed under sub-section (1) for a tax year shall be computed according to the following formula, namely: —
(A/B) x C
where –
A is the amount of tax assessed to the person for the tax year before allowance of any tax credit under this Part;
B is the person’s taxable income for the tax year; and
C is the lesser of —
(a) the total cost of acquiring the shares referred to in sub-section (1) in the year;
(b) ten per cent of the person’s 6[taxable] income for the year; or
(c) 6[ 6[three] hundred] thousand rupees.
(3) Where –
(a) a person has 6[been allowed] a tax credit under sub-section (1) in a tax year in respect of the purchase of a share; and
(b) the person has made a disposal of the share within twelve months of the date of acquisition,
the amount of tax payable by the person for the tax year in which the shares were disposed of shall be increased by the amount of the credit allowed.”
1 Section 62 omitted by the Finance Act, 2022. Omitted section read as follows:
“62. Tax credit for investment in shares and insurance. — (1) A resident person other than a company shall be entitled to a tax credit for a tax year either—
(i) in respect of the cost of acquiring in the year new shares offered to the public by a public company listed on a stock exchange in Pakistan, provided the resident person is the original allottee of the shares or the shares are acquired from the Privatization Commission of Pakistan;1[ ]
1[(ia) in respect of cost of acquiring in the tax year, sukuks offered to the public by a public company listed and traded on stock exchange in Pakistan, provided the resident person is the original allottee of the sukuks; 1[ ] ]
1[(ib) in respect of cost of acquiring in the tax year, unit of exchange traded fund offered to public and traded on stock exchange in Pakistan; or]
(ii) in respect of any life insurance premium paid on a policy to a life insurance company registered by the Securities and Exchange Commission of Pakistan under the Insurance Ordinance, 2000 (XXXIX of 2000), provided the resident person is deriving income chargeable to tax under the head “salary” or “income from business1[:]
1[Provided that where tax credit has been allowed under this clause and subsequently the insurance policy is surrendered within two years of its acquisition, the tax credit allowed shall be deemed to have been wrongly allowed and the Commissioner, notwithstanding anything contained in this Ordinance, shall re- compute the tax payable by the taxpayer for the relevant tax years and the provisions of this Ordinance, shall, so far as may, apply accordingly. ]
(2) The amount of a person’s tax credit allowed under sub-section (1) for a tax year shall be computed according to the following formula, namely: —
(A/B) x C
where—
A is the amount of tax assessed to the person for the tax year before allowance of any tax credit under this Part;
B is the person’s taxable income for the tax year; and
C is the lesser of —

1[ ]
2[ ]
3[63. Contribution to an Approved Pension Fund.— (1) An eligible person as defined in sub-section (19A) of section 2 deriving income chargeable to tax under the

 

 

 

 

(a) the total cost of acquiring the shares,1[or sukuks], or the total contribution or premium paid by the person referred to in sub-section (1) in the year;
(b) 1[twenty] per cent of the person’s taxable income for the year; or
(c) 1[ ] 1[ ] 1[two] million rupees].
(3) Where —
(a) a person has been allowed a tax credit under sub-section (1) in a tax year in respect of the purchase of a share; and
(b) the person has made a disposal of the share within 1[twenty-four] months of the date of acquisition, the amount of tax payable by the person for the tax year in which the shares were disposed of shall be increased by the amount of the credit allowed.”
1Inserted by the Finance Act, 2016.
2 Section 62A omitted by the Finance Act, 2022. The omitted section read as follows:
“62A. Tax credit for investment in health insurance.— (1) A resident person 2[ ] other than a company shall be entitled to a tax credit for a tax year in respect of any health insurance premium or contribution paid to any insurance company registered by the Securities and Exchange Commission of Pakistan under the Insurance Ordinance, 2000 (XXXIX of 2000), provided the resident person 2[ ] is deriving income chargeable to tax under the head “salary” or “income from business”.
(2) The amount of a person’s tax credit allowed under sub-section (1) for a tax year shall be computed according to the following formula, namely: —
(A/B) x C
where—
A is the amount of tax assessed to the person for the tax year before allowance of tax credit under this section;
B is the person’s taxable income for the tax year; and
C is the lesser of —
(a) the total contribution or premium paid by the person referred to in sub-section
(1) in the year;
(a) five per cent of the person’s taxable income for the year; and
(b) one hundred2[and fifty] thousand rupees.”
3 Section 63 substituted by the Finance Act, 2005. The original section 63 read as follows:
“63. Retirement annuity scheme. – (1) Subject to sub-section (3), a resident individual deriving income chargeable to tax under the head “Salary” or the head “Income from Business” shall be entitled to a tax credit for a tax year in respect of any contribution or premium paid in the year by the person under a contract of annuity scheme approved by, Securities and Exchange Commission of

head “Salary” or the head “Income from Business” shall be entitled to a tax credit for a tax year in respect of any contribution or premium paid in the year by the person in approved pension fund under the Voluntary Pension System Rules, 2005.

(2) The amount of a person’s tax credit allowed under sub-section (1) for a tax year shall be computed according to the following formula, namely: —

(A/B) x C

Where.-

A is the amount of tax assessed to the person for the tax year, before allowance of any tax credit under this Part;

B is the person’s taxable income for the tax year; and
C is the lesser of —

(i) the total contribution or premium referred to in sub-section (1) paid by the person in the year; or

(ii) twenty per cent of the 1[eligible] person’s taxable income for the relevant tax year; Provided that 2[an eligible person] joining the pension fund at the age of forty-one years or above, during the

 

Pakistan] of an insurance company duly registered under the Insurance Ordinance, 2000 (XXXIX of 2000), having its main object the provision to the person of an annuity in old age.
(2) The amount of a resident individual’s tax credit allowed under sub-section (1) for a tax year shall be computed according to the following formula, namely: –
(A/B) x C
where –
A is the amount of tax assessed to the person for the tax year before allowance of any tax credit under this Part;
B is the person’s taxable income for the tax year; and
C is the lesser of –
(a) the total contribution or premium referred to in sub-section (1) paid by the individual in the year;
(b) ten per cent of the person’s taxable income for the tax year; or
(c) two hundred thousand rupees.
(3) A person shall not be entitled to a tax credit under sub-section (1) in respect of a contract of annuity which provides –
(a) for the payment during the life of the person of any amount besides an annuity;
(b) for the annuity payable to the person to commence before the person attains the age of sixty years;
(c) that the annuity is capable, in whole or part, of surrender, commutation, or assignment; or for payment of the annuity outside Pakistan.”
1 Inserted by the Finance Act, 2006.
2 The words “a person” substituted by the Finance Act, 2006.

 

 

 

 

 

5[ ]

first ten years 1[starting from July1, 2006] shall be allowed additional contribution of 2% per annum for each year of age exceeding forty years. Provided further that the total contribution allowed to such person shall not exceed 50% of the total taxable income of the preceding year 2[3[:] ] ]

4[“Provided also that the additional contribution of two percent per annum for each year of age exceeding forty years shall be allowed upto the 30th June, 2019 subject to the condition that the total contribution allowed to such person shall not exceed thirty percent of the total taxable income of the preceding year.”]

6[(3) The transfer by the members of approved employment pension or annuity scheme or approved occupational saving scheme of their existing balance to their individual pension accounts maintained with one or more pension fund managers shall not qualify for tax credit under this section.]

7[ ]

1The words, figure and commas “of the notification of the Voluntary Pension System Rules, 2005,” substituted by the Finance Act, 2006.
2The semi-colon and the word “or” substituted by the Finance Act, 2011.
3 Full stop substituted by the Finance Act, 2016.
4 Inserted by the Finance Act, 2016.
5Clause (iii) omitted by the Finance Act, 2011. The omitted clause (iii) read as follows: “(iii) five hundred thousand rupees.”
6Added by the Finance Act, 2006.
7 Section 64 omitted by the Finance Act, 2015. Omitted section read as follows:-
“64. Profit on debt.—7[(1) A person shall be entitled to a tax credit for a tax year in respect of any profit or share in rent and share in appreciation for value of house paid by the person in the year on a loan by a scheduled bank or non-banking finance institution regulated by the Securities and Exchange Commission of Pakistan or advanced by Government or the7[Local Government] 7[or a statutory body or a public company listed on a registered stock exchange in Pakistan] where the person utilizes the loan for the construction of a new house or the acquisition of a house.]
(2) The amount of a person’s tax credit allowed under sub-section (1) for a tax year shall be computed according to the following formula, namely:—
(A/B) x C
where —
A is the amount of tax assessed to the person for the tax year before allowance of any tax credit under this Part;
B is the person’s taxable income for the tax year; and
C is the lesser of —
(a) the total profit referred to in sub-section (1) paid by the person in the year;
(b) 7[fifty] per cent of the person’s 7[taxable] income for the year; or
(c) 7[seven hundred and fifty] thousand rupees.
(3) A person is not entitled to 7[tax credit]under this section for any profit deductible under section 17.”

1[ ]

2[ ]

3[ ]

4[64B. Tax credit for employment generation by manufacturers.—(1) Where a taxpayer being a company formed for establishing and operating a new manufacturing unit sets up a new manufacturing unit between the 1st day of July, 2015 and the 30th day of June, 5[“2019”], (both days inclusive) it shall be given a tax credit for a period of ten years.

(2) The tax credit under sub-section (1) for a tax year shall be equal to 6[“two”] percent of the tax payable for every fifty employees registered with The Employees Old Age Benefits Institution or the Employees Social Security Institutions of Provincial Governments during the tax year, subject to a maximum of ten percent of the tax payable.

(3) Tax credit under this section shall be admissible where—

(a) the company is incorporated and manufacturing unit is setup between the first day of July, 2015 and the 30th day of June, 2018, both days inclusive;

(b) employs more than fifty employees in a tax year registered with The Employees Old Age Benefits Institution and the Employees Social Security Institutions of Provincial Governments;

(c) manufacturing unit is managed by a company formed for operating the said manufacturing unit and registered under the 7[Companies Act, 2017 (XIX of 2017)] and having its registered office in Pakistan; and

(d) the manufacturing unit is not established by the splitting up or reconstruction or reconstitution of an undertaking already in existence or by transfer of machinery or plant from an

1 Inserted by the Finance Act, 2016.
2Section 64A is re-numbered as section 60C by Finance Act, 2017 3Section 64AB is re-numbered as section 60D by Finance Act, 2017 4Inserted by the Finance Act, 2015.
5 The figure “2018” substituted by the Finance Act, 2016.
6The word “one” substituted by the Finance Act, 2016.
7 The expression “Companies Ordinance, 1984 (XLVII of 1984)” substituted by the Finance Act, 2021.

undertaking established in Pakistan at any time before the1st July 2015.

(4) Where any credit is allowed under this section and subsequently it is discovered, on the basis of documents or otherwise, by the Commissioner that any of the conditions specified in this section were not fulfilled, the credit originally allowed shall be deemed to have been wrongly allowed and the Commissioner may, notwithstanding anything contained in this Ordinance, re-compute the tax payable by the taxpayer for the relevant year and the provisions of this Ordinance shall, so far as may be, apply accordingly.

(5) For the purposes of this section, a manufacturing unit shall be treated to have been setup on the date on which the manufacturing unit is ready to go into production, whether trial production or commercial production.”]

1[ ]

2[ ]
3[64D. Tax credit for point of sale machine.—(1) Any person who is required to integrate with Board’s computerized system for real time reporting of sale or receipt, shall be entitled to tax credit in respect of the amount invested in purchase of point of sale machine.

 

1 New sub-section 64C inserted by the Finance Act, 2019.
2 Section 64C omitted by the Finance Act, 2021. Earlier this omission was made through Tax Laws (Second Amendment) Ordinance, 2021. The omitted section read as follows:
“64C. Tax credit for persons employing fresh graduates.– (1) A person employing freshly qualified
graduates from a university or institution recognized by Higher Education Commission shall be entitled to a tax credit in respect of the amount of annual salary paid to the freshly qualified graduates for a tax year in which such graduates are employed.
(2) The amount of tax credit allowed under sub-section (1) for a tax year shall be computed according to the following formula, namely:-
(A/B) x C
where-
A is the amount of tax assessed to the person for the tax year before allowance of tax credit under this section;
B is the person’s taxable income for the tax year; and
C is the lessor of –
(a) the annual salary paid to the freshly qualified graduates referred to in sub- section (1) in the year; and
(b) five percent of the person’s taxable income for the year;
(3) The tax credit shall be allowed for salary paid to the number of freshly qualified graduates not exceeding fifteen percent of the total employees of the company in the tax year.
(4) In this section, “freshly qualified graduate” means a person who has graduated after the first day of July, 2017 from any institute or university recognized by the Higher Education Commission.” 3 Inserted by the Finance Act, 2021.

(2) The amount of tax credit allowed under sub-section (1) for a tax year in which point of sale machine is installed, integrated and configured with the Board’s computerized system shall be lesser of—

(a) amount actually invested in purchase of point of sale machine; or

(b) rupees one hundred and fifty thousand per machine.

(3) For the purpose of this section, the term point of sale machine means a machine meant for processing and recording the sale transactions for goods or services, either in cash or through credit and debit cards or online payments in an internet enabled environment.]

65. Miscellaneous provisions relating to tax credits.— (1) Where the person entitled to a tax credit under 1[this]Part is a member of an association of persons to which sub-section (1) of section 92 applies, the following shall apply—

(a) component A of the formula in sub-section (2) of section 61, sub- section (2) of section 62, sub-section (2) of section 63 and sub- section (2) of section 64 shall be the amount of tax that would be assessed to the individual if any amount derived in the year that is exempt from tax under sub-section (1) of section 92 were chargeable to tax; and

(b) component B of the formula in sub-section (2) of section 61, sub- section (2) of section 62, sub-section (2) of section 63 and sub- section (2) of section 64 shall be the taxable income of the individual for the year if any amount derived in the year that is exempt from tax under sub-section (1) of section 92 were chargeable to tax.
(2) Any tax credit allowed under this Part shall be applied in accordance with sub-section (3) of section 4.
(3) Subject to sub-section (4), any tax credit or part of a tax credit allowed to a person under this Part for a tax year that is not able to be credited under sub- section (3) of section 4 for the year shall not be refunded, carried forward to a subsequent tax year, or carried back to a preceding tax year.
(4) Where the person to whom sub-section (3) applies is a member of an association of persons to which sub-section (1) of section 92 applies, the amount of any excess credit under sub-section (3) for a tax year may be claimed as a tax credit by the association for that year.

 

1 Inserted by the Finance Act, 2002

(5) Sub-section (4) applies only where the member and the association agree in writing for the sub-section to apply and such agreement in writing must be furnished with the association’s return of income for that year.
1[(6) Where the person is entitled to a tax credit under section 65B, 65D or 65E, provisions of clause (d) of sub-section (2) of section 169 and clause (d) of sub-section (1) of section 113 shall not apply.”]
2[ ]
3[65B. Tax credit for investment.— (1) Where a taxpayer being a company invests any amount in the purchase of plant and machinery, for the purposes of 4[extension, expansion,] balancing, modernization and replacement of the plant and machinery, already installed therein, in an industrial undertaking set up in Pakistan and owned by it, credit equal to ten per cent of the amount so invested shall be allowed against the tax payable 5[, including on account of minimum tax and final taxes payable under any of the provisions of this Ordinance,] by it in the manner hereinafter provided 6[:]
7[Provided that for the tax year 2019 the rate of credit shall be equal to five percent of the amount so invested:

Provided further that the provisions of sub-section (5) relating to carry forward of the credit to be deducted from tax payable, to the following tax years, as specified in the said sub-section, shall continue to apply after tax year 2019; and]

 

 

1Inserted by the Finance Act, 2015
2Section 65A omitted by the Finance Act, 2017, Omitted section reads as follows:
2[65A. Tax credit to a person registered under the Sales Tax Act, 1990. — (1) Every manufacturer, registered under the Sales Tax Act, 1990, shall be entitled to a tax credit of 2[“three”] per cent of tax payable for a tax year, if ninety per cent of his sales are to the person who is registered under the aforesaid Act during the said tax year.
(2) For claiming of the credit, the person shall provide complete details of the persons to whom the sales were made.
(3) No credit will be allowed to a person whose income is covered under final tax or minimum
tax.
(4) Carry forward of any amount where full credit may not be allowed against the tax liability for
the tax year, shall not be allowed. 3Added by the Finance Act, 2010. 4Inserted by the Finance Act, 2012.
5 The coma and words inserted by Finance Act, 2012 6Full stop” substituted by “colon” by the Finance Act, 2019 7New provisos added by the Finance Act, 2019

(2) The provisions of sub-section (1) shall apply if the plant and machinery is purchased and installed at any time between the first day of July, 2010, and the 30th day of June, 1[ ] 2[ ] 3[2019].
(3) The amount of credit admissible under this section shall be deducted from the tax payable by the taxpayer in respect of the tax year in which the plant or machinery in the purchase of which the amount referred to in sub-section (1) is invested and installed.
4[(4) The provisions of this section shall mutatis mutandis apply to a company setup in Pakistan before the first day of July, 2011, which makes investment, through hundred per cent new equity, during first day of July, 2011 and 30th day of June, 2016, for the purposes of balancing, modernization and replacement of the plant and machinery already installed in an industrial undertaking owned by the company. However, credit equal to twenty per cent of the amount so invested shall be allowed against the tax payable, including on account of minimum tax and final taxes payable under any of the provisions of this Ordinance. The credit shall be allowed in the year in which the plant and machinery in the purchase of which the investment as aforesaid is made, is installed therein.
“Explanation.— For the purpose of this section the term “new equity” shall, have the same meaning as defined in sub-section (7) of section 65E.]
5[(5) Where no tax is payable by the taxpayer in respect of the tax year in which such plant or machinery is installed, or where the tax payable is less than the amount of credit as aforesaid, the amount of the credit or so much of it as is in excess thereof, as the case may be, shall be carried forward and deducted from the tax payable by the taxpayer in respect of the following tax year and so on, but no such amount shall be carried forward for more than two tax years in the case of investment referred to in sub-section (1) and for more than five tax years in

1The figure “2015” substituted by Finance Act, 2015.
2 The figure “2016” substituted by the Finance Act, 2016.
3The figure “2021” substituted by Finance Act, 2019.
4Sub-section (4) substituted by the Finance Act, 2012. The substituted sub-section (4) read as follows:
“(4) Where no tax is payable by the taxpayer in respect of the tax year in which such plant or machinery is installed, or where the tax payable is less than the amount of credit, the amount of the credit or so much of it as is in excess thereof, as the case may be, shall be carried forward and deducted from the tax payable by the taxpayer in respect of the following tax year, and so on, but no such amount shall be carried forward for more than two tax years, however, the deduction made under sub-section (2) and this sub-section shall not exceed in aggregate the limit specified in sub- section (1).”
5Sub-section (5) substituted by the Finance Act, 2012. The substituted sub-section (5) read as follows: “(5) Where any credit is allowed under this section and subsequently it is discovered by the Commissioner Inland Revenue that any one or more of the conditions specified in this section was, or were, not fulfilled, as the case may be, the credit originally allowed shall be deemed to have been wrongly allowed and the Commissioner Inland Revenue may, notwithstanding anything contained in this Ordinance, re-compute the tax payable by the taxpayer for the relevant year and the provisions
of this Ordinance shall, so far as may be, apply accordingly.”

respect of investment referred to in sub-section (4), however, the deduction made under this section shall not exceed in aggregate the limit specified in sub-section
(1) or sub-section (4), as the case may be.]
1[(6) Where any credit is allowed under this section and subsequently it is discovered by the Commissioner Inland Revenue that any one or more of the conditions specified in this section was, or were, not fulfilled, as the case may be, the credit originally allowed shall be deemed to have been wrongly allowed and the Commissioner, notwithstanding anything contained in this Ordinance, shall re- compute the tax payable by the taxpayer for the relevant year and the provisions of this Ordinance shall, so far as may be, apply accordingly.]
2[ ]

3[ ]
4[ ]
5[ ]

1Added by the Finance Act, 2012.
2Added by the Finance Act, 2010.
3 Section 65C omitted by the Finance Act, 2021. Earlier this omission was made through Tax Laws (Second Amendment) Ordinance, 2021. The omitted section read as follows:
65C. Tax credit for enlistment. —(1) Where a taxpayer being a company opts for enlistment in any registered stock exchange in Pakistan3[on or before the 30th day of June, 2022] a tax credit equal to 3[twenty] percent of the tax payable shall be allowed for the tax year in which the said company is enlisted 3[“and for the following 3[three tax years:]
[Provided that the tax credit for the last two years shall be ten per cent of the tax payable.]
4Added by the Finance Act, 2011.
5 Section 65D omitted by the Finance Act, 2021. The omitted section read as follows:
“65D. Tax credit for newly established industrial undertakings. — (1) Where a taxpayer being a company formed for establishing and operating a new industrial undertaking 5[including corporate dairy farming] sets up a new industrial undertaking5[including a corporate dairy farm], it shall be given a tax credit equal to 5[“an amount as computed in sub-section (1A)”] of the tax payable 5[, including on account of minimum tax and final taxes payable under any of the provisions of this Ordinance,] on the taxable income arising from such industrial undertaking for a period of five years beginning from the date of setting up or commencement of commercial production, whichever is later.
5[“(1A) The amount of a person’s tax credit allowed under sub-section (1) for a tax year shall be computed according to the following formula, namely: —
A x (B/C)
where—
A is the amount of tax assessed to the person for the tax year before allowance of any tax credit for the tax year;
B is the equity raised through issuance of new shares for cash consideration; and
C is the total amount invested in setting up the new industrial undertaking.”]
(2) Tax credit under this section shall be admissible where—
(a) the company is incorporated and industrial undertaking is setup between the first day of July, 2011 and 30th day of June, 5[5[“2021”]];

1[65E. Tax credit for industrial undertakings established before the first day of July, 2011.—2[(1) Where a taxpayer being a company, setup in Pakistan before the first day of July, 2011, invests any amount, with 3[“at least seventy per cent”] new equity raised through issuance of new shares, in the purchase and installation of plant and machinery for an industrial undertaking, including corporate dairy farming, for the purposes of-

(i) expansion of the plant and machinery already installed therein; or
(ii) undertaking a new project,

a tax credit shall be allowed against the tax payable in the manner provided in sub- section (2) and sub-section (3), as the case may be, for a period of five years beginning from the date of setting up or commencement of commercial production from the new plant or expansion project, whichever is later.]

(b) industrial undertaking is managed by a company formed for operating the said industrial undertaking and registered under the Companies Ordinance, 1984 (XLVII of 1984) and having its registered office in Pakistan;
(c) the industrial undertaking is not established by the splitting up or reconstruction or reconstitution of an undertaking already in existence or by transfer of machinery or plant from an industrial undertaking established in Pakistan at any time before 1st July 2011; and
(d) the industrial undertaking is set up with 5[“at least seventy per cent”] equity5[raised through issuance of new shares for cash consideration:]
Provided that short term loans and finances obtained from banking companies or non-banking financial institutions for the purposes of meeting working capital requirements shall not disqualify the taxpayer from claiming tax credit under this section.]
[ ]
(4) Where any credit is allowed under this section and subsequently it is discovered, on the basis of documents or otherwise, by the Commissioner Inland Revenue that5[“the business has been discontinued in the subsequent five years after the credit has been allowed or”] any of the 5[conditions] specified in this section [were] not fulfilled, the credit originally allowed shall be deemed to have been wrongly allowed and the Commissioner Inland Revenue may, notwithstanding anything contained in this Ordinance, re-compute the tax payable by the taxpayer for the relevant year and the provisions of this Ordinance shall, so far as may be, apply accordingly.]
[(5) For the purposes of this section and sections 65B and 65E, an industrial undertaking shall be treated to have been setup on the date on which the industrial undertaking is ready to go into production, whether trial production or commercial production.]
1Added by the Finance Act, 2011.
2Sub-section (1) substituted by the Finance Act, 2012. The substituted sub-section (1) read as follows:
“(1) Where a taxpayer being a company invests any amount, with hundred per cent equity
investment, in the purchase and installation of plant and machinery for the purposes of balancing, modernization, replacement, or for expansion of the plant and machinery already installed in an industrial undertaking setup in Pakistan before the first day of July 2011, a tax credit shall be allowed against the tax payable in the manner provided hereinafter, in the same proportion, which exists between the total investment and such equity investment made by the industrial undertaking.”
3 The words “hundred per cent” substituted by the Finance Act, 2016.

1[(2) Where a taxpayer maintains separate accounts of an expansion project or a new project, as the case may be, the taxpayer shall be allowed a tax credit equal to one 2[“an amount as computed in sub-section (3A)”] of the tax payable, including minimum tax and final taxes payable under any of the provisions of this Ordinance, attributable to such expansion project or new project.]
3[(3) In all other cases, the credit under 4[“sub-section (3A)”] shall be such proportion of the tax payable, including minimum tax and final taxes payable under any of the provisions of this Ordinance, as is the proportion between the new equity and the total equity including new equity.]

5[(3A)The amount of a person’s tax credit allowed under sub-section (1) for a tax year shall be computed according to the following formula, namely: —

A x (B/C)
where—

A is the amount of tax assessed to the person for the tax year before allowance of any tax credit for the tax year;

B is the equity raised through issuance of new shares for cash consideration; and

C is the total amount invested in the purchase and installation of plant and machinery for the industrial undertaking.]

 

 

 

 

1Sub-section (2) substituted by the Finance Act, 2012. The substituted sub-section (1) read as follows:
“(2) The provisions of sub-section (1) shall apply if the plant and machinery is purchased and
installed at any time between the first day of July, 2011, and the 30th day of June, 2016.”
2 The words “hundred per cent” substituted by the Finance Act, 2016.
3Sub-section (3) substituted by the Finance Act, 2012. The substituted sub-section (1) read as follows:
“(3) The amount of credit admissible under this section shall be deducted from the tax payable by the taxpayer in respect of the tax year in which the plant or machinery referred in sub-section (1)
is purchased and installed and for the subsequent four years.” 4 The words “this section” substituted by the Finance Act, 2016. 5Inserted by the Finance Act, 2016.

1[(4) The provisions of sub-section (1) shall apply if the plant and machinery is installed at any time between the first day of July, 2011 and the 30th day of June, 2[ 3[2021] .]

4[(5) The amount of credit admissible under this section shall be deducted from the tax payable, including minimum tax and final taxes payable under any of the provisions of this Ordinance, by the taxpayer5[“, for a period of five years beginning from the date of setting up or commencement of commercial production from the new plant or expansion project, whichever is later.”]

6[(6)] Where any credit is allowed under this section and subsequently it is discovered, on the basis of documents or otherwise, by the Commissioner Inland Revenue that 7[“the business has been discontinued in the subsequent five years after the credit has been allowed or”]any of the condition specified in this section was not fulfilled, the credit originally allowed shall be deemed to have been wrongly allowed and the Commissioner Inland Revenue may, notwithstanding anything contained in this Ordinance, re-compute the tax payable by the taxpayer for the relevant year and the provisions of this Ordinance shall apply accordingly.
8[(7) For the purposes of this section, ‘new equity’ means equity raised through fresh issue of shares against cash by the company and shall not include loans obtained from shareholders or directors:
Provided that short term loans and finances obtained from banking companies or non-banking financial institutions for the purposes of meeting working capital requirements shall not disqualify the taxpayer from claiming tax credit under this section.]

 

1Sub-section (4) substituted by the Finance Act, 2012. The substituted sub-section (1) read as follows: “(4) Where no tax is payable by the taxpayer in respect of the tax year in which such plant or machinery is installed, or where the tax payable is less than the amount of tax credit, the amount of such credit or so much of it as is in excess thereof, shall be carried forward and deducted from the
tax payable by the taxpayer in respect of the following tax year:
Provided that no such amount shall be carried forward for more than four tax years:
Provided further that deduction made under sub-section (1) and under this sub-section shall not exceed in aggregate the limit of the tax credit specified in sub-section (1).”
2 The figure “2016” substituted by the Finance Act, 2016.
3The figure “2019” substituted by Finance Act, 2018.
4Inserted by the Finance Act, 2012.
5 The words “in respect of the tax year in which the plant or machinery referred to in sub-section (1) is installed and for the subsequent four years” substituted by Finance Act, 2015.
6Sub-section (5) renumbered by the Finance Act, 2012.
7 Inserted by the Finance Act, 2016.
8Added by the Finance Act, 2012.

1[65F. Tax credit for certain persons.– (1) Following persons or incomes shall be allowed a tax credit equal to one hundred per cent of the tax payable under any provisions of this Ordinance including minimum, alternate corporate tax and final taxes for the period, to the extent, upon fulfillment of conditions and subject to limitations detailed as under:-

(a) persons engaged in coal mining projects in Sindh supplying coal exclusively to power generation projects;

(b) a startup as defined in clause (62A) of section 2 for the tax year in which the startup is certified by the Pakistan Software Export Board and the next following two tax years; and

2[ ]

(2) The tax credit under sub-section (1) shall be available subject to fulfillment of the following conditions, where applicable, namely:-

(a) return has been filed;

(b) withholding tax statements for the relevant tax year have been filed in respect of those provisions of the Ordinance, where the person is a withholding agent; and

(c) sales tax returns for the tax periods corresponding to relevant tax year have been filed if the person is required to file Sales Tax Return under any of the Federal or Provincial sales tax laws.

65G. Tax credit for specified industrial undertakings.- (1) When making certain eligible capital investments as specified in sub-section (2), the eligible taxpayers defined in sub-section (3) shall be allowed to take an investment tax credit of twenty five percent of the eligible investment amount, against tax payable under the provisions of this Ordinance including minimum and final taxes. The tax credit not fully adjusted during the year of investment shall be carried forward to the subsequent tax year subject to the condition that it may be carried forward for a period not exceeding two years.

1 Sections 65F and 65G inserted by the Finance Act, 2021. Earlier this insertion was made through Tax Laws (Second Amendment) Ordinance, 2021.
2 Clause (c) omitted by the Finance Act, 2022. The omitted clause read as follows:
“(c) Income from exports of computer software or IT services or IT enabled services as defined in clause (30AD) and (30AE) of section 2 upto the period ending on the 30th day of June, 2025:
Provided that eighty percent of the export proceeds is brought into Pakistan in foreign exchange remitted from outside Pakistan through normal banking channels.”

(2) For the purposes of this section, the eligible investment means investment made in purchase and installation of new machinery, buildings, equipment, hardware and software, except self-created software and used capital goods.

(3) For the purpose of this section, eligible person means —

(a) green field industrial undertaking as defined in clause (27A) of section 2 engaged in —

(i) the manufacture of goods or materials or the subjection of goods or materials to any process which substantially changes their original condition; or

(ii) ship building:

Provided that the person incorporated between the 30th day of June, 2019 and the 30th day of June, 2024 and the person is not formed by the splitting up or reconstitution of an undertaking already in existence or by transfer of machinery, plant or building from an undertaking established in Pakistan prior to commencement of the new business and is not part of an expansion project; and

(b) industrial undertaking set up by the 30th day of June 2023 and engaged in the manufacture of plant, machinery, equipment and items with dedicated use (no multiple uses) for generation of renewable energy from sources like solar and wind, for a period of five years beginning from the date such industrial undertaking is set up.]
1[ ]

1 Section 65H shall be omitted and shall be deemed to have been omitted with effect from 2nd March, 2022 through Finance Act, 2022. The omitted section read as follows:
“65H. Tax credit for foreign investment for industrial promotion.- (I) Where a taxpayer being —
(a) a non-resident Pakistani citizen having continued non-residential status for more than five years; or
(b) a resident individual having foreign assets declared in terms of section 116 or 116A by the 31″ December, 2021,
invests in a company incorporated on or after the 1st March, 2022, to set up an industrial undertaking in Pakistan with equity, not less than fifty million rupees, with funds remitted into Pakistan through proper banking channel as per the procedure to be prescribed by the State Bank of Pakistan, at any time up to the 31st December, 2022, that company shall be entitled to a one-time tax credit equal to one hundred percent of the amount remitted and credited in rupees in the bank account of such company against tax liability for the tax year in which commercial production commences.
(2) Where no tax is payable by the taxpayer in respect of the tax year in which the commercial production has commenced or where the tax payable is less than the amount of credit as aforesaid, the amount of the credit or so much of it as is in excess thereof, as the case may be, shall be carried forward and deducted from the tax payable by the taxpayer in respect of the following tax year and so

CHAPTER IV
COMMON RULES
PART I
GENERAL

66. Income of joint owners.—(1) For the purposes of this Ordinance and subject to sub-section (2), where any property is owned by two or more persons and their respective shares are definite and ascertainable –
(a) the persons shall not be assessed as an association of persons in respect of the property; and
(b) the share of each person in the income from the property for a tax year shall be taken into account in the computation of the person’s taxable income for that year.
(2) This section shall not apply in computing income chargeable under the head “Income from Business”.
67. Apportionment of deductions.— (1) Subject to this Ordinance, where an expenditure1[“expenditures, deductions and allowances”] relates to –
(a) the derivation of more than one head of income; or
2[(ab) derivation of income comprising of taxable income and any class of income to which sub-sections (4) and (5) of section 4 apply, or;]
(b) the derivation of income chargeable to tax under a head of income and to some other purpose,

 

on, but no such amount shall be carried forward for more than five tax years in the case of investment referred to in sub-section (1), however, the deduction made under this section shall not exceed in aggregate the limit specified in sub-section (1).
(3) This section shall not apply to a company or an industrial undertaking established by splitting up or reconstitution of a company or an industrial undertaking already in existence or by transfer of machinery or plant from an industrial undertaking established at any time before the 1st March, 2022.
(4) The provisions of sub-section ( I) shall apply if commercial production commences by the 30th June, 2024.
(5) Where any credit is allowed under this section and subsequently it is discovered by the Commissioner Inland Revenue that any one or more of the conditions specified in this section was or were not fulfilled, as the case may be, the credit originally allowed shall be deemed to have been wrongly allowed and the Commissioner, notwithstanding anything contained in this Ordinance, shall re- compute the tax payable by the taxpayer for the relevant year and the provisions of this Ordinance shall, so far as may be, apply accordingly.”
1 Substituted by the Finance Act, 2016.
2Inserted by the Finance Act, 2002.

the expenditure 1[“expenditures, deductions and allowances”] shall be apportioned on any reasonable basis taking account of the relative nature and size of the activities to which the amount relates.
(2) The 2[Board] may make rules under section 3[237] for the purposes of apportioning deductions 4[“expenditures and allowances].

68. Fair market value.— (1) For the purposes of this Ordinance, the fair market value of any property 5[or rent], asset, service, benefit or perquisite at a particular time shall be the price which the property 6[or rent], asset, service, benefit or perquisite would ordinarily fetch on sale or supply in the open market at that time.

(2) The fair market value of any property 7[or rent], asset, service, benefit or perquisite shall be determined without regard to any restriction on transfer or to the fact that it is not otherwise convertible to cash.

8[(3) Where the price 9[“other than the price of immoveable property”] referred to in sub-section (1) is not ordinarily ascertainable, such price may be determined by the Commissioner.]

10[(4) Notwithstanding anything contained in sub-sections (1) and (3), 11[the
Board may, from time to time, by notification in the official Gazette, determine the fair market value of immovable property of the area or areas as may be specified in the notification] .]
12[(5) Where the fair market value of any immovable property of an area or areas has not been determined by the Board in the notification referred to in sub- section (4), the fair market value of such immovable property shall be deemed to

1Substituted by the Finance Act, 2016.
2The words “Central Board of Revenue” substituted by the Finance Act, 2007.
3The figure “232” substituted by the Finance Act, 2002.
4 Inserted by the Finance Act, 2016. 5 Inserted by the Finance Act, 2003. 6Inserted by the Finance Act, 2003. 7 Inserted by the Finance Act, 2003. 8 Added by the Finance Act, 2003. 9 Inserted by the Finance Act, 2016.
10Inserted by the Finance Act, 2016.
11Substituted by the Income Tax (Fourth Amendment) Act, 2016 dated 02.12.2016. The substituted expression read as follows:
“the fair market value of immovable property shall be determined on the basis of valuation made by a
panel of approved values of the State Bank of Pakistan”.
12Added by the Income Tax (Fourth Amendment) Act, 2016 dated 02.12.2016.

be the value fixed by the District Officer (Revenue) or provincial or any other authority authorized in this behalf for the purposes of stamp duty.”]
1[(6) In respect of immovable property—
(i) component A of the formula in sub-section (2) of section 37;

(ii) “consideration received” as mentioned in Division X of Part IV of First Schedule;

(iii) “value of immovable property” as mentioned in Divisions XVIII of Part IV of the First Schedule; and
(iv) valuation for the purposes of section 111,shall not be less than the fair market value as determined under sub-section (4) or (5).

Explanation.—(1) For the removal of doubt, it is clarified that the fair market value as determined under sub-section (4) or(5) shall be for carrying out the purposes of this Ordinance only.

(2) It is further clarified that for the purposes of clauses (i) to (iv) of this sub-section if the fair market value determined under sub-section (4) or
(5) is different than the auction price the applicable price shall be the higher of the two.]

69. Receipt of income.— For the purposes of this Ordinance, a person shall be treated as having received an amount, benefit, or perquisite if it is —

(a) actually received by the person;

(b) applied on behalf of the person, at the instruction of the person or under any law; or

(c) made available to the person.

70. Recouped expenditure.— Where a person has been allowed a deduction for any expenditure or loss incurred in a tax year in the computation of the person’s income chargeable to tax under a head of income and, subsequently, the person has received, in cash or in kind, any amount in respect of such expenditure or loss, the amount so received shall be included in the income chargeable under that head for the tax year in which it is received.

71. Currency conversion.— (1) Every amount taken into account under this Ordinance shall be in Rupees.

(2) Where an amount is in a currency other than rupees, the amount shall be converted to the Rupee at the State Bank of Pakistan 1[ ] rate applying between the foreign currency and the Rupee on the date the amount is taken into account for the purposes of this Ordinance.

72. Cessation of source of income.— Where —

(a) any income is derived by a person in a tax year from any business, activity, investment or other source that has ceased either before the commencement of the year or during the year; and

(b) if the income had been derived before the business, activity, investment or other source ceased it would have been chargeable to tax under this Ordinance,

this Ordinance shall apply to the income on the basis that the business, activity, investment or other source had not ceased at the time the income was derived.

73. Rules to prevent double derivation and double deductions.— (1) For the purposes of this Ordinance, where –

(a) any amount is chargeable to tax under this Ordinance on the basis that it is receivable, the amount shall not be chargeable again on the basis that it is received; or
(b) any amount is chargeable to tax under this Ordinance on the basis that it is received, the amount shall not be chargeable again on the basis that it is receivable.

(2) For the purposes of this Ordinance, where —

(a) any expenditure is deductible under this Ordinance on the basis that it is payable, the expenditure shall not be deductible again on the basis that it is paid; or

(b) any expenditure is deductible under this Ordinance on the basis that it is paid, the expenditure shall not be deductible again on the basis that it is payable.

PART II
TAX YEAR

1[74. Tax year.— (1) For the purpose of this Ordinance and subject to this section, the tax year shall be a period of twelve months ending on the 30th day of June (hereinafter referred to as ‘normal tax year’) and shall, subject to sub-section (3), be denoted by the calendar year in which the said date falls.

(2) Where a person’s income year, under the repealed Ordinance, is different from the normal tax year, or where a person is allowed, by an order under sub-section (3), to use a twelve months’ period different from normal tax year, such income year or such period shall be that person’s tax year (hereinafter referred to as ‘special tax year’) and shall, subject to sub-section (3), be denoted by the calendar year relevant to normal tax year in which the closing date of the special tax year falls.

2[(2A) The 3[Board],—

(i) in the case of a class of persons having a special tax year different from a normal tax year may permit, by a notification in the official Gazette, to use a normal tax year; and

1Section 74 substituted by the Finance Act, 2002. The substituted section 74 read as follows:
“74. Tax year.- (1) For the purposes of this Ordinance and subject to this section, the tax year shall be the period of twelve months ending on the 30th day of June (referred to in this section as the financial year).
(2) A person may apply, in writing, to use as the person’s tax year a twelve-month period (hereinafter referred to as a “special year”) other than the financial year and the Commissioner may, subject to sub-section (4), by notice in writing, approve the application.
(3) A person granted permission under sub-section (2) to use a special year may apply, in writing, to change the person’s tax year to the financial year or to another special year and the Commissioner may, subject to sub-section (4), by notice in writing, approve such application.
(4) The Commissioner may approve an application under sub-section (2) or (3) only if the person has shown a compelling need to use a special year or to change the person’s tax year and any approval shall be subject to such conditions as the Commissioner may prescribe.
(5) The Commissioner may, by notice in writing to a person, withdraw the permission to use a special year granted under sub-section (2) or (3).
(6) A notice served by the Commissioner under sub-section (2) shall take effect on the date specified in the notice and a notice under sub-section (3) or (5) shall take effect at the end of the special year of the person in which the notice was served.
(7) Where the tax year of a person changes as a result of sub-section (2), (3) or (5), the period between the last full tax year prior to the change and the date on which the changed tax year commences shall be treated as a separate tax year, to be known as the “transitional year”.
(8) In this Ordinance, a reference to a particular financial year shall include a special year or a transitional year of a person commencing during the financial year.
(9) A person dissatisfied with a decision of the Commissioner under sub-section (2), (3) or
(5) may challenge the decision only under the appeal procedure in Part III of Chapter X.”
2 Added by the Finance Act, 2004.

(ii) in the case of a class of persons having a normal tax year may permit, by a notification in the official Gazette, to use a special tax year.]

(3) A person may apply, in writing, to the Commissioner to allow him to use a twelve months’ period, other than normal tax year, as special tax year and the Commissioner may, subject to sub-section (5), by an order, allow him to use such special tax year.

(4) A person using a special tax year, under sub-section (2), may apply in writing, to the Commissioner to allow him to use normal tax year and the Commissioner may, subject to sub-section (5), by an order, allow him to use normal tax year.

(5) The Commissioner shall grant permission under sub-section (3) or (4) only if the person has shown a compelling need to use special tax year or normal tax year, as the case may be, and the permission shall be subject to such conditions, if any, as the Commissioner may impose.

(6) An order under sub-section (3) or (4) shall be made after providing to the applicant an opportunity of being heard and where his application is rejected the Commissioner shall record in the order the reasons for rejection.

(7) The Commissioner may, after providing to the person concerned an opportunity of being heard, by an order, withdraw the permission granted under sub-section (3) or (4).

(8) An order under sub-section (3) or (4) shall take effect from such date, being the first day of the special tax year or the normal tax year, as the case may be, as may be specified in the order.

(9) Where the tax year of a person changes as a result of an order under sub-section (3) or sub-section (4), the period between the end of the last tax year prior to change and the date on which the changed tax year commences shall be treated as a separate tax year, to be known as the “transitional tax year”.

(10) In this Ordinance, a reference to a particular financial year shall, unless the context otherwise requires, include a special tax year or a transitional tax year commencing during the financial year.

(11) A person dissatisfied with an order under sub-section (3), (4) or (7) may file a review application to the 1[Board], and the decision by the 2[Board] on such application shall be final.]

1The words “Central Board of Revenue” substituted by the Finance Act, 2007.

PART III
ASSETS

75. Disposal and acquisition of assets.—(1) A person who holds an asset shall be treated as having made a disposal of the asset at the time the person parts with the ownership of the asset, including when the asset is —

(a) sold, exchanged, transferred or distributed; or

(b) cancelled, redeemed, relinquished, destroyed, lost, expired or surrendered.

(2) The transmission of an asset by succession or under a will shall be treated as a disposal of the asset by the deceased at the time asset is transmitted.

(3) The application of a business asset to personal use shall be treated as a disposal of the asset by the owner of the asset at the time the asset is so applied.

1[(3A) Where a business asset is discarded or ceases to be used in business, it shall be treated to have been disposed of.]

(4) A disposal shall include the disposal of a part of an asset.

(5) A person shall be treated as having acquired an asset at the time the person begins to own the asset, including at the time the person is granted any right.

(6) The application of a personal asset to business use shall be treated as an acquisition of the asset by the owner at the time the asset is so applied.

(7) In this section, –

“business asset” means an asset held wholly or partly for use in a business, including stock-in-trade and a depreciable asset; and

“personal asset” means an asset held wholly for personal use.

2[75A. Purchase of assets through banking channel.- (1) Notwithstanding anything contained in any other law, for the time being in force, no person shall purchase-

(a) immovable property having fair market value greater than five million Rupees; or

1 Inserted by the Finance Act, 2003.

(b) any other asset having fair market value more than one million Rupees, otherwise than by a crossed cheque drawn on a bank or through crossed demand draft or crossed pay order or any other crossed banking instrument showing transfer of amount from one bank account to another bank account.

(2) For the purposes of this section in case of immovable property, fair market value means value notified by the Board under sub-section (4) of section 68 or value fixed by the provincial authority for the purposes of stamp duty, whichever is higher.

(3) In case the transaction is not undertaken in the manner specified in sub- section (1), –

(a) such asset shall not be eligible for any allowance under sections 22, 23, 24 and 25 of this Ordinance; and

(b) such amount shall not be treated as cost in terms of section 76 of this Ordinance for computation of any gain on sale of such asset.]

76. Cost.—(1) Except as otherwise provided in this Ordinance, this section shall establish the cost of an asset for the purposes of this Ordinance.

(2) Subject to sub-section (3), the cost of an asset purchased by a person shall be the sum of the following amounts, namely:—

(a) The total consideration given by the person for the asset, including the fair market value of any consideration in kind determined at the time the asset is acquired;

(b) any incidental expenditure incurred by the person in acquiring and disposing of the asset; and
(c) any expenditure incurred by the person to alter or improve the asset,

but shall not include any expenditure under clauses (b) and (c) that has been fully allowed as a deduction under this Ordinance.

(3) The cost of an asset treated as acquired under sub-section (6) of section 75 shall be the fair market value of the asset determined at the date it is applied to business use.

(4) The cost of an asset produced or constructed by a person shall be the total costs incurred by the person in producing or constructing the asset plus any

expenditure referred to 1[in] clauses (b) and (c) of sub-section (2) incurred by the person.

(5) Where an asset has been acquired by a person with a loan denominated in a foreign currency and, before full and final repayment of the loan, there is an increase or decrease in the liability of the person under the loan as expressed in Rupees, the amount by which the liability is increased or reduced shall be added to or deducted from the cost of the asset, as the case may be.

2[Explanation.-Difference, if any, on account of foreign currency fluctuation, shall be taken into account in the year of occurrence for the purposes of depreciation.]

(6) In determining whether the liability of a person has increased or decreased for the purposes of sub-section (5), account shall be taken of the person’s position under any hedging agreement relating to the loan.

(7) Where a part of an asset is disposed of by a person, the cost of the asset shall be apportioned between the part of the asset retained and the part disposed of in accordance with their respective fair market values determined at the time the person acquired the asset.

(8) Where the acquisition of an asset by a person is the derivation of an amount chargeable to tax, the cost of the asset shall be the amount so charged plus any amount paid by the person for the asset.

(9) Where the acquisition of an asset by a person is the derivation of an amount exempt from tax, the cost of the asset shall be the exempt amount plus any amount paid by the person for the asset.

(10) The cost of an asset does not include the amount of any grant, subsidy, rebate, commission or any other assistance (other than a loan repayable with or without profit) received or receivable by a person in respect of the acquisition of the asset, except to the extent to which the amount is chargeable to tax under this Ordinance.

3[(11) Notwithstanding anything contained in this section, the Board may prescribe rules for determination of cost for any asset.]

77. Consideration received.—(1) The consideration received by a person on disposal of an asset shall be the total amount received by the person for the asset

1Inserted by the Finance Act, 2003.
2Added by the Finance Act, 2009.

1[or the fair market value thereof, whichever is the higher], including the fair market value of any consideration received in kind determined at the time of disposal.

(2) Where an asset has been lost or destroyed by a person, the consideration received for the asset shall include any compensation, indemnity or damages received by the person under —

(a) an insurance policy, indemnity or other agreement;
(b) a settlement; or
(c) a judicial decision.
(3) The consideration received for an asset treated as disposed of under sub-section (3) 2[or (3A)] of section 75 shall be the fair market value of the asset determined at the time it is applied to personal use 3[or discarded or ceased to be used in business, as the case may be].

(4) The consideration received by a scheduled bank, financial institution, modaraba, or leasing company approved by the Commissioner (hereinafter referred to as a “leasing company”) in respect of an asset leased by the company to another person shall be the residual value received by the leasing company on maturity of the lease agreement subject to the condition that the residual value plus the amount realized during the term of the lease towards the cost of the asset is not less than the original cost of the asset.
(5) Where two or more assets are disposed of by a person in a single transaction and the consideration received for each asset is not specified, the total consideration received by the person shall be apportioned among the assets disposed of in proportion to their respective fair market values determined at the time of the transaction.
4[(6) Notwithstanding anything contained in this section, the Board may prescribe rules for determination of consideration received for any asset.]
78. Non-arm’s length transactions.— Where an asset is disposed of in a non- arm’s length transaction —
(a) the person disposing of the asset shall be treated as having received consideration equal to the fair market value of the asset determined at the time the asset is disposed; and

 

1 Inserted by the Finance Act, 2003. 2 Inserted by the Finance Act, 2003. 3Inserted by the Finance Act, 2003.

(b) the person acquiring the asset shall be treated as having a cost equal to the amount determined under clause (a).
79. Non-recognition rules.— (1) For the purposes of this Ordinance and subject to sub-section (2), no gain or loss shall be taken to arise on the disposal of an asset –

(a) between spouses under an agreement to live apart;
(b) by reason of the transmission of the asset to an executor or beneficiary on the death of a person;
(c) by reason of a gift of the asset 1[to a relative, as defined in sub- section (5) of section 85];
(d) by reason of the compulsory acquisition of the asset under any law where the consideration received for the disposal is reinvested by the recipient in an asset of a like kind within one year of the disposal;
(e) by a company to its shareholders on liquidation of the company; or
(f) by an association of persons to its members on dissolution of the association where the assets are distributed to members in accordance with their interests in the capital of the association.

(2) Sub-section (1) shall not apply where the person acquiring the asset is a non-resident person at the time of the acquisition 2[in respect of disposal of an asset as mentioned in clauses (d), (e) and (f) of sub-section (1)].

(3) Where clause (a), (b), (c), (e) or (f) of sub-section (1) applies, the person acquiring the asset shall be treated as —

(a) acquiring an asset of the same character as the person disposing of the asset; and

(b) acquiring the asset for a cost equal to the cost of the asset for the person disposing of the asset at the time of the disposal.

(4) The person’s cost of a replacement asset referred to in clause (d) of sub-section (1) shall be the cost of the asset disposed of plus the amount by which any consideration given by the person for the replacement asset exceeds the consideration received by the person for the asset disposed of.

CHAPTER V
PROVISIONS GOVERNING PERSONS
PART I
CENTRAL CONCEPTS
Division I
Persons
80. Person. —(1) The following shall be treated as persons for the purposes of this Ordinance, namely: —
(a) An individual;
(b) a company or association of persons incorporated, formed, organised or established in Pakistan or elsewhere;

(c) the Federal Government, a foreign government, a political sub- Division of a foreign government, or public international organisation.

(2) For the purposes of this Ordinance —

(a) “association of persons” includes a firm, a Hindu undivided family, any artificial juridical person and anybody of persons formed under a foreign law, but does not include a company;

(b) “company” means —

(i) a company as defined in the 1[Companies Act, 2017 (XIX of 2017)];

(ii) a body corporate formed by or under any law in force in Pakistan;

(iii) a modaraba;

(iv) a body incorporated by or under the law of a country outside Pakistan relating to incorporation of companies;

2[(v) a co-operative society, a finance society or any other society;]

1[(va) a non-profit organization;]

2[(vb) a trust, an entity or a body of persons established or constituted by or under any law for the time being in force;]

(vi) a foreign association, whether incorporated or not, which the 3[Board] has, by general or special order, declared to be a company for the purposes of this Ordinance;

(vii) a Provincial Government; 4[ ]

(viii) a 5[Local Government] in Pakistan; 6[or] 7[(ix) a Small Company as defined in section 2;]
(c) “firm” means the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all;

(d) “trust” means an obligation annexed to the ownership of property and arising out of the confidence reposed in and accepted by the owner, or declared and accepted by the owner for the benefit of another, or of another and the owner, and includes a unit trust; and

(e) “unit trust” means any trust under which beneficial interests are divided into units such that the entitlements of the beneficiaries to income or capital are determined by the number of units held.

 

 

 

“(v) a trust, a co-operative society or a finance society or any other society established or constituted by or under any law for the time being in force;”
1Inserted by the Finance Act, 2013.
2Inserted by the Finance Act, 2013.
3The words “Central Board of Revenue” substituted by the Finance Act, 2007.
4The word “or” omitted by the Finance Act, 2005.
5The words “local authority” substituted by the Finance Act, 2008.

Division II
Resident and Non-Resident Persons

81. Resident and non-resident persons.— (1) A person shall be a resident person for a tax year if the person is —

(a) a resident individual, resident company or resident association of persons for the year; or

(b) the Federal Government.

(2) A person shall be a non-resident person for a tax year if the person is not a resident person for that year.

82. Resident individual. — An individual shall be a resident individual for a tax year if the individual —

(a) is present in Pakistan for a period of, or periods amounting in aggregate to, one hundred and 1[eighty-three] days or more in the tax year; 2[ ] 3[or]

4[ ]

5[ ]

6[ ]

(c) is an employee or official of the Federal Government or a Provincial Government posted abroad in the tax year 7[;

1The words “eighty-two” substituted by the Finance Act, 2006.
2The word “or” omitted by the Finance Act, 2019. 3The word “or” added by the Finance Act, 2022. 4New clause (ab) inserted by Finance Act, 2019
5 Clause (ab) omitted by the Finance Act, 2021. The omitted clause read as follows:
“(ab) is present in Pakistan for a period of, or periods amounting in aggregate to, one hundred and twenty days or more in the tax year and, in the four years preceding the tax year, has been in Pakistan for a period of, or periods amounting in aggregate to, three hundred and sixty-five days or more; or”
6 Clause (b) omitted by the Finance Act, 2003. The omitted clause (b) read as follows:
“(b) is present in Pakistan for a period of, or periods amounting in aggregate to, ninety days or more in the tax year and who, in the four years preceding the tax year, has been in Pakistan for a period of, or periods amounting in aggregate to, three hundred and sixty-five days or more; or”

(d) being a citizen of Pakistan is not present in any other country for more than one hundred and eighty-two days during the tax year or who is not a resident taxpayer of any other country.]

83. Resident company.— A company shall be a resident company for a tax year if —

(a) it is incorporated or formed by or under any law in force in Pakistan;

(b) the control and management of the affairs of the company is situated wholly 1[ ] in Pakistan at any time in the year; or

(c) it is a Provincial Government or 2[Local Government] in Pakistan.
84. Resident association of persons. — An association of persons shall be a resident association of persons for a tax year if the control and management of the affairs of the association is situated wholly or partly in Pakistan at any time in the year.

Division III
Associates
85. Associates.—(1) Subject to sub-section (2), two persons shall be associates where the relationship between the two is such that one may reasonably be expected to act in accordance with the intentions of the other, or both persons may reasonably be expected to act in accordance with the intentions of a third person.

(2) Two persons shall not be associates solely by reason of the fact that one person is an employee of the other or both persons are employees of a third person.

(3) Without limiting the generality of sub-section (1) and subject to sub- section (4), the following shall be treated as associates —

(a) an individual and a relative of the individual;

(b) members of an association of persons;

(c) a member of an association of persons and the association, where the member, either alone or together with an associate or associates under another application of this section, controls

1The words “or almost wholly” omitted by the Finance Act, 2003.

fifty per cent or more of the rights to income or capital of the association;

(d) a trust and any person who benefits or may benefit under the trust;

(e) a shareholder in a company and the company, where the shareholder, either alone or together with an associate or associates under another application of this section, controls either directly or through one or more interposed persons —

(i) fifty per cent or more of the voting power in the company;

(ii) fifty per cent or more of the rights to dividends; or

(iii) fifty per cent or more of the rights to capital; and

(f) two companies, where a person, either alone or together with an associate or associates under another application of this section, controls either directly or through one or more interposed persons —

(i) fifty per cent or more of the voting power in both companies;

(ii) fifty per cent or more of the rights to dividends in both companies; or

(iii) fifty per cent or more of the rights to capital in both companies.

(4) Two persons shall not be associates under clause (a) or (b) of sub- section (3) where the Commissioner is satisfied that neither person may reasonably be expected to act in accordance with the intentions of the other.

(5) In this section, “relative” in relation to an individual, means —

(a) an ancestor, a descendant of any of the grandparents, or an adopted child, of the individual, or of a spouse of the individual; or

(b) a spouse of the individual or of any person specified in clause (a).

PART II
INDIVIDUALS

Division I
Taxation of Individuals

86. Principle of taxation of individuals.— Subject to this Ordinance, the taxable income of each individual shall be determined separately.

87. Deceased individuals.— (1) The legal representative of a deceased individual shall be liable for —

(a) any tax that the individual would have become liable for if the individual had not died; and

(b) any tax payable in respect of the income of the deceased’s estate.

(2) The liability of a legal representative under this section shall be limited to the extent to which the deceased’s estate is capable of meeting the liability.

1[(2A) The liability under this Ordinance shall be the first charge on the deceased’s estate.]

(3) For the purpose of this Ordinance, —

(a) any proceeding taken under this Ordinance against the deceased before his or her death shall be treated as taken against the legal representative and may be continued against the legal representative from the stage at which the proceeding stood on the date of the deceased’s death; and

(b) any proceeding which could have been taken under this Ordinance against the deceased if the deceased had survived may be taken against the legal representative of the deceased.

(4) In this section, “legal representative” means a person who in law represents the estate of a deceased person, and includes any person who intermeddles with the estate of the deceased and where a party sues or is sued in representative character the person on whom the estate devolves on the death of the party so suing or sued.

 

1Added by the Finance Act, 2010.

Division II
Provisions Relating to Averaging

88. An individual as a member of an association of persons.— If, for a tax year, an individual has taxable income and derives an amount or amounts exempt from tax under sub-section (1) of section 92, the amount of tax payable on the taxable income of the individual shall be computed in accordance with the following formula, namely: —

(A/B) x C
where —

A is the amount of tax that would be assessed to the individual for the year if the amount or amounts exempt from tax under sub-section (1) of section 92 were chargeable to tax;

B is the taxable income of the individual for the year if the amount or amounts exempt from tax under sub-section (1) of section 92 were chargeable to tax; and

C is the individual’s actual taxable income for the year.

1[ ]

89. Authors. — Where the time taken by an author of a literary or artistic work to complete the work exceeds twenty-four months, the author may elect to treat any lump sum amount received by the author in a tax year on account of royalties in respect of the work as having been received in that tax year and the preceding two tax years in equal proportions.

 

1Section 88A omitted by Finance Act, 2014. The omitted section read as follows:
“88A. Share profits of company to be added to taxable income.—(1) Notwithstanding the provisions of sub-section (1) of section 92, the share of profits derived by a company from an association of persons shall be added to the taxable income of the company.
(2) The company shall be allowed a tax credit in accordance with the following formula, namely: —
(A/B) x C
Where —

A is the amount of share of profits received by the company from the association;
B is the taxable income of the association; and
C is the amount of tax assessed on the association.
(3) The tax credit allowed under this section shall be applied in accordance with sub-section
(3) of section 4.”

Division III
Income Splitting

90. Transfers of assets. — (1) For the purposes of this Ordinance and subject to sub-section (2), where there has been a revocable transfer of an asset, any income arising from the asset shall be treated as the income of the transferor and not of the transferee.

(2) Sub-section (1) shall not apply to any income derived by a person by virtue of a transfer that is not revocable during the lifetime of the person and the transferor derives no direct or indirect benefit from such income.

(3) For the purposes of this Ordinance, where there has been a transfer of an asset but the asset remains the property of the transferor, any income arising from the asset shall be treated as the income of the transferor.

(4) For the purposes of this Ordinance and subject to sub-section (5), any income arising from any asset transferred by a person directly or indirectly to—

(a) the person’s spouse or minor child; or

(b) any other person for the benefit of a person or persons referred to in clause (a),

shall be treated as the income of the transferor.

(5) Sub-section (4) shall not apply to any transfer made —

(a) for adequate consideration; or

(b) in connection with an agreement to live apart.

(6) For the purposes of clause (a) of sub-section (5), a transfer shall not be treated as made for adequate consideration if the transferor has provided, by way of loan or otherwise, to the transferee, directly or indirectly, with the funds for the acquisition of the asset.

(7) Sub-section (5) does not apply where the transferor fails to produce evidence of the transfer of the asset by way of its registration or mutation in the relevant record and the income arising from the asset shall be treated as the income of the transferor for the purposes of this Ordinance.

(8) For the purposes of this section, —

(a) a transfer of an asset shall be treated as revocable if —

(i) there is any provision for the re-transfer, directly or indirectly, of the whole or any part of the asset to the transferor; or

(ii) the transferor has, in any way, the right to resume power, directly or indirectly, over the whole or any part of the asset;

(b) “minor child” shall not include a married daughter; and

(c) “transfer” includes any disposition, settlement, trust, covenant, agreement or arrangement.

91. Income of a minor child.— (1) Any income of a minor child for a tax year chargeable under the head “Income from Business” shall be chargeable to tax as the income of the parent of the child with the highest taxable income for that year.

(2) Sub-section (1) shall not apply to the income of a minor child from a business acquired by the child through an inheritance.

PART III
ASSOCIATIONS OF PERSONS

92. Principles of taxation of associations of persons.—(1) 1[ ] An association of persons shall be liable to tax separately from the members of the association and 2[where the association of persons has paid tax the] amount received by a member of the association in the capacity as member out of the income of the association shall be exempt from tax3[:]

4[Provided that if at least one member of the association of persons is a company, the share of such company or companies shall be excluded for the purpose of computing the total income of the association of persons and the company or the companies shall be taxed separately, at the rate applicable to the companies, according to their share.]

5[Explanation.– For removal of doubt it is clarified that if the income of association of persons is exempt and no tax is payable under the Ordinance due to this exemption, the share received in the capacity as member out of the income of the association shall remain exempt.]

6[ ]

7[ ]

8[ ]

9[ ]

1The words, brackets, figure and comma “Subject to sub-section (2)” omitted by the Finance Act, 2007.
2 Inserted by the Finance Act, 2003.
3Full stop substituted by a colon by the Finance Act, 2014.
4Added by the Finance Act, 2014.
5 Explanation added by the Finance Act, 2022.
6 Sub-section (2) omitted by the Finance Act, 2007. The omitted sub-section (2) read as follows:
“ (2) Sub-section (1) shall not apply to an association of persons that is a professional firm prohibited from incorporating by any law or the rules of the body regulating the profession.”
7Sub-section (3) omitted by the Finance Act, 2007. The omitted sub-section (3) read as follows:
“(3) An association of persons to which subsection (2) applies shall not be liable to tax and the income of the association shall be taxed to the members in accordance with section 93”.
8 Sub-section (4) omitted by the Finance Act, 2007. The omitted sub-section (4) read as follows: “(4)An association of persons referred to in sub-section (3) shall furnish a return of total income for each tax year.
9Sub-section (5) omitted by the Finance Act, 2007. The omitted sub-section (5) read as follows:

1[ ]
PART IV
COMPANIES

94. Principles of taxation of companies.- (1) A company shall be liable to tax separately from its shareholders.

(2) A dividend paid by a 2[ ] company shall be taxable in accordance with Section 5.

3[ ]

95. Disposal of business by individual to wholly-owned company.- (1) Where a resident individual (hereinafter referred to as the “transferor”) disposes of

“(5) Sections 114, 118 and 119 shall apply to a return of total income required to be furnished under sub-section (4).”
1 Section 93 omitted by the Finance Act, 2007. The omitted section read as follows:
“93. Taxation of members of an association of persons.- (1) Where sub-section (3) of section 92 applies, the income of a member of an association of persons chargeable under the head “Income from Business” for a tax year shall include –
(a) in the case of a resident member, the member’s share in the total income of the association; or
(b) in the case of a non-resident member, the member’s share in so much of the total income of the association as is attributable to Pakistani-source income.
(2) Where an association of persons to which sub-section (3) of section 92 applies sustains a loss that cannot be set off against any other income of the association in accordance with section 56, the amount of the loss shall be apportioned among the members of the association according to their interest in the association and the members shall be entitled to have their share of the loss set off and carried forward for set off under Part VIII of Chapter III in computing their taxable income under this Ordinance.
(3) The share of a loss referred to in sub-section (2) of a non-resident member shall be limited to the extent that the loss relates to the derivation of Pakistan-source income.
(4) The total income of an association of persons for the purposes of sub-section (1) and the loss of an association for the purposes of sub-section (2) shall be computed as if the association were a resident person.
(5) Income, expenditures and losses of an association of persons to which this section applies shall retain their character as to geographic source and type of income, expenditure or loss in the hands of the members of the association, and shall be treated as having passed through the association on a pro rata basis, unless the Commissioner permits otherwise by order in writing to the association.
(6) The share of a member in the total income of an association of persons shall be determined according to the member’s interest in the association and shall include any profit on debt, brokerage, commission, salary or other remuneration received or due from the association.”
2The word “resident” omitted by the Finance Act, 2015
3Sub-section (3) omitted by the Finance Act 2017. Omitted sub-section reads as follows:
“A dividend paid by a non-resident company to a resident person shall be chargeable to tax under the head “Income from Business” or “Income from Other Sources”, as the case may be, unless the dividend is exempt from tax.”

all the assets of a business of the transferor to a resident company, no gain or loss shall be taken to arise on the disposal if the following conditions are satisfied, namely:—

(a) The consideration received by the transferor for the disposal is a share or shares in the company (other than redeemable shares);

(b) the transferor must beneficially own all the issued shares in the company immediately after the disposal;
(c) the company must undertake to discharge any liability in respect of the assets disposed of to the company;

(d) any liability in respect of the assets disposed of to the company must not exceed the transferor’s cost of the assets at the time of the disposal;

(e) the fair market value of the share or shares received by the transferor for the disposal must be substantially the same as the fair market value of the assets disposed of to the company, less any liability that the company has undertaken to discharge in respect of the assets; and

(f) the company must not be exempt from tax for the tax year in which the disposal takes place.

(2) Where sub-section (1) applies —

(a) each of the assets acquired by the company shall be treated as having the same character as it had in the hands of the transferor;

(b) the company’s cost in respect of the acquisition of the assets shall be —

(i) in the case of a depreciable asset or amortised intangible, the written down value of the asset or intangible immediately before the disposal;

(ii) in the case of stock-in-trade valued for tax purposes under sub-section (4) of section 35 1[ ], that value; or

 

1The words “at fair market value” omitted by the Finance Act, 2007.

(iii) in any other case, the transferor’s cost at the time of the disposal;

(c) if, immediately before the disposal, the transferor has deductions allowed under sections 22, 23 and 24 in respect of the assets transferred which have not been set off against the transferor’s income, the amount not set off shall be added to the deductions allowed under those sections to the company in the tax year in which the transfer is made; and
(d) the transferor’s cost in respect of the share or shares received as consideration for the disposal shall be —

(i) in the case of a consideration of one share, the transferor’s cost of the assets transferred as determined under clause (b), less the amount of any liability that the company has undertaken to discharge in respect of the assets; or

(ii) in the case of a consideration of more than one share, the amount determined under sub-clause (i) divided by the number of shares received.

(3) In determining whether the transferor’s deductions under sections 22, 23 or 24 have been set off against income for the purposes of clause (c) of sub- section (2), those deductions shall be taken into account last.

96. Disposal of business by association of persons to wholly-owned company.— (1) Where a resident association of persons disposes of all the assets of a business of the association to a resident company, no gain or loss shall be taken to arise on the disposal if the following conditions are satisfied, namely: —

(a) The consideration received by the association for the disposal is a share or shares in the company (other than redeemable shares);
(b) the association must own all the issued shares in the company immediately after the disposal;
(c) each member of the association must have an interest in the shares in the same proportion to the member’s interest in the business assets immediately before the disposal;
(d) the company must undertake to discharge any liability in respect of the assets disposed of to the company;
(e) any liability in respect of the assets disposed of to the company must not exceed the association’s cost of the asset at the time of the disposal;

(f) the fair market value of the share or shares received by the association for the disposal must be substantially the same as the fair market value of the assets disposed of to the company, as reduced by any liability that the company has undertaken to discharge in respect of the assets; and
(g) the company must not be exempt from tax for the tax year in which the disposal takes place.

(2) Where sub-section (1) applies —
(a) each of the assets acquired by the company shall be treated as having the same character as it had in the hands of the association;
(b) the company’s cost in respect of the acquisition of the assets shall be —
(i) in the case of a depreciable asset or amortised intangible, the written down value of the asset or intangible immediately before the disposal;
(ii) in the case of stock-in-trade valued for tax purposes under sub-section (4) of section 351[ ], that value; or
(iii) in any other case, the association’s cost at the time of the disposal;
(c) if, immediately before the disposal, the association is subject to tax in accordance with sub-section (1) of section 92 and the association has deductions allowed under sections 22, 23 and 24 in respect of the assets transferred which have not been set off against the association’s income, the amount not set off shall be added to the deductions allowed under those sections to the company in the tax year in which the transfer is made; and
(d) the association’s cost in respect of the share or shares received as consideration for the disposal shall be —
(i) in the case of a consideration of one share, the association’s cost of the assets transferred as determined under clause (b), as reduced by the amount of any liability that the company has undertaken to discharge in respect of the assets; or

 

(ii) in the case of a consideration of more than one share, the amount determined under sub-clause (i) divided by the number of shares received.
(3) In determining whether the association’s deductions under Sections 22, 23 or 24 have been set off against income for the purposes of clause (c) of sub-section (2), those deductions are taken into account last.
97. Disposal of asset between wholly-owned companies.— (1) Where a resident company (hereinafter referred to as the “transferor”) disposes of an asset to another resident company (hereinafter referred to as the “transferee”), no gain or loss shall be taken to arise on the disposal if the following conditions are satisfied, namely:-
(a) Both companies belong to a wholly-owned group of 1[resident] companies at the time of the disposal;
(b) the transferee must undertake to discharge any liability in respect of the asset acquired;
(c) any liability in respect of the asset must not exceed the transferor’s cost of the asset at the time of the disposal; and
(d) the transferee must not be exempt from tax for the tax year in which the disposal takes place.
(2) Where sub-section (1) applies —
(a) the asset acquired by the transferee shall be treated as having the same character as it had in the hands of the transferor;
(b) the transferee’s cost in respect of the acquisition of the asset shall be —
(i) in the case of a depreciable asset or amortized intangible, the written down value of the asset or intangible immediately before the disposal;
(ii) in the case of stock-in-trade valued for tax purposes under sub-section (4) of section 35 2[ ], that value; or
(iii) in any other case, the transferor’s cost at the time of the disposal;
(c) if, immediately before the disposal, the transferor has deductions allowed under sections 22, 23 and 24 in respect of the asset transferred which have not been set off against the transferor’s income, the amount not set off shall be added to the

 

1Inserted by the Finance Act, 2003.

deductions allowed under those sections to the transferee in the tax year in which the transfer is made; and
(d) the transferor’s cost in respect of any consideration in kind received for the asset shall be the transferor’s cost of the asset transferred as determined under clause (b), as reduced by the amount of any liability that the transferee has undertaken to discharge in respect of the asset.
(3) In determining whether the transferor’s deductions under sections 22, 23 or 24 in respect of the asset transferred have been set off against income for the purposes of clause (c) of sub-section (2), those deductions shall be taken into account last.

(4) The transferor and transferee companies belong to a wholly-owned group if —
(a) one company beneficially holds all the issued shares of the other company; or
(b) a third company beneficially holds all the issued shares in both companies.
1[97A. Disposal of asset under a scheme of arrangement and reconstruction.—(1) No gain or loss shall be taken to arise on disposal of asset from one company (hereinafter referred to as the “transferor”) to another company (hereinafter referred to as the “transferee”) by virtue of operation of a Scheme of Arrangement and Reconstruction under sections 282L and 284 to 287 of the 2[Companies Act, 2017 (XIX of 2017)] or section 48 of the Banking Companies Ordinance, 1962 (LVII of 1962), if the following conditions are satisfied, namely:—
(a) the transferee must undertake to discharge any liability in respect of the asset acquired;
(b) any liability in respect of the asset must not exceed the transferor’s cost of the asset at the time of the disposal;
(c) the transferee must not be exempt from tax for the tax year in which the disposal takes place; and
(d) scheme is approved by the High Court, State Bank of Pakistan or Securities and Exchange Commission of Pakistan, as the case may be, on or after first day of July, 2007.

 

1 Inserted by the Finance Act, 2007.
2 The expression “Companies Ordinance, 1984 (XLVII of 1984)” wherever occurring substituted by “Companies Act, 2017 (XIX of 2017)” through Finance Act, 2020 dated 30th June, 2020

(2) No gain or loss shall be taken to arise on issue, cancellation, exchange or receipt of shares as a result of Scheme of Arrangement and Reconstruction under sections 282L and 284 to 287 of the Companies Act, 2017 (XIX of 2017) or section 48 of the Banking Companies Ordinance, 1962 (LVII of 1962) and approved by:—
(a) the High Court;
(b) State Bank of Pakistan; or
(c) Securities and Exchange Commission of Pakistan, as the case may be, on or after first day of July, 2007.
(3) Where sub-section (1) applies—
(a) the asset acquired by the transferee shall be treated as having the same character as it had in the hands of the transferor;

(b) the transferee’s cost in respect of acquisition of the asset shall be—
(i) in the case of a depreciable asset or amortised intangible, the written down value of the asset or intangible immediately before the disposal;
(ii) in the case of stock-in-trade valued for tax purposes under sub-section (4) of section 35, that value; or
(iii) in any other case, the transferor’s cost at the time of the disposal;
(c) if, immediately before the disposal, the transferor has deductions allowed under sections 22, 23 and 24 in respect of the asset transferred which have not been set off against the transferor’s income, the amount not set off shall be added to the deduction allowed under those sections to the transferee in the tax year in which the transfer is made.
(4) In determining whether the transferor’s deductions under sections 22, 23 or 24 in respect of the asset transferred have been set off against income for the purposes of clause (c) of sub-section (2), those deductions shall be taken into account last.

(5) Where sub-section (2) applies and the shares issued vested by virtue of the Scheme of Arrangement and Reconstruction under sections 282L and 284 to 287 of the Companies Act, 2017 (XIX of 2017) or section 48 of the Banking Companies Ordinance, 1962 (LVII of 1962) and approved by the Court or State Bank of Pakistan or Securities and Exchange Commission of Pakistan as the case may be, are disposed of, the cost of shares shall be the cost prior to the operation of the said scheme.]

PART V
COMMON PROVISIONS APPLICABLE TO ASSOCIATIONS OF PERSONS AND COMPANIES

98. Change in control of an entity.- (1) Where there is a change of fifty per cent or more in the underlying ownership of an entity, any loss incurred for a tax year before the change shall not be allowed as a deduction in a tax year after the change, unless the entity —

(a) continues to conduct the same business after the change as it conducted before the change until the loss has been fully set off; and

(b) does not, until the loss has been fully set off, engage in any new business or investment after the change where the principal purpose of the entity or the beneficial owners of the entity is to utilise the loss so as to reduce the income tax payable on the income arising from the new business or investment.

(2) In this section, —

“entity” means a company or association of persons to which sub- section (1) of section 92 applies;

“ownership interest” means a share in a company or the interest of a member in an association of persons; and

“underlying ownership” in relation to an entity, means an ownership interest in the entity held, directly or indirectly through an interposed entity or entities, by an individual or by a person not ultimately owned by individuals.

1[PART VA
TAX LIABILITY IN CERTAIN CASES

98A. Change in the constitution of an association of persons.—Where, during the course of a tax year, a change occurs in the constitution of an association of persons, liability of filing the return on behalf of the association of persons for the tax year shall be on the association of persons as constituted at the time of filing of such return but the income of the association of persons shall be apportioned among the members who were entitled to receive it and, where the tax assessed on a member cannot be recovered from him it shall be recovered from the association of persons as constituted at the time of filing the return.

98B. Discontinuance of business or dissolution of an association of persons.— (1) Subject to the provisions of section 117, where any business or profession carried on by an association of persons has been discontinued, or where an association of persons is dissolved, all the provisions of this Ordinance, shall, so far as may be, apply as if no such discontinuance or dissolution had taken place.

(2) Every person, who was, at the time of such discontinuance or dissolution, a member of such association of persons and the legal representative of any such person who is deceased, shall be jointly and severally liable for the amount of tax payable by the association of persons.

98C. Succession to business, otherwise than on death.— (1) Where a person carrying on any business or profession has been succeeded in any tax year by any other person (hereafter in this section referred to as the “predecessor” and “successor” respectively), otherwise than on the death of the predecessor, and the successor continues to carry on that business or profession,-

(a) the predecessor shall be liable to pay tax in respect of the income of the tax year in which the succession took place upto the date of succession and of the tax year or years preceding that year; and

(b) the successor shall be liable to pay tax in respect of the income of such tax year after the date of succession.

(2) Notwithstanding anything contained in sub-section (1), where the predecessor cannot be found, the tax liability in respect of the tax year in which the succession took place upto the date of succession and of the tax year or years

1Inserted by the Finance Act, 2003.

preceding that year shall be that of the successor in like manner and to the same extent as it would have been that of the predecessor, and all the provisions of this Ordinance shall, so far as may be, apply accordingly.

(3) Where any tax payable under this section in respect of such business or profession cannot be recovered from the predecessor, it shall be recoverable from the successor, who shall be entitled to recover it from the predecessor.]

CHAPTER VI
SPECIAL INDUSTRIES

PART I
INSURANCE BUSINESS

99. Special provisions relating to insurance business. — The profits and gains of any insurance business shall be computed in accordance with the rules in the Fourth Schedule.

1[ ]

2[99A. Special provisions relating to payment of tax through electricity connections.– (1) Notwithstanding anything contained in the Ordinance, a tax shall be charged and collected from retailers other than Tier-I retailers as defined in Sales Tax Act, 1990 (VII of 1990) and specified service providers on commercial electricity connections at the rates provided in clause (2A) of Division IV, Part IV of the First Schedule.

(2) A retailer who has paid sales tax under sub-section (9) of section 3 of Sales Tax Act, 1990 (VII of 1990), shall not be required to pay tax under this section and the sales tax so paid shall constitute discharge of tax liability under this section.

1 Inserted by the National Assembly Secretariat’s O.M. No.F.22(2)/2016-Legis dated 29.01.2016.
2 Section 99A substituted by the Finance Act, 2022. The substituted section read as follows:
“99A. Special provisions relating to traders.-(1) Subject to sub-section (3), tax payable on the profits and gains of a trader as defined in sub-section (4) who upto thirty first day of December, 2015 has not filed a return for any of the preceding ten tax years shall be computed in accordance with the rules laid down in Part I of the Ninth Schedule.
(2) Subject to sub-section (3), tax payable on the profits and gains of any trader as defined in sub-section (4), who-
(a) is a filer; or
(b) is NTN holder and a non-filer but has filed return or returns in any of the last ten preceding tax years, shall be computed in accordance with the rules laid down in Part II of the Ninth Schedule.
(3) Sub-sections (1) and (2) shall apply, if-
(a) the return filed by the trader qualifies for acceptance in accordance with the rules laid down in the Ninth Schedule;
(b) return relates to tax years 2015 to 2018; and
(c) income from business consists of profits and gains from trading activity only.
(4) For the purpose of this section and the Ninth Schedule, ‘trader’ means an individual or an association of persons (AOP) buying goods or merchandise and selling the same without further processing and providing, business-related after sales, services by doing repair jobs.
Explanation 1.- For the removal of doubt it is clarified that any person engaged in-
(a) rendering of, or providing, services as defined in clause (ii) of sub-section (7) of section 153; or
(b) business of retailer falling under rule (5) of Chapter II of the Sales Tax Special Procedures Rules, 2007, shall not be treated as a trader for the purposes of this section.
Explanation 2.- It is also clarified that this section shall not apply to a person who is a Member of the Senate of Pakistan, the National Assembly of Pakistan or a Provincial Assembly.”]

(3) The tax collected or paid under this section shall be final tax on the income of persons covered under this section in respect of business being carried out from the premises where the electricity connection is installed.

(4) For the purposes of this section, Board with the approval of the Minister in-charge may issue an income tax general order to-

(a) provide the scope, time, payment, recovery, penalty, default surcharge, adjustment or refund of tax payable under this section in such manner and with such conditions as may be specified.

(b) provide record keeping, filing of return, statement and assessment in such manner and with such conditions as may be specified;

(c) provide mechanism of collection, deduction and payment of tax in respect of any person; or

(d) include or exempt any person or classes of persons, any income or classes of income from the application of this section, in such manner and with such conditions as may be specified.]

1[99B. Special procedure for small traders and shopkeepers:-Notwithstanding anything contained in this Ordinance the 2[Board with the approval of the Minister- in-charge] may, by notification in the official Gazette, prescribe special procedure for scope and payment of tax, filing of return and assessment in respect of such small traders and shopkeepers, in such cities or territories, as may be specified therein.]

3[99C. Special procedure for certain persons.- Notwithstanding anything contained in this Ordinance, the 4[Board with the approval of the Minister-in- charge] may, by notification in the official Gazette, prescribe special procedure for scope and payment of tax, record keeping, filing of return and assessment in respect of small businesses, construction businesses, medical practitioners, hospitals, educational institutions and any other sector specified by 5[Board with the approval of the Minister-in-charge], in such cities or territories, as may be specified therein.]

 

1 New Section 99B inserted through Finance Supplementary (Second Amendment) Act, 2019.
2 The words “Federal Government” substituted by the Finance Act, 2021.
3 New section 99C inserted through Finance Act, 2019
4 The words “Federal Government” substituted by the Finance Act, 2021.
5 The words “Federal Government” substituted by the Finance Act, 2021.

PART II

OIL, NATURAL GAS AND OTHER MINERAL DEPOSITS

100. Special provisions relating to the production of oil and natural gas, and exploration and extraction of other mineral deposits.—(1) Subject to sub- section (2), the profits and gains from —

(a) the exploration and production of petroleum including natural gas and from refineries set up at the Dhodak and Bobi fields;

(b) the pipeline operations of exploration and production companies; or

(c) the manufacture and sale of liquefied petroleum gas or compressed natural gas,

and the tax payable thereon shall be computed in accordance with the rules in Part I of the Fifth Schedule.

(2) Sub-section (1) shall not apply to the profits and gains attributable to the production of petroleum including natural gas discovered before the 24th day of September, 19541[:]

2[Provided that the for tax year 2017 and onward the provisions of this sub-section shall not apply on profit and gains derived from sui gas field.]

(3) The profits and gains of any business which consists of, or includes, the exploration and extraction of such mineral deposits of a wasting nature (not being petroleum or natural gas) as may be specified in this behalf by the 3[Board with the approval of the Minister-in-charge] carried on by a person in Pakistan shall be computed in accordance with the rules in Part II of the Fifth Schedule.
4[100A. Special provisions relating to banking business.—(1) Subject to sub- section (2), the income, profits and gains of any banking company as defined in clause (7) of section 2 and tax payable thereon shall be computed in accordance with the rules in the Seventh Schedule.

(2) Sub-section (1) shall apply to the profits and gains of the banking companies relevant to tax year 2009 and onwards.

1Fullstop substituted by the Finance Act 2017.
2Inserted by the Finance Act, 2017.
3 The words “Federal Government” substituted by the Finance Act, 2021.

1[(3) Notwithstanding anything contained in sub-section (1), income, profits and gains and tax payable thereon shall be computed subject to the limitations and provisions contained in Chapters VII and VIII.]

2[100B. Special provision relating to capital gain tax.— (1) Capital gains on disposal of listed securities and tax thereon, subject to section 37A, shall be computed, determined, collected and deposited in accordance with the rules laid down in the Eighth Schedule.

(2) The provisions of sub–section (1) shall not apply to the following persons or class of persons, namely:-

(a) a mutual fund;

(b) banking company, a non-banking finance company and an insurance company subject to tax under the Fourth Schedule;

(c) a modaraba;

3[(d) a company, in respect of debt securities only; and]

(e) any other person or class of persons notified by the Board.]

4[100BA. Special provisions relating to persons not appearing in active taxpayers’ list.-(1) The collection or deduction of advance income tax, computation of income and tax payable thereon 5[in respect of a person not appearing on the active taxpayers’ list] shall be determined in accordance with the rules in the Tenth Schedule.

(2) The provisions of the Tenth Schedule shall have effect notwithstanding anything to the contrary contained in this Ordinance.]

6[ ]

 

1 Added by the Finance Act, 2018.
2Added by the Finance Act, 2012.
3Clause (d) substituted by new clause (d) by the Finance Act, 2014. The substituted clause read as follows:
“(d) “a foreign institutional investor” being a person registered with NCCPL as a foreign institutional investor; and”
4New section 100BA inserted through Finance Act, 2019.
5Words inserted through Finance Act, 2020 dated 30th June, 2020.

1[100C. Tax credit for charitable organizations.— (1) The persons mentioned in sub-section (2) shall be allowed a tax credit equal to one hundred percent of tax payable under any of the provisions of this Ordinance including minimum and final

1 Section 100C substituted by the Finance Act, 2021. Earlier this substitution was made through Tax Laws (Second Amendment) Ordinance, 2021. The substituted section read as follows:
“100C. Tax credit for certain persons.- (1) 1[The income of]Non-profit organizations, trusts or welfare
institutions, as mentioned in sub-section (2) shall be allowed a tax credit equal to one hundred per cent of the tax payable, including minimum tax and final taxes payable under any of the provisions of this Ordinance, subject to the following conditions, namely:-
(a) return has been filed;
(b) tax required to be deducted or collected has been deducted or collected and paid;1[ ]
(c) withholding tax statements for the immediately preceding tax year have been filed1[;]
1[(d) the administrative and management expenditure does not exceed 15% of the total receipts: “Provided that clause (d) shall not apply to a non-profit organization, if—
1[(i) charitable and welfare activities of the non-profit organization have commenced for the first time within last three years; and
(ii)] total receipts of the non-profit organization during the tax year are less than one hundred million Rupees” 1[;]
1[(e) approval of Commissioner has been obtained as per the requirement of clause (36) of section 2:
Provided that this clause shall take effect from the first day of July, 2020; 1[ ]
(f) none of the assets of trusts or welfare institutions confers, or may confer, a private benefit to the donors or family, children or author of the trust or his descendents or the maker of the institution or to any other person:
Provided that where such private benefit is conferred, the amount of such benefit shall be added to the income of the donor 1[; and]
(g) a statement of voluntary contributions and donations received in the immediately preceding tax year has been filed in the prescribed from and manner.]
1[(1A) Notwithstanding anything contained in sub-section (1), surplus funds of non-profit
1[organizations, trusts or welfare institutions] shall be taxed at a rate of ten percent. (1B) For the purpose of sub-section (1A), surplus funds mean funds or monies:
(a) not spent on charitable and welfare activities during the tax year;
(b) received during the tax year as donations, voluntary contributions, subscriptions and other incomes;
(c) which are more than twenty-five percent of the total receipts of the non-profit organization received during the tax year; and
(d) are not part of restricted funds.
Explanation.- For the purpose of this sub-section, “restricted funds” mean any fund received by the organization but could not be spent and treated as revenue during the year due to any obligation placed by the donor.]
(2) Persons 1[and incomes] eligible for tax credit under this section include-
(a) any income of a trust or welfare institution or non-profit organization from donations, voluntary contributions, subscriptions, house property, investments in the securities of the Federal Government and so much of the income chargeable under the head “income from business” as is expended in Pakistan for the purposes of carrying out welfare activities:
Provided that in the case of income under the head “income from business”, the exemption in respect of income under the said head shall not exceed an amount which bears to the income, under the said head, the same proportion as the said amount bears to the aggregate of the incomes from the aforesaid sources of income.

(b) a trust administered under a scheme approved by the Federal Government in this behalf and established in Pakistan exclusively for the purposes of carrying out such activities as are for the benefit and welfare of—

taxes in respect of incomes mentioned in sub-section (3) subject to the conditions and limitations laid down in subsection (4).

(2) The provisions of this section shall apply to the following persons, namely:—

(a) persons specified in Table – II of clause (66) of Part I of the Second Schedule to this Ordinance;

(b) a trust administered under a scheme approved by the Federal Government and established in Pakistan exclusively for the purposes of carrying out such activities as are for the welfare of ex-employees and serving personnel of the Federal Government or a Provincial

(i) ex-servicemen and serving personnel, including civilian employees of the Armed Forces, and their dependents; or
(ii) ex-employees and serving personnel of the Federal Government or a Provincial Government and their dependents, where the said trust is administered by a committee nominated by the Federal Government or, as the case may be, a Provincial Government;
(c) 1[ ]
(d) income of a university or other educational institution being run by a non-profit organization existing solely for educational purposes and not for purposes of profit;
(e) any income which is derived from investments in securities of the Federal Government, profit on debt from scheduled banks 1[and microfinance banks], grant received from Federal Government or Provincial Government or District Governments, foreign grants and house property held under trust or other legal obligations wholly, or in part only, for religious or charitable purposes and is actually applied or finally set apart for application thereto:
Provided that nothing in this clause shall apply to so much of the income as is not expended within Pakistan:
Provided further that if any sum out of the amount so set apart is expended outside Pakistan, it shall be included in the total income of the tax year in which it is so expended or of the year in which it was set apart, whichever is the greater, and the provisions of section 122 shall not apply to any assessment made or to be made in pursuance of this proviso.
Explanation.— Notwithstanding anything contained in the Mussalman Wakf Validating Act, 1913 (VI of 1913), or any other law for the time being in force or in the instrument relating to the trust or the institution, if any amount is set apart, expended or disbursed for the maintenance and support wholly or partially of the family, children or descendants of the author of the trust or the donor or, the maker of the institution or for his own maintenance and support during his life time or payment to himself or his family, children, relations or descendants or for the payment of his or their debts out of the income from house property dedicated, or if any expenditure is made other than for charitable purposes, in each case such expenditure, provision, setting apart, payment or disbursement shall not be deemed, for the purposes of this clause, to be for religious or charitable purposes; or
(f) any income of a religious or charitable institution derived from voluntary contributions applicable solely to religious or charitable purposes of the institution:
Provided that nothing contained in this clause shall apply to the income of a private religious trust which does not ensure for the benefit of the public.”;]

Government or armed forces including civilian employees of armed forces and their dependents where the said trust is administered by a committee nominated by the Federal Government or a Provincial Government;

(c) a trust;

(d) a welfare institution registered with Provincial or Islamabad Capital Territory (ICT) social welfare department;

(e) a not for profit company registered with the Securities and Exchange Commission of Pakistan under section 42 of the Companies Act, 2017;

(f) a welfare society registered under the provincial or Islamabad Capital Territory (ICT) laws related to registration of co-operative societies;

(g) a waqf registered under Mussalman Waqf Validating Act, 1913 (VI of 1913) or any other law for the time being in force or in the instrument relating to the trust or the institution;

(h) a university or education institutions being run by nonprofit organization existing solely for educational purposes and not for the purposes of profit;

(i) a religious or charitable institution for the benefit of public registered under any law for the time being in force; and

(j) international non-governmental organizations (INGOs) approved by the Federal Government.

(3) The following income is eligible for tax credit, namely:—

(a) income from donations, voluntary contributions and subscriptions;

(b) income from house property;

(c) income from investments in the securities of the Federal Government;

(d) profit on debt from scheduled banks and microfinance banks;

(e) grant received from Federal, Provincial, Local or foreign Government;

(f) so much of the income chargeable under the head “income from business” as is expended in Pakistan for the purposes of carrying out welfare activities:

Provided that in the case of income under the head “income from business”, only so much of such income shall be eligible for tax credit under this section that bears the same proportion as the said amount of business income bears to the aggregate of income from all sources; and

(g) any income of the persons mentioned in clauses (a), (b) and (h) of sub- section (2) of this section.

(4) Eligibility for tax credit shall be subject to the following conditions, namely:—

(a) return has been filed;

(b) tax required to be deducted or collected has been deducted or collected and paid;

(c) withholding tax statements for the relevant tax year have been filed;

(d) the administrative and management expenditure does not exceed 15% of the total receipts:

Provided that clause (d) shall not apply to a nonprofit organization, if—

(i) charitable and welfare activities of the non-profit organization have commenced for the first time within last three years; or

(ii) total receipts of the non-profit organization during the tax year are less than one hundred million Rupees;

(e) approval of Commissioner has been obtained as per requirement of clause (36) of section 2:

Provided that the condition of approval in respect of persons mentioned in Table-II of clause (66) of Part I of the Second Schedule to this Ordinance, shall take effect from the first day of July, 1[2023] and the requirements of clause (36) of section 2, shall not be applicable for earlier years;

(f) none of the assets of trusts or welfare institutions confers, or may confer, a private benefit to the donors or family, children or author of the trust or his descendants or the maker of the institution or to any other person:

Provided that where such private benefit is conferred, the amount of such benefit shall be added to the income of the donor; and

(g) a statement of voluntary contributions and donations received in the immediately preceding tax year has been filed in the prescribed form and manner.

(5) Notwithstanding anything contained in sub-section (1), surplus funds of organizations to which this section applies shall be taxed at a rate of ten percent.

(6) For the purpose of sub-section (5), surplus funds mean funds or monies—

(a) not spent on charitable and welfare activities during the tax year;

(b) received during the tax year as donations, voluntary contributions, subscriptions and other incomes;

(c) which are more than twenty-five percent of the total receipts of the non- profit organization received during the tax year; and

(d) are not part of restricted funds.

Explanation.—For the purpose of this clause, “restricted funds” mean any fund received by the organization but could not be spent and treated as revenue during the year due to any obligation placed by the donor or funds received in kind.]

1[100D. Special provisions relating to builders and developers. – (1) For tax year 2020 and onwards, the tax payable by a builder or a developer, as defined in sub-section (9), who opt to pay tax under this section shall be computed and paid in accordance with the rules in the Eleventh Schedule on a project by project basis

on the income, profits and gains derived from the sale of buildings or sale of plots, as the case may be, from–

(a) a new project to be completed by the 1[30th day of September, 2023]; or

(b) an incomplete existing project to be completed by the 2[30th day of September, 2023]:

Provided that any income, profits and gains of a builder or developer of an incomplete existing project earned up to tax year 2019 3[or tax year 2020, as the case may be] shall be subject to the provisions of this Ordinance as were in force prior to the commencement of the Tax Laws (Amendment) Ordinance, 2020 (Ordinance I of 2020):

Provided further that any income of a builders or developer other than income, profits and gains subject to this section shall be subject to tax as per the provisions of this Ordinance.

(2) Where sub-section (1) applies,-

(a) the income shall not be chargeable to tax under any head of income in computing the taxable income of the person;

(b) no deduction shall be allowed under this Ordinance for any expenditure incurred in deriving the income:

(c) the amount of the income shall not be reduced by –

(i) any deductible allowance under Part IX of Chapter III: or

(ii) the set off of any loss;

(d) no tax credit shall be allowed against the tax payable under sub-section
(1) except credit for tax under section 236A or 236K collected from the builder or developer after the commencement of the Tax Law (Amendment) Ordinance, 2020 (1 of 2020) on purchase of immoveable property utilized in a project;

1 The expression “30th day of September, 2022” substituted by the Finance Act, 2021. Earlier the substitution was made through Income Tax (Amendment) Ordinance, 2021.
2 The expression “30th day of September, 2022” substituted by the Finance Act, 2021. Earlier the substitution was made through Income Tax (Amendment) Ordinance, 2021.
3 This expression inserted by the Finance Act, 2021. Earlier this expression was made through Income Tax (Amendment) Ordinance, 2021.

(e) there shall be no refund of any tax collected or deducted under this Ordinance;

(f) if the tax payable has not been paid or short paid, the said amount of tax may be recovered and all the provisions of this Ordinance shall apply accordingly; and

(g) section 113 and 113C shall not apply on the turnover, income, profits and gains of a builder or developer from a project.

(3) The provisions of section 111 shall not apply to capital investment made in a new project under clause (a) of sub-section (1) in the form of money or land, subject to the following conditions, namely:-

(a) if the investment is made by a builder or developer being an individual-

(i) in the form of money, such builder or developer shall open a new bank account and deposit such amount in it on or before the 1[30th day of June, 2021]; or

(ii) in the form of land, such builder or developer shall have the ownership title of the land at the time of commencement of the Tax Laws (Amendment) Ordinance, 2020 (I of 2020);

(b) if the investment is made by a person in a project through a company or an association of persons,-

(i) such company or association of person shall be a single object (builder or developer) company or association of persons registered under the Companies Act, 2017 (XIX of 2017), the Limited Liability Partnership Act, 2017 (XV of 2017) or the Partnership Act 1932 (IX of 1932), as the case may be, after the date of commencement of the Tax Laws (Amendment) Ordinance, 2020 (I of 2020) and on or before the 2[30th day of June, 2021]; and

(ii) the person shall be a member or shareholder of such association of persons or company, as the case may be;

and if the capital investment is made,-

 

1 The expression “31st day of December, 2020” substituted by the Finance Act, 2021. Earlier the substitution was made through Income Tax (Amendment) Ordinance, 2021.
2 The expression “31st day of December, 2020” substituted by the Finance Act, 2021. Earlier the
substitution was made through Income Tax (Amendment) Ordinance, 2021.

(i) in the form of money, such amount shall be invested through a crossed banking instrument deposited in the bank account of such association of persons or company, as the case may be, no or before the 1[30th day of June, 2021]; or

(ii) in the form of land, such land shall be transferred to such association of persons or company, as the case may be, on or before the 2[30th day of June, 2021]:

Provided that the person shall have the ownership title of the land at the time of commencement of the Tax Laws (Amendment) Ordinance, 2020 (I of 2020)

(c) a person making an investment under clause (a) or (b) shall submit a prescribed form on Iris web portal 3[by 30th day of June, 2021];

(d) the money or land invested under clause (a) or (b) shall be wholly utilized in a project; and

(e) completion of the project shall be certified in the following manner, namely:-

(i) in case of a builder, the map approving authority or NESPAK shall certify that grey structure as per the approved map has been completed by the builder on or before the 4[30th day of September, 2023]; and

(ii) in case of a develop,-

(A) the map approving authority or NESPAK shall certify that landscaping has been completed on or before the 5[30th day of September, 2023];

(B) a firm of chartered accountants having an ICAP QCR rating of ‘satisfactory’, notified by the Board for this purpose, shall

1 The expression “31st day of December, 2020” substituted by the Finance Act, 2021. Earlier the substitution was made through Income Tax (Amendment) Ordinance, 2021.
2 The expression “31st day of December, 2020” substituted by the Finance Act, 2021. Earlier the substitution was made through Income Tax (Amendment) Ordinance, 2021.
3 The expression inserted by the Finance Act, 2021. Earlier this insertion was made through Income Tax (Amendment) Ordinance, 2021.
4 The expression “30th day of September, 2022” substituted by the Finance Act, 2021. Earlier the substitution was made through Income Tax (Amendment) Ordinance, 2021.
5 The expression “30th day of September, 2022” substituted by the Finance Act, 2021. Earlier the substitution was made through Income Tax (Amendment) Ordinance, 2021.

certify that at least 50% of the plots have been booked for sale and at least 40% of the sale proceeds have been received by the 1[30th day of September, 2023]; and

(C) at least 50% of the roads have been laid up to sub-grade level as certified by the approving authority of NESPAK.

(4) The provisions of section 111 shall also not apply to.-

(a) the first purchaser of a building or a unit of the building purchased from the builder in respect of purchase price of the building or unit of the building subject to the following conditions, namely:-

(i) full payment is made through a crossed banking instrument to the builder during a period starting from the date of registration of the project with the Board under this section and ending on the 2[31st day of March, 2023], in case the purchase is from a new project; and

(ii) full or balance amount of payment is made through a crossed banking instrument to the builder during a period starting from the date of registration of the project with the Board under this section and ending on the 3[31st day of March, 2023], in case the purchase is from an existing incomplete project; and

(b) the purchaser of a plot who intends to construct a building thereon, if-

(i) the purchase is made on a before the 4[30th day of June, 2021];
(ii) the full payment is made on or before the 5[30th day of June, 2021] through a crossed banking instrument;
(iii) construction on such plot is commenced on or before the 6[31st
day of December, 2021];

1 The expression “30th day of September, 2022” substituted by the Finance Act, 2021. Earlier the substitution was made through Income Tax (Amendment) Ordinance, 2021.
2 The expression “30th day of September, 2022” substituted by the Finance Act, 2021. Earlier the substitution was made through Income Tax (Amendment) Ordinance, 2021.
3 The expression “30th day of September, 2022” substituted by the Finance Act, 2021. Earlier the substitution was made through Income Tax (Amendment) Ordinance, 2021.
4 The expression “31st day of December, 2020” substituted by the Finance Act, 2021. Earlier the substitution was made through Income Tax (Amendment) Ordinance, 2021..
5 The expression “31st day of December, 2020” substituted by the Finance Act, 2021. Earlier the substitution was made through Income Tax (Amendment) Ordinance, 2021.
6 The expression “31st day of December, 2020” ” substituted by the Finance Act, 2021. Earlier the

(iv) such construction is completed on or before the 1[30th day of September, 2023]; and

(v) the person registers himself with the Board on the online Iris werb portal.

(5) Where sub-section (3) or (4) apply, the value or price of land or building, as the case may be, shall be the higher of clause (a) or (b) below:-

(a) 130% of the fair market value as determined by the Board under sub- section (4) of section 68; or

(b) at the option of the person making investment, the lower of the values as determined by at least two independent valuers from the list of valuers approved by the State Bank of Pakistan.

(6) Sub-sections (3) and (4) shall not apply to –

(a) holder of any public office as defined in the Voluntary Declaration of Domestic Assets Act, 2018 or his benamidar as defined in the Benami Transactions (Prohibition) Act, 2017 (V of 2017) or his spouse or dependents;

(b) a public listed company, a real estate investment trust or a company whose income is exempt under any provision of this Ordinance; or

(c) any proceeds derived from the commission of a criminal offence including the crimes of money laundering extortion or terror financing but excluding the offences under this Ordinance.
(7) Divided income paid to a person by a builder or developer being a company out of the profits and gains derived from a project shall be exempt from tax.
(8) Notwithstanding anything contained in this section or the Eleventh Schedule, where a return or declaration has been made through misrepresentation or suppression of facts, such return or declaration shall be void and all the provisions of this Ordinance shall apply:

Provided that no action under this sub-section shall be taken if such misrepresentation has been made on account of a bona fide mistake:

 

1 The expression “30th day of September, 2022” ” substituted by the Finance Act, 2021. Earlier the

Provided further that no action under this sub-section shall be taken without providing an opportunity of being heard and without prior approval of the Board.
(9) In this section.-
(a) “builder” means a person who is registered as a builder with the Board and is engaged in the construction and disposal of residential or commercial buildings;

(b) “capital investment” means investment as equity resources and does not include borrowed funds;

(c) “developer” means a person who is registered as a developer with the Board and is engaged in the development of land in the form of plots of any kind either for itself or otherwise;

(d) “existing project” means a construction or development project, which-

(i) has commenced before the date of commencement of the Tax Laws (Amendment) Ordinance, 2020;

(ii) is incomplete;
(iii) is completed on or before the 1[30th day of September, 2023];and
(iv) a declaration is provided in the registration from under Eleventh Schedule to the effect of percentage of the project completed up to the last day of the accounting period pertaining to tax year 2019 2[or tax year 2020 at the option of the taxpayer];
(e) “first purchaser” means a person who purchases a building or a unit, as the case may be, directly from the builder and does not include a subsequent or a substituted purchaser;
(f) “new project” means a construction or development project, which-

(i) is commenced during the period starting from the date of commencement of the Tax Laws (Amendment) Ordinance, 2020 and ending on the 3[31st day of December, 2021]; and

1 The expression “30th day of September, 2022” ” substituted by the Finance Act, 2021. Earlier the substitution was made through Income Tax (Amendment) Ordinance, 2021.
2 This expression inserted ” by the Finance Act, 2021. Earlier this insertion was made through Income Tax (Amendment) Ordinance, 2021.
3 The expression “31st day of December, 2020” substituted by the Finance Act, 2021. Earlier the

(ii) is competed on or before the 1[30th day of September, 2023];

(g) “project” means a project for construction of a building with the object of disposal, or a project for development of land into plots with the object of disposal or otherwise;

(h) “registered with the Board” means registered after submission of form on project-by-project basis on the online Iris web portal;

(10) The provisions of the Ordinance not specifically dealt with in this section or the rules made thereunder shall apply mutatis mutandis to builders and developers in so far as they are not inconsistent with this section or the rules made thereunder.]

2[100E. Special provisions relating to small and medium enterprises.— (1) For tax year 2021 and onwards, the tax payable by a small and medium enterprise as defined in clause (59A) of section 2 shall be computed and paid in accordance with rules made under the Fourteenth Schedule.

(2) The Board may prescribe a simplified return for a small and medium enterprise.]

3[ ]

1 The expression “30th day of September, 2022” ” substituted by the Finance Act, 2021. Earlier the substitution was made through Income Tax (Amendment) Ordinance, 2021.
2 Section 100E inserted by the Finance Act, 2021.
3 Section 100F shall be omitted and shall be deemed to have been omitted with effect from 02nd March, 2022 by the Finance Act, 2022. The omitted section read as follows:
“100F. Special provisions relating to investment for industrial promotion. — (1) Any eligible
person may file a statement by the 30th September, 2022, declaring therein the amount of funds (which have not been declared in any of the returns of income upto tax year 2021 filed by the 31st December, 2021) for investment in a new company formed for establishing and operating an industrial undertaking in accordance with this section:
Provided that the funds referred to in sub-section (I) shall be deposited in rupees in a dedicated bank account in Pakistan as equity of the newly formed company, incorporated under the Companies Act, 2017 (XIX of 2017), before the filing of the statement and such funds shall only be used for purchase or import of plant and machinery through letter of credit or for construction of building and structure for the industrial undertaking:
Provided further that the minimum amount which would qualify for the purposes of this section shall be fifty million rupees.
(2) The provisions of section 111 shall not apply to the funds declared under sub-section (I) subject to fulfilment of conditions as laid down in this section and payment of an amount equal to five percent thereof along with the statement filed under sub-section (1).
(3) The new industrial undertaking in which such investment is made shall commence commercial production by the 30th June, 2024 and a certificate to that effect, duly issued by Engineering Development Board, is submitted to the Commissioner along with the return filed for tax year 2024.

 

(4) Any amount of tax paid under this section shall not be refundable or adjustable against any other tax liability of the declarant.
(5) Where a declarant has paid tax under this section in respect of funds declared under sub- section (I), the declarant shall be entitled to incorporate the same in his wealth statement, financial statements or books of accounts, as the case may be.
(6) For the purposes of this section, eligible person means all persons, except–
(a) holders of’ public office, their spouses and dependent children;
(b) a public company as defined in clause (47) of section 2 of this Ordinance;
(c) a person who has filed a declaration under the Voluntary Declaration of Domestic Assets Act, 2018, the Foreign Assets (Declaration and Repatriation) Act, 2018, or the Assets Declaration Act, 2019;
(d) a person that has been declared a bank loan defaulter by a bank or a financial institution within the last three years; or
(e) a director of a company who has been declared a bank loan defaulter by a bank or a financial institution within the last three years.
(7) The provisions of this section shall not apply to —
(a) any proceeds of crime, corruption, money laundering and terror financing;
(b) any amount which is subject of any departmental or court proceedings;
(c) the investments made in following sectors, namely:—
(i) arms and ammunitions;
(ii) explosives;
(i) sugar;
(ii) cigarettes;
(iii) aerated beverages;
(iv) flour mills;
(v) vegetable ghee; and
(vi) cooking oil manufacturing excluding extraction units.
(8) Notwithstanding the provisions of any other law for the time being in force including sub- section (3) of section 216 of this Ordinance excluding clauses (a) and (g) of sub-section (3) thereof, the National Accountability Ordinance, 1999 (XVIII of 1999), the Federal Investigation Agency Act, 1974 (VIII of 1975) and the Right of Access to Information Act, 2017 (XXXI V of 2017), particulars of any person making a statement under this section or any information received in any statement made under this section shall be confidential.
(9) The statement filed under sub-section (1) shall not be valid, if—
(a) the newly formed industrial undertaking company fails to prove commercial production in terms of sub-section (3);
(b) there is change in ownership of industrial undertaking company prior to the 30th June, 2026;
or
(c) the newly formed industrial undertaking company disposes of any of its assets prior to the
30th June, 2026.
(10) Notwithstanding anything contained in this section, where the provisions of sub-section (7) or (9) apply, or where the statement under sub-section (I) has been made by misrepresentation or suppression of facts, such statement shall be void as if it had never been made and all the provisions of this Ordinance shall apply accordingly:
Provided that the Commissioner shall not take any action under this section without providing the declarant an opportunity of being heard.
(11) The statement filed under this section shall be made in the form and manner as specified by the Board through a notification in the official Gazette.
(12) The provisions of this section shall apply, mutatis mutandis, to an existing company being an industrial undertaking, for investment in expansion and modernization from amount of funds (which have not been declared in any of the returns of income upto tax year 2021 filed by the 31st December, 2021):
Provided that such company opens a dedicated bank account to deposit the said funds before the filing of the statement and such funds shall only be used for expansion and modernization by way of purchase or import of plant and machinery including IT hardware through letter of credit,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

or software and IT services or for construction of building and structure for the manufacturing premises of the existing industrial undertaking:
Provided further that the expansion and modernization shall be completed by the 30th June, 2024, and a certificate to that effect, duly issued by the Engineering Development Board, is submitted to the Commissioner along with the return filed for tax year 2024.
(13) In this section, unless there is anything repugnant in the subject or context,—
(a) “declarant” means a person filing a statement under sub-section (1);
(b) “holder of public office” means a person as defined in the Voluntary Declaration of Domestic Assets Act, 2018;
(c) “industrial undertaking” means a company being a new industrial undertaking setup for the purpose of this section and is not established by the splitting up or reconstruction or reconstitution of an undertaking already in existence or by transfer of machinery or plant from an existing industrial undertaking established in Pakistan;
(d) “investment” means investment in equity and does not include borrowed funds and investment in land; and
(e) “modernization” includes acquisition or upgradation of IT hardware, software and IT services.”;

CHAPTER VII
INTERNATIONAL

PART I
GEOGRAPHICAL SOURCE OF INCOME

101. Geographical source of income. — (1) Salary shall be Pakistan-source income to the extent to which the salary —

(a) is received from any employment exercised in Pakistan, wherever paid; or

(b) is paid by, or on behalf of, the Federal Government, a Provincial Government, or a 1[Local Government] in Pakistan, wherever the employment is exercised.

(2) Business income of a resident person shall be Pakistan-source income to the extent to which the income is derived from any business carried on in Pakistan.

(3) Business income of a non-resident person shall be Pakistan-source income to the extent to which it is directly or indirectly attributable to –

(a) a permanent establishment of the non-resident person in Pakistan;

(b) sales in Pakistan of goods merchandise of the same or similar kind as those sold by the person through a permanent establishment in Pakistan; 2[ ]

(c) other business activities carried on in Pakistan of the same or similar kind as those effected by the non-resident through a permanent establishment in Pakistan 3[; or]

4[(d) any business connection in Pakistan 5[; or]

1The words “local authority” substituted by the Finance Act, 2008.
2 The word “or” omitted by the Finance Act, 2003. 3 Full stop substituted by the Finance Act, 2003. 4 Inserted by the Finance Act, 2003.
5Full stop substituted by the Finance Act, 2018.

1[(e) import of goods, whether or not the title to the goods passes outside Pakistan, if the import is part of an overall arrangement for the supply of goods, installation, construction, assembly, commission, guarantees or supervisory activities and all or principal activities are undertaken or performed either by the associates of the person supplying the goods or its permanent establishment, whether or not the goods are imported in the name of the person, associate of the person or any other person.

Explanation.—For the removal of doubt, it is clarified that where the income is subject to taxation under sections 5A, 5AA, 6, 7 and 7A, the income shall not be chargeable to tax under the head income from business.”]

2[(4) Where the business of a non-resident person comprises the rendering of independent services (including professional services and the services of entertainers and sports persons), the Pakistan-source business income of the person shall include [in addition to any amounts treated as Pakistan-source income under sub-section (3)] any remuneration derived by the person where the remuneration is paid by a resident person or borne by a permanent establishment in Pakistan of a non-resident person.]

(5) Any gain from the disposal of any asset or property used in deriving any business income referred to in sub-section (2), (3) or (4) shall be Pakistan- source income.

(6) A dividend shall be Pakistan-source income if it is 3[—] 4[( a) paid by a resident company; or]
5[(b) dividend as per provisions of sub-clause (f) of clause (19) of section 2.]

1Added by the Finance Act, 2018.
2 Sub-section (4) substituted by the Finance Act, 2003. The substituted sub-section (4) read as follows: –
“(4) Where the business of a non-resident person comprises the rendering of independent services (including professional services and the services of entertainers and sports-persons), the
Pakistan-source business income of the person shall include (in addition to any amounts treated as Pakistan-source income under sub-section (3)) any remuneration derived by the person where –
(a) the remuneration is paid by a resident person or borne by a permanent establishment in Pakistan of a non-resident; person; and
(b) the aggregate gross amount (before deduction of expenses) of the remuneration is sixty thousand rupees or more.”
3 The words and full stop “paid by a resident company.” substituted by the Finance Act, 2012.
4Added by the Finance Act, 2012.
5Added by the Finance Act, 2012.

(7) Profit on debt shall be Pakistan-source income if it is —

(a) paid by a resident person, except where the profit is payable in respect of any debt used for the purposes of a business carried on by the resident outside Pakistan through a permanent establishment; or

(b) borne by a permanent establishment in Pakistan of a non- resident person.

(8) A royalty shall be Pakistan-source income if it is —

(a) paid by a resident person, except where the royalty is payable in respect of any right, property, or information used, or services utilised for the purposes of a business carried on by the resident outside Pakistan through a permanent establishment; or

(b) borne by a permanent establishment in Pakistan of a non- resident person.

(9) Rental income shall be Pakistan-source income if it is derived from the lease of immovable property in Pakistan whether improved or not, or from any other interest in or over immovable property, including a right to explore for, or exploit, natural resources in Pakistan.
(10) Any gain from the alienation of any property or right referred to in sub- section (9) or from the alienation of any share in a company the assets of which consist wholly or principally, directly or indirectly, of property or rights referred to in sub-section (9) shall be Pakistan-source income.
(11) A pension or annuity shall be Pakistan-source income if it is paid by a resident or borne by a permanent establishment in Pakistan of a non-resident person.
(12) A technical fee shall be Pakistan-source income if it is –
(a) paid by a resident person, except where the fee is payable in respect of services utilised in a business carried on by the resident outside Pakistan through a permanent establishment; or
(b) borne by a permanent establishment in Pakistan of a non- resident person.

1[(12A) A fee for offshore digital services shall be Pakistan- source income, if it is –

(a) paid by a resident person, except where the fee is payable in respect of services utilised in a business carried on by the resident outside Pakistan through a permanent establishment; or

(b) borne by a permanent establishment in Pakistan of a non- resident person.]

(13) Any gain arising on the disposal of shares in a resident company shall be Pakistan-source income.

2[(13A).Any amount paid on account of insurance or re-insurance premium by an insurance company to an overseas insurance or re-insurance company shall be deemed to be Pakistan source income.]

(14) Any amount not mentioned in the preceding sub-sections shall be Pakistan-source income if it is paid by a resident person or borne by a permanent establishment in Pakistan of a non-resident person.

(15) Where an amount may be dealt with under sub-section (3) and under another sub-section (other than sub-section (14)), this section shall apply—

(a) by first determining whether the amount is Pakistan-source income under that other sub-section; and

(b) if the amount is not Pakistan-source income under that sub- section, then determining whether it is Pakistan-source income under sub-section (3).

(16) An amount shall be foreign-source income to the extent to which it is not Pakistan-source income.

 

 

 

 

1Inserted by the Finance Act, 2018.
2Inserted by the Finance Act, 2008.

1[101A. Gain on disposal of assets outside Pakistan.— (1) Any gain from the disposal or alienation outside Pakistan of an asset located in Pakistan of a non- resident company shall be Pakistan-source.
(2) The gain under sub-section (1) shall be chargeable to tax at the rate and in the manner as specified in sub-section (10).
(3) Where the asset is any share or interest in a non-resident company, the asset shall be treated to be located in Pakistan, if ─

(a) the share or interest derives, directly or indirectly, its value wholly or principally from the assets located in Pakistan; and

(b) shares or interest representing ten per cent or more of the share capital of the non-resident company are disposed or alienated.
(4) The share or interest, as mentioned in sub-section (3), shall be treated to derive its value principally from the assets located in Pakistan, if on the last day of the tax year preceding the date of transfer ofa share or an interest, the value of such assets exceeds one hundred million Rupees and represents at least fifty per cent of the value of all the assets owned by the non- resident company.

(5) Notwithstanding the provisions of section 68, the value as mentioned in sub-section (4) shall be the fair market value, as may be prescribed, for the purpose of this section without reduction of liabilities.

(6) Where the entire assets by the non-resident company are not located in Pakistan, the income of the non-resident company, from disposal or alienation outside Pakistan of a share of, or interest in, such non-resident company shall be treated to be located in Pakistan, to the extent it is reasonably attributable to assets located in Pakistan and determined as may be prescribed.

(7) Where the asset of a non-resident company derives, directly or indirectly, its value wholly or principally from the assets located in Pakistan and the non-resident company holds, directly or indirectly, such assets through a resident company, such resident company shall, for the purposes of determination of gain and tax thereon under sub-section (8)or, as the case may be, sub-section (9), shall furnish to the Commissioner within sixty days of the transaction of

 

 

1Inserted by the finance Act 2018.

disposal or alienation of the asset by the non-resident company, the prescribed information or documents, in a statement as may be prescribed:

Provided that the Commissioner may, by notice in writing, require the resident company, to furnish information, documents and statement within a period of less than sixty days as specified in the notice.

(8) The person acquiring the asset from the non-resident person shall deduct tax from the gross amount paid as consideration for the asset at the rate of ten percent of the fair market value of the asset and shall be paid to the Commissioner by way of credit to the Federal Government through remittance to the Government Treasury or deposit in an authorized branch of the State Bank of Pakistan or the National Bank of Pakistan, within fifteen days of the payment to the non-resident.

(9) The resident company as referred to in sub-section (7) shall collect advance tax as computed in sub-section (10) from the non-resident company within thirty days of the transaction of disposal or alienation of the asset by such non-resident company:

Provided that where the tax has been deducted and paid by the person acquiring the asset from the non-resident person under sub- section (8), the said tax shall be treated as tax collected and paid under this

sub-section and shall be allowed a tax credit for that tax in computing the tax under sub-section (10).

(10) The tax to be collected under sub-section (9) shall be the higher of ─

(a) 20% of A, where A – fair market value less cost of acquisition of the asset; or

(b) 10% of the fair market value of the asset.

(11) Where tax has been paid under sub-section (8) or (9), no tax shall be payable by the non-resident company in respect of gain under sub-section (8) of section 22 or capital gains under section 37 or 37A.
(12) Where any gain is taxable under this section and also under any other provision of this Ordinance, the said gain shall be taxable under other provision of the Ordinance.]

 

 

 

PART II
TAXATION OF FOREIGN-SOURCE INCOME OF RESIDENTS

102. Foreign source salary of resident individuals.— (1) Any foreign-source salary received by a resident individual shall be exempt from tax if the individual has paid foreign income tax in respect of the salary.

(2) A resident individual shall be treated as having paid foreign income tax in respect of foreign-source salary if tax has been withheld from the salary by the individual’s employer and paid to the revenue authority of the foreign country in which the employment was exercised.

103. Foreign tax credit.— (1) Where a resident taxpayer derives foreign source income chargeable to tax under this Ordinance in respect of which the taxpayer has paid foreign income tax, the taxpayer shall be allowed a tax credit of an amount equal to the lesser of –

(a) the foreign income tax paid; or

(b) the Pakistan tax payable in respect of the income.

(2) For the purposes of clause (b) of sub-section (1), the Pakistan tax payable in respect of foreign source income derived by a taxpayer in a tax year shall be computed by applying the average rate of Pakistan income tax applicable to the taxpayer for the year against the taxpayer’s net foreign-source income for the year.

(3) Where, in a tax year, a taxpayer has foreign income under more than one head of income, this section shall apply separately to each head of income.

(4) For the purposes of sub-section (3), income derived by a taxpayer from carrying on a speculation business shall be treated as a separate head of income.

(5) The tax credit allowed under this section shall be applied in accordance with sub-section (3) of section 4.

(6) Any tax credit or part of a tax credit allowed under this section for a tax year that is not credited under sub-section (3) of section 4 shall not be refunded, carried back to the preceding tax year, or carried forward to the following tax year.

(7) A credit shall be allowed under this section only if the foreign income tax is paid within two years after the end of the tax year in which the foreign income to which the tax relates was derived by the resident taxpayer.

(8) In this section,—

“average rate of Pakistan income tax” in relation to a taxpayer for a tax year, means the percentage that the Pakistani income tax (before allowance of the tax credit under this section) is of the taxable income of the taxpayer for the year;

“foreign income tax” includes a foreign withholding tax; and

“net foreign-source income” in relation to a taxpayer for a tax year, means the total foreign-source income of the taxpayer charged to tax in the year, as reduced by any deductions allowed to the taxpayer under this Ordinance for the year that –

(a) relate exclusively to the derivation of the foreign-source income; and

(b) are reasonably related to the derivation of foreign-source income in accordance with sub-section (1) of section 67 and any rules made for the purposes of that section.

104. Foreign losses.— (1) Deductible expenditures incurred by a person in deriving foreign-source income chargeable to tax under a head of income shall be deductible only against that income.

(2) If the total deductible expenditures referred to in sub-section (1) exceed the total foreign source income for a tax year chargeable to tax under a head of income (hereinafter referred to as a “foreign loss”), the foreign loss shall be carried forward to the following tax year and set off against the foreign source income chargeable to tax under that head in that year, and so on, but no foreign loss shall be carried forward to more than six tax years immediately succeeding the tax year for which the loss was computed.

(3) Where a taxpayer has a foreign loss carried forward for more than one tax year, the loss for the earliest year shall be set off first.

(4) Section 67 shall apply for the purposes of this section on the basis that —

(a) income from carrying on a speculation business is a separate head of income; and

(b) foreign source income chargeable under a head of income (including the head specified in clause (a)) shall be a separate head of income.

PART III
TAXATION OF NON-RESIDENTS

105. Taxation of a permanent establishment in Pakistan of a non-resident person.— (1) The following principles shall apply in determining the income of a permanent establishment in Pakistan of a non-resident person chargeable to tax under the head “Income from Business”, namely: —

(a) The profit of the permanent establishment shall be computed on the basis that it is a distinct and separate person engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the non-resident person of which it is a permanent establishment;

(b) subject to this Ordinance, there shall be allowed as deductions any expenses incurred for the purposes of the business activities of the permanent establishment including executive and administrative expenses so incurred, whether in Pakistan or elsewhere;

(c) no deduction shall be allowed for amounts paid or payable by the permanent establishment to its head office or to another permanent establishment of the non-resident person (other than towards reimbursement of actual expenses incurred by the non- resident person to third parties) by way of:

(i) royalties, fees or other similar payments for the use of any tangible or intangible asset by the permanent establishment;

(ii) compensation for any services including management services performed for the permanent establishment; or

(iii) profit on debt on moneys lent to the permanent establishment, except in connection with a banking business; and

(d) no account shall be taken in the determination of the income of a permanent establishment of amounts charged by the permanent establishment to the head office or to another permanent establishment of the non-resident person (other than towards reimbursement of actual expenses incurred by the permanent establishment to third parties) by way of:

(i) royalties, fees or other similar payments for the use of any tangible or intangible asset;

(ii) compensation for any services including management services performed by the permanent establishment; or

(iii) profit on debt on moneys lent by the permanent establishment, except in connection with a banking business.

(2) No deduction shall be allowed in computing the income of a permanent establishment in Pakistan of a non-resident person chargeable to tax under the head “Income from Business” for a tax year for head office expenditure in excess of the amount as bears to the turnover of the permanent establishment in Pakistan the same proportion as the non-resident’s total head office expenditure bears to its worldwide turnover.

(3) In this section, “head office expenditure” means any executive or general administration expenditure incurred by the non-resident person outside Pakistan for the purposes of the business of the Pakistan permanent establishment of the person, including —

(a) any rent, local rates and taxes excluding any foreign income tax, current repairs, or insurance against risks of damage or destruction outside Pakistan;

(b) any salary paid to an employee employed by the head office outside Pakistan;

(c) any travelling expenditures of such employee; and

(d) any other expenditures which may be prescribed.

(4) No deduction shall be allowed in computing the income of a permanent establishment in Pakistan of a non-resident person chargeable under the head “Income from Business” for —

(a) any profit paid or payable by the non-resident person on debt to finance the operations of the permanent establishment; or

(b) any insurance premium paid or payable by the non-resident person in respect of such debt.

106. Thin capitalisation. — (1) Where a foreign-controlled resident company (other than a financial institution 1[or a banking company)] 2[or a branch of a foreign company operating in Pakistan,] has a foreign debt-to-foreign equity ratio in excess of three to one at any time during a tax year, a deduction shall be disallowed for the profit on debt paid by the company in that year on that part of the debt which exceeds the three to one ratio.

(2) In this section, —

“foreign-controlled resident company” means a resident company in which fifty per cent or more of the underlying ownership of the company is held by a non-resident person (hereinafter referred to as the “foreign controller”) either alone or together with an associate or associates;

“foreign debt” in relation to a foreign-controlled resident company, means the greatest amount, at any time in a tax year, of the sum of the following amounts, namely: —

 

1Inserted by the Finance Act, 2002
2Inserted by the Finance Act, 2008.

(a) The balance outstanding at that time on any debt obligation owed by the foreign-controlled resident company to a foreign controller or non-resident associate of the foreign controller on which profit on debt is payable which profit on debt is deductible to the foreign-controlled resident company and is not taxed under this Ordinance or is taxable at a rate lower than the 1[corporate rate] of tax applicable on assessment to the foreign controller or associate; and

(b) the balance outstanding at that time on any debt obligation owed by the foreign-controlled resident company to a person other than the foreign controller or an associate of the foreign controller where that person has a balance outstanding of a similar amount on a debt obligation owed by the person to the foreign controller or a non-resident associate of the foreign controller; and

“foreign equity” in relation to a foreign-controlled resident company and for a tax year, means the sum of the following amounts, namely: —

(a) The paid-up value of all shares in the company owned by the foreign controller or a non-resident associate of the foreign controller at the beginning of the tax year;

(b) so much of the amount standing to the credit of the share premium account of the company at the beginning of the tax year as the foreign controller or a non-resident associate would be entitled to if the company were wound up at that time; and

(c) so much of the accumulated profits and asset revaluation reserves of the company at the beginning of the tax year as the foreign controller or a non-resident associate of the foreign controller would be entitled to if the company were wound up at that time;

reduced by the sum of the following amounts, namely: —

(i) the balance outstanding at the beginning of the tax year on any debt obligation owed to the foreign- controlled resident company by the foreign controller or a non-resident associate of the foreign controller; and

(ii) where the foreign-controlled resident company has accumulated losses at the beginning of the tax year, the amount by which the return of capital to the foreign controller or non-resident associate of the foreign controller would be reduced by virtue of the losses if the company were wound up at that time.

1[106A. Restriction on deduction of profit on debt payable to associated enterprise.-(1) Subject to sections 108 and 109, a part of deduction for foreign profit on debt claimed by a foreign-controlled resident company(other than an insurance company, or a banking company) during a tax year, shall be disallowed according to the following formula, namely:-

[B] – [(A+B) x 0.15]
where-

A is the taxable income before depreciation and amortization; and

B is the foreign profit on debt claimed as deduction
(2) This section shall not apply to a foreign-controlled resident company if the total foreign profit on debt claimed as deduction is less than ten million rupees for a tax year.

(3) Where in computing the taxable income for a tax year, full effect cannot be given to a deduction for foreign profit on debt, the excessive amount shall be added to the amount of foreign profit on debt for the following tax year and shall be treated to be part of that deduction, or if there is no such deduction for that tax year, be treated to be the deduction for that tax year, be treated to be the deduction for that tax year and so on for three tax years.

(4) Notwithstanding the provisions of section 106, where deduction of foreign profit on debt is disallowed under this section and also under section 106, the disallowed amount shall be the higher of the disallowed amount under this section and section 106.

(5) This section shall apply in respect of foreign profit on debt accrued with effect from the first day of July, 2020, ever if debts were contracted before the first day of July, 2020.

(6) In this section-

(a) “foreign-controlled resident company” means a resident company in which fifty per cent or more of the underlying ownership of the company is held by a non-resident person either alone or together with an associate or association; and

(b) “foreign profit on debt” means interest paid or payable to a non- resident person or an associate of the foreign-controlled resident company and includes-

(i) interest on all forms of debt;

(ii) payments made which are economically equivalent to interest;

(i) expenses incurred in connection with the raising of finance;

(ii) payments under profit participating loans;

(iii) imputed interest on instruments such as convertible bonds and zero coupon bonds;

(iv) amounts under alternative financing arrangements such as Islamic finance;
(v) the finance cost element of finance lease payments;

(vi) capitalized interest included in the balance sheet value of related asset, or the amortisation of capitalised interest;

(vii) amounts measured by reference to a funding return under transfer pricing rules;

(viii) where applicable, national interest amounts under derivative instruments or hedging arrangements related to an entity’s borrowings;

(ix) certain foreign exchange gains and losses on borrowings and instruments connected with the raising of finance;

(x) guarantee fees with respect to financing arrangements; and

(xi) arrangements fee and similar cost related to the borrowing funds.]

PART IV
AGREEMENTS FOR THE AVOIDANCE OF DOUBLE TAXATION AND PREVENTION OF FISCAL EVASION

107. Agreements for the avoidance of double taxation and prevention of fiscal evasion. —1[2[(1) The Federal Government may enter into a tax treaty, a tax information exchange agreement, a multilateral convention, an inter- governmental agreement or similar agreement or mechanism for the avoidance of double taxation 3[or assistance in the recovery of taxes] or for the exchange of information for the prevention of fiscal evasion or avoidance of taxes including automatic 4[and spontaneous] exchange of information with respect to taxes on income imposed under this Ordinance or any other law for the time being in force and under the corresponding laws in force in that country and may, by notification in the official Gazette, make such provisions as may be necessary for implementing the said instruments.”;] and]

5[“(1A) Notwithstanding anything contained in any other law to the contrary, the Board shall have the powers to obtain and collect information when solicited by another country under a tax treaty, a tax information exchange agreement, a multilateral convention, an inter-governmental agreement, a similar arrangement or mechanism.]

6[(1B) Notwithstanding the provisions of the Freedom of Information Ordinance, 2002 (XCVI of 2002), 7[subject to clause (a) of sub-section (3) of section 216 of this Ordinance] any information received or supplied, and any

1The sub-section (1) substituted by Finance Act, 2015. Substituted sub-section (1) read as follows:- “(1) The Federal Government may enter into an agreement with the government of a foreign country for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income imposed under this Ordinance and under the corresponding laws in force in that country, and may, by notification in the official Gazette make such provisions as may be necessary for implementing the agreement.”
2Sub-section (1) substituted by the Finance Act, 2016. The substituted sub-section (1) reads as follows:-
“(1) The Federal Government may enter into an agreement, bilateral or multilateral with the
government or governments of foreign countries or tax jurisdictions for the avoidance of double taxation and the prevention of fiscal evasion and exchange of information including automatic exchange of information with respect to taxes on income imposed under this Ordinance or any other law for the time being in force and under the corresponding laws in force in that country, and may, by notification in the official Gazette, make such provisions as may be necessary for implementing the agreement.”
3 Inserted by the Finance Act, 2021.
4 The words “and spontaneous” inserted through Finance Act, 2020 dated 30th June, 2020
5Inserted by the Finance Act, 2015
6Inserted by the Finance Act, 2015
7The words inserted by the Finance Act, 2019.

concomitant communication or correspondence made, under a tax treaty, a tax information exchange agreement, a multilateral convention, a similar arrangement or mechanism, shall be confidential 1[ ].

(2) 2[Subject to section 109, where] any agreement is made in accordance with sub-section (1), the agreement and the provisions made by notification for implementing the agreement shall, notwithstanding anything contained in any law for the time being in force, have effect in so far as they provide for 3[at least one of the following] –

(a) relief from the tax payable under this Ordinance;

(b) the determination of the Pakistan-source income of non- resident persons;

(c) where all the operations of a business are not carried on within Pakistan, the determination of the income attributable to operations carried on within and outside Pakistan, or the income chargeable to tax in Pakistan in the hands of non-resident persons, including their agents, branches, and permanent establishments in Pakistan;

(d) the determination of the income to be attributed to any resident person having a special relationship with a non-resident person; and

(e) the exchange of information for the prevention of fiscal evasion or avoidance of taxes on income chargeable under this Ordinance and under the corresponding laws in force in that other country.

(3) Notwithstanding anything4[contained] in sub-sections (1) or (2), any agreement referred to in sub-section (1) may include provisions for the relief from tax for any period before the commencement of this Ordinance or before the making of the agreement.

 

 

1The expression “subject to sub-section (3) of section 216” omitted by the Finance Act, 2016
2The word “where” substituted by the Finance Act, 2018.
3Inserted by the Finance Act, 2016.
4Inserted by the Finance Act, 2016.

CHAPTER VIII
ANTI-AVOIDANCE

108. Transactions between associates. — (1) The Commissioner may, in respect of any transaction between persons who are associates, distribute, apportion or allocate income, deductions or tax credits between the persons as is necessary to reflect the income that the persons would have realised in an arm’s length transaction.
(2) In making any adjustment under sub-section (1), the Commissioner may determine the source of income and the nature of any payment or loss as revenue, capital or otherwise.
1[“(3) Every taxpayer who has entered into a transaction with its associate shall:
(a) maintain a master file and a local file containing documents and information as may be prescribed;
(b) keep 2[, maintain and furnish to the Board] prescribed country-by- country report, where applicable;
(c) keep and maintain any other information and document in respect of transaction with its associate as may be prescribed; and
(d) keep the files, documents, information and reports specified in clauses
(a) to (c) for the period as may be prescribed.
(4) A taxpayer who has entered into a transaction with its associate shall furnish, within thirty days the documents and information to be kept and maintained under 3[clause (a), (c) or (d) of] sub-section (3) if required by the Commissioner in the course of any proceedings under this Ordinance.;
(5) The Commissioner may, by an order in writing, grant the taxpayer an extension of time for furnishing the documents and information under sub-section (4), if the taxpayer applies in writing to the Commissioner for an extension of time to furnish the said documents or information:
Provided that the Commissioner shall not grant an extension of more than forty-five days, when such information or documents were required to be furnished under sub-section (4), unless there are exceptional circumstances justifying a longer extension of time.”]

1 Added by the Finance Act, 2016.
2The words “and maintain” substituted by the Finance Act, 2018
3Insertedby the Finance Act, 2018

1[108A. Report from independent chartered accountant or cost and management accountant.- (1) Where the Commissioner is of the opinion that a transaction has not been declared at arm’s length, the Commissioner may obtain report from an independent chartered accountant or cost and management accountant to determine the fair market value of asset, product, expenditure or service at the time of transaction.

(2) The scope, terms and conditions of the report shall be as may be prescribed.

(3) Where the Commissioner is satisfied with the report of the independent chartered accountant or cost and management accountant, the fair market value of asset, product, expenditure or service determined in the report shall be treated as definite information for the purpose of sub-section (8) of section 122.

(4) Where the Commissioner is not stratified with the report of the independent chartered accountant or cost and management accountant, the Commissioner may record reasons for being not satisfied with the report and seek report from another independent chartered accountant or cost and management accountant, to determine the fair market value of asset, product, expenditure or service at the time of transaction.

(5) The Commissioner shall seek report under sub-section (1) or sub- section (3), as the case may be, with prior approval of the Board.

108B. Transactions under dealership arrangements.- (1) Where a person supplies products listed in the Third Schedule to the Sales Tax Act, 1990 or any other products as prescribed by the Board, under a dealership arrangement with the dealers who are not registered under Sales Tax Act, 1990 and are not appearing in the active taxpayers’ list under this Ordinance, an amount equal to seventy-five percent of the dealer’s margin shall be added to the income of the person making such supplies.

(2) For the purposes of operation of this section, ten percent of the sale price of the manufacturer shall be treated as dealers margin.]

109. Recharacterisation of income and deductions. — (1) For the purposes of determining liability to tax under this Ordinance, the Commissioner may –

(a) recharacterise a transaction or an element of a transaction that was entered into as part of a tax avoidance scheme;

1New sections (108A) & (108B) inserted through Finance Act, 2019

(b) disregard a transaction that does not have substantial economic effect; 1[ ]

(c) recharacterise a transaction where the form of the transaction does not reflect the substance2[;]

3[(d) from tax year 2018 and onwards, disregard an entity or a corporate structure that does not have an economic or commercial substance or was created as part of the tax avoidance scheme] 4[; or

(e) from tax year 2018 and onwards, treat a place of business in Pakistan as a permanent establishment, if the said place fulfills the conditions as specified in sub-clause (g) of clause (41) of section 2.]

(2) In this section, “tax avoidance scheme” means any transaction where one of the main purposes of a person in entering into the transaction is the avoidance or reduction of any person’s liability to tax under this Ordinance.

5[(3) Reduction in a person’s liability to tax as referred to in sub-section (2) means a reduction, avoidance or deferral of tax or increase in a refund of tax and includes a reduction, avoidance or deferral of tax that would have been payable under this Ordinance, but are not payable due to a tax treaty for the avoidance of double taxation as referred to in section 107.]

6[109A. Controlled foreign company.— (1) There shall be included in the taxable income of a resident person for a tax year an income attributable to controlled foreign company as defined in sub- section (2).

(2) For the purpose of this section, controlled foreign company means a non-resident company, if ─

(a) more than fifty percent of the capital or voting rights of the non- resident company are held, directly or indirectly, by one or more persons resident in Pakistan o more than forty percent of the capital of the or voting rights of the non-resident company are held, directly or indirectly, by a single resident person in Pakistan;

1The word “or” omitted by the finance Act 2022.
2Full stop substituted with a semicolon by the finance Act 2022.
3Inserted by the finance Act 2018
4Full stop substituted and a new clause (e) added by the Finance Act 2022.
5 Added by the finance Act 2018
6Inserted by the finance Act 2018

(b) tax paid, after taking into account any foreign tax credits available to the non-resident company, on the income derived or accrued, during a foreign tax year, by the non-resident company to any tax authority outside Pakistan is less than sixty percent of the tax payable on the said income under this Ordinance;

(c) the non-resident company does not derive active business income as defined under sub-section (3); and

(d) the shares of the company are not traded on any stock exchange recognized by law of the country or jurisdiction of which the non- resident company is resident for tax purposes.

(3) A company shall be treated to have derived active income if─

(a) more than eighty percent of income of the company does not include income from dividend, interest, property, capital gains, royalty, annuity payment, supply of goods or services to an associate, sale or licensing of intangibles and management, holding or investment in securities and financial assets; and

(b) principally derives income under the head “income from business” in the country or jurisdiction of which it is a resident.

(4) Income of a controlled foreign company is an amount equal to the taxable income of that company determined in accordance with the provisions of this Ordinance as if that controlled foreign company is a resident taxpayer and shall be taxed at the rate specified in Division III of Part I of the First Schedule.

(5) The amount of attributable income under sub-section (1) for a tax year shall be computed according to the following formula, namely:—

A x (B/100)

Where –

A is the amount of income of a controlled foreign company under sub- section (2); and

B is the percentage of capital or voting rights, whichever is higher, held by the person, directly or indirectly, in the controlled foreign company.

(6) The amount of attributable income shall be treated as zero, if the capital or voting rights of the resident person is less than ten percent.

(7) Income of a controlled foreign company shall be treated as zero, if it is less than ten million Rupees.

(8) The income of a controlled foreign company in respect of a foreign tax year, as defined in sub-section (9), shall be determined in the currency of that controlled foreign company and shall, for purposes of determining the amount to be included in the income of any resident person during any tax year under the provisions of this section, be converted into Rupees at the State Bank of Pakistan rate applying between that foreign currency and the Rupee on the last day of the tax year.

(9) Foreign tax year, in relation to a non-resident company, means any year or period of reporting for income tax purposes by that non-resident company in the country or jurisdiction of residence or, if that company is not subject to income tax, any annual period of financial reporting by that company.

(10) The income attributable to controlled foreign company under sub- section (1) and taxed in Pakistan under this section shall not be taxed again when the same income is received in Pakistan by the resident taxpayer.

(11) Where tax has been paid by the resident person on the income attributable to controlled foreign company and in a subsequent tax year the resident person receives dividend distributed by the controlled foreign company, after deduction of tax on dividend, the resident person shall be allowed a tax credit equal to the lesser of, —

(i) foreign tax paid, as defined in sub-section (8) of section 103, on dividends; and

(ii) Pakistan tax payable, as defined in section 103, for the tax year in which the dividend is received by the resident taxpayer.]

110. Salary paid by private companies. — Where, in any tax year, salary is paid by a private company to an employee of the company for services rendered by the employee in an earlier tax year and the salary has not been included in the employee’s salary chargeable to tax in that earlier year, the Commissioner may, if there are reasonable grounds to believe that payment of the salary was deferred, include the amount in the employee’s income under the head “Salary” in that earlier year.

111. Unexplained income or assets. — (1) Where —

(a) any amount is credited in a person’s books of account;

(b) a person has made any investment or is the owner of any money or valuable article; 1[ ]

(c) a person has incurred any expenditure2[; or]

3[(d) any person has concealed income or furnished inaccurate particulars of income including —

(i) the suppression of any production, sales or any amount chargeable to tax; or

(ii) the suppression of any item of receipt liable to tax in whole or in part,]
and the person offers no explanation about the nature and source of the amount credited or the investment, money, valuable article, or funds from which the expenditure was made 4[suppression of any production, sales, any amount chargeable to tax and of any item of receipt liable to tax] or the explanation offered by the person is not, 5[in the Commissioner’s opinion, satisfactory-

(a) the amount credited, value of the investment, money, value of the article, or amount of expenditure shall be included in the person’s income chargeable to tax under the head “Income from Other Sources” to the extent it is not adequately explained; and

(b) the suppressed amount of production, sales or any amount chargeable to tax or of any item of receipt liable to tax shall be included in the person’s income chargeable to tax under the head “Income from Business” to the extent it is not adequately explained”] 6[:]

7[Provided that where a taxpayer explains the nature and source of the amount credited or the investment made, money or valuable article owned or funds from which the expenditure was made, by way of agricultural income, such explanation shall be accepted to

1The word “or” omitted by the Finance Act, 2011. 2Comma substituted by the Finance Act, 2011. 3Added by the Finance Act, 2011
4Inserted by the Finance Act, 2011.
5The expressions “in the Commissioner’s opinion, satisfactory, the amount credited, value of the investment, money, value of the article, or amount of expenditure 5[suppressed amount of production, sales or any amount chargeable to tax or of any item of receipt liable to tax] shall be included in the person’s income chargeable to tax under head “Income from 5[Other Sources”] to the extent it is not adequately explained” substituted through Finance Act, 2020 dated 30th June, 2020
6Full stop substituted by the Finance Act, 2013.
7Added by the Finance Act, 2013.

the extent of agricultural income worked back on the basis of agricultural income tax paid under the relevant provincial law.]

1[(2) The amount referred to in sub-section (1) shall be included in the person’s income chargeable to tax:
(i) in the tax year to which such amount relates if the amount representing investment, money, valuable article or expenditure is situated or incurred in Pakistan or concealed income is Pakistan-source; and

(ii) in the tax year immediately preceding the tax year in which the investment, money, valuable article or expenditure is discovered by the Commissioner and is situated or incurred outside Pakistan 2[or] concealed income is foreign-source.

Explanation.—For the removal of doubt, it is clarified that where the investment, money, valuable article or expenditure is acquired or incurred outside Pakistan in a prior tax year and is liable to be included in the income of tax year 2018 and onwards on the basis of discovery made by the Commissioner during tax year 2019 and onwards and the person explains the acquisition of such asset or expenditure from sources relating to tax year in which such asset was acquired or expenditure was incurred, such explanation shall not be rejected on the basis that the source does not relate to the tax year in which the amount chargeable to tax is to be included.]

3[(3) Where the declared cost of any investment or valuable article or the declared amount of expenditure of a person is less than reasonable cost of the investment or the valuable article, or the reasonable amount of the expenditure, the Commissioner may, having regard to all the circumstances, include the difference in the person’s income chargeable to tax under the head “Income from

 

1Sub-section (2) substituted by the Finance Act, 2018. The substituted sub-section (2) read as follows:
“(2) The amount referred to in sub-section (1) shall be included in the person’s income chargeable to tax in the tax year 1[to which such amount relates.”
2 The word “and” substituted by the Finance Act, 2021.
3 Sub-section (3) substituted by the Finance Act, 2003. The substituted sub-section (3) read as follows:
“(3) Where the declared value of any investment, valuable article or expenditure of a person
is less than the cost of the investment or valuable article, or the amount of the expenditure, the Commissioner may, having regard to all the circumstances, include the difference in the person’s income chargeable to tax under the head “Income from Other Sources” in the tax year in which the difference is discovered.”

Other Sources” in the tax year 1[to which the investment, valuable article or the expenditure relates].]

2[ ]

3[(4) Sub-section (1) does not apply to any amount of foreign exchange remitted from outside Pakistan through normal banking channels not exceeding five million Rupees in a tax year that is en-cashed into rupees by a scheduled bank and a certificate from such bank is produced to that effect.]

4[Explanation.— For removal of doubt, it is clarified that the remittance through money service bureaus, exchange companies or money transfer operators shall be deemed to constitute foreign exchange remitted from outside Pakistan through normal banking channels as provided under this sub-section.

(4A) Where a taxpayer, while explaining the nature and source of any amount referred to in sub-section (1), takes into account any source of income which is subject to final tax under any provision of the Ordinance, the taxpayer shall not be entitled to take credit of any sum as is in excess of imputable income, unless the excess amount is reasonably attributed to the business activities subject to final tax and the taxpayer furnishes financial statements and accounts duly audited by a chartered accountant.]

(5) The 5[Board] may make rules under section 6[237] for the purposes of this section.

7[ ]

 

1The words “immediately preceding the financial year in which the difference is discovered” substituted by the Finance Act, 2010.
2Sub-section (4) substituted by the Finance Act, 2004. The substituted sub-section (4) read as follows:
“(4) Sub-section (1) does not apply to any amount of foreign exchange remitted from outside Pakistan through normal banking channels that is encashed into rupees by a scheduled bank and a certificate from such bank is produced to that effect.”
3 Sub-section (4) substituted by the Finance Act, 2021. The substituted sub-section read as follows:
(4) Sub-section (1) does not apply,—
(a) to any amount of foreign exchange remitted from outside Pakistan through normal banking channels 3[not exceeding 3[five] million Rupees in a tax year] that is encashed into rupees by a scheduled bank and a certificate from such bank is produced to that effect3[.]
3[ ]
3[ ]
4 The explanation and sub-section (4A) inserted by the Finance Act, 2022.
5 The words “Central Board of Revenue” substituted by the Finance Act, 2007.
6 The figure “232” substituted by the Finance Act, 2002.
7 Added by the Finance Act, 2021.

1[Explanation.— For the removal of doubt, it is clarified that a separate notice under this section is not required to be issued if the explanation regarding nature and sources of;

(i) any amount credited in a person’s books of account; or
(ii) any investment made or ownership of money or valuable article; or
(iii) funds from which expenditure was made; or
(iv) suppression of any production, sales, or any amount chargeable to tax; or
(v) suppression of any item of receipt liable to tax in whole or in part has been confronted to the taxpayer through a notice under sub-section
(9) of section 122 of the Ordinance.]

112. Liability in respect of certain security transactions.— (1) Where the owner of any security disposes of the security and thereafter re-acquires the security and the result of the transaction is that any income payable in respect of the security is receivable by any person other than the owner, the income shall be treated, for all purposes of the Ordinance, as the income of the owner and not of the other person.

(2) In this section, “security” includes 2[bonds, certificates, debentures,] stocks and shares.

 

 

 

 

 

 

 

 

1 The explanation substituted by the Finance Act, 2022. The substituted Explanation read as follows: “Explanation.—For the removal of doubt, a separate notice under this section is not required to be issued if the explanation regarding nature and sources of amount credited or the investment of money, valuable article, or the funds from which expenditure was made has been confronted to the taxpayer through a notice under sub-section (9) of section 122 of this Ordinance.”
2 Inserted by the Finance Act, 2003.

CHAPTER IX
MINIMUM TAX

1[113. Minimum tax on the income of certain persons.- (1) This section shall apply to a resident company,2[permanent establishment of a non-resident company,] 3[, an individual (having turnover of 4[ ] 5[hundred] million rupees or above in the tax year 6[2017] or in any subsequent tax year) and an association of persons (having turnover of 7[ ] 8[hundred] million rupees or above in the tax year 9[2017] or in any subsequent tax year)] where, for any reason whatsoever allowed under this Ordinance, including any other law for the time being in force—

(a) loss for the year;

(b) the setting off of a loss of an earlier year;

(c) exemption from tax;

(d) the application of credits or rebates; or

(e) the claiming of allowances or deductions (including depreciation and amortization deductions) no tax is payable or paid by the person for a tax year or the tax payable or paid by the person for a tax year is less than 10[ 11[the percentage as specified in column (3) of the Table in Division IX of Part-I of the First

 

 

 

 

1Inserted by the Finance Act, 2009.
2The expressions inserted through Finance Act, 2020 dated 30th June, 2020
3Inserted by the Finance Act, 2010.
4The word “fifty” substituted by the Finance Act, 2016. 5 The word “ten” substituted by the Finance Act, 2021. 6The figure “2009” substituted by the Finance Act, 2016 7The word “fifty” substituted by the Finance Act, 2016. 8 The word “ten” substituted by the Finance Act, 2021. 9The figure “2007” substituted by the Finance Act, 2016
10The word “one-half” substituted by the Finance Act, 2013.
11The word “one per cent” substituted by the Finance Act, 2017.

Schedule] ] of the amount representing the person’s turnover from all sources for that year:

1[ ]

2[ 3[Explanation.-For the purpose of this sub-section, the expression “tax payable or paid” does not include-
(a) tax already paid or payable in respect of deemed income which is assessed as final discharge of the tax liability under section 169 or under any other provision of this Ordinance; and
(b) tax payable or paid under section 4B 4[or 4C]. ]
(2) Where this section applies:
(a) the aggregate of the person’s turnover as defined in sub-section
(3) for the tax year shall be treated as the income of the person for the year chargeable to tax 5[.

Explanation.—For the removal of doubt, it is clarified that the definition of turnover covers receipts from all business activities in line with expression “ turnover from all sources” used in sub- section (1) including but not limited to receipts from sale of immoveable property where such receipt is taxable under the head Income from Business;]

(b) the person shall pay as income tax for the tax year (instead of the actual tax payable under this Ordinance),6[minimum tax

 

1 Proviso omitted by the Finance Act, 2016. The omitted proviso reads as follows:-
“Provided that this sub-section shall not apply in the case of a company, which has declared gross loss before set off of depreciation and other inadmissible expenses under the Ordinance. If the loss is arrived at by setting off the aforesaid or changing accounting pattern, the Commissioner may ignore such claim and proceed to compute the tax as per historical accounting pattern and provision of this Ordinance and all other provisions of the Ordinance shall apply accordingly.”
2Added by the Finance Act, 2012.
3Explanation substituted by the Finance Act, 2016. The substituted Explanation reads as follows:- [“Explanation.- For the purpose of this sub-section, the expression “tax payable or paid” does
not include tax already paid or payable in respect of deemed income which is assessed as final
discharge of the tax liability under section 169 or under any other provision of this Ordinance.]
4 Inserted by the Finance Act, 2022.
5 Semi colon substituted and explanation added by the Finance Act, 2021.
6The words “an amount equal to one percent of the person’s turnover for the year” substituted by the words “minimum tax computed on the basis of rates as specified in Division IX of Part I of First Schedule”, by the Finance Act, 2014.

computed on the basis of rates as specified in Division IX of Part I of First Schedule];

(c) where tax paid under sub-section (1) exceeds the actual tax payable under Part I,1[clause (1) of Division I, or] Division II of the First Schedule, the excess amount of tax paid shall be carried forward for adjustment against tax liability under the aforesaid Part of the subsequent tax year:
2[Provided that if tax is paid under sub-section (1) due to the fact that no tax is payable or paid for the year, the entire amount of tax paid under sub-section (1) shall be carried forward for adjustment in the manner stated aforesaid:

Provided further that the amount under this clause shall be carried forward and adjusted against tax liability for 3[three] tax years immediately succeeding the tax year for which the amount was paid.]

(3) “turnover” means,-
(a) the 4[gross sales or] gross receipts, exclusive of Sales Tax and Federal Excise duty or any trade discounts shown on invoices, or bills, derived from the sale of goods, and also excluding any amount taken as deemed income and is assessed as final discharge of the tax liability for which tax is already paid or payable;

(b) the gross fees for the rendering of services for giving benefits including commissions; except covered by final discharge of tax liability for which tax is separately paid or payable;

(c) the gross receipts from the execution of contracts; except covered by final discharge of tax liability for which tax is separately paid or payable; and

(d) the company’s share of the amounts stated above of any association of persons of which the company is a member.]

1Inserted by the Finance Act, 2013.
2 The proviso substituted by the Finance Act, 2021. The substituted proviso read as follows: “Provided that the amount under this clause shall be carried forward and adjusted against
tax liability for 2[five] tax years immediately succeeding the tax year for which the amount was paid.”
3The word “five” substituted by the Finance Act, 2022.
4Inserted by the Finance Act, 2011.

1[2[ ] ]

 

 

 

 

3[ ]

1Section 113A substituted by the Finance Act, 2013. The substituted section 113A read as follows:- “113A. Tax on Income of certain persons. — (1) Subject to this Ordinance, where a retailer being an individual or an association of persons has turnover upto rupees five million for any tax year, such person may opt for payment of tax as a final tax at the rates specified in Division IA of Part I of the First Schedule.
(2) For the purposes of this section, —
(a) “retailer” means a person selling goods to general public for the purpose of consumption;
(b) “turnover” shall have the same meaning as assigned to it in sub-section (3) of section 113.
(3) The tax paid under this section shall be a final tax on the income arising from the turnover as specified in sub-section (1). The retailer shall not be entitled to claim any adjustment of withholding tax collected or deducted under any head during the year.”
2 Section 113A omitted by the Finance Act, 2016. The omitted section 113a reads as follows:-
“113A. Minimum tax on builders.— (1) Subject to this Ordinance, where a person derives income from the business of construction and sale of residential, commercial or other buildings, he shall pay minimum tax at the rates as the Federal Government may notify in the official Gazette. The Federal Government may also specify the mode, manner and time of payment of such amount of tax.
(2) The tax paid under this section shall be minimum tax on the income of the builder from the sale of such residential, commercial or other building.]
2[“(3) This section shall not have effect till the 30th June, 2018.”]”
3Section 113B substituted by the Finance Act, 2013. The substituted section 113B read as follows:- “113B. Taxation of income of certain retailers. — Subject to this Ordinance, a retailer being an individual or association of persons,-
(a) whose turnover exceeds five million rupees; and
(b) who is subject to special procedure for payment of sales tax under Chapter II of the Sales Tax Special Procedures Rules, 2007,
shall pay final tax at the following rates which shall form part of single stage sales tax as envisaged in the aforesaid rules;
S.No. Amount of turnover Rate of tax
1. Where turnover exceeds Rs.5,000,000 Rs.25,000 plus 0.5% of the
but does not exceed turnover exceeding
Rs. 10,000,000 Rs.5 ,000,000
2. Where turnover Rs. 50,000 plus
exceeds Rs.10,000,000 0.75% of the turnover exceeding
Rs.10,000,000.

1[ ]

2[113C. Alternative Corporate Tax.- (1) Notwithstanding anything contained in this Ordinance, for tax year 2014 and onwards, tax payable by a company 3[in respect of income which is subject to tax under Division II of Part I of the First Schedule or minimum tax under any of the provisions of this Ordinance”] shall be higher of the Corporate Tax or Alternative Corporate Tax.

(2) For the purposes of this section.-

(a) “Accounting Income” means the accounting profit before tax for the tax year, as disclosed in the financial statements or as adjusted under sub-section (7) or sub-section (11) excluding share from the associate recognized under equity method of accounting;
(b) “Alternative Corporate Tax” means the tax at a rate of seventeen per cent of a sum equal to accounting income less the amounts, as specified in sub-section (8), and determined in accordance with provisions of sub-section (7) hereinafter;

4[“(c) “corporate tax” means higher of tax payable by the company under Division II of Part I of the First Schedule and minimum tax payable under any of the provisions of this Ordinance.”]

(3) The sum equal to accounting income, less any amount to be excluded there from under sub-section (8), shall be treated as taxable income for the purpose of this section.

(c) The retailer shall not be entitled to claim any adjustment of withholding tax collected or deducted under any head during the year:
Provided that turnover chargeable to tax under this section shall not include the sale of goods on which tax is deducted or deductible under clause (a) of sub-section (1) of section 153.”
1Section 113B omitted by the Finance Act, 2016. The omitted section reads as follows:-
“113B. Minimum tax on land developers.— (1) Subject to this Ordinance, where a person derives income from the business of development and sale of residential, commercial or other plots, he shall pay minimum tax1[at the rate of two per cent of the value of land notified by any authority for the purpose of stamp duty]. The Federal Government may also specify the mode, manner and time of payment of such amount of tax.
(2) The tax paid under this section shall be minimum tax on the income of the developer from the sale of such residential, commercial or other plots sold or booked.”]
2Section 113C inserted by the Finance Act, 2014.
3Inserted by the Finance Act, 2015
4 Clause (c) Substituted by the Finance Act, 2015. The substituted clause (c) read as follows:- “Corporate Tax” means total tax payable by the company, including tax payable on account of minimum tax and final taxes payable, under any of the provisions of this Ordinance but not including those mentioned in sections 8, 161 and 162 and any amount charged or paid on account of default surcharge or penalty and the tax payable under this section.

(4) The excess of Alternative Corporate Tax paid over the Corporate Tax payable for the tax year shall be carried forward and adjusted against the tax payable under Division II of Part I of the First Schedule, for following year.

(5) If the excess tax, as mentioned in sub-section (4), is not wholly adjusted, the amount not adjusted shall be carried forward to the following tax year and adjusted as specified in sub-section (4) in that year, and so on, but the said excess cannot be carried forward to more than ten tax years immediately succeeding the tax year for which the excess was first computed.
Explanation.- For the purpose of this sub-section the mechanism for adjustment of excess of Alternative Corporate Tax over Corporate Tax, specified in this section, shall not prejudice or affect the entitlement of the taxpayer regarding carrying forward and adjustment of minimum tax referred to in section 113 of this Ordinance.
(6) If Corporate Tax or Alternative Corporate Tax is enhanced or reduced as a result of any amendment, or as a result of any order under the Ordinance, the excess amount to be carried forward shall be reduced or enhanced accordingly.
(7) For the purposes of determining the “Accounting Income”, expenses shall be apportioned between the amount to be excluded from accounting income under sub-section (8) and the amount to be treated as taxable income under sub- section (2).

(8) The following amounts shall be excluded from accounting income for the purposes of computing Alternative Corporate Tax:-
(i) exempt income;

1[“(ii) income which is subject to tax other than under Division II of Part I of the First Schedule or minimum tax under any of the provisions of this Ordinance;”;]

(xii) income subject to tax credit under section 65D 2[,65E and 100C]

3[ ]

 

1Sub-Clause (ii) substituted by Finance Act, 2015. The substituted clause read as follows:-
(ii) income subject to tax under section 37A and final tax chargeable under sub-section (7) of section 148, section 150, sub-section (3) of section 153, sub-section (4) of sections 154, 156 and sub-section (3) of section 233;”
2The word and figure “and 65E” substituted by the Finance Act, 2015
3 Sub-clause (iv) and (v) omitted by Finance Act, 2015. The omitted clause read as follows:- “(iv) income subject to tax credit under section 100C;”
“(v) income of the company subject to clause (18A) of Part-II of the Second Schedule;”

(9) The provisions of this section shall not apply to taxpayers chargeable to tax in accordance with the provisions contained in the Fourth, Fifth and Seventh Schedules.

(10) Tax credit under 1[sections 64B and]65B shall be allowed against Alternative Corporate Tax.

(11) The Commissioner may make adjustments and proceed to compute accounting income as per historical accounting pattern after providing an opportunity of being heard.”;]

2[“Explanation.— For the removal of doubt, it is clarified that taxes paid or payable other than payable under Division II of Part I of the First Schedule shall remain payable in accordance with the mode or manner prescribed under the respective provisions of this Ordinance.”]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1The words “section” substituted by Finance Act, 2015.
2Added by Finance Act, 2015.

CHAPTER X
PROCEDURE

PART I
RETURNS

114. Return of income. — (1) Subject to this Ordinance, the following persons are required to furnish a return of income for a tax year, namely:–

1[(a) every company;]

2[(ab) every person (other than a company) whose taxable income for the year exceeds the maximum amount that is not chargeable to tax under this Ordinance for the year;3[or]]

4[(ac) any non-profit organization as defined in clause (36) of section 2;
5[ ] ]

6[ ]

7[ ]

8[(ae) every person whose income for the year is subject to final taxation under any provision of this Ordinance;]

 

 

 

1Clause (a) substituted by the Finance Act, 2003. The substituted clause (a) read as follows:
“(a) Every company and any other person whose taxable income for the year exceeds the maximum amount that is not chargeable to tax under this Ordinance for the year; and”
2 Inserted by the Finance Act, 2003. 3Inserted by the Finance Act, 2011. 4 Inserted by the Finance Act, 2006.
5The word “and” omitted by the Finance Act, 2011.
6Clause (ad) Inserted by the Finance Act, 2006.
7 Clause (ad) omitted by the Finance Act, 2021. The omitted clause read as follows:
“(ad) any welfare institution approved under clause (58) of Part I of the Second Schedule;”
8Added through Finance Act, 2020

1[(b) any person not covered by clause 2[(a), (ab), (ac) or (ad)] who,—
(i) has been charged to tax in respect of any of the two preceding tax years;
(ii) claims a loss carried forward under this Ordinance for a tax year;
(iii) owns immovable property with a land area of 3[five hundred] square yards or more or owns any flat located in areas falling within the municipal limits existing immediately before the commencement of Local Government laws in the provinces; or areas in a Cantonment; or the Islamabad Capital Territory4[;] ]
5[(iv) owns immoveable property with a land area of five hundred square yards or more located in a rating area;]
6[(v) owns a flat having covered area of two thousand square feet or more located in a rating area;]
7[(vi) owns a motor vehicle having engine capacity above 1000 CC; 8[ ] ]
9[(vii) has obtained National Tax Number10[; or] ]

 

1Clause (b) substituted by the Finance Act, 2005. The substituted clause (b) read as follows:
(b) any person not covered by clause (a) or (ab) who –
(i) has been charged to tax in respect of any of the four preceding tax years;
(ii) claims a loss carried forward under this Ordinance for a tax year;
(iii) owns immovable property, with a land area of two hundred and fifty square yards or more, located in areas falling in the limits of a Metropolitan/Municipal Corporation, a Cantonment Board, or the Islamabad Capital Territory or owns any flat;
(iv) owns a motor vehicle (other than a motor cycle) in Pakistan;
(v) subscribes for a telephone including a mobile phone in Pakistan;
(vi) has undertaken foreign travel in the tax year other than travel by a non-resident person or any travel for the purposes of the Haj, Umrah, or Ziarat; or
(vii) is member of a club where the monthly subscription exceeds five hundred rupees or the admission fee exceeds twenty-five thousand rupees.
2The letters and word “(a) or (ab)” substituted by the Finance Act, 2006.
3The words “two hundred and fifty” substituted by “five hundred” through Finance Act, 2019.
4Full stop substituted by the Finance Act, 2009.
5Inserted by the Finance Act, 2009. 6Inserted by the Finance Act, 2009. 7Inserted by the Finance Act, 2009.
8The word “and” omitted by the Finance Act, 2011.
9Inserted by the Finance Act, 2009.
10Full stop substituted by the Finance Act, 2011.

1[(viii) is the holder of commercial or industrial connection of electricity where the amount of annual bill exceeds rupees 2[five hundred thousand] 3[; 4[ ] ]
5[(ix) is 6[a resident person] registered with any chamber of commerce and industry or any trade or business association or any market committee or any professional body including Pakistan Engineering Council, Pakistan Medical and Dental Council, Pakistan Bar Council or any Provincial Bar Council, Institute of Chartered Accountants of Pakistan or Institute of Cost and Management Accountants of Pakistan 7[; or]
8[(x) 9[is a] resident person being an individual required to file foreign income and assets statement under section 116A.]

10[(c) persons or classes of persons notified by the Board with the approval of the Minister in-charge.]

11[(1A) Every individual whose income under the head ‘Income from business’ exceeds rupees three hundred thousand but does not exceed rupees 12[four hundred thousand] in a tax year is also required to furnish return of income from the tax year.]

 

 

 

 

1Inserted by the Finance Act, 2011.
2The words “one million” substituted by the Finance Act, 2013.
3Full stop substituted by the Finance Act, 2013. 4The word “or” omitted by the Finance Act, 2018. 5Added by the Finance Act, 2013.
6The words “a resident person” inserted by the Finance Act, 2014.
7Full stop substituted by the Finance Act, 2018.
8Added by the Finance Act, 2018.
9The word “every” substituted through Finance Act, 2020 dated 30th June, 2020
10 Clause (c) inserted by the Finance, Act 2021.
11Inserted by the Finance Act, 2011.
12The words “three hundred and fifty thousand” substituted by the Finance Act, 2013.

1[(2) A return of income –
(a) shall be in the prescribed form and shall be accompanied by such annexures, statements or documents as may be prescribed 2[:

Provided that the Board may prescribe different returns for different classes of income or persons including persons subject to final taxation;]
(b) shall fully state all the relevant particulars or information as specified in the form of return, including a declaration of the records kept by the taxpayer; 3[ ]
(c) shall be signed by the person, being an individual, or the person’s representative where section 172 applies4[;] ]

5[(d) shall be accompanied with evidence of payment of due tax as per return of income; 6[ ]
7[(e) shall be accompanied with a wealth statement as required under section 116 8[; and]
9[(f) shall be accompanied with a foreign income and assets statement as required under section 116A.]
10[(2A) A return of income filed electronically on the web or any magnetic media or any other computer readable media as may be specified by the Board shall also be deemed to be a return for the purpose of sub-section (1); and the Board may, by notification in the official Gazette, make rules for determining

1Sub-section (2) substituted by the Finance Act, 2003. The substituted sub-section (2) read as follows: “(2) A return of income –
(a) shall be in the prescribed form;
(b) shall state the information required by the form, including a declaration of the records kept by the taxpayer;
(c) in the case of a person carrying on a business, shall include an income statement, balance sheet, and any other document as may be prescribed for the tax year; and
(d) shall be signed by the person or the person’s representative.”
2Proviso added through Finance Act, 2020 dated 30th June, 2020
3The word “and” omitted by the Finance Act, 2011.
4Full stop substituted by the Finance Act, 2011.
5Inserted by the Finance Act, 2011.
6The word “and” omitted by the Finance Act, 2018.
7Inserted by the Finance Act, 2011.
8 Full stop substituted by the Finance Act, 2018.
9 Added by the Finance Act 2018.
10Inserted by the Finance Act, 2005.

eligibility of the data of such returns and e-intermediaries who will digitise the data of such returns and transmit the same electronically to the Income Tax Department under their digital signatures1[and other matters relating to electronic filing of returns, statements or documents, etc.]]
(3) The Commissioner may, by notice in writing, require a person, or a person’s representative, as the case may be, to furnish a return of income by the date specified in the notice for a period of less than twelve months, where –
(a) the person has died;
(b) the person has become bankrupt or gone into liquidation;
(c) the person is about to leave Pakistan permanently;

2[ ]

(e) the Commissioner otherwise considers it appropriate to require such a return to be furnished.
(4) Subject to sub-section (5), the Commissioner may, by notice in writing, require any person who, in the Commissioner’s opinion, is required to file a return of income under this section for a tax year 3[or assessment year] but who has failed to do so to furnish a return of income for that year within thirty days from the date of service of such notice or such longer 4[or shorter] period as may be specified in such notice or as the Commissioner may allow.
(5) A notice under sub-section (4) may be issued 5[in respect of one or more] 6[of the] last five completed tax years 7[or assessment years] 8[:]

 

 

1Inserted by the Finance Act, 2007.
2 Clause (d) omitted by the Finance Act, 2003. Earlier this was omitted by S.R.O. 633(I)/2002 dated 14.09.2002 which stands rescinded by SRO 608(I)/2003, dated 24.06.2003 with effect from 01.07.2003. The omitted clause (d) read as follows:
“(d) the person is otherwise about to cease carrying on business in Pakistan; or “
3 Inserted by the Finance Act, 2003.
4Inserted by the Finance Act, 2013.
5 The words “only in respect of the” substituted by Finance Act, 2003. Earlier these were substituted by
S.R.O. 633(I)/2002 dated 14.09.2002 which stands rescinded by SRO 608(I)/2003, dated 24.06.2003 with effect from 01.07.2003.
6Inserted by the Finance Act, 2005.
7Inserted by the Finance Act, 2004.
8Full stop substituted by the Finance Act, 2016.

1[Provided that in case of a person who has not filed return for any of the last five completed tax years, notice under sub-section (4) may be issued in respect of one or more of the last ten completed tax years] 2[:

Provided further that the time-limitation provided under this sub- section shall not apply if the Commissioner is satisfied on the basis of reasons to be recorded in writing that a person who failed to furnish his return has foreign income or owns foreign assets.]

3[(6) Subject to sub-section (6A), any person who, having furnished a return, discovers any omission or wrong statement therein, may file revised return subject to the following conditions, namely: —
(a) it is accompanied by the revised accounts or revised audited accounts, as the case may be [:] 4[ ]

5[Provided that Commissioner may waive this condition if the Commissioner is satisfied that filing of revised accounts or audited accounts is not necessary;]
(b) the reasons for revision of return, in writing, duly signed, by the taxpayers are filed with the return6[; 7[ ] ]
8[(ba) it is accompanied by approval of the Commissioner in writing for revision of return; and]

 

 

1 Added by the Finance Act, 2016.
2 Added by the Finance Act, 2021.
3 Sub-section (6) substituted by the Finance Act, 2010. The substituted provision has been made effective from 05.06.2010 by sub-clause (77) of clause 8 of the Finance Act, 2010. Earlier the substitution was made through Finance (Amendment) Ordinance, 2009 which was re-promulgated as Finance (Amendment) Ordinance, 2010 and remained effective till 05.06.2010. The substituted sub-section
(6) read as follows:
“(6) Subject to sub-section (6A), any person who, having furnished a return, discovers any omission or wrong statement therein, may file revised return subject to the following conditions, namely:-
(a) it is accompanied by the revised accounts or revised audited accounts, as the case may be; and
(b) the reasons for revision of return, in writing, duly signed, by the taxpayers are filed with the return.”
4The word “and” omitted by the Finance Act, 2012.
5 Added by the Finance Act, 2021.
6Substituted by the Finance Act, 2012.
7The word “and” omitted by the Finance Act, 2013.
8Inserted by the Finance Act, 2013.

1[(c) taxable income declared is not less than and loss declared is not more than income or loss, as the case may be, determined by an order issued under sections 121, 122, 122A, 2[ ] 129, 132, 133 or 221:-

Provided that if any of the above conditions is not fulfilled, the return furnished shall be treated as an invalid return as if it had not been furnished] 3[:]

4[Provided further that the condition specified in clause (ba) shall not apply if revised return is filed within sixty days of filing of return:

Provided also that where the Commissioner has not made an order of approval in writing, for revision of return, before the expiration of sixty days from the date when the revision of return was sought, the approval required under clause (ba) shall be deemed to have been granted by the Commissioner, and condition specified in clause (ba) shall not apply:

5[“Provided also that condition specified in clause (ba) shall not apply and the approval required thereunder shall be deemed to have been granted by the Commissioner, if-

(a) the Commissioner has not made an order of approval in writing, for revision of return, before the expiration of sixty days from the date when the revision of return was sought; or

(b) taxable income declared is more than or the loss declared is less than the income or loss, as the case may be, determined under section 120”] 6[:
“Provided also that the Commissioner shall grant approval in case of a bonafide omission or wrong statement.]

 

 

1Added by the Finance Act, 2012.
2The expression “122C,” omitted by the Finance Act, 2017.
3 Substituted by Finance Act, 2015.
4Added by Finance Act, 2015.
5 Proviso substituted by the Finance Act, 2016. Substituted proviso reads as follows:-
“ Provided further that the mode and manner for seeking the revision shall be as prescribed by the Board.” 6 Proviso added through Finance Act, 2020

1[(6A) If a taxpayer 2[files] a revised return voluntarily along with deposit of the amount of tax short paid or amount of tax sought to be evaded along with the default surcharge, whenever it comes to his notice, before receipt of notice under sections 177 or sub-section(9) of 122, no penalty shall be recovered from him:

Provided that in case the taxpayer 3[deposits] the amount of tax as pointed out by the Commissioner during the audit or before the issuance of notice under sub-section (9) of section 122, he shall deposit the amount of tax sought to be evaded, the default surcharge and twenty-five per cent of the penalties leviable under the Ordinance along with the revised return:
Provided further that in case the taxpayer 4[revises] the return after the issuance of a show cause notice under sub-section (9) of section 122, he shall deposit the amount of tax sought to be evaded, default surcharge and fifty per cent of the leviable penalties under the Ordinance along with the revised return and thereafter, the show cause notice shall stand abated.]
(7) Every return purporting to be made or signed by, or on behalf of a person shall be treated as having been duly made by the person or with the person’s authority until the person proves the contrary.

5[ ]
6[114A. Business bank account.— (1) Every taxpayer shall declare to the Commissioner the bank account utilized by the taxpayer for business transactions.

1 Added by the Finance Act, 2010.
2The words “wishes to file” substituted by the Finance Act, 2011. 3The words “wishes to deposit” substituted by the Finance Act, 2011. 4 The words “wishes to revise” substituted by the Finance Act, 2011.
5New section 114A added through Finance Act, 2020 dated 30th June, 2020
6 Section 114A substituted by the Finance Act, 2021. The substituted section read as follows:
“114A. Taxpayer’s profile.-(1) Subject to this Ordinance, the following persons shall furnish a profile, namely:-
(a) every person applying for registration under section 181;
(b) every person deriving income chargeable to tax under the head, “Income from business”;
(c) every person whose income is subject to final taxation;
(d) any non-profit organization as defined in clause (36) of section 2;
(e) any trust or welfare institution; or
(f) any other person prescribed by the Board.
(2) A taxpayer’s profile-
(a) shall be in the prescribed form and shall be accompanied by such annexures, statements or documents as may be prescribed;
(b) shall fully state, in the specified form and manner, the relevant particulars of –
(i) bank accounts;

(2) Business bank account shall be declared through original or modified registration form prescribed under section 181.]
1[114B. Powers to enforce filing of returns.— (1) Notwithstanding anything contained in any other law for the time being in force, the Board shall have the powers to issue income tax general order in respect of persons who are not appearing on active taxpayers’ list but are liable to file return under the provisions of the Ordinance.

(2) The income tax general order issued under sub-section (1) may entail any or all of the following consequences for the persons mentioned therein, namely:–

(a) disabling of mobile phones or mobile phone SIMS;
(b) discontinuance of electricity connection; or
(c) discontinuance of gas connection.

(3) The Board or the Commissioner having jurisdiction over the person mentioned in the income tax general order may order restoration of mobile phones, mobile phone SIMS and connections of electricity and gas, in cases where he is satisfied that —

(a) the return has been filed; or
(b) person was not liable to file return under the provisions of the Ordinance.
(4) No person shall be included in the general order under sub-section (1) unless following conditions have been met with, namely:–

(a) notice under sub-section (4) of section 114 has been issued;

(ii) utility connections;
(iii) business premises including all manufacturing, storage or retail outlets operated or leased by the taxpayer;
(iv) types of businesses; and
(v) such other information as may be prescribed;
(c) shall be signed by the person being an individual, or the person’s representative where section 172 applies; and
(d) shall be filed electronically on the web prescribed by the Board.
(3) A taxpayer’s profile shall be furnished,-
(a) on or before the 31st day of December, 2020 in case of a person registered under section 181 before the 30th day of September, 2020; and
(b) within ninety days registration in case of a person not registered under section 181 before the 30th day of September, 2020.
(4) A taxpayer’s profile shall be updated within ninety days of change in any of the relevant particulars of information as mentioned in clause (b) of sub-section (2).]
1New section 114B added through Finance Act, 2022.

(b) date of compliance of the notice under sub-section (4) of section 114 has elapsed; and
(c) the person has not filed the return.

(5) The action under this section shall not preclude any other action provided under the provisions of the Ordinance.]
115. Persons not required to furnish a return of income. —1[ ]
2[ ]
(3) The following persons shall not be required to furnish a return of income for a tax year solely by reason of 3[sub-clause (iii)4[, (iv),(v) and (vi)]] of clause (b) of sub-section (1) of section 114 –

(a) A widow;
(b) an orphan below the age of twenty-five years;
(c) a disabled person; or
(d) in the case of ownership of immovable property, a non-resident person.

5[ ]

6[ ]

1Sub-section (1) and the proviso there under omitted by the Finance Act, 2013. The omitted sub- section (1) and the proviso read as follows:
“(1) Where the entire income of a taxpayer in a tax year consists of income chargeable under the head “Salary”, Annual Statement of Deduction of Income Tax from Salary, filed by the employer
of such taxpayer, in prescribed form, the same shall, for the purposes of this Ordinance, be treated as a return of income furnished by the taxpayer under section 114:
Provided that where salary income, for the tax year is five hundred thousand rupees or more, the taxpayer shall file return of income electronically in the prescribed form and it shall be accompanied by the proof of deduction or payment of tax and wealth statement as required under section 116.”
2 Sub-section (2) omitted by the Finance Act, 2004. Omitted sub-section (2) read as follows:
“(2) Clause (b) of sub-section (1) shall not apply to a person whose declared income for the tax year, or whose last declared or assessed income, is less than two hundred thousand rupees.”
3The words, brackets and figures “sub-clauses (iii) through (vii)” substituted by the Finance Act, 2008.
4Inserted by the Finance Act, 2017
5Sub-section (4) omitted by Finance Act, 2020. The omitted sub-section (4) read as follows:
(4) Any person who is not obliged to furnish a return for a tax year because all the person’s income is subject to final taxation under sections 5, 6, 7, 148, 151 and 152, sub-section (3) of section 153, sections 154, 156 and 156A, sub-section (3) of section 233 or sub-section (3) of section 234A shall furnish to the Commissioner a statement showing such particulars relating to the person’s income for the tax year in such form and verified in such manner as may be prescribed.
6Sub-section(4A) omitted through Finance Act, 2020. The omitted sub-section (4A) read as follows:

1[ ]

2[ ]

116. Wealth statement.— (1) 3[The] Commissioner may, by notice in writing, require any person 4[being an individual] to furnish, on the date specified in the notice, a statement (hereinafter referred to as the “wealth statement”) in the prescribed form and verified in the prescribed manner giving particulars of —

(a) the person’s total assets and liabilities as on the date or dates specified in such notice;
(b) the total assets and liabilities of the person’s spouse, minor children, and other dependents as on the date or dates specified in such notice;

(c) any assets transferred by the person to any other person during the period or periods specified in such notice and the consideration for the transfer; 5[ ]

(d) the total expenditures incurred by the person, and the person’s spouse, minor children, and other dependents during the period

(4A) Any person who, having furnished a statement, discovers any omission or wrong statement therein, he may, without prejudice to any other liability which he may incur under this Ordinance, furnish a revised statement for that tax year, at any time within five years from the end of the financial year in which the original statement was furnished.
1 Sub-section (4B) omitted by the Finance Act, 2010. The omitted sub-section (4B) read as follows: “(4B) Every person (other than a company) filing statement under sub-section (4), falling
under final tax regime (FTR) and has paid tax amounting to twenty thousand rupees or more for the tax year, shall file a wealth statement along with reconciliation of wealth statement.”
2Sub section (5) and (6) omitted through Finance Act, 2020 dated 30th June, 2020 the omitted sub- sections read as follows:

 

 

(5) Subject to sub-section (6), the Commissioner may, by notice in writing, require any person who, in his opinion, is required to file a prescribed statement under this section for a tax year but who has failed to do so, to furnish a prescribed statement for that year within thirty days from the date of service of such notice or such longer period as may be specified in such notice or as he may, allow.
(6) A notice under sub-section (5) may be issued in respect of one or more of the last five completed tax years.
3 The words, brackets, figure, comma and word “Subject to sub-section (2)”. The” substituted by the Finance Act, 2007.
4 Inserted by the Finance Act, 2013.
5The word “and” omitted by the Finance Act, 2009.

or periods specified in the notice and the details of such expenditures 1[; and]

2[(e) the reconciliation statement of wealth.]

(2) Every resident taxpayer3[being an individual] filing a return of income for any tax year4[ ] shall furnish a wealth statement5[and wealth reconciliation statement] for that year along with such return 6[:]

7[Provided that every member of an association of persons 8[ ] shall also furnish wealth statement and wealth reconciliation statement for the year along with return of income of the association.]

9[10[ ] ]

11[(3) Where a person, who has furnished a wealth statement, discovers any omission or wrong statement therein, he may, without prejudice to any liability incurred by him under any provision of this Ordinance, furnish a revised wealth statement 12[along with the revised wealth reconciliation and the reasons for filing

1Full stop substituted by the Finance Act, 2009.
2Inserted by the Finance Act, 2009.
3Inserted by the Finance Act, 2011.
4The words and comma “whose last declared or assessed income or the declared income for the year, is one million rupees or more” omitted by the Finance Act, 2013. Note: This amendment shall be effective for the tax year 2013 and onwards.
5Inserted by the Finance Act, 2009.
6Full stop substituted by the Finance Act, 2011.
7Inserted by the Finance Act, 2011.
8The words and commas “ whose share from the income of such association of persons, before tax, for the year is one million rupees or more” omitted by the Finance Act, 2013. Note: This amendment shall be effective for the tax year 2013 and onwards.
9 Sub-section (2A) substituted by the Finance Act, 2011. The substituted sub-section (2A) read as follows:
“(2A) Where a person files a return in response to a provisional assessment under section 122C, he shall furnish a wealth statement for that year along with that return and such wealth
statement shall be accompanied by a wealth reconciliation statement and an explanation of sources of acquisition of assets specified therein.”
10Section (2A) omitted by Finance Act 2017,the omitted section is read as under
“(2A) “Where a person, being an individual or an association of persons, files a return in response to a provisional assessment order under section 122C, such return shall be accompanied by wealth statement along with a wealth reconciliation statement and an explanation of source of acquisition of assets specified therein in the case of an individual and wealth statements of all members in the case of an association of persons and such wealth statements shall be accompanied by wealth reconciliation statements and explanation of source of acquisition of assets specified therein.”
11Added by the Finance Act, 2003.
12 Inserted by the Finance Act, 2013.

revised wealth statement,] 1[under intimation to the Commissioner in the prescribed form and manner,]at any time before 2[the receipt of notice under sub- section (9) of section 122, for the tax year to which it relates3[:]

Provided that where the Commissioner is of the opinion that the revision under this sub-section is not for the purpose of correcting a bona fide omission or wrong statement, he may declare such revision as void through an order in writing after providing an opportunity of being heard.

Explanation.- For the removal of doubt it is clarified that wealth statement cannot be revised after the expiry of five years from the due date of filing of return of income for that tax year.]
4[ ]
5[116A. Foreign income and assets statement.– (1) Every resident taxpayer being an individual having foreign income of not less than ten thousand United States dollars or having foreign assets with a value of not less than one hundred thousand United States dollars shall furnish a statement, hereinafter referred to as the foreign income and assets statement, in the prescribed form and verified in the prescribed manner giving particulars of—
(a) the person’s total foreign assets and liabilities as on the last day of the tax year;
(b) any foreign assets transferred by the person to any other person during the tax year and the consideration for the said transfer; and
(c) complete particulars of foreign income, the expenditure derived during the tax year and the expenditure wholly and necessarily for the purposes of deriving the said income.
(2) The Commissioner may by a notice in writing require any person being an individual who, in the opinion of the Commissioner on the basis of reasons to be recorded in writing, was required to furnish a foreign income and assets statement under sub-section (1) but who has failed to do so to furnish the foreign income and assets statement on the date specified in the notice.]

1The expressions inserted through Finance Act, 2020 dated 30th June, 2020
2The expression “an assessment, for the tax year to which it relates, is made under sub-section (1) or sub-section (4) of section 122”substituted by the Finance Act, 2017.
3Full stop substituted by colon and provision and explanation inserted through Finance Act, 2020
dated 30th June, 2020
4 Sub section (4) omitted through Finance Act, 2020 dated 30th June 2020 omitted sub-section read as follows;
(4) Every person (other than a company5 [or an association of persons])filing statement under
sub-section (4) of section 115, falling under final tax regime (FTR) 6 [ ] shall file a wealth statement along with reconciliation of wealth statement.]
5 Inserted by the Finance Act 2018.

117. Notice of discontinued business.— (1) Any person discontinuing a business shall give the Commissioner a notice in writing to that effect within fifteen days of the discontinuance.
(2) The person discontinuing a business shall, under the provisions of this Ordinance or on being required by the Commissioner by notice, in writing, furnish a return of income for the period commencing on the first day of the tax year in which the discontinuance occurred and ending on the date of discontinuance and this period shall be treated as a separate tax year for the purposes of this Ordinance.
(3) Where no notice has been given under sub-section (1) but the Commissioner has reasonable grounds to believe that a business has discontinued or is likely to discontinue, the Commissioner may serve a notice on the person who has discontinued the business or is likely to discontinue the business to furnish to the Commissioner within the time specified in the notice a return of income for the period specified in the notice.

(4) A return furnished under this section shall be treated for all purposes of this Ordinance as a return of income, including the application of Section 120.

118. Method of furnishing returns and other documents. — (1) A return of income under section 114, 1[ ] 2[ ] 3[,] a wealth statement under section 116 4[or a foreign income and assets statementunder 116A, if applicable] shall be furnished in the prescribed manner.

(2) A return of income 5[under section 114 6[ ] ] of a company shall be furnished —

(a) in the case of a company with a tax year ending any time between the first day of January and the thirtieth day of June, on or before the thirty-first day of December next following the end of the tax year to which the return relates; or

(b) in any other case, on or before the thirtieth day of September next following the end of the tax year to which the return relates.

1The words, figure and comma “an employer’s certificate under section 115,” omitted by the Finance Act, 2013.
2The expressions “ a statement required under sub-section (4) of section 115” omitted through Finance Act, 2020 dated 30th June, 2020
3The word ‘or” substituted by Finance Act, 2018
4 Inserted by the Finance Act, 2018.
5Inserted by the Finance Act, 2003.
6 The expressions “or a statement required under sub-section (4) of section 115” omitted through Finance Act, 2020 dated 30th June, 2020

1[(2A) Where salary income for the tax year is five hundred thousand rupees or more, the taxpayer shall file return of income electronically in the prescribed form and it shall be accompanied by the proof of deduction or payment of tax and wealth statement as required under section 116 2[or a foreign income and assets statement under 116A, if applicable”] ] 3[:]

4[“Provided that the Board may amend the condition specified in this sub-section or direct that the said condition shall not apply for a tax year.”;]

5[ * ]

6[(3) A return of income for any person (other than a company) 7[ ] 8[ ] shall be furnished as per the following schedule, namely:—

9[(a) in the case of 10[ ] a return required to be filed through e-portal in the case of a salaried individual, on or before the 11[30th day

1Inserted by the Finance Act, 2013.
2Added the Finance Act, 2018. 3Substituted by Finance Act, 2015 4Substituted by Finance Act, 2015
5Inserted by the S.R.O. 791(I)/2015 dated 10.08.2015. “ *Notification
In exercise of the powers conferred by the proviso to sub-section (2A) of section 118 of the Income Tax
Ordinance, 2001 (XLIX of 2001), the Federal Government is pleased to direct that all individuals earning taxable salary income shall be liable to file their Income Tax returns electronically from Tax Year 2015 onwards. The condition of five hundred thousand rupees or more, as provided in the said sub-section shall not be applicable until further orders.”]
6Sub-section (3) substituted by the Finance Act, 2010. The substituted sub-section (3) read as follows: “(3) A return of income for any person (other than a company), an employer certificate of an individual or a statement required under sub-section (4) of section 115 shall be furnished on or before the thirtieth day of September next following the end of the tax year to which the return, certificate or
statement relates.”
7The words and comma “an Annual Statement of deduction of income tax from salary, filed by the employer of an individual” omitted by the Finance Act, 2013.
8 The expressions “or a statement required under sub-section (4) of section 115” omitted through
Finance Act, 2020 dated 30th June, 2020
9Clause (a) substituted by the Finance Act, 2013. The substituted clause (a) read as follows:
“(a) in the case of an Annual statement of deduction of income tax from salary, filed by the employer of an individual, return of income through e-portal in the case of a salaried person or a statement required under sub-section (4) of section 115, on or before the 31st day of August next following the end of the tax year to which the return, Annual Statement of deduction of income tax from salary, filed by the employer or statement relates.”
10 The expression “a statement required under sub-section (4) of section 115 or” omitted through Finance Act, 2020 dated 30th June, 2020
11The expression “31stday of August” substituted through Finance Act, 2019.

of September] next following the end of the tax year to which the statement or return relates; or]

(b) in the case of a return of income for any person (other than a company), as described under clause (a), on or before the 30th day of September next following the end of the tax year to which the return relates.]

(4) A wealth statement shall be furnished by the due date specified in the notice requiring the person to furnish such statement or, where the person is required to furnish the wealth statement for a tax year under sub-section (2) of section 116, by the due date for furnishing the return of income for that year.

(5) A return required to be furnished by a notice issued under section 117 shall be furnished by the due date specified in the notice.
(6) Where a taxpayer is not borne on the National Tax Number Register and fails to file an application in the prescribed form and manner with the taxpayer’s return of income 1[ ], such return 2[ ] shall not be treated as a return 3[ ] furnished under this section.

119. Extension of time for furnishing returns and other documents.— (1) A person required to furnish —

(a) a return of income under section 114 or 117;

4[ ]

5[ ]

(d) a wealth statement under section 116,

may apply, in writing, to the Commissioner for an extension of time to furnish the return, 6[ ] or statement, as the case may be.

 

1The words “or employer’s certificate” omitted by the Finance Act, 2013.
2The words “or certificate” omitted by the Finance Act, 2013.
3The words “or certificate” omitted by the Finance Act, 2013.
4 Clause (b) omitted by the Finance Act, 2013. The omitted clause (b) read as follows: “(b) an employer’s certificate under section 115;”
5 Clause (c) omitted through Finance Act, 2020 dated 30th June, 2020 the omitted clause read as follows:” (c) a statement required under sub-section (4) of section 115; or”.
6The word and comma “certificate,” omitted by the Finance Act, 2013.

(2) An application under sub-section (1) shall be made by the due date for furnishing the return of income, 1[ ] or 2[ ] statement to which the application relates.
(3) Where an application has been made under sub-section (1) and the Commissioner is satisfied that the applicant is unable to furnish the return of income, 3[ ] or 4[ ] statement to which the application relates by the due date because of —

(a) absence from Pakistan;
(b) sickness or other misadventure; or
(c) any other reasonable cause,
the Commissioner may, by 5[order], in writing, grant the applicant an extension of time for furnishing the return, 6[ ] or statement, as the case may be.
(4) An extension of time under sub-section (3) should not exceed fifteen days from the due date for furnishing the return of income, employer’s certificate, or 7[ ] statement, as the case may be, unless there are exceptional circumstances justifying a longer extension of time8[:]
9[Provided that where the Commissioner has not granted extension for furnishing return under sub-section (3) or sub-section (4), the Chief Commissioner may on an application made by the taxpayer for extension or further extension, as the case may be, grant extension or further extension for a period not exceeding fifteen days unless there are exceptional circumstances justifying a longer extension of time.]
10[ ]

 

 

1The words and comma “employer’s certificate,” omitted by the Finance Act, 2013.
2The word “wealth” omitted by the Finance Act, 2002
3The words and comma “employer’s certificate,” omitted by the Finance Act, 2013.
4 The word “wealth” omitted by the Finance Act, 2002
5 Substituted for the word “notice” by the Finance Act, 2002
6The word and comma “certificate,” omitted by the Finance Act, 2013.
7The word “wealth” omitted by the Finance Ordinance, 2002
8Full stop substituted by the Finance Act, 2017.
9Added by the Finance Act, 2017.
10Sub-section (5) omitted by the Finance Act, 2002. The omitted sub-section (5) read as follows:
“(5) An applicant dissatisfied with a decision under sub-section (3) may challenge the decision only under the Part III of this Chapter.”

(6) An extension of time granted under sub-section (3) shall not 1[, for the purpose of charge of 2[default surcharge]under sub-section (1) of section 205,]change the due date for payment of income tax under section 137.

PART II
ASSESSMENTS

3[120. Assessments.—(1) Where a taxpayer has furnished a complete return of income (other than a revised return under sub-section (6) of section 114) for a tax year ending on or after the 1st day of July, 2002,—

(a) the Commissioner shall be taken to have made an assessment of taxable income for that tax year, and the tax due thereon 4[ ]
; and
(b) the return shall be taken for all purposes of this Ordinance to be an assessment order issued to the taxpayer by the Commissioner on the day the 5[ ] 6[return was furnished] 7[:

Provided that until the date specified under the fourth proviso to sub-section (2A) is notified, this subsection shall be in force as if sub-section (2A) is not in operation:

1 Inserted by the Finance Act, 2002
2The words “additional tax” substituted by the Finance Act, 2010. The substituted provision has been made effective from 05.06.2010 by sub-clause (77) of clause 8 of the Finance Act, 2010. Earlier the substitution was made through Finance (Amendment) Ordinance, 2009 which was re-promulgated as Finance (Amendment) Ordinance, 2010 and remained effective till 05.06.2010.
3 Section 120 substituted by the Finance Act, 2003. The substituted section 120 read as follows: “120. Assessments.- Where a taxpayer has furnished a return of income (other than a revised return under sub-section (6) of section 114) for a tax year ending on or after the 1st day of July, 2002, –
(a) the Commissioner shall be taken to have made an assessment of the taxable income of the taxpayer for the year and the tax due thereon, equal to those respective amounts specified in the return; and
(b) the taxpayer’s return shall be taken for all purposes of this Ordinance to be an assessment order issued to the taxpayer by the Commissioner on the day the return was furnished.”
4 The expression “, equal to the respective amounts adjusted under sub-section (2A)” omitted by the Finance Act, 2021. Earlier this omission was made through Income Tax (Amendment) Ordinance, 2021.
5 The expressions “return was furnished” substituted through Finance Act, 2020
6 The expression “adjustments were made under sub-section (2A)” substituted by the Finance Act, 2021. ” substituted by the Finance Act, 2021. Earlier the substitution was made through Income Tax (Amendment) Ordinance, 2021.
7 Full stop substituted and provisos added by the Finance Act, 2021. Earlier the substitution and addition was made through Income Tax (Amendment) Ordinance, 2021.

Provided further that once the date under the fourth proviso to sub-section (2A) is notified, clauses (a) and (b) shall only apply when the provisions of sub-section (2A), if invoked, are first complied with:

Provided further once compliance is made under the second proviso,—
(i) the adjusted amount under sub-section (2A) shall be construed to be the tax payable and due under clause (a); and

(ii) the date of the compliance under sub-section (2A) shall be the date for the purposes of clause (b).]

1[(1A) Notwithstanding the provisions of sub-section (1), the Commissioner may 2[conduct audit of the income tax affairs of a person] under section 177 and all the provisions of that section shall apply accordingly.]
(2) A return of income shall be taken to be complete if it is in accordance with the provisions of sub-section (2) of section 114.

3[(2A) A return of income furnished under sub-section (2) of section 114 shall be processed through automated system to arrive at correct amounts of total income, taxable income and tax payable by making adjustments for-

(i) any arithmetical error in the return;

(ii) any incorrect claim, if such incorrect claim is apparent from any information in the return;
(iii) disallowance of any loss, deductible allowance or tax credit under Parts VIII, IX and X respectively of Chapter III; and

(iv) disallowance of carry forward of any loss under clause (b) of sub- section (I)of section 182A:

 

1 Inserted by the Finance Act, 2005.
2The words “select a person for an audit of his income tax affairs” substituted by the Finance Act, 2010. The substituted provision has been made effective from 05.06.2010 by sub-clause (77) of clause 8 of the Finance Act, 2010. Earlier the substitution was made through Finance (Amendment) Ordinance, 2009 which was re-promulgated as Finance (Amendment) Ordinance, 2010 and remained effective till 05.06.2010.
3New sub-section (2A) inserted through Finance Act, 2020 dated 30th June, 2020

Provided that no such adjustments shall be made unless a system generated notice is given to the taxpayer specifying the adjustments intended to be made:

Provided further that the response received from the taxpayer, if any, shall be considered before making any adjustment, and in a case where no response is received within thirty days of the issue of such notice, adjustments shall be made.

Provided also that where no such adjustments have been made within six month of filing of return, the amounts specified in the return as declared by the taxpayer shall be deemed to have been taken as adjusted amounts on the day the return was filed and the taxpayer shall be intimated automatically through Iris] 1[:

Provided also that the provisions of this sub-section shall apply from the date notified by the Federal Board of Revenue in the official Gazette.]

(3) Where the return of income furnished is not complete, the Commissioner shall issue a notice to the taxpayer informing him of the deficiencies (other than incorrect amount of tax payable on taxable income, as specified in the return, or short payment of tax payable) and directing him to provide such information, particulars, statement or documents by such date specified in the notice.

(4) Where a taxpayer fails to fully comply, by the due date, with the requirements of the notice under sub-section (3), the return furnished shall be treated as an invalid return as if it had not been furnished.
(5) Where, in response to a notice under sub-section (3), the taxpayer has, by the due date, fully complied with the requirements of the notice, the return furnished shall be treated to be complete on the day it was furnished and the provisions of sub-section (1) shall apply accordingly.
(6) No notice under sub-section (3) shall be issued after the 2[expiry of one hundred and eighty days from the end of the financial year in which return was furnished], and the provisions of sub-section (1) shall apply accordingly.]

3[(7) For the purposes of this section,-

1 Full stop substituted and proviso added by the Finance Act, 2021. Earlier the substitution and addition was made through Income Tax (Amendment) Ordinance, 2021.
2The words “end of the financial year in which return was furnished” the Finance Act, 2012.
3 New sub-section 7 added through Finance Act, 2020

 

 

 

 

 

1[ ]

(a) “arithmetical error” includes any wrong or incorrect calculation of tax payable including any minimum or final tax payable.
(b) “an incorrect claim apparent from any information in the return” shall mean a claim, on the basis of an entry, in the return,-
(i) of an item, which is inconsistent with another entry of the same or some other item in such return;
(ii) regarding any tax payment which is not verified from the collection system; or
(iii) in respect of a deduction, where such deduction exceeds specified statutory limit which may have been expressed as monetary amount or percentage or ratio or fraction.]

2[120B. Restriction of proceedings.- (1) Where any person entitled to declare undisclosed assets, expenditure and undisclosed sales under the Assets Declaration Act, 2019 declares such assets, expenditures or sales to pay tax, no proceedings shall be undertaken under this Ordinance in respect of such declaration.
(2) Notwithstanding anything contained in any other law, for the time being in force, sub-section (3) of section 216, except the provisions of clauses (a) and (g) of sub-section (3) of section 216, particulars of the persons making declaration under the Assets Declaration Act, 2019 or any information received in any declaration made under the said Act shall be confidential.]

 

1 Section 120A omitted by the Finance Act, 2013. The omitted section 120A read as follows: “120A.Investment Tax on income.— (1) Subject to this Ordinance, the Board may make a scheme of payment of investment tax in respect of undisclosed income, representing any amount or investment made in movable or immovable assets.
(2) Where any person declares undisclosed income under sub-section (1) in accordance with the scheme and the rules, the tax on such income called investment tax shall be charged at such rate as may be prescribed.
(3) Where a person has paid tax on his undisclosed income in accordance with the scheme and the rules, he shall –
(a) be entitled to incorporate in his books of account such undisclosed income in tangible form; and
(b) not be liable to pay any tax, charge, levy, penalty or prosecution in respect of such income under this Ordinance.
(4) For the purposes of this section —
(i) “undisclosed income” means any income, including any investment to be deemed as income under section 111 or any other deemed income, for any year or years, which was chargeable to tax but was not so charged; and
(ii) “investment tax” means tax chargeable on the undisclosed income under the scheme under sub-section (1) and shall have the same meaning as given in clause
(63) of section 2 of the Income Tax Ordinance, 2001.”
2New Section (120B) inserted though Finance Act, 2019.

1[121. Best judgement assessment.— (1) Where a person fails to —
2[ ]

3[ ]

4[(ab) furnish return of income in response to notice under sub- section (3) or sub-section (4) of section 114; or”;]

(b) furnish a return as required under section 143 or section 144; or

(c) furnish the statement as required under section 116; or

(d) produce before the Commissioner, or 5[a special audit panel appointed under sub-section (11) of section 177 or]any person employed by a firm of chartered accountants 6[or a firm of cost and management accountants] under section 177, accounts, documents and records required to be maintained under section 174, or any other relevant document or evidence that may be required by him for the purpose of making assessment of income and determination of tax due thereon,

 

1Section 121 substituted by the Finance Act, 2003. The substituted section 121 read as follows:
“121. Assessment of persons who have not furnished a return.- (1) Where a person required by the Commissioner through a notice] to furnish a return of income for a tax year fails to do so by the due date, the Commissioner may, based on any available information and to the best of the Commissioner’s judgement, make an assessment of the taxable income of the person and the tax due thereon for the year.
(2) As soon as possible after making an assessment under this section, the Commissioner shall issue, in writing, an assessment order to the taxpayer stating –
(a) the taxable income of the taxpayer for the year;
(b) the amount of tax due;
(c) the amount of tax paid, if any; and
(d) the time, place, and manner of appealing the assessment order.
(3) An assessment order shall only be issued within five years after the end of the tax year, or the income year, to which it relates.”
2Omitted by the Finance Act, 2010. The omitted clause (a) read as follows:
“(a) furnish a return of income as required by a notice under sub-section (3) or sub-section (4) of section 114; or
3Clause “(aa)” omitted through Finance Act, 2020 dated 30th June, 2020 the omitted clause read as follows: “(aa) furnish a statement as required by a notice under sub-section (5) of section 115; or” 4Inserted by the Finance Act, 2017.
5Inserted by the Finance Act, 2015
6 Inserted by the Finance Act, 2010.

the Commissioner may, based on any available information or material and to the best of his judgement, make an assessment of the taxable income 1[or income] of the person and the tax due thereon 2[and the assessment, if any, treated to have been made on the basis of return or revised return filed by the taxpayer shall be of no legal effect].

(2) As soon as possible after making an assessment under this section, the Commissioner shall issue the assessment order to the taxpayer stating—

(a) the taxable income;
(b) the amount of tax due;
(c) the amount of tax paid, if any; and
(d) the time, place and manner of appealing the assessment order.

(3) An assessment order under this section shall only be issued within
3[six] years after the end of the tax year or the income year to which it relates 4[:]

5[Provided that where notice for furnishing a return of income under sub-section (4) of section 114 is issued in respect of one or more of the last ten completed tax years in pursuance of proviso to sub-section (5) of section 114 an assessment order under this section shall only be issued within two years from the end of tax year in which such notice is issued.]

122. Amendment of assessments.— (1) Subject to this section, the Commissioner may amend an assessment order treated as issued under section 120 or issued under section 1216[, 7[ ] 8[or 9[ ], by making such alterations or additions as the Commissioner considers necessary 10[ ].

11[(2) No order under sub-section (1) shall be amended by the Commissioner after the expiry of five years from the end of the financial year in

1Inserted by the Finance Act, 2010.
2Inserted by the Finance Act, 2012.
3 The word “five” substituted by the Finance Act, 2022.
4Full stop substituted by the Finance Act 2018.
5Added by the Finance Act, 2018.
6 Inserted by the Finance Act, 2012.
7The expression “or issued under section 122C,”omitted by the Finance Act, 2017
8 Inserted by the Finance Act, 2002
9The words, commas and the figures “issued under section 59, 59A, 62, 63 or 65 of the repealed Ordinance “ omitted by the Finance Act, 2012.
10The words “to ensure that the taxpayer is liable for correct amount of tax for the tax year to which the assessment order relates” omitted by the Finance Act, 2003.
11Sub-section (2) substituted by the Finance Act, 2009. The substituted sub-section (2) read as follows:

which the Commissioner has issued or treated to have issued the assessment order to the taxpayer.]

(3) Where a taxpayer furnishes a revised return under sub-section (6) 1[or (6A)] of section 114 —

(a) the Commissioner shall be treated as having made an amended assessment of the taxable income and tax payable thereon as set out in the revised return; and

(b) the taxpayer’s revised return shall be taken for all purposes of this Ordinance to be an amended assessment order issued to the taxpayer by the Commissioner on the day on which the revised return was furnished.

(4) Where an assessment order (hereinafter referred to as the “original assessment”) has been amended under sub-section (1) 2[,] (3) 3[or (5A)], the Commissioner may further amend,4[as many times as may be necessary,] the original assessment within the later of —
(a) five years 5[from the end of the financial year in which] the Commissioner has issued or is treated as having issued the original assessment order to the taxpayer; or
(b) one year 6[from the end of the financial year in which] the Commissioner has issued or is treated as having issued the amended assessment order to the taxpayer.

 

 

 

“(2) An assessment order shall only be amended under subsection (1) within five years after the Commissioner has issued or is treated as having issued the assessment order on the taxpayer.”
1 Substituted by the Finance Act, 2010. The substituted provision has been made effective from 05.06.2010 by sub-clause (77) of clause 8 of the Finance Act, 2010. Earlier the substitution was made through Finance (Amendment) Ordinance, 2009 which was re-promulgated as Finance (Amendment) Ordinance, 2010 and remained effective till 05.06.2010.
2The word “or” substituted by the Finance Act, 2010.
3 Inserted by the Finance Act, 2010. Amendment made in sub-section (4) has been validated through sub-clause (18)(b) of clause (8) of Finance Act, 2010, with effect from the first day of July, 2003.
4Inserted by the Finance Act, 2002
5The word “after” substituted by the Finance Act, 2009.
6The word “after” substituted by the Finance Act, 2009.

1[(4A) In respect of an assessment made under the repealed Ordinance, nothing contained in sub-section (2) or, as the case may be, sub-section (4) shall be so construed as to have extended or curtailed the time limit specified in section 65 of the aforesaid Ordinance in respect of an assessment order passed under that section and the time-limit specified in that section shall apply accordingly.]

2[(5) An assessment order in respect of tax year, or an assessment year, shall only be amended under sub-section (1) and an amended assessment for that year shall only be further amended under sub-section (4) where, on the basis of 3[audit or on the basis of definite information] the Commissioner is satisfied that —
(i) any income chargeable to tax has escaped assessment; or

(ii) total income has been under-assessed, or assessed at too low a rate, or has been the subject of excessive relief or refund; or

(iii) any amount under a head of income has been mis-classified.]

4[(5A) Subject to sub-section (9), the Commissioner may 5[, ] 6[ ] amend, or further amend, an assessment order, if he considers that the assessment order is erroneous in so far it is prejudicial to the interest of revenue.]

1Inserted by the Finance Act, 2003. Earlier sub-section (4A) was inserted by S.R.O. 633(I)/2002, dated 14.09.2002 which stands rescinded by SRO 608(I)/2003, dated 24.06.2003 with effect from 01.07.2003. The said sub-section (4A) read as follows:
“(4A) An amended assessment shall only be made within six years of the date of original assessment.”
2 Sub-section (5) substituted by the Finance Act, 2003. The substituted sub-section (5) read as follows: “(5) An assessment order shall only be amended under sub-section (1) and an amended
assessment shall only be amended under subsection (4) where the Commissioner –
(a) is of the view that this Ordinance or the repealed Ordinance] has been incorrectly applied in making the assessment (including the misclassification of an amount under a head of income, incorrect payment of tax with the return of income, an incorrect claim for tax relief or rebate, an incorrect claim for exemption of any amount or an incorrect claim for a refund); or
(b) has definite information acquired from an audit or otherwise that the income has been concealed or inaccurate particulars of income have been furnished or the assessment is otherwise incorrect.”
3Expressions “definite information acquired from an audit or otherwise,” substituted through Finance Act, 2020 dated 30th June, 2020
4Inserted by the Finance Act, 2003. Earlier sub-section (5A) was inserted by S.R.O. 633(I)/2002, dated
14.09.2002 which stands rescinded by SRO 608(I)/2003, dated 24.06.2003 with effect from 01.07.2003. The said sub-section (5A) read as follows:
“(5A) Where a person does not produce accounts and records, or details of expenditure, assets and liabilities or any other information required for the purposes of audit under section177, or does not file wealth statement under section 116, the Commissioner may, based on any available information and to the best of Commissioner’s judgement; make an amended assessment.”
5Added by Finance Act, 2012.
6 The expression “after making, or causing to be made, such enquiries as he deems necessary,” omitted by the Finance Act, 2021.

1[(5AA) In respect of any subject matter which was not in dispute in an appeal the Commissioner shall have and shall be deemed always to have had the powers to amend or further amend an assessment order under sub-section (5A).]

2[(5B) Any amended assessment order under sub-section (5A) may be passed within the time-limit specified in sub-section (2) or sub-section (4), as the case may be.]

(6) As soon as possible after making an amended assessment under 3[sub- section (1), sub-section (4) or sub-section (5A)], the Commissioner shall issue an amended assessment order to the taxpayer stating –

(a) the amended taxable income of the taxpayer;
(b) the amended amount of tax due;
(c) the amount of tax paid, if any; and
(d) the time, place, and manner of appealing the amended assessment.
(7) An amended assessment order shall be treated in all respects as an assessment order for the purposes of this Ordinance, other than for the purposes of sub-section (1).

(8) For the purposes of this section, “definite information” includes information on sales or purchases of any goods made by the taxpayer, 4[receipts of the taxpayer from services rendered or any other receipts that may be chargeable to tax under this Ordinance,]and on the acquisition, possession or disposal of any money, asset, valuable article or investment made or expenditure incurred by the taxpayer.

5[(9) No assessment shall be amended, or further amended, under this section unless the taxpayer has been provided with an opportunity of being heard] 6[:

Provided that order under this section shall be made within one hundred and 7[eighty] days of issuance of show cause notice or within such extended period as the Commissioner may, for reasons to be recorded in writing, so however, such extended period shall in no case exceed ninety days. This proviso shall be applicable to a show cause notice issued on or after the first day of July, 2021.

1Added by the Finance Act, 2010.
2Inserted by the Finance Act, 2003.
3The words, brackets and figures “sub-section (1) or (4)” substituted by the Finance Act, 2003.
4Inserted by the Finance Act, 2002
5Added by the Finance Act, 2002
6 Full stop substituted and two provisos added by the Finance Act, 2021.
7 The word “twenty” substituted by the Finance Act, 2022.

Provided further that any period during which the proceedings are adjourned on account of a stay order or Alternative Dispute Resolution proceedings or agreed assessment proceedings under section 122D or the time taken through adjournment by the taxpayer not exceeding sixty days shall be excluded from the computation of the period specified in the first proviso.]

1[122A. Revision by the Commissioner.—(1) The Commissioner may 2[ 3[, suomoto,]
] call for the record of any proceeding under this Ordinance or under the repealed Ordinance in which an order has been passed by any 4[Officer of Inland Revenue]other than the Commissioner (Appeals).

(2) Subject to sub-section (3), where, after making such inquiry as is necessary, Commissioner considers that the order requires revision, the Commissioner may 5[suomoto] make such revision to the order as the Commissioner deems fit.

(3) An order under sub-section (2) shall not be prejudicial to the person to whom the order relates.

(4) The Commissioner shall not revise any order under sub-section (2) if—

(a) an appeal against the order lies to the Commissioner (Appeals) or to the Appellate Tribunal, the time within which such appeal may be made has not expired; or

(b) the order is pending in appeal before the Commissioner (Appeals) or has been made the subject of an appeal to the Appellate Tribunal.]

6[(5) If any order is remanded back to any lower authority by the Commissioner for modification, alteration, implementation of directions or de novo proceedings, the order giving effect to the directions of the Commissioner shall be issued within one hundred and twenty days.]

7[122B. Revision by the 8[Chief Commissioner].—(1) The 9[Chief Commissioner] may, either of his own motion or on an application made by the taxpayer for

1Added by the Finance Act, 2003.
2Inserted by the Finance Act, 2004.
3The word “suomoto” substituted by the Finance Act, 2005.
4The words “Taxation Officer” substituted by the Finance Act, 2010. The substituted provision has been made effective from 05.06.2010 by sub-clause (77) of clause 8 of the Finance Act, 2010. Earlier the substitution was made through Finance (Amendment) Ordinance, 2009 which was re-promulgated
as Finance (Amendment) Ordinance, 2010 and remained effective till 05.06.2010.
5Words added by Finance Act, 2004.
6 Added by the Finance Act, 2021.
7 Added by the Finance Act, 2006.
8 The words “Regional Commissioner” Substituted by “Chief Commissioner” by Finance Act, 2014.
9The words “Regional Commissioner” Substituted by “Chief Commissioner” by Finance Act, 2014.

revision, call for the record of any proceedings relating to issuance of an exemption or lower rate certificate with regard to collection or deduction of tax at source under this Ordinance, in which an order has been passed by any authority subordinate to him.

(2) Where, after making such inquiry as is necessary, 1[Chief Commissioner] considers that the order requires revision, the 2[Chief Commissioner] may, after providing reasonable opportunity of being heard to the taxpayer, make such order as he may deem fit in the circumstances of the case.]

3[4[ ] ]

1The words “Regional Commissioner” Substituted by “Chief Commissioner” by Finance Act, 2014
2 The words “Regional Commissioner” Substituted by “Chief Commissioner” by Finance Act, 2014
3Substituted by the Finance Act, 2010. The substituted provision has been made effective from 05.06.2010 by sub-clause (77) of clause 8 of the Finance Act, 2010. Earlier the substitution was made through Finance (Amendment) Ordinance, 2009 which was re-promulgated as Finance (Amendment) Ordinance, 2010 and remained effective till 05.06.2010. The substituted section “122C” read as follows:
“122C. Provisional assessment. — (1) Where in response to a notice under sub-section (3) or sub-section
(4) of section 114 a person fails to furnish return of income for any tax year, the Commissioner may, based on any available information or material and to the best of his judgment, make a provisional assessment of the taxable income of the person and issue a provisional assessment order specifying the taxable income assessed and the tax due thereon.
(2) Notwithstanding anything contained in this Ordinance, the provisional assessment completed under sub-section (1) shall be treated as the final assessment after the expiry of sixty days from the date of service of order of provisional assessment and the provisions of this Ordinance shall apply accordingly:
Provided that the provisions of sub-section (2) shall not apply if return of income along with wealth statement, wealth reconciliation statement and other documents required under sub-section (2A) of section 116 are filed by the person for the relevant tax year during the said period of sixty days.”
4Section 122C omitted by Finance Act 2017,the omitted section 122C is read as under:
“122C. Provisional assessment.— (1) Where in response to a notice under sub-section (3) or sub-section (4) of section 114 a person fails to furnish return of income for any tax year, the Commissioner may, based on any available information or material and to the best of his judgment, make a provisional assessment of the taxable income or income of the person and issue a provisional assessment order specifying the taxable income or income assessed and the tax due thereon.
(2) Notwithstanding anything contained in this Ordinance, the provisional assessment order completed under sub-section (1) shall be treated as the final assessment order after the expiry of 4[forty-five] days from the date of service of order of provisional assessment and the provisions of this Ordinance shall apply accordingly:
4[“Provided that the provisions of this sub-section shall not apply, if—
(a) return of income along with wealth statement, wealth reconciliation statement and other documents required under sub-section (2A) of section 116 are filed by the person being an individual or an association of persons for the relevant tax year during the said period of forty- five days; and
(b) the individual or an association of persons presents accounts and documents for conducting audit of income tax affairs for that tax year:
Provided further that the provisions of sub-section (2) shall not apply—
(a) to a company, if return of income tax alongwith audited accounts or final accounts, as the case may be, for the relevant tax year are filed by the company electronically during the said period of forty-five days; and
(b) if the company presents accounts and documents for conducting audit of its income tax affairs for that tax year.”

1[122D. Agreed assessment in certain cases.- (1) Where a taxpayer, in response to a notice under sub-section (9) of section 122, intends to settle his case, he may file offer of settlement in the prescribed form before the assessment oversight committee, hereinafter referred to as the Committee, in addition to filing reply to the Commissioner.

(2) The Committee after examining the aforesaid offer may call for the record of the case and after affording opportunity of being heard to the taxpayer, may decide to accept or modify the offer of the taxpayer through consensus and communicate its decision to the taxpayer.

(3) Where the taxpayer is stratified with the decision of the Committee,-

(a) the taxpayer shall deposit the amount of tax payable including any amount of penalty and default surcharge as per decision of the Committee;

(b) the Commissioner shall amend assessment in accordance with the decision of the Committee after tax payable including any amount of penalty and default surcharge as per decision of the Committee has been paid;
(c) the taxpayer shall waive the right to prefer appeal against such amended assessment; and
(d) no further proceedings shall be undertaken under this Ordinance in respect of issues decided by the Committee unless the tax as per clause
(c) has not been deposited by the taxpayer.

(4) Where the Committee has not been able to arrive at a consensus or where the taxpayer is not satisfied with the decision of the Committee, the case shall be referred back to the Commissioner for decision on the basis of reply of the taxpayer in response to notice under sub-section (9) of section 122 notwithstanding proceedings or decision, if any, of the Committee.

(5) The Committee shall comprise the following income tax authorities having jurisdiction over the taxpayer, namely:-

(a) the Chief Commissioner Inland Revenue;
(b) the Commissioner Inland Revenue; and
(c) the Additional Commissioner Inland Revenue.
(6) This section shall not apply in cases involving concealment of income or where interpretation of question of law is involved having effect on other cases.

1 New Section 122D inserted through Finance Act, 2020 dated 30th June, 2020

(7) The Board may make rules regulating the procedure of the Committee and for any matter connected with, or incidental to the proceedings of the Committee.]

123. Provisional assessment in certain cases.— (1) Where a concealed asset of any person is impounded by any department or agency of the Federal Government or a Provincial Government, the Commissioner may, at any time before issuing any assessment order under section 121 or any amended assessment order under section 122, issue to the person a provisional assessment order or provisional amended assessment order, as the case may be, for the last completed tax year of the person taking into account the concealed asset.
1[(1A) Where an offshore asset of any person, not declared earlier, is discovered by the Commissioner or any department or agency of the Federal Government or a Provincial Government, the Commissioner may at any time before issuing any assessment order under section 121 or amended assessment order under section 122, issue to the person a provisional assessment order or provisional amended assessment order, as the case may be, for the last completed tax year of the person taking into account the offshore asset discovered.]
(2) The Commissioner shall finalise a provisional assessment order or a provisional amended assessment order as soon as practicable 2[ ].
(3) In this section, “concealed asset” means any property or asset which, in the opinion of the Commissioner, was acquired from any income subject to tax under this Ordinance.
124. Assessment giving effect to an order. — (1) Except where sub-section
(2) applies, where, in consequence of, or to give effect to, any finding or direction in any order made under Part III of this Chapter by the Commissioner (Appeals), Appellate Tribunal, High Court, or Supreme Court an assessment order or amended assessment order is to be issued to any person, the Commissioner shall issue the order within two years from the end of the financial year in which the order of the Commissioner (Appeals), Appellate Tribunal, High Court or Supreme Court, as the case may be, was served on the Commissioner.

(2) Where, by an order made under Part III of this Chapter by the 3[ ] Appellate Tribunal, High Court, or Supreme Court, an assessment order is set aside 4[wholly or partly,] and the Commissioner 5[or Commissioner (Appeals), as

1 New subsection 1A inserted through Finance Supplementary (Second Amendment) Act, 2019
2 The words “after making it” omitted by the Finance Act, 2003.
3 The words “Commissioner (Appeals)” omitted by the Finance Act, 2010.
4Inserted by the Finance Act, 2003.
5Inserted by the Finance Act, 2008.

the case may be,] is directed to 1[pass] a new assessment order, the Commissioner 2[or Commissioner (Appeals), as the case may be,] shall 3[pass] the new order within 4[one year from the end of the financial year in which] the Commissioner 5[or Commissioner (Appeals), as the case may be,] is served with the order 6[:]

7[Provided that limitation under this sub-section shall not apply, if an appeal or reference has been preferred, against the order 8[ ], passed by 9[ ] Appellate Tribunal or a High Court.]

(3) Where an assessment order has been set aside or modified, the proceedings may commence from the stage next preceding the stage at which such setting aside or modification took place and nothing contained in this Ordinance shall render necessary the re-issue of any notice which had already been issued or the re-furnishing or re-filing of any return, statement, or other particulars which had already been furnished or filed.

(4) Where direct relief is provided in an order under section 129 or 132, the Commissioner shall issue appeal effect orders within two months of the date the Commissioner is served with the order.

(5) Where, by any order referred to in sub-section (1), any income is excluded —
(a) from the computation of the taxable income of a taxpayer for any year and held to be included in the computation of the taxable income of the taxpayer for another year; or
(b) from the computation of the taxable income of one taxpayer and held to be included in the computation of the taxable income of another taxpayer,
the assessment or amended assessment relating to that other tax year or other taxpayer, as the case may be, shall be treated as an assessment or amended

1The word “make” substituted by the Finance Act, 2010.
2Inserted by the Finance Act, 2008.
3The word “make” substituted by the Finance Act, 2010.
4 The words “six months from the date” substituted by the Finance Act, 2002.
5Inserted by the Finance Act, 2008.
6 The full stop substituted by the Finance Act, 2005.
7Inserted by the Finance Act, 2005.
8 The words “setting aside the assessment” omitted by the Finance Act, 2010.
9 The words “a Commissioner (Appeals)” omitted by the Finance Act, 2010.

assessment to be made in consequence of, or to give effect to, a finding or direction contained in such order.
(6) Nothing in this Part shall prevent the issuing of an assessment order or an amended assessment order to give effect to an order made under Part III of this Chapter by the Commissioner (Appeals), Appellate Tribunal, High Court, or Supreme Court.
1[(7) The provisions of this section shall in like manner apply to any order issued by any High Court or the Supreme Court in exercise of original or appellate jurisdiction.]
2[124A. Powers of tax authorities to modify orders, etc.—(1) Where a question of law has been decided by a High Court or the Appellate Tribunal in the case of a taxpayer, on or after first day of July 2002, the Commissioner may, notwithstanding that he has preferred an appeal against the decision of the High Court or made an application for reference against the order of the Appellate Tribunal, as the case may be, follow the said decision in the case of the said taxpayer in so far as it applies to said question of law arising in any assessment pending before the Commissioner until the decision of the High Court or of the Appellate Tribunal is reversed or modified.
(2) In case the decision of High Court or the Appellate Tribunal, referred to in sub-section (1), is reversed or modified, the Commissioner may, notwithstanding the expiry of period of limitation prescribed for making any assessment or order, within a period of one year from the date of receipt of decision, modify the assessment or order in which the said decision was applied so that it conforms to the final decision.]
125. Assessment in relation to disputed property.— Where the ownership of any property the income from which is chargeable to tax under this Ordinance is in dispute in any Civil Court in Pakistan, an assessment order or amended assessment order in respect of such income may be issued at any time within one year after the end of the financial year in which the decision of the Court is made.

126. Evidence of assessment.— (1) The production of an assessment order or a certified copy of an assessment order shall be conclusive evidence of the due making of the assessment and, except in proceedings under Part III of this Chapter relating to the assessment, that the amount and all particulars of the assessment are correct.

(2) Any 3[order] of assessment or other document purporting to be made, issued, or executed under this Ordinance may not be –

1Added by the Finance Act, 2003.
2 Inserted by the Finance Act, 2002.
3The word “notice” substituted by the Finance Act, 2003.

(a) quashed or deemed to be void or voidable for want of form; or

(b) affected by reason of any mistake, defect, or omission therein,

if it is, in substance and effect, in conformity with this Ordinance and the person assessed, or intended to be assessed or affected by the document, is designated in it according to common understanding.

PART III
APPEALS

127. Appeal to the Commissioner (Appeals).—1[(1) Any person dissatisfied with any order passed by a Commissioner or an2[Officer of Inland Revenue] under 3[sub-section (2A) of section 120,] section 121,122, 143, 144, 4[162,] 170, 182, 5[ ] 6[or 205], or an order under sub-section (1) of section 161 holding a person to be personally liable to pay an amount of tax, or an order under clause (f) of sub-section (3) of section 172 7[declaring] a person to be the representative of a non-resident person [or an order giving effect to any finding or directions in any order made under this Part by the Commissioner (Appeals), Appellate Tribunal, High Court or Supreme Court], or an order under section 221 refusing to rectify the mistake, either in full or in part, as claimed by the taxpayer or an order having the effect of enhancing the assessment or reducing a refund or otherwise increasing the liability of the person 8[, 9[ 10[ ] ]may prefer an appeal to the Commissioner (Appeals) against the order.]
11[ ]

12[(2) No appeal under sub-section (1), shall be made by a taxpayer against an order of assessment unless the taxpayer has paid the amount of tax due under sub section (1) of section 137.]

1 Sub-section (1) substituted by the Finance Act, 2002. The substituted sub-section (1) read as follows: “(1) Any person dissatisfied with any proceeding under this Ordinance in which an order has
been issued by a Commissioner of Income Tax (other than the Commissioner (Appeals)) or a
taxation officer may prefer an appeal to the Commissioner (Appeals) against the order.”
2 The words “Taxation officer” substituted by the Finance Act, 2014.
3 The expressions inserted through Finance Act, 2020 dated 30th June, 2020
4Inserted by the Finance Act, 2004.
5 The figures and commas “183, 184, 185, 186, 187, 188 and 189” omitted by the Finance Act, 2010.
6The word and figure “or 189” substituted by the Finance Act, 2009.
7The word “treating” substituted by the Finance Act, 2003
8 Inserted by the Finance Act, 2011.
9The words “a provisional” substituted by the word “an” by the Finance Act, 2012.
10The expression “except an assessment order under section 122C,” omitted by the Finance Ordinance, 2017.
11 Sub-section (2) substituted by the Finance Ordinance, 2002. The substituted sub-section (2) read
as follows:
“No appeal may be made by a taxpayer against an assessment unless the amount of tax due under the assessment that is not in dispute and fifteen percent of the disputed tax has been paid by the taxpayer.”
12 Sub-section (2) substituted by the Finance Act, 2021. The substituted sub-section (2) read as follows: “(2) No appeal under sub-section (1), shall be made by a taxpayer against an order of
assessment unless the taxpayer has paid,—
(a) the amount of tax due under sub-section (1) of section 137 and

(3) An appeal under sub-section (1) shall —
(a) be in the prescribed form;
(b) be verified in the prescribed manner;
(c) state precisely the grounds upon which the appeal is made;
(d) be accompanied by the prescribed fee specified in sub-section (4); and
(e) be lodged with the Commissioner (Appeals) within the time set out in sub-section (5).

1[(3A) The Board may prescribe mechanism for electronic filing of the appeals.]
(4) The prescribed fee 2[shall be] —
3[(a) in the case of appeal against an assessment-

(i) where the appellant is a company, five thousand rupees; or

(ii) where the appellant is not a company, two thousand and five hundred rupees; or]

(b) in any other case —
(i) where the appellant is a company, 4[five] thousand rupees; or
(ii) where the appellant is not a company, 5[one thousand] rupees.

 

 

(b) no appeal under sub-section (1) shall be made by a taxpayer against] an order of assessment unless the taxpayer has paid the amount of tax due under sub-section (1) of section 137.”
1 Sub-section (3) inserted by the Finance Act, 2021.
2The word “is” substituted by the Finance Act, 2002
3 Clause (a) substituted through Finance Act, 2020 dated 30th June, 2020 the substituted clause read as follows: “(a) in the case of an appeal against an assessment, 3[one thousand rupees]3[ ]; or”
4 The word “one” substituted through Finance Act, 2020 dated 30th June, 2020
5 The word “two hundred” substituted through Finance Act, 2020 dated 30th June, 2020

1[(5) An appeal shall be preferred to the Commissioner (Appeals) within thirty days of the following—

(a) where the appeal relates to any assessment or penalty, the date of service of the notice of demand relating to the said assessment or penalty, as the case may be; and
(b) in any other case, the date on which the order to be appealed against is served.]
(6) The Commissioner (Appeals) may, upon application in writing by the appellant, admit an appeal after the expiration of the period specified in sub-section (5) if the Commissioner (Appeals) is satisfied that the appellant was prevented by sufficient cause from lodging the appeal within that period.
128. Procedure in appeal.— (1) The Commissioner (Appeals) shall give notice of the day fixed for the hearing of the appeal to the appellant and to the Commissioner against whose order the appeal has been made.
2[(1A) Where in a particular case, the Commissioner (Appeals) is of the opinion that the recovery of tax levied under this Ordinance, shall cause undue hardship to the taxpayer, he, after affording opportunity of being heard to the Commissioner against whose order appeal has been made, may stay the recovery of such tax for a period not exceeding thirty days in aggregate.]
3[“(1AA) The Commissioner (Appeals), after affording opportunity of being heard to the Commissioner against whose order appeal has been made, may stay the recovery of such tax for a further period of thirty days, provided that the order on appeal shall be passed within the said period of thirty days.”]
(2) The Commissioner (Appeals) may adjourn the hearing of the appeal from time to time.
(3) The Commissioner (Appeals) may, before the hearing of an appeal, allow an appellant to file any new ground of appeal not specified in the grounds of appeal already filed by the appellant where the Commissioner (Appeals) is satisfied that the omission of the ground from the form of the appeal was not wilful or unreasonable.

1Sub-section (5) substituted by the Finance Act, 2002. The substituted sub-section (5) read as follows: “
“(5) An appeal shall be lodged with the Commissioner (Appeals) –
(a) where the appeal relates to an assessment order, within thirty days of the date of service of the demand relating to the assessment; or
(b) in any other case, within thirty days of the date of service of the notice of the decision or determination appealed against.”
2Inserted by the Finance Act, 2012.

(4) The Commissioner (Appeals) may, before disposing of an appeal, call for such particulars as the Commissioner (Appeals) may require respecting the matters arising in the appeal or cause further enquiry to be made by the Commissioner.
(5) The Commissioner (Appeals) shall not admit any documentary material or evidence which was not produced before the Commissioner unless the Commissioner (Appeals) is satisfied that the appellant was prevented by sufficient cause from producing such material or evidence before the Commissioner.

129. Decision in appeal.— (1) In disposing of an appeal lodged under section 127, the Commissioner (Appeals) may –

1[(a) make an order to confirm, modify or annul the assessment order after examining such evidence as required by him respecting the matters arising in appeal or causing such further enquires to be made as he deems fit; or]

(b) in any other case, make such order as the Commissioner (Appeals) thinks fit.

(2) The Commissioner (Appeals) shall not increase the amount of any assessment order or decrease the amount of any refund unless the appellant has been given a reasonable opportunity of showing cause against such increase or decrease, as the case may be.

(3) Where, as the result of an appeal, any change is made in the assessment of an association of persons or a new assessment of an association of persons is ordered to be made, the Commissioner (Appeals) may authorise the Commissioner to amend accordingly any assessment order made on a member of the association and the time limit in sub-section (2) of section 122 shall not apply to the making such amended assessment.

(4) As soon as practicable after deciding an appeal, the Commissioner (Appeals) shall 2[specify in the order the amount of tax upheld and] serve 3[ ] his order on the appellant and the Commissioner 4[:]

1Clause (a) substituted by the Finance Act, 2005. The original clause (a) read as follows:
(a) in the case of an appeal against an assessment order –
(i) make an order to set aside the assessment order and direct the Commissioner to make a new assessment order in accordance with any directions or recommendations of the Commissioner (Appeals); or
(ii) make an order to confirm, modify or annul the assessment order; or
2The words inserted through Finance Act, 2020 dated 30th June, 2020
3 The words “notice of” omitted by the Finance Act, 2002

1[Provided that such order shall be passed not later than one hundred and twenty days from the date of filing of appeal or within an extended period of sixty days, for reasons to be recorded in writing by the Commissioner (Appeals):

Provided further that any period during which the hearing of an appeal is adjourned at the request of the appellant or is postponed due to any appeal or proceedings or stay order, remand or alternative dispute resolution proceedings or for any other reason, shall be excluded in the computation of the aforementioned periods.]

2[ ]

3[ ]

4[ ]

5[130. Appellate Tribunal.- (1) There shall be established an Appellate Tribunal to be called the Appellate Tribunal Inland Revenue to exercise the powers and

1 Inserted by the Finance Act, 2009.
2Sub-section (5) omitted by the Finance Act, 2012. The omitted sub-section (5) read as follows:
“(5) Where the Commissioner (Appeals) has not made an order on an appeal before the expiration of 2[four] months from the end of the month in which the appeal was lodged, the relief sought by the appellant in the appeal shall be treated as having been given and all the provisions of this Ordinance shall have effect accordingly.
3Sub-section (6) omitted by the Finance Act, 2012. The omitted sub-section (6) read as follows:
“(6) For the purposes of sub-section (5), any period during which the hearing of an appeal is adjourned on the request of the appellant shall be excluded in the computation of the period of four months referred to in that sub-section.”
4 Sub-section (7) omitted by the Finance Act, 2012. The omitted sub-section (7) read as follows:
“(7) The provisions of sub-section (5) shall not apply unless a notice by the appellant stating that no order under sub-section (1) has been made is personally served by the appellant on the Commissioner (Appeals) not less than thirty days before the expiration of the period of four months.”
5 Section 130 substituted through Tax Laws (Second Amendment) Ordinance, 2019 dated 26th
December, 2019, the substituted section read as follows:
“130. Appointment of the Appellate Tribunal.—5[(1) There shall be established an Appellate Tribunal to be called the Appellate Tribunal Inland Revenue to exercise the powers and perform the functions conferred on the Appellate Inland Revenue tribunal by this Ordinance,
(2) The Inland Revenue Appellate Tribunal shall consist of a chairman and such other judicial and accountant members as are appointed in such numbers and in the manner as the Prime Minister may prescribe by the rules.]
(3) A person may be appointed as a judicial member of the Appellate Tribunal if the person

 

5[ 5[ ] ]

(a) has exercised the powers of a District Judge and is qualified to be a Judge of the High Court; 5[ 5[or] ]
(b) is or has been an advocate of a High Court and is qualified to be a Judge of the High Court 5[ 5[.] ]

5[(4) A person may be appointed as an accountant member of an appellate tribunal if,—

perform the functions conferred on the Appellate Tribunal Inland Revenue by this Act.

(2) The Appellate Tribunal Inland Revenue shall consist of a chairman and such other judicial and accountant members who shall be appoints in such numbers and in such manner as the Prime Minister may prescribe by rules, which may be made and shall take effect notwithstanding anything contained in section 237 or any other law or rules for the time being in force.

(a) he is an officer of Inland Revenue 5[Service] equivalent to the rank of Regional Commissioner; 5[ ]
(b) a Commissioner Inland Revenue or Commissioner Inland Revenue (Appeals) having at least 5[three] years experience as Commissioner or Collector 5[; 5[ ] ]
5[(c) a person who has, for a period of not less than ten years, practiced professionally as a chartered accountant within the meaning of the Chartered Accountants Ordinance, 1961 (X of 1961)5[;or]
5[(d) a person who has, for a period of not less than ten years, practiced professionally as a cost and management accountant within the meaning of Cost and Management Accountants Act,1966 (XIV of 1966).]
(5) The Federal Government shall appoint a member of the Appellate Tribunal as Chairperson of the Tribunal5[and, except in special circumstances, the person appointed should be a judicial member]5[ ].
(6) The powers and functions of the Appellate Tribunal shall be exercised and discharged by Benches constituted from members of the Tribunal by the Chairperson of the Tribunal.

(7) Subject to sub-section (8), a Bench shall consist of not less than two members of the Appellate Tribunal and shall be constituted so as to contain an equal number of judicial and accountant members, or so that the number of members of one class does not exceed the number of members of the other class by more than one.
(8) The Federal Government may direct that all or any of the powers of the Appellate Tribunal shall be exercised by —
(a) any one member; or
(b) more members than one, jointly or severally.
5[(8A) Notwithstanding anything contained in sub-sections (7) and (8), the 5[Chairperson] may constitute as many benches consisting of a single member as he may deem necessary to hear such cases or class of cases as the Federal Government may by order in writing, specify.]
5[(8AA) The 5[Chairperson] or other member of the Appellate Tribunal authorized, in this behalf by the 5[Chairperson] may, sitting singly, dispose of any case where the amount of tax or penalty involved does not exceed 5[one] million rupees.]
(9) Subject to sub-section (10), if the members of a Bench differ in opinion on any point, the point shall be decided according to the opinion of the majority.
(10) If the members of a 5[Bench] are equally divided on a point, they shall state the point on which they differ and the case shall be referred by the Chairperson for hearing on that point by one or more other members of the Appellate Tribunal, and the point shall be decided according to the opinion of the majority of the members of the Tribunal who have heard the case including those who first heard it.
(11) If there are an equal number of members of the Appellate Tribunal, the Federal Government may appoint an additional member for the purpose of deciding the case on which there is a difference of opinion.
(12) Subject to this Ordinance, the Appellate Tribunal shall have the power to regulate its own procedure, and the procedure of Benches of the Tribunal in all matters arising out of the discharge of its functions including the places at which the Benches shall hold their sittings.”

(3) No person shall be appointed as judicial member of an Appellate Tribunal Inland Revenue unless he –

(a) has been a Judge of a High Court;

(b) is or has been a District Judge; or

(c) is an advocate of a High Court with a standing of not less than ten years; or

(d) possesses such other qualification as may be prescribed under sub-section (2) of this section.

(4) No person shall be appointed as an accountant member of a Appellate Tribunal Inland Revenue unless he –

(a) is an officer of the Inland Revenue Service equivalent in rank to that of 1[Chief Commissioner Inland Revenue];

(b) is a Commissioner Inland Revenue or Commissioner Inland Revenue (Appeals) having not less than three years experience as Commissioner 2[ ];

(c) has for a period of not less than ten years practiced professionally as a chartered accountant within the meaning of the Chartered Accountants’ Ordinance, 1961 (X of 1961); or

(d) has for a period of not less than ten years practiced professionally as a cost and management accountant within the meaning of the Cost and Management Accountant’ Act, 1966 (XIV of 1966).

(4) The constitution, functioning of benches and procedure of the Appellate Tribunal Inland Revenue shall be regulated by rules which the Prime Minister may prescribe.

(5) The rules in respect of the matters covered under this section made prior to commencement of the Tax Laws (Second Amendment) Ordinance, 2019 shall continue in force unless amended or repealed.]

 

1 The words “Regional Commissioner” substituted by the Finance Act, 2021.
2 The words “or Collector” omitted by the Finance Act, 2021.

131. Appeal to the Appellate Tribunal.— (1) Where the 1[taxpayer] or Commissioner objects to an order passed by the Commissioner (Appeals), the 2[taxpayer] or Commissioner may appeal to the Appellate Tribunal against such order.

(2) An appeal under sub-section (1) shall be–—
(a) in the prescribed form;
(b) verified in the prescribed manner;
(c) accompanied 3[, except in case of an appeal preferred by the Commissioner,] by the prescribed fee specified in sub-section (3); and
4[(d) preferred to the Appellate Tribunal within sixty days of the date of service of order of the Commissioner (Appeals) on the taxpayer or the Commissioner, as the case may be.]
5[(3) The prescribed fee shall be five thousand rupees in case of a company and two thousand rupees in case other than a company.]

(4) The Appellate Tribunal may, upon application in writing, admit an appeal after the expiration of the period specified in clause (d) of sub-section (2) if it is satisfied that the person appealing was prevented by sufficient cause from filing the appeal within that period.
6[(5) Notwithstanding that an appeal has been filed under this section, tax shall, unless recovery thereof has been stayed by the Appellate Tribunal, be payable in accordance with the assessment made in the case:

7[Provided that if on filing of application in a particular case, the Appellate Tribunal is of the opinion that the recovery of tax levied

1The word “appellant” substituted by the Finance Act, 2002. 2The word “appellant” substituted by the Finance Act, 2002. 3The word “appellant” substituted by the Finance Act, 2002. 4 The word “appellant” substituted by the Finance Act, 2002.
5Sub-section (3) substituted by the Finance Act, 2020 dated 30th June, 2020. The substituted sub- section (3) read as follows: “(3) The prescribed fee shall be two thousand rupees.”
6 Added by the Finance Act, 2003.
7Provisos substituted by the Finance Act, 2012. The substituted provisos read as follows”
“Provided that where recovery of tax has been stayed by the Appellate Tribunal by an order, such order shall cease to have effect on the expiration of a period of three months following the date on which it is made, unless the appeal is decided, or such order be withdrawn by the Appellate Tribunal earlier:
Provided further that the Appellate Tribunal shall not make an order which has the effect of staying the recovery of tax beyond the period of six months in aggregate.

Provided further that the Appellate Tribunal may stay the recovery of the tax on filing the appeal which order will remain operative for thirty days and during which period a notice

under this Ordinance and upheld by the Commissioner (Appeals), shall cause undue hardship to the taxpayer, the Tribunal, after affording opportunity of being heard to the Commissioner, may stay the recovery of such tax for a period not exceeding one hundred and eighty days in aggregate 1[:]

2[Provided further that where recovery of tax has been stayed under this section, such stay order shall cease to have effect on expiration of the said period of one hundred and eighty days following the date on which the stay order was made and the Commissioner shall proceed to recover the said tax: ]

Provided further that in computing the aforesaid period of one hundred and eighty days, the period, if any, for which the recovery of tax was stayed by a High Court, shall be excluded.]]

132. Disposal of appeals by the Appellate Tribunal.— (1) The Appellate Tribunal may, before disposing of an appeal, call for such particulars as it may require in respect of the matters arising on the appeal or cause further enquiry to be made by the Commissioner.

3[(2) The Appellate Tribunal shall afford an opportunity of being heard to the parties to the appeal and, in case of default by any of the party on the date of hearing, the Tribunal 4[ ] may proceed ex parte to decide the appeal on the basis of the available record.]
5[(2A) The Appellate Tribunal shall decide the appeal within six months of its filing;]
(3) Where the appeal relates to an assessment order, the Appellate Tribunal may, 6[without prejudice to the powers specified in sub-section (2),] make an order to —

shall be issued to the respondent and after hearing the parties, order may be confirmed or varied as the Tribunal deems fit but stay order shall in no case remain operative for more than one hundred and eighty days.”
1The expression “:-“ substituted by the Finance Act, 2018.
2 Inserted by the Finance Act, 2018.
3Sub-section (2) substituted by the Finance Act, 2002. The substituted sub-section (2) read as follows: “(2) The Appellate Tribunal shall give both parties to the appeal an opportunity of being heard
either in person or through an authorised representative.”
4 The words and commas “may, if it deems fit, dismiss the appeal in default, or” substituted by the Finance Act, 2011.
5 Inserted by the Finance Act, 2005.
6Inserted by the Finance Act, 2002.

(a) affirm, modify or annul the assessment order; or
1[ ]
2[(c) remand the case to the Commissioner or the Commissioner (Appeals) for making such enquiry or taking such action as the Tribunal may direct.]
(4) The Appellate Tribunal shall not increase the amount of any assessment 3[or penalty] or decrease the amount of any refund unless the taxpayer has been given a reasonable opportunity of showing cause against such increase or decrease, as the case may be.
(5) Where, as the result of an appeal, any change is made in the assessment of an association of persons or a new assessment of an association of persons is ordered to be made, the Appellate Tribunal may authorise the Commissioner to amend accordingly any assessment order made on a member of the association and the time limit in sub-section (2) of section 122 shall not apply to the making of such amended assessment.
(6) Where the appeal relates to a decision other than in respect of an assessment, the Appellate Tribunal may make an order to affirm, vary or annul the decision, and issue such consequential directions as the case may require.
4[(7) The Appellate Tribunal shall communicate its order to the taxpayer and the Commissioner.]
5[ ]

6[ ]

1Clause (b) omitted by the Finance Act, 2007. The omitted clause (b) read as follows:
“(b) set aside the assessment order and direct the Commissioner to make a new assessment order in accordance with the directions or recommendations of the Tribunal; or”
2Added by the Finance Act, 2002.
3Inserted by the Finance Act, 2003.
4 Sub-section (7) substituted by the Finance Act, 2002. The substituted sub-section (7) read as follows: “(7) The Appellate Tribunal shall serve a notice of its order on the appellant and the
Commissioner.”
5Sub-section (8) omitted by Finance Act, 2002. The omitted sub-section (8) read as follows:
“(8) Where the Appellate Tribunal has not made an order in respect of an appeal before the expiration of six months from the end of the month in which the appeal was filed, the relief sought by the appellant in the appeal shall be treated as having been given and all the provisions of this Ordinance shall have effect accordingly.”
6Sub-section (9) omitted by the Finance Act, 2002. The omitted sub-section (9) read as follows:
“(9) For the purposes of sub-section (8), any period during which the hearing of an appeal is adjourned on the request of the appellant shall be excluded in the computation of the period of six months referred to in that sub-section.

(10) Save as provided in section 133, the decision of the Appellate Tribunal on an appeal shall be final.
1[133. Reference to High Court.— (1) Within ninety days of the communication of the order of the Appellate Tribunal under sub-section (7) of section 132, the aggrieved person or the Commissioner may prefer an application, in the prescribed form along with a statement of the case, to the High Court, stating any question of law arising out of such order.

1Section 133 substituted by the Finance Act, 2005. The original section 133 read as follows:
133. Reference to High Court.- (1) Where the Appellate Tribunal has made an order on an appeal under section132, the taxpayer or Commissioner may, by application in such form and accompanied by such documents as may be prescribed, require the Appellate Tribunal to refer any question of law arising out of such order to the High Court.
(2) An application under sub-section (1) shall be made within ninety days of the date on which the taxpayer or Commissioner, as the case may be, was served with the Appellate Tribunal’s order.
(3) Where, on an application under sub-section (1), the Appellate Tribunal is satisfied that a question of law arises out of its order, it shall, within ninety days of receipt of the application, draw up a statement of the case and refer it to the High Court.
(4) Where, on an application under sub-section (1), the Appellate Tribunal refuses to state the case on the ground that no question of law arises, the taxpayer or the Commissioner, as the case may be, may apply to the High Court and the High Court may, if it is not satisfied with the correctness of the decision of the Appellate Tribunal, frame a question of law for its consideration.
(5) An application under sub-section (4) shall be made within one-hundred and twenty days from the date on which the taxpayer or Commissioner, as the case may be, was served with order of the refusal.
(6) Sub-sections (10) through (14) shall apply to a question of law framed by the High Court in the same manner as they apply to a reference made under sub-section (1).
(7) If, on an application under sub-section (1), the Appellate Tribunal rejects the application on the ground that it is time-barred, the taxpayer or Commissioner may apply to the High Court and, if the High Court is not satisfied with the correctness of the Appellate Tribunal’s decision, the Court may require the Appellate Tribunal to treat the application as made within the time allowed under sub-section (2).
(8) An application under sub-section (7) shall be made within ninety days from the date on which the taxpayer or Commissioner, as the case may be, was served with order of the rejection.
(9) If the High Court is not satisfied that the statement in a case referred under sub-section (3) is sufficient to enable it to determine the question raised thereby, the Court may refer the case back to the Appellate Tribunal to make such modification therein as the Court may direct.
(10) A reference to the High Court under this section shall be heard by a Bench of not less than two Judges of the High Court and, in respect of the reference, the provisions of section 98 of the Code of Civil Procedure, 1908 (V of 1908) shall apply, so far as may be, notwithstanding anything contained in any other law for the time being in force.
(11) The High Court upon hearing a reference under this section shall decide the questions of law raised by the reference and deliver judgment thereon containing the grounds on which such decision is founded.
(12) A copy of the judgment of the High Court shall be sent under the seal of the Court and the signature of the Registrar to the Appellate Tribunal which shall pass such orders as are necessary to dispose of the case conformably to such judgment.
(13) The costs of a reference to the High Court under this section shall be at the discretion of the Court.
(14) Where a reference relates to an assessment, the tax due under the assessment shall be payable in accordance with the assessment, unless recovery of the tax has been stayed by the High Court.
(15) Section 5 of the Limitation Act, 1908 (IX of 1908) shall apply to an application under sub-section
(1).
(16) An application under sub-section (1) by a person other than the Commissioner shall be
accompanied by a fee of one hundred rupees.”

(2) The statement to the High Court referred to in sub-section (1), shall set out the facts, the determination of the Appellate Tribunal and the question of law which arises out of its order.

(3) Where, on an application made under sub-section (1), the High Court is satisfied that a question of law arises out of the order referred to in sub-section (1), it may proceed to hear the case.

(4) A reference to the High Court under this section shall be heard by a Bench of not less than two judges of the High Court and, in respect of the reference, the provisions of section 98 of the Code of Civil Procedure, 1908 (Act V of 1908), shall apply, so far as may be, notwithstanding anything contained in any other law for the time being in force.

(5) The High Court upon hearing a reference under this section shall decide the question of law raised by the reference and pass judgment thereon specifying the grounds on which such judgment is based and the Tribunal’s order shall stand modified accordingly. The Court shall send a copy of the judgment under the seal of the Court to the Appellate Tribunal.

(6) Notwithstanding that a reference has been made to the High Court, the tax shall be payable in accordance with the order of the Appellate Tribunal:

Provided that, if the amount of tax is reduced as a result of the judgment in the reference by the High Court and the amount of tax found refundable, the High Court may, on application by the Commissioner within thirty days of the receipt of the judgment of the High Court that he wants to prefer petition for leave to appeal to the Supreme Court, make an order authorizing the Commissioner to postpone the refund until the disposal of the appeal by the Supreme Court.
(7) Where recovery of tax has been stayed by the High Court by an order, such order shall cease to have effect on the expiration of a period of six months following the day on which it was made unless the appeal is decided or such order is withdrawn by the High Court earlier.
(8) Section 5 of the Limitation Act, 1908 (IX of 1908), shall apply to an application made to the High Court under sub-section (1).
(9) An application under sub-section (1) by a person other than the Commissioner shall be accompanied by a fee of one hundred rupees.]
1[ ]

 

1Section 134 omitted by the Finance Act, 2005. The omitted section 134 read as follows:

1[ ]

“134. Appeal to Supreme Court.- (1) An appeal shall lie to the Supreme Court from any judgment of the High Court delivered on a reference made or question of law framed under section 133 in any case which the High Court certifies to be a fit one for appeal to the Supreme Court.
(2) The provisions of the Code of Civil Procedure, 1908 (V of 1908), relating to appeals to the Supreme Court shall apply, so far as may be, in the case of an appeal under this section in like manner as they apply in the case of an appeal from decrees of a High Court.
(3) Where the judgment of the High Court is varied or reversed in appeal under this section, effect shall be given to the order of the Supreme Court in the manner provided in sub-section (12) of section 133 in the case of a judgment of the High Court.
(4) The provisions of sub-sections (11), (12) and (13) of section 133 shall apply in the case of an appeal to the Supreme Court made under this section as they apply to an appeal to the High Court under section 133.”
1The section 134A substituted by the Finance Act 2020 dated 30th June, 2020, the substituted section read as follows:134A. Alternative Dispute Resolution.— (1) Notwithstanding any other provision of this Ordinance, or the rules made thereunder, an aggrieved person in connection with any dispute pertaining to—
(a) the liability of tax against the aggrieved person, or admissibility of refunds, as the case may be;
(b) the extent of waiver of default surcharge and penalty; or
(c) any other specific relief required to resolve the dispute,
may apply to the Board for the appointment of a committee for the resolution of any hardship or dispute mentioned in detail in the application, which is under litigation in any court of law or an Appellate Authority, except where criminal proceedings have been initiated or where interpretation of question of law is involved having effect on other cases.
(2) The Board may, after examination of the application of an aggrieved person, appoint a committee, within sixty days of receipt of such application in the Board, comprising,—
(i) an officer of Inland Revenue not below the rank of a Commissioner;
(ii) person to be nominated by the taxpayer from a panel notified by the Board comprising,—
(a) 1[ ] chartered accountants, 1[cost and management accountants] and 1[ ] advocates having 1[minimum ten years] experience in the field of taxation; and
(b) reputable businessmen as nominated by Chambers of Commerce and industry:
Provided that the taxpayer shall not nominate a Chartered Accountant 1[or cost and management accountant] or an advocate if the said Chartered Accountant 1[or cost and management accountant] or the advocate is or has been an auditor or an authorized representative of the taxpayer; and
(iii) a retired Judge not below the rank of District and Sessions Judge, to be nominated through consensus by the members appointed under clauses (i) and (ii).
(3) The aggrieved person, or the Commissioner, or both, as the case may be, shall withdraw the appeal pending before any court of law or an Appellate Authority, after constitution of the committee by the Board under sub- section (2).
(4) The committee shall not commence the proceedings under sub-section (5) unless the order of withdrawal by the court of law or the Appellate Authority is communicated to the Board:
Provided that if the order of withdrawal is not communicated within seventy five days of the appointment of the committee, the said committee shall be dissolved and provisions of this section shall not apply.
(5) The Committee appointed under sub-section (2) shall examine the issue and may, if it deems necessary, conduct inquiry, seek expert opinion, direct any officer of the Inland Revenue or any other person to conduct an audit and shall decide the dispute by majority, within one hundred and twenty days of its appointment:
Provided that in computing the aforesaid period of one hundred and twenty days, the period, if any, for communicating the order of withdrawal under sub-section (4) shall be excluded.
(6) The recovery of tax payable by a taxpayer in connection with any dispute for which a Committee has been appointed under sub- section (2) shall be deemed to have been stayed on withdrawal of appeal up to the date of decision by the Committee.
(7) The decision of the committee under sub-section (5) shall be binding on the Commissioner and the aggrieved person.
(8) If the Committee fails to decide within the period of one hundred and twenty days under sub-section (5), the Board shall dissolve the committee by an order in writing and the matter shall be decided by the court of law or the Appellate Authority which issued the order of withdrawal under sub-section (4) and the appeal shall be treated to be pending before such court of law or the Appellate Authority as if the appeal had never been withdrawn.
(9) The Board shall communicate the order of dissolution to the court of law or the Appellate Authority and the Commissioner.

(10) The aggrieved person, on receipt of the order of dissolution, shall communicate it to the court of law or the Appellate Authority, which shall decide the appeal within six months of the communication of said order.

1[134A. Alternative Dispute Resolution. — (1) Notwithstanding any other provision of the Ordinance, or the rules made thereunder, an aggrieved person in connection with any dispute pertaining to—

(11) The aggrieved person may make the payment of income tax and other taxes as decided by the committee under sub-section (5) and all decisions, orders and judgments made or passed shall stand modified to that extent.
(12) The Board may prescribe the amount to be paid as remuneration for the services of the members of the Committee, other than the member appointed under clause (i) of sub-section (2).
(13) The Board may, by notification in the official Gazette, make rules for carrying out the purposes of this section.
1 Section 134A substituted by the Finance Act, 2022. Substituted section read as follows:
“134A. Alternative Dispute Resolution.— (1) Notwithstanding any other provision of this Ordinance, or the rules made thereunder, an aggrieved person in connection with any dispute pertaining to—

(a) the liability of tax against the aggrieved person, or admissibility of refunds, as the case may be;

(b) the extent of waiver of default surcharge and penalty; or

(c) any other specific relief required to resolve the dispute,

may apply to the Board for the appointment of a committee for the resolution of any hardship or dispute mentioned in detail in the application, which is under litigation in any court of law or an Appellate Authority, except 1[ ] where interpretation of question of law is involved having effect on other cases 1[:

[Provided that if the issue involves a mixed question of fact and law, the Board, while taking into consideration all relevant facts and circumstances, shall decide whether or not ADRC may be constituted.]

1[(1A) The application for dispute resolution shall be accompanied by an initial proposition for resolution of the dispute, from which, the taxpayer would not be entitled to retract.]

(2) The Board may, after examination of the application of an aggrieved person, appoint a committee, within 1[thirty] days of receipt of such application in the Board, comprising,—

(i) Chief Commissioner Inland Revenue having jurisdiction over the case:

(ii) two persons from a panel notified by the Board comprising of chartered accountants, cost and management accountants, advocates, having minimum of ten years’ experience in the field of taxation and reputable businessmen.

(3) The Board shall communicate the order of appointment of committee to the court of law or the appellate authority where the dispute is pending and the Commissioner.

(4) The Committee appointed under sub-section (2) shall examine the issue and may, if it deemed necessary, conduct inquiry, seek expert opinion, direct any officer of the Inland Revenue or any other person to conduct an audit and shall decide the dispute through consensus, within 1[sixty days of its appointment extendable by another thirty days for the reasons to be recorded in writing].

1[(5) The recovery of tax shall be stayed on the constitution of committee till the final decision or dissolution of the committee, whichever is earlier;]

(6) The decision of the committee under sub-section (4) shall be binding on the Commissioner when the aggrieved person; being satisfied with the decision, has withdrawn the appeal

(a) the liability of tax of one hundred million and above against the aggrieved person or admissibility of refund, as the case may be;

(b) the extent of waiver of default surcharge and penalty; or

(c) any other specific relief required to resolve the dispute; may apply to the Board for the appointment of a committee for the resolution of any hardship or dispute mentioned in detail in the application, which is under litigation in any court of law or an Appellate Authority, except where criminal proceedings have been initiated.

(2) The application for dispute resolution shall be accompanied by an initial proposition for resolution of the dispute, including an offer of tax payment, from which, the applicant would not be entitled to retract.

(3) The Board may, after examination of the application of an aggrieved person, appoint a committee, within forty five days of receipt of such application in the Board, comprising,—

(i) Chief Commissioner Inland Revenue having jurisdiction over the case;

pending before the court of law or any appellate authority and has communicated the order of withdrawal to the Commissioner:

Provided that if the order of withdrawal is not communicated to the Commissioner within sixth days of the service of decision of the committee upon the aggrieved person, the decision of the committee upon the aggrieved person, the decision of the committee shall not be binding on the Commissioner.

1[(6A) If the committee fails to decide within the period mentioned in sub section (4), the Board shall dissolve the committee by an order in writing and may reconstitute another committee and the provisions of subsections (2), (3), (4), (5) and (6) shall apply mutatis mutandis to the second committee]

(7) If 1[the Second Committee fails to decide within time limit prescribed] under sub-section (4), the Board shall dissolve the committee by an order in writing and the matter shall be decided by the court of law or the appellate authority where the dispute is pending.

(8) The Board shall communicate the order of dissolution to the court of law or the appellate authority and the Commissioner.

(9) The aggrieved person, on receipt of the order of dissolution, shall communicates it to the court of law or the appellate authority, where the dispute is pending.

(10) The aggrieved person may make the payment of income tax and other taxes as decided by the committee under sub section (4) and all decisions and orders made or passed shall sand modified to the extent.

(11) The Board may prescribe the amount to be paid as remuneration for the services of the members of the committee, other the member appointed under clause (i) of sub-section (2)

The Board may, by notification in the official Gazette, make rules for carrying out the purposes of this section.]

(ii) person to be nominated by the taxpayer from a panel notified by the Board comprising –

(a) chartered accountants, cost and management accountants and advocates having a minimum of ten years’ experience in the field of taxation;

(b) officers of the Inland Revenue Service who have retired in BS 21 or above; or

(c) reputable businessmen as nominated by Chambers of Commerce and Industry:

Provided that the taxpayer shall not nominate a Chartered Accountant or an advocate if the said Chartered Accountant or the advocate is or has been an auditor or an authorized representative of the taxpayer; and
(d) person to be nominated through consensus by the members appointed under (i) and (ii) above, from the panel as notified by the Board in clause (ii) above:

Provided that where the member under this clause cannot be appointed through consensus, the Board may nominate a member proposed by the taxpayer eligible to be nominated as per clause (ii).

(4) The aggrieved person, or the Commissioner, or both, as the case may be, shall withdraw the appeal pending before any court of law or an Appellate Authority, after constitution of the committee by the Board under sub-section (3), in respect of dispute as mentioned in sub-section (1).

(5) The committee shall not commence the proceedings under sub- section (6) unless the order of withdrawal by the court of law or the Appellate Authority is communicated to the Board:

Provided that if the order of withdrawal is not communicated within seventy five days of the appointment of the committee, the said committee shall be dissolved and provisions of this section shall not apply.

(6) The Committee appointed under sub-section (3) shall examine the issue and may, if it deems necessary, conduct inquiry, seek expert opinion, direct any officer of the Inland Revenue or any other person to conduct an audit and shall decide the dispute by majority, within one hundred and twenty days of its appointment:

Provided that in computing the aforesaid period of one hundred and twenty days, the period, if any, for communicating the order of withdrawal under sub- section (5) shall be excluded.

(7) The decision by the Committee under sub-section (6) shall not be cited or taken as a precedent in any other case or in the same case for a different tax year.

(8) The recovery of tax payable by a taxpayer in connection with any dispute for which a Committee has been appointed under sub-section (3) shall be deemed to have been stayed on withdrawal of appeal up to the date of decision by the Committee or the dissolution of the Committee whichever is earlier.

(9) The decision of the committee under sub-section (6) shall be binding on the Commissioner and the aggrieved person.

(10) If the Committee fails to decide within the period of one hundred and twenty days under sub-section (6), the Board shall dissolve the committee by an order in writing and the matter shall be decided by the court of law or the Appellate Authority which issued the order of withdrawal under sub-section (5) and the appeal shall be treated to be pending before such court of law or the Appellate Authority as if the appeal had never been withdrawn.

(11) The Board shall communicate the order of dissolution to the court of law or the Appellate Authority and the Commissioner.

(12) The aggrieved person, on receipt of the order of dissolution, shall communicate it to the court of law or the Appellate Authority, which shall decide the appeal within six months of the communication of said order.

(13) The aggrieved person may make the payment of income tax and other taxes as decided by the committee under sub-section (6) and all decisions, orders and judgments made or passed shall stand modified to that extent.

(14) The Board may prescribe the amount to be paid as remuneration for the services of the members of the Committee, other than the member appointed under clause (i) of sub-section (3).

(15) The Board may, by notification in the official Gazette, make rules for carrying out the purposes of this section.]

1[ ]
136. Burden of proof.— In any appeal 2[by a taxpayer] under this Part, the burden shall be on the taxpayer to prove, on the balance of probabilities —
(a) in the case of an assessment order, the extent to which the order does not correctly reflect the taxpayer’s tax liability for the tax year; or
(b) in the case of any other decision, that the decision is erroneous.

 

 

 

 

 

 

 

1
Section 135 omitted by the Finance Act, 2002. The omitted section 135 read as follows:
“135. Revision by the Commissioner.- (1) The Commissioner may either of the Commissioner’s own motion or on application in writing by a person for revision, call for the record of any proceeding under this Ordinance in which an order has been passed by any taxation officer other than the Commissioner (Appeals).
(2) Subject to sub-section (3), where, after making such inquiry as is necessary, Commissioner considers that the order requires revision, the Commissioner may make such revision to the order as the Commissioner thinks fit.
(3) An order under sub-section (2) shall not be prejudicial to the person to whom the order relates.
(4) The Commissioner shall not revise any order under sub-section (2) if –
(a) where an appeal against the order lies to the Commissioner (Appeals) or to the Appellate Tribunal, the time within which such appeal may be made has not expired, or the person has not waived their right of appeal;
(b) the order is pending on appeal before the Commissioner (Appeals) or has been made the subject of an appeal to the Appellate Tribunal; or
(c) in the case of an application made by a person, the application has not been made within ninety days of the date on which such order was served on the person, unless the Commissioner is satisfied that the person was prevented by sufficient cause from making the application within the time allowed.
(5) No application for revision of an assessment order may be made under sub-section (1) unless the amount of tax due under the assessment that is not in dispute has been paid by the taxpayer.
(6) An application under sub-section (1) shall be accompanied by –
(a) in relation to an assessment order, a fee of the lesser of two thousand five hundred rupees or ten per cent of the tax assessed; or
(b) in any other case –
(i) where the applicant is a company, a fee of two thousand rupees; or
(ii) where the applicant is not a company, a fee of five hundred rupees.
(7) An order by the Commissioner declining to interfere shall not be treated as an order prejudicial to the
applicant.”
Inserted by the Finance Act, 2003.

PART IV
COLLECTION AND RECOVERY OF TAX

137. Due date for payment of tax.— (1) The tax payable by a taxpayer on the taxable income of the taxpayer 1[including the tax payable under 2[ ] ] 3[section 4[113 or] 113A] for a tax year shall be due on the due date for furnishing the taxpayer’s return of income for that year.

5[(2) Where any tax is payable under an assessment order or an amended assessment order or any other order issued by the Commissioner under this Ordinance, a notice shall be served upon the taxpayer in the prescribed form specifying the amount payable and thereupon the sum so specified shall be paid within 6[ 7[thirty] ] days from the date of service of the notice 8[:] 9[ ]

10[Provided that the due date for payment of tax payable under sub- section
(7) of section 147 shall be the date specified in sub-section (5) or sub-section (5A) or first proviso to sub-section (5B) of section 147.]

11[ 12[ ] ]

13[ 14[ ] ]

1 Inserted by the Finance Act, 2003. Earlier this was inserted by S.R.O. 633(I)/2002, dated 14.09.2002 which stands rescinded by SRO 608(I)/2003, dated 24.06.2003 with effect from 01.07.2003.
2The words and figure “section 113 or” omitted by the Finance Act, 2008.
3 Inserted by the Finance Act, 2004.
4 Inserted by the Finance Act, 2009.
5 Substituted by the Finance Act, 2003. The substituted sub-section (2) read as follows:
“(2) Where an assessment order or amended assessment order is issued by the Commissioner, the tax payable under the order shall be payable within fifteen days from the date of the assessment order is issued. “
6The word “thirty” substituted by the Finance Act, 2008. 7The word “fifteen” substituted by the Finance Act, 2015. 8 Full stop substituted by the Finance Act, 2018
9Colon substituted by the Finance Act, 2017.
10Added by the Finance Act, 2018.
11Added by the Finance Act, 2010.
12 Proviso omitted by the Finance Act, 2017. The omitted provision read as follows:
“Provided that the tax payable as a result of provisional assessmentorder under section 122C, as specified in the notice under sub-section (2) shall be payable immediately after a period of forty- five days from the date of service of the notice”
13Added by the Finance Act, 2012.
14Proviso omitted by the Finance Act, 2017. The omitted provision read as follows:
“Provided further that the taxpayer may pay the tax payable prior to expiry of the period of forty-five days specified in the first proviso.”

(3) Nothing in sub-section (2) 1[or (4)] shall affect the operation of sub- section (1).

(4) Upon written application by a taxpayer, the Commissioner may, where good cause is shown, grant the taxpayer an extension of time for payment of tax due 2[under sub-section (2)] or allow the taxpayer to pay 3[such tax] in instalments of equal or varying amounts as the Commissioner may determine having regard to the circumstances of the case.

(5) Where a taxpayer is permitted to pay tax by instalments and the taxpayer defaults in payment of any instalments, the whole balance of the tax outstanding shall become immediately payable.

(6) The grant of an extension of time to pay tax due or the grant of permission to pay tax due by instalments shall not preclude the liability for 4[default surcharge] arising under section 205 from the due date of the tax under sub- section 5[(2)].

6[ ]

7[138. Recovery of tax out of property and through arrest of taxpayer.— (1) For the purpose of recovering any tax due by a taxpayer, the Commissioner may serve upon the taxpayer a notice in the prescribed form requiring him to pay the said amount within such time as may be specified in the notice.

(2) If the amount referred to in the notice issued under sub-section (1) is not paid within the time specified therein or within the further time, if any, allowed

1Inserted by the Finance Act, 2003. Earlier this was inserted by S.R.O. 633(I)/2002, dated 14.09.2002 which stands rescinded by SRO 608(I)/2003, dated 24.06.2003 with effect from 01.07.2003.
2 Inserted by the Finance Act, 2003.
3The words “any tax due” substituted by the Finance Act, 2003. 4The word s “additional tax” substituted by the Finance Act, 2010. 5The brackets and figure “(1)” substituted by the Finance Act, 2003.
6Sub-section (7) omitted by the Finance Act, 2002. The omitted sub-section (7) read as under:
“(7) A taxpayer dissatisfied with a decision under sub-section (4) may challenge the decision only under Part III of this Chapter.”
7Section 138 substituted by Finance Act, 2002. The substituted section 138 read as follows:
“138. Tax as a debt due to the Federal Government.- (1) Any tax due under this Ordinance by a taxpayer shall be a debt due to the Federal Government and shall be payable in the manner and at the place prescribed.
(2) Any tax that has not been paid by the due date may be sued for and recovered in any court of competent jurisdiction by the Commissioner acting in the Commissioner’s official name.
(3) In any suit under sub-section (2), the production of a certificate signed by the Commissioner stating the name and address of the taxpayer and the amount of tax due shall be conclusive evidence of the amount of tax due by such taxpayer.”

by the Commissioner, the Commissioner may proceed to recover from the taxpayer the said amount by one or more of the following modes, namely:—

(a) attachment and sale of any movable or immovable property of the taxpayer;
(b) appointment of a receiver for the management of the movable or immovable property of the taxpayer; 1[ ]
(c) arrest of the taxpayer and his detention in prison for a period not exceeding six months 2[; and

(d) as specified under clauses (a), (ca) and (d) of sub-section (I) of section 48 of the Sales Tax Act, 1990.]
(3) For the purposes of recovery of tax under sub-section (2), the Commissioner shall have the same powers as a Civil Court has under the Code of Civil Procedure, 1908 (Act V of 1908), for the purposes of the recovery of any amount due under a decree.
(4) The 3[Board] may make rules regulating the procedure for the recovery of tax under this section and any other matter connected with, or incidental to, the operation of this section.]
4[138A. Recovery of tax by District Officer (Revenue).— (1) The Commissioner may forward to the District Officer (Revenue) of the district in which the taxpayer resides or carries on business or in which any property belonging to the taxpayer is situated, a certificate specifying the amount of any tax due from the taxpayer, and, on receipt of such certificate, the District Officer (Revenue) shall proceed to recover from the taxpayer the amount so specified as, it were an arrear of land revenue.
(2) Without prejudice to any other power of the District Officer (Revenue) in this behalf, he shall have the same powers as a Civil Court has under the Code of Civil Procedure, 1908 (Act V of 1908), for the purpose of the recovery of the amount due under a decree.]
5[138B. Estate in bankruptcy.—(1) If a taxpayer is declared bankrupt, the tax liability under this Ordinance shall pass on to the estate in bankruptcy.

1The word “and” omitted through Finance Act, 2020 dated 30th June, 2020
2Full stop substituted by “semi colon” and the word “and” thereafter new clause (d) added through Finance Act, 2020 dated 30th June, 2020
3The words “Central Board of Revenue” substituted by the Finance Act, 2007.
4Inserted by the Finance Act, 2002.
5Added by the Finance Act, 2010.

(2) If tax liability is incurred by an estate in bankruptcy, the tax shall be deemed to be a current expenditure in the operations of the estate in bankruptcy and shall be paid before the claims preferred by other creditors are settled.]

139. Collection of tax in the case of private companies and associations of persons.—(1) Notwithstanding anything in the 1[Companies Act, 2017 (XIX of 2017)], where any tax payable by a private company (including a private company that has been wound up or gone into liquidation) in respect of any tax year cannot be recovered from the company, every person who was, at any time in that tax year —

(a) a director of the company, other than an employed director; or
(b) a shareholder in the company owning not less than ten per cent of the paid-up capital of the company,
shall be jointly and severally liable for payment of the tax due by the company.
(2) Any director who pays tax under sub-section (1) shall be entitled to recover the tax paid from the company or a share of the tax from any other director.
(3) A shareholder who pays tax under sub-section (1) shall be entitled to recover the tax paid from the company or from any other shareholder to whom clause (b) of sub-section (1) applies in proportion to the shares owned by that other shareholder.
(4) Notwithstanding anything in any law, where any tax payable by a member of an association of persons in respect of the member’s share of the income of the association in respect of any tax year cannot be recovered from the member, the association shall be liable for the tax due by the member.

2[(5) Notwithstanding anything contained in any other law, for the time being in force, where any tax payable by an association of persons in respect of any tax year cannot be recovered from the association of persons, every person who was, at any time in that year, a member of the association of persons, shall be jointly and severally liable for payment of the tax due by the association of persons.

(6) Any member who pays tax under sub-section (5) shall be entitled to recover the tax paid from the association of persons or a share of the tax from any other member.]

 

1 The expression “Companies Ordinance, 1984 (XLVII of 1984)” substituted by the Finance Act, 2021.
2New sub-sections (5) and (6) inserted through Finance Act, 2019.

1[(7)] The provisions of this Ordinance shall apply to any amount due under this section as if it were tax due under an assessment order.
140. Recovery of tax from persons holding money on behalf of a taxpayer.—
(1) For the purpose of recovering any tax due by a taxpayer, the Commissioner may, by notice, in writing, require any person –
(a) owing or who may owe money to the taxpayer; or
(b) holding or who may hold money for, or on account of the taxpayer;
(c) holding or who may hold money on account of some other person for payment to the taxpayer; or
(d) having authority of some other person to pay money to the taxpayer,
to pay to the Commissioner so much of the money as set out in the notice by the date set out in the notice2[:]
3[“Provided that the Commissioner shall not issue notice under this sub-section for recovery of any tax due from a taxpayer if the said taxpayer has filed an appeal under section 127 in respect of the order under which the tax sought to be recovered has become payable and the appeal has not been decided by the Commissioner (Appeals), subject to the condition that 4[ten] per cent of the said amount of tax due has been paid by the taxpayer.”]
(2) Subject to sub-section (3), the amount set out in a notice under sub- section (1) —
(a) where the amount of the money is equal to or less than the amount of tax due by the taxpayer, shall not exceed the amount of the money; or
(b) in any other case, shall be so much of the money as is sufficient to pay the amount of tax due by the taxpayer.
(3) Where a person is liable to make a series of payments (such as salary) to a taxpayer, a notice under sub-section (1) may specify an amount to be paid out of each payment until the amount of tax due by the taxpayer has been paid.
(4) The date for payment specified in a notice under sub-section (1) shall not be a date before the money becomes payable to the taxpayer or held on the taxpayer’s behalf.

1Sub-section (5) re-numbered as sub-section (7) through Finance Act, 2019.
2 Full-stop substituted by the Finance Act, 2016.
3 Added by the Finance Act, 2016.
4The expression “twenty-five” substituted by the Finance Act, 2018

(5) The provisions of sections 160, 161, 162 and 163, so far as may be, shall apply to an amount due under this section as if the amount were required to be deducted from a payment under Division III of Part V of this Chapter.
(6) Any person who has paid any amount in compliance with a notice under sub-section (1) shall be treated as having paid such amount under the authority of the taxpayer and the receipt of the Commissioner constitutes a good and sufficient discharge of the liability of such person to the taxpayer to the extent of the amount referred to in such receipt.
1[ ]
2[ ]
3[ ]

(10) In this section, “person” includes any Court, Tribunal or any other authority.
141. Liquidators.— (1) Every person (hereinafter referred to as a “liquidator”) who is –
(a) a liquidator of a company;
(b) a receiver appointed by a Court or appointed out of Court;
(c) a trustee for a bankrupt; or
(d) a mortgagee in possession,
shall, within fourteen days of being appointed or taking possession of an asset in Pakistan, whichever occurs first, give written notice thereof to the Commissioner.
(2) The Commissioner shall, within three months of being notified under sub-section (1), notify the liquidator in writing of the amount which appears to the Commissioner to be sufficient to provide for any tax which is or will become payable by the person whose assets are in the possession of the liquidator.

1 Sub-section (7) omitted by the Finance Act, 2003. The omitted sub-section (7) read as follows:
“(7) Where an amount has been paid under sub-section (1), the taxpayer shall be allowed a tax credit for the amount (unless the amount paid represents a final tax on the taxpayer’s income) in computing the tax due by the taxpayer on the taxpayer’s taxable income for the tax year in which the amount was paid.”
2Sub-section (8) omitted by the Finance Act, 2003. The omitted sub-section (8) read as follows:
“(8) The tax credit allowed under this section shall be applied in accordance with sub-section
(3) of section 4.”
3 Sub-section (9) omitted by the Finance Act, 2003. The omitted sub-section (9) read as follows:
“(9) A tax credit or part of a tax credit allowed under this section for a tax year that is not able to be credited under sub-section (3) of section 4 for the year must be refunded to the taxpayer in accordance with section 170.”

(3) A liquidator shall not, without leave of the Commissioner, part with any asset held as liquidator until the liquidator has been notified under sub-section (2).
(4) A liquidator —
(a) shall set aside, out of the proceeds of sale of any asset by the liquidator, the amount notified by the Commissioner under sub- section (2), or such lesser amount as is subsequently agreed to by the Commissioner;
(b) shall be liable to the extent of the amount set aside for the tax of the person who owned the asset; and
(c) may pay any debt that has priority over the tax referred to in this section notwithstanding any provision of this section.
(5) A liquidator shall be personally liable to the extent of any amount required to be set aside under sub-section (4) for the tax referred to in sub-section
(2) if, and to the extent that, the liquidator fails to comply with the requirements of this section.
(6) Where the proceeds of sale of any asset are less than the amount notified by the Commissioner under sub-section (2), the application of sub-sections
(4) and (5) shall be limited to the proceeds of sale.

(7) This section shall have effect notwithstanding anything contained in any other law for the time being in force.

(8) The provisions of this Ordinance shall apply to any amount due under this section as if it were tax due under an assessment order.

142. Recovery of tax due by non-resident member of an association of persons.— (1) The tax due by a non-resident member of an association of persons in respect of the member’s share of the profits of the association shall be assessable in the name of the association or of any resident member of the association and may be recovered out of the assets of the association or from the resident member personally.
(2) A person making a payment under this section shall be treated as acting under the authority of the non-resident member and is hereby indemnified in respect of the payment against all proceedings, civil or criminal, and all processes, judicial or extra-judicial, notwithstanding any provisions to the contrary in any written law, contract or agreement.
(3) The provisions of this Ordinance shall apply to any amount due under this section as if it were tax due under an assessment order.
143. Non-resident ship owner or charterer.— (1) Before the departure of a ship owned or chartered by a non-resident person from any port in Pakistan, the

master of the ship shall furnish to the Commissioner a return showing the gross amount specified in sub-section (1) of section 7 in respect of the ship.
(2) Where the master of a ship has furnished a return under sub-section (1), the Commissioner shall 1[, after calling for such particulars, accounts or documents as he may require,] determine the amount of tax due under section 7 in respect of the ship and, as soon as possible, notify the master, in writing, of the amount payable.
(3) The master of a ship shall be liable for the tax notified under sub- section (2) and the provisions of this Ordinance shall apply to such tax as if it were tax due under an assessment order.
(4) Where the Commissioner is satisfied that the master of a ship or non- resident owner or charterer of the ship is unable to furnish the return required under sub-section (1) before the departure of the ship from a port in Pakistan, the Commissioner may allow the return to be furnished within thirty days of departure of the ship provided the non-resident owner or charterer has made satisfactory arrangements for the payment of the tax due under section 7 in respect of the ship.
(5) The Collector of Customs or other authorised officer shall not grant a port clearance for a ship owned or chartered by a non-resident person until the Collector or officer is satisfied that any tax due under section 7 in respect of the ship has been paid or that arrangements for its payment have been made to the satisfaction of the Commissioner.
(6) This section shall not relieve the non-resident owner or charterer of the ship from liability to pay any tax due under this section that is not paid by the master of the ship.
144. Non-resident aircraft owner or charterer. — (1) A non-resident owner or charterer of an aircraft 2[ ] liable for tax under section 7, or an agent authorised by the non-resident person for this purpose, shall furnish to the Commissioner, within forty- five days from the last day of each quarter of the financial year, a return, in respect of the quarter, showing the gross amount specified in sub-section (1) of section 7 of the non-resident person for the quarter.
(2) Where a return has been furnished under sub-section (1), the Commissioner shall 3[, after calling for such particulars, accounts or documents as he may require,] determine the amount of tax due under section 7 by the non- resident person for the quarter and notify the non-resident person, in writing, of the amount payable.

 

1 Inserted by the Finance Act, 2002.
2 The words “shall be” omitted by the Finance Act, 2003.
3 Inserted by the Finance Act, 2002

(3) The non-resident person shall be liable to pay the tax notified under sub-section (2) within the time specified in the notice and the provisions of this Ordinance shall apply to such tax as if it were tax due under an assessment order.
(4) Where the tax referred to in sub-section (3) is not paid within three months of service of the notice, the Commissioner may issue to the authority by whom clearance may be granted to the aircraft operated by the non-resident person a certificate specifying the name of the non-resident person and the amount of tax due.
(5) The authority to whom a certificate is issued under sub-section (4) shall refuse clearance from any airport in Pakistan to any aircraft owned or chartered by the non-resident until the tax due has been paid.
1[145. Assessment of persons about to leave Pakistan.— (1) Where any person is likely to leave Pakistan during the currency of tax year or shortly after its expiry with no intention of returning to Pakistan, he shall give to the Commissioner a notice to that effect not less than fifteen days before the probable date of his departure (hereinafter in this section referred to as the ‘said date’).
(2) The notice under sub-section (1) shall be accompanied by a return or returns of taxable income in respect of the period commencing from the end of the latest tax year for which an assessment has been or, where no such assessment has been made, a return has been made, as the case may be, and ending on the said date, or where no such assessment or return has been made, the tax year or tax years comprising the period ending on the said date; and the period commencing from the end of the latest tax year to the said date shall, for the purposes of this section, be deemed to be a tax year (distinct and separate from any other tax year) in which the said date falls.
(3) Notwithstanding anything contained in sub-sections (1) and (2), the Commissioner may serve a notice on any person who, in his opinion, is likely to leave Pakistan during the current tax year or shortly after its expiry and has no intention of returning to Pakistan, to furnish within such time as may be specified in such notice, a

1Section 145 substituted by the Finance Act, 2003. The substituted section 145 read as follows:
“145. Collection of tax from persons leaving Pakistan permanently.- (1) Where the Commissioner has reasonable grounds to believe that a person may leave Pakistan permanently without paying tax due under this Ordinance, the Commissioner may issue a certificate containing particulars of the tax due to the Commissioner of Immigration and request the Commissioner of Immigration to prevent that person from leaving Pakistan until that person –
(a) makes payment of tax in full; or
(b) makes an arrangement satisfactory to the Commissioner for payment of the tax due.
(2) A copy of a certificate issued under sub-section (1) shall be served on the person named in the certificate if it is practicable to do so.
(3) Payment of the tax specified in the certificate to a customs or immigration officer or the production of a certificate signed by the Commissioner stating that the tax has been paid or satisfactory arrangements for payment have been made shall be sufficient authority for allowing the person to leave Pakistan.”

return or returns of taxable income for the tax year or tax years for which the taxpayer is required to furnish such return or returns under sub-section (2).
(4) The taxable income shall be charged to tax at the rates applicable to the relevant tax year and all the provisions of this Ordinance shall, so far as may be, apply accordingly.]

1[(5) Notwithstanding anything contained in any other law, for the time being in force, where on the basis of information received from any offshore jurisdiction, the Commissioner has reason to believe that such person who is likely to leave Pakistan may be involved in offshore tax evasion or such person is about to dispose of any such asset, the Commissioner may freeze any domestic asset of the person including any asset beneficially owned by the person for a period of one hundred and twenty days or till the finalization of proceeding including but not limited to recovery proceedings under this Ordinance whichever is earlier.]

146. Recovery of tax from persons assessed in Azad Jammu and Kashmir 2[and Gilgit-Baltistan.]— (1) Where any person assessed to tax for any tax year under the law relating to income tax in the Azad Jammu and Kashmir 3[or Gilgit- Baltistan] has failed to pay the tax and the income tax authorities of the Azad Jammu and Kashmir 4[or Gilgit-Baltistan] cannot recover the tax because —

(a) the person’s resi44dence is in Pakistan; or

(b) the person has no movable or immovable property in the Azad Jammu and Kashmir5[or Gilgit-Baltistan],

the Deputy Commissioner in the Azad Jammu and Kashmir 6[or Gilgit-Baltistan] may forward a certificate of recovery to the Commissioner and, on receipt of such certificate, the Commissioner shall recover the tax referred to in the certificate in accordance with this Part.

(2) A certificate of recovery under sub-section (1) shall be in the prescribed form specifying —

(a) the place of residence of the person in Pakistan;

 

1New sub-section (5) added through Finance Act, 2019.
2Inserted by the Finance Act, 2017. 3Inserted by the Finance Act 2017. 4Inserted by the Finance Act 2017. 5Inserted by the Finance Act 2017. 6Inserted by the Finance Act 2017.

(b) the description and location of movable or immovable property of the person in Pakistan; and

(c) the amount of tax payable by the person.

1[146A. Initiation, validity, etc., of recovery proceedings.— (1) Any proceedings for the recovery of tax under this Part may be initiated at any time.

(2) The Commissioner may, at any time, amend the certificate issued under section 138A, or recall such certificate and issue fresh certificate, as he thinks fit.

(3) It shall not be open to a taxpayer to question before the District Officer (Revenue) the validity or correctness of any certificate issued under section 138A, or any such certificate as amended, or any fresh certificate issued, under sub- section (2).

(4) The several modes of recovery provided in this Part shall be deemed to be neither mutually exclusive nor affect in any way any other law for the time being in force relating to the recovery of debts due to the Government and the Commissioner may have recourse to any such mode of recovery notwithstanding that the tax due is being recovered from a taxpayer by any other mode.]

2[146B. Tax arrears settlement incentives scheme.— (1) Subject to provisions of this Ordinance, the Board may make scheme in respect of recovery of tax arrears or withholding taxes and waiver of 3[default surcharge]or penalty levied thereon.
(2) The Board may make rules under section 237 for implementation of such scheme.]

4[146C. Assistance in the recovery and collection of taxes.— The provisions of sections 138, 138A, 138B, 139, 140, 141, 142, 143, 144, 145, 146, 146A, and
146B shall mutatis mutandis apply in respect of assistance in collection and recovery of taxes in pursuance of a request from a foreign jurisdiction under a tax treaty, a multilateral convention, an intergovernmental agreement or similar arrangement or mechanism.]

1 Inserted by the Finance Act, 2002.
2Inserted by the Finance Act, 2008.
3The word “additional tax” substituted by the Finance Act, 2010. The substituted provision has been made effective from 05.06.2010 by sub-clause (77) of clause 8 of the Finance Act, 2010. Earlier the substitution was made through Finance (Amendment) Ordinance, 2009 which was re-promulgated as Finance (Amendment) Ordinance, 2010 and remained effective till 05.06.2010.
4 Section 146C inserted by the Finance Act, 2021.

PART V
ADVANCE TAX AND DEDUCTION OF TAX AT SOURCE
Division I
Advance Tax Paid by the Taxpayer
147. Advance tax paid by the taxpayer.— (1) Subject to sub-section (2), every taxpayer 1[whose income was charged to tax for the latest tax year under this Ordinance or latest assessment year under the repealed Ordinance] other than –
2[ ]
(b) income chargeable to tax under sections 5, 6 and 7;
3[ ]
(c) income subject to deduction of tax at source under section 149;
4[and]
5[ ]
(d) income from which tax has been collected under Division II or deducted under Division III6[or deducted or collected under Chapter XII] and for which no tax credit is allowed as a result of sub-section (3) of section 168,
shall be liable to pay advance tax for the year in accordance with this section.
(2) This section does not apply to an individual where the individual’s 7[] latest assessed taxable income excluding income referred to in clauses 8[(b),] (c) and (d) of sub-section (1) is less than 9[ 10[ 11[one million] ] rupees.

1 The words “who derives or expects to derive income chargeable to tax under this Ordinance in a tax year” substituted by the Finance Act, 2003.
2Clause (a) omitted by the Finance Act, 2010. Omitted clause (a) read as follows:
“(a) income chargeable to tax under the head “Capital Gains”;
3 Clause (ba) omitted by the Finance Act, 2013. The omitted clause (ba) read as follows: “(ba) income chargeable to tax under section 15;”
4The word “or” substituted by the Finance Act, 2009.
5Clause (ca) omitted by the Finance Act, 2009. The omitted clause (ca) read as follows:
“(ca) income chargeable to tax under section 233 and clauses (a) and (b) of sub-section (1) of section 233A;”
6Inserted by the Finance Act, 2009.
7The words “or association of persons” omitted by the Finance Act, 2010.
8 The words “(a), (b),(ba)” substituted by (b) through Finance Act, 2020 dated 30th June, 2020
9 The words “one hundred and fifty thousand” substituted by the Finance Act, 2003.
10The word “two” substituted by the Finance Act, 2010.
11The words “five hundred thousand” substituted by the Finance Act, 2017.

1[ ]

2[(4) Where the taxpayer is3[an association of persons or] a company, the amount of advance tax due for a quarter shall be computed according to the following formula, namely:-

(A x B/C) –D

Where –

A is the taxpayer’s turnover for the quarter 4[:]

5[Provided that where the taxpayer fails to provide turnover or the turnover for the quarter is not known, it shall be taken to be one-fourth of one hundred and ten percent of the turnover of the latest tax year for which a return has been filed;]

B is the tax assessed to the taxpayer for the latest tax year
6[.]

7[“Explanation.- For removal of doubt it is clarified that tax assessed includes tax under sections 113 and 113C.”]

1 Sub-section (3) omitted by the Finance Act, 2004. The omitted sub-section (3) read as follows:
“(3) Advance tax shall be payable by a taxpayer in respect of the following periods, namely:–
(a) 1st of July to 30th September (referred to as the “September quarter”);
(b) 1st October to 31st December (referred to as the “December quarter”);
(c) 1st January to 31st March (referred to as the “March quarter”); and
(d) 1st April to 30th June (referred to as the “June quarter”).”
2 Sub-section (4) substituted by the Finance Act, 2009. The substituted sub-section (4) read as follows:
“(4) where the taxpayer is a company, the amount of advance tax due for a quarter shall be computed according to the following formula, namely:-

(A/4) – B
Where –
A is the tax assessed to the taxpayer for the latest tax year or latest assessment year under the repealed Ordinance; and
B is the tax paid in the quarter for which a tax credit is allowed under section 168, other than tax deducted under section 149 or 155.”
3Inserted by the Finance Act, 2010.
4The semi colon substituted by the Finance Act, 2018
5Added by the Finance Act, 2018.
6 Semicolon substituted by the Finance Act, 2016.
7Added by the Finance Act, 2016.

C is the taxpayer’s turnover for the latest tax year; and
D is the tax paid in the quarter for which a tax credit is allowed under section 1681[ ].]
2[(4A) Any taxpayer 3[including a banking company] who is required to make payment of advance tax in accordance with sub-section (4), shall estimate the tax payable for the relevant tax year, at any time before the second installment is due. In case the tax payable is likely to be more than the amount that the taxpayer 4[including a banking company] is required to pay under sub-section (4), the taxpayer 5[including a banking company] shall furnish to the Commissioner on or before the due date of the second quarter an estimate of the amount of tax payable by the taxpayer 6[including a banking company] and thereafter pay fifty per cent of such amount by the due date of the second quarter of the tax year after making adjustment for the amount, if any, already paid in terms of sub-section (4). The remaining fifty per cent of the estimate shall be paid after the second quarter in two equal installments payable by the due date of the third and fourth quarter of the tax year.”]
7[(4AA) Tax liability under 8[sections 113 and 113C] shall also be taken into account while working out payment of advance tax liability under this section.]
9[(10[4B]) Where the taxpayer is an individual 11[ ] having latest assessed income of 12[ 13[one million] rupees or more as determined under sub-section (2), the amount of advance tax due for a quarter shall be computed according to the following formula, namely: –

1The words, comma and figure “, other than tax deducted under section 155” omitted by the Finance Act, 2013.
2Sub-section (4A) omitted by Finance Act, 2015. The substituted sub-section read as follows:-
“(4A) Any taxpayer who is required to make payment of advance tax in accordance with sub- section (4), shall estimate the tax payable by him for the relevant tax year, at any time before the last instalment is due. In case the tax payable is likely to be more than the amount he is required to pay under sub-section (4), the taxpayer shall furnish to the Commissioner an estimate of the amount of tax payable by him and thereafter pay such amount after making adjustment for the amount (if any) already paid in terms of sub-section (4)”.
3Inserted by the Finance Act, 2018 4Inserted by the Finance Act, 2018. 5Inserted by the Finance Act, 2018. 6Inserted by the Finance Act, 2018. 7Inserted by the Finance Act, 2009.
8The expression “section 113” substituted by the Finance Act, 2016.
9 Inserted by Finance Act, 2003.
10 Sub-section (4A) re-numbered by the Finance Act, 2006.
11The words “or an association of persons” omitted by the Finance Act, 2010.
12The word “two” substituted by the Finance Act, 2010.
13The word “five hundred thousand” substituted by the Finance Act 2017.

“(A/4) – B
Where –
A is the tax assessed to the taxpayer for the latest tax year or latest assessment year under the repealed Ordinance; and
B is the tax paid in the quarter for which a tax credit is allowed under section 168, other than tax deducted under section 149 1[ ].]
(5) Advance tax is payable by 2[an individual 3[]] to the Commissioner—

(a) in respect of the September quarter, on or 4[before] the 5[15th day of September];

(b) in respect of the December quarter, on or before the 6[15th day of December];

(c) in respect of the March quarter, on or before the 7[15th day of March]; and

(d) in respect of the June quarter, on or before the 8[15th day of June].

9[(5A) Advance tax shall be payable by an association of persons or a company to the Commissioner —

(a) in respect of the September quarter, on or before the 25th day of September;

(b) in respect of the December quarter, on or before the 25th day of December;

1The words and figure “or 155” omitted by the Finance Act, 2013.
2The words “a taxpayer” substituted by the Finance Act, 2009.
3The words “or an association of persons” omitted by the Finance Act, 2010.
4 The word “by” substituted by the Finance Act, 2005.
5 The figure and words “7th day of October” substituted by the Finance Act, 2004. 6 The figure and words “7th day of January” substituted by the Finance Act, 2004. 7The figure and words “7th day of April” substituted by the Finance Act, 2004.
8 The figure and words “21st day of June” substituted by the Finance Act, 2004.
9Sub-section (5A) substituted by the Finance Act, 2010. The substituted sub-section (5A) read as follows:
“(5A) Advance tax is payable by a company to the Commissioner –
(a) in respect of the September quarter, on or before the 15th day of October;
(b) in respect of the December quarter, on or before the 15th day of January;
(c) in respect of the March quarter, on or before the 15th day of April; and
(d) in respect of the June quarter, on or before the 15th day of June.”

(c) in respect of the March quarter, on or before the 25th day of March; and
(d) in respect of the June quarter, on or before the 15th day of June.]
1[(5B) Adjustable advance tax on capital gain from sale of securities shall be chargeable as under, namely:—
TABLE

S.No. Period Rate of Advance Tax

1 2 3

1. Where holding period of a security is less than six months. 2% of the capital gains derived during the quarter.
2. Where holding period of a security is more than six months but less than twelve months. 1.5% of the capital gains derived during the quarter:
Provided that such advance tax shall be payable to the Commissioner within a period of 2[twenty-one] days after the close of each quarter:
Provided further that the provisions of this sub-section shall not be applicable to individual investors.]
3[(6) If any taxpayer who is required to make payment of advance tax under sub-section (1) estimates at any time before the last installment is due, that the tax payable by him for the relevant tax year is likely to be less than the amount he is required to pay under sub-section (1), the taxpayer may furnish to the Commissioner an estimate of the amount of the tax payable by him, and thereafter pay such estimated amount, as reduced by the amount, if any, already paid under sub-section (1), in equal installments on such dates as have not expired 4[:]

5[Provided that an estimate of the amount of tax payable shall contain turnover for the completed quarters of the relevant tax year, estimated turnover of the remaining quarters along with reasons for any decline in estimated turnover,

1 Inserted by the Finance Act, 2010.
2The word “seven” substituted by the Finance Act, 2011.
3Sub-section (6) substituted by the Finance Act, 2004. The substituted sub-section (6) read as follows:
“(6) The turnover of a taxpayer for the period from 16th to 30th June of the June quarter shall
be taken to be equal to the turnover for the period from 1st to 15th June of that quarter.”
4 Full stop substituted by the Finance Act, 2018.
5 Added by the Finance Act 2018.

documentary evidence of estimated expenses or deductions which may result in lower payment of advance tax and the computation of the estimated taxable income of the relevant tax year 1[.]
2[ ] ]
3[(6A) Notwithstanding anything contained in this section, where the taxpayer is a company or an association of persons, advance tax shall be payable by it in the absence of last assessed income or declared turnover also. The taxpayer shall estimate the amount of advance tax payable on the basis of quarterly turnover of the company or an association of persons, as the case may be, and thereafter pay such amount after, —
(a) taking into account tax payable under 4[sections 113 and 113C] as provided in sub-section (4AA); and
(b) making adjustment for the amount (if any) already paid.]
5[ ]

6[ ]
(7) The provisions of this Ordinance shall apply to any advance tax due under this section as if the amount due were tax due under an assessment order.
7[(7A) The Board may prescribe the manner for furnishing of the estimate and calculation of the amount of tax payable under this section through Iris or any other automated system specified by the Board.]

 

1 Colon substituted by the Finance Act, 2021.
2 Second proviso omitted by the Finance Act, 2021. The omitted proviso read as follows:
“Provided further that where the Commissioner is not satisfied with the documentary evidence provided or where an estimate of the amount of tax payable is not accompanied by details mentioned in the first proviso, the Commissioner may reject the estimate after providing an opportunity of being heard to the taxpayer and the taxpayer shall pay advance tax according to the formula contained in sub-section (4).”
3Sub-section (6A) substituted by the Finance Act, 2009. The substituted sub-section (6A) read as follows:
“(6A) Notwithstanding anything contained in this section, where the taxpayer is a company,
advance tax shall be payable by it in the absence of last assessed income also. The taxpayer shall estimate the amount of advance tax payable on the basis of estimated Inserted by the Finance Act, 2009.”
4 The expression “section 113” substituted by the Finance Act, 2016.
5 Clause (a) omitted by the Finance Act, 2008. The omitted clause (a) read as follows:
“(a) taking into account tax payable under section 113 as provided in sub-section (4AA);”
6Clause (b) omitted by the Finance Act, 2008. The omitted clause (b) read as follows: “(b) making adjustment for the amount (if any) already paid.”
7New sub-section (7A) inserted through Finance Act, 2020 dated 30th June, 2020

(8) A taxpayer who has paid advance tax under this section for a tax year shall be allowed a tax credit for that tax in computing the tax due by the taxpayer on the taxable income of the taxpayer for that year.

(9) A tax credit allowed for advance tax paid under this section shall be applied in accordance with sub-section (3) of section 4.
(10) A tax credit or part of a tax credit allowed under this section for a tax year that is not able to be credited under sub-section (3) of section 4 for the year shall be refunded to the taxpayer in accordance with section 170.

1[ ]
2[147A. Advance tax from provincial sales tax registered person.- (1) Every provincial sales tax registered person shall be liable to pay adjustable advance tax at the rate of three per cent of the turnover declared before the provincial revenue authority.
(2) The advance tax under sub-section (1) shall be paid monthly at the time when sales tax return is to be filed with the provincial revenue authority.

(3) Advance tax paid under this section may be taken into account while working out advance tax payable under section 147.

(4) The provisions of this Ordinance shall apply to any advance tax due under this section as if the amount due were tax due under an assessment order.

(5) A taxpayer who has paid advance tax under this section for a tax year shall be allowed a tax credit for that tax in computing the tax due by the taxpayer on the taxable income of the taxpayer for that year.
(6) A tax credit allowed for advance tax paid under this section shall be applied in accordance with sub-section (3) of section 4.

(7) A tax credit or part of a tax credit allowed under this section for a tax year that is not able to be credited under sub-section (3) of section 4 for the year shall be refunded to the taxpayer in accordance with section 170.
(8) This section shall not apply to a person 3[whose name was appearing in the active taxpayers’ list] on the thirtieth day of June of the previous tax year.]

1Sub-section (11) omitted by the Finance Act, 2004. The omitted sub-section (11) read as follows: “(11) In this section, “turnover” shall not include amounts referred to in clauses (a), (b), (ba), (c) and
(d) of sub-section (1).”
2Inserted by the Finance Act, 2016.
3Words “who was filer” substituted from Finance Act, 2019

Division II
Advance Tax Paid to a Collection Agent

148. Imports.— (1) The Collector of Customs shall collect advance tax from every importer of goods on the value of the goods at the rate specified in Part II of the First Schedule 1[in respect of goods classified in Parts I to III of the Twelfth Schedule] 2[:

Provided that the Board may, by a notification in the official Gazette, add in the Twelfth Schedule any entry thereto or omit any entry therefrom or amend any entry therein:

Provided further that in case of goods classified under Part III of the Twelfth Schedule which are used both as raw material and finished goods, the Board may, by notification in the official Gazette, specify that goods imported by a person or class of persons as raw material for its own use shall be treated as classified under Part II of the Twelfth Schedule, subject to such conditions and procedure as may be prescribed.]

3[ 4[ ] ]

5[“(2A) Notwithstanding omission of sub-section (2), any notification issued under the said sub-section and for the time being in force, shall continue to remain in force, unless 6[amended or] rescinded by the Board through notification in the official Gazette.”;]

7[ ]

1 The expression inserted through Finance Act, 2020 dated 30th June, 2020
2 The “full stop” substituted by “colon” and thereafter proviso added through Finance Act, 2020 dated 30th June, 2020
3 Sub-section (2) substituted by the Finance Act, 2007. The substituted sub-section (2) read as follows:
“(2) This section shall not apply to –
(a) the re-importation of re-usable containers for re-export qualifying for customs- duty and sales tax exemption on temporary import under the Customs Notification No. S.R.O. 344(1)/95, dated the 25th day of April, 1995; or
(b) the importation of the following petroleum products –
“Motor Spirit (MS), Furnace Oil (FO), JP-1 and MTBE”.”
4 Omitted by Finance act, 2015. The omitted sub-section (2) read as follows:-
“(2)Nothing contained in sub-section (1) shall apply to any goods or class of goods or persons or class of persons importing such goods or class of goods as may be specified by the Board.”
5 Inserted by Finance Act, 2015.
6Inserted by the Finance Act, 2018.
7Sub-section (3) omitted by the Finance Act, 2007. The omitted sub-section (3) read as follows:
“(3) Where a manufacturer imports raw materials (other than edible oils) exclusively for the manufacturer’s own use, the Commissioner may certify a reduction (of up to seventy five per cent)

1[ ]

2[ ]
(5) Advance tax shall be collected in the same manner and at the same time as the customs-duty payable in respect of the import or, if the goods are exempt from customs-duty, at the time customs-duty would be payable if the goods were dutiable.

(6) The provisions of the Customs Act, 1969 (IV of 1969), in so far as relevant, shall apply to the collection of tax under this section.

3[(7) The tax 4[required to be] collected under this section shall be 5[minimum] tax 6[ ] on the income of the importer arising from the imports subject to sub-section (1) and this sub-section shall not apply in the case of import of 7[goods on which tax is required to be collected under this section 8[ ] by an industrial undertaking for its own use.] 9[ ]

of the rate of advance tax applicable under this section if the aggregate of tax paid or collected in a tax year equals the amount of tax paid by the manufacturer in the immediately preceding year.”
1 Sub-section (4) omitted by the Finance Act, 2007. The omitted sub-section (4) read as follows:
“ (4) Notwithstanding the provisions of sub-section (3), a person being a manufacturer who is liable to pay advance tax under section 147, imports raw materials (other than edible oils) exclusively for his, or as the case may be, its own use, the Commissioner shall upon application in writing by such person, issue an exemption certificate effective from the date on which the certificate is issued to the 30th day of June next falling:
Provided that where the person to whom an exemption certificate has been issued fails to pay any instalment due, the Commissioner may cancel the certificate.”
2Sub-section (4A) omitted by the Finance Act, 2008. The omitted sub-section (4A) read as follows:- “(4A) Where, in the case of a person whose income is not subject to final taxation, the Commissioner is satisfied that such person is not likely to pay any tax (other than tax under section 113), the Commissioner shall, upon application in writing made by such person, issue certificate allowing payment of tax collectable under this section at a reduced rate of 0.5%”
3Sub-section (7) substituted by the Finance Act, 2006. The substituted sub-section (7) read as follows:
“(7) Except in the case of an industrial undertaking importing goods as raw materials, plant,
machinery and equipment for its own use, the tax collected under this section shall be a final tax on the income of the importer arising from the imports subject to sub-section (1).”
4Inserted by the Finance Act, 2012.
5Words “a final” substituted through Finance Act, 2019.
6Expression “except as provided under sub-section (8)” omitted through Finance Act, 2019.
7The expression inserted through Finance Act, 2020 dated 30th June, 2020
8 Words “at the rate of 1% or 2%” omitted by the Finance Act, 2022.
9The hyphen and clauses (a),(c),(d)and (e) omitted through Finance Act 2020 dated 30th June, 2020
— (a) raw material, plant, machinery, equipment and parts by an industrial undertaking for its own use;
[ ]
(c) [motor vehicles] in CBU condition by manufacturer of [motor vehicles] [;] [(d) large import houses, who,—
(i) have paid-up capital of exceeding Rs. [250] million;

1[(7A) Notwithstanding anything contained in sub-section (7), the tax required to be collected under this section shall be minimum tax on the income every person arising from imports of following goods –

(i) edible oil;
(ii) packaging material;
(iii) paper and paper board; or
(iv) plastics:

Provided that the Board with the approval of Minister in-charge may, by a notification in the official Gazette, add any entry thereto or omit any entry therefrom or amend any entry therein this sub-section.]

2[ ]
(9) In this section –

“Collector of Customs” means the person appointed as Collector of Customs under section 3 of the Customs Act, 1969 (IV of 1969), and includes a Deputy Collector of Customs, an Additional Collector of

 

(ii) have imports exceeding Rs.500 million during the tax year;
(iii) own total assets exceeding Rs [350] million at the close of the tax year;
(iv) is single object company;
(v) maintain computerized records of imports and sale of goods;
(vi) maintain a system for issuance of 100% cash receipts on sales;
(vii) present accounts for tax audit every year;
(viii) is registered9[under the Sales Tax Act, 1990] and
(ix) make sales of industrial raw material of manufacturer registered [Under the Sales Tax Act,1990] [; and] ]
[(e) a foreign produced film imported for the purposes of screening and viewing.]
1 The sub-section (7A) inserted by the Finance Act, 2022.
2 Sub-section (8) and (8A) omitted through Finance Act, 2020 dated 30th June 2020 the omitted sub- section read as follows:
[ ] [(8) The tax required to be collected from a person under this section shall be minimum tax
for a tax year on the import of─ [(a)]
(b) edible oil;
(c) packing material; and
(d) plastic raw material imported by an industrial undertaking falling under PCT headings 39.01 to 39.12.]
[(8A) The tax collected under this section at the time of import of ships by ship-breakers shall be [minimum] tax.]

Customs, or an officer of customs appointed as such under the aforesaid section; 1[ ]

2[“Value of goods means—

(a) in case of goods chargeable to tax at retail price under the Third Schedule of the Sales Tax Act, 1990, the retail price of such goods increased by sales tax payable in respect of the import and taxable supply of the goods; and]

(b) in case of all other goods; the value of the goods as determined under the Customs Act, 1969 (IV of 1969), as if the goods were subject to ad valorem duty increased by the custom-duty, federal excise duty and sales tax, if any, payable in respect of the import of the goods.; and]]

3[ ]

 

4[ ]

 

 

 

 

1The word “and” omitted by the Finance Act, 2004.
2 The expressions substituted by the Finance Act, 2020 dated 30th June, 2020 the substituted expressions read as follows:
“value of the goods means the value of the goods as determined under the Customs Act, 1969 (IV of
1969), as if the goods were subject to ad valorem duty increased by the customs-duty, federal excise duty and sales tax, if any, payable in respect of the import of the goods.”
3The Explanation omitted through Finance Act, 2020 dated 30th June, 2020 the omitted explanation read as follows:
“Explanation.- For the purpose of this section the expression “edible oils” includes crude oil, imported as raw material for manufacture of ghee or cooking oil”
4Section 148(A) omitted through Finance Act, 2020 dated 30th June, 2020 the omitted section read as follows:
“148A. Tax on local purchase of cooking oil or vegetable ghee by certain persons.— (1)The
manufacturers of cooking oil or vegetable ghee, or both, shall be chargeable to tax at the rate of two percent on purchase of locally produced edible oil.
(2) The tax payable under sub-section (1) shall be final tax in respect of income accruing from locally produced edible oil.”

Division III
Deduction of Tax at Source

149. Salary. — (1) Every 1[person responsible for] paying salary to an employee shall, at the time of payment, deduct tax from the amount paid at the employee’s average rate of tax computed at the rates specified in Division I of Part I of the First Schedule on the estimated income of the employee chargeable under the head “Salary” for the tax year in which the payment is made after making2[adjustment of tax withheld from employee under other heads and tax credit admissible under section 61 3[and 63] during the tax year after obtaining documentary evidence], as may be necessary, for4[:]

5[(i) tax withheld from the employee under this Ordinance during the tax year;

(ii) any excess deduction or deficiency arising out of any previous deduction; or

(iii) failure to make deduction during the year;]

(2) The average rate of tax of an employee for a tax year for the purposes of sub-section (1) shall be computed in accordance with the following formula, namely:–
A/B
where –

A is the tax that would be payable if the amount referred to in component B of the formula were the employee’s taxable income for that year; and

B is the employee’s estimated income under the head “Salary” for that year.

6[(3) Notwithstanding anything contained in sub-sections (1) and (2), every person responsible for making payment for directorship fee or fee for attending

1 The word “employer” substituted by the Finance Act, 2013.
2The words “such adjustment” substituted by the Finance Act, 2007. 3The expression “62, 63 and 64” substituted by the Finance Act, 2022. 4Inserted by the Finance Act, 2007.
5The words “any excess deduction or deficiency arising out of any previous deduction or failure to make a deduction during the year.” substituted by the Finance Act, 2007.
6 Sub-section (3) and (4) added by the Finance Act, 2014.

board meeting or such fee by whatever name called, shall at the time of payment, deduct tax at the rate of twenty percent of the gross amount payable.

(4) Tax deductible under sub-section (3) shall be adjustable.]

150. Dividends. — Every 1[person] paying a dividend shall deduct tax from the gross amount of the dividend paid 2[or collect tax from the amount of dividend in specie] 3[ ] at the rate specified in 4[Division I of Part III] of the First Schedule.

5[ ]

6[ ]

151. Profit on debt. — (1) Where –
7[(a) a person pays yield on an account, deposit or a certificate under the National Savings Scheme or Post Office Savings Account;]
(b) a banking company 8[or] financial institution pays any profit on a debt, being an account or deposit maintained with the company or institution; 9[ ]

 

 

1The words “resident company” substituted by the Finance Act, 2009.
2 Inserted by the Finance Act, 2021.
3The words “or collect tax from the shareholder in the case of bonus shares,” omitted by the Finance Act, 2002.
4The expression “Division III of Part I” substituted by the expression “Division I of Part III” by the Finance
Act, 2014.
5 Inserted by the Presidential Order No.F.2(1)/2016-Pub dated 31.08.2016.
6 Section 150A omitted by the Finance Act, 2021. The omitted section read as follows:
“150A. Return on investment in Sukuks— Every special purpose vehicle, or a company, at the time of]making payment of a return on investment in sukuks to a sukuk holder shall deduct tax from the gross amount of return on investment at the rate specified in Division IB of Part III of the First Schedule.”]
7Clause (a) substituted by the Finance Act, 2003. The substituted clause (a) read as follows:
“(a) a person pays yield on a National Savings Deposit Certificate, including a Defence Savings Certificate, under the National Savings Scheme;”
8 The word “and” substituted by the Finance Act, 2003.
9The word “or” omitted by the Finance Act, 2002.

1[(c) the Federal Government, a Provincial Government or a 2[Local
Government] pays to any person 3[ ] profit on any security 4[other than that referred to in clause (a)] issued by such Government or authority; or]
5[(d) a banking company, a financial institution, a company referred to in 6[sub-clauses (i) and (ii) of clause (b)] of sub-section (2) of section 80, or a finance society pays any profit on any bond, certificate, debenture, security or instrument of any kind (other than a loan agreement between a borrower and a banking company or a development finance institution) to any person other than financial institution.]

the payer of the profit shall deduct tax at the rate specified in Division IA of Part III of the First Schedule from the gross amount of the yield or profit paid as reduced by the amount of Zakat, if any, paid by the recipient under the Zakat and Ushr Ordinance, 1980 (XVII of 1980), at the time the profit is paid to the recipient.

7[(1A) Every special purpose vehicle or a company, at the time of making payment of a return on investment in sukuks to a sukuk holder shall deduct tax from the gross amount of return on investment at the rate specified in Division IB of Part III of the First Schedule.]
(2) This section shall not apply to any profit on debt that is subject to sub- section (2) of section 152.
8[(3) Tax deductible under this section shall be a 9[minimum] tax on the profit on debt arising to a taxpayer, except where —

1 Clause (c) substituted by the Finance Act, 2002. The substituted clause (c) read as follows:
“(c) the Federal Government, a Provincial Government, a local authority, banking company, financial institution, company referred to in clauses (a) and (b) of the definition of “company” in sub- section (2) of section 80, or finance society pays any profit on any bond, certificate, debenture, security or instrument of any kind (other than a loan agreement between a borrower and a banking company or a development finance institution) to any person other than a financial institution, “
2The words “local authority” substituted by the Finance Act, 2008.
3The commas and words “, other than a financial institution,” omitted by the Finance Act, 2003.
4 Inserted by the Finance Act, 2003.
5Added by the Finance Act, 2002.
6The words, letters and brackets “clauses (a) and (b)” substituted by the Finance Act, 2003.
7 Sub-section (1A) inserted by the Finance Act, 2021.
8 Substituted by the Finance Act, 2015. The substituted sub-section (3) read as follows:-
“(3) Tax deductible under this section shall be a final tax on the profit on debt arising to a taxpayer other than a company:
Provided that in the case of a non-filer other than a company the final tax shall be equal to the tax deductible in the case of filer and the tax deducted in excess of that shall be advance income tax adjustable against tax liability.”
9The word “final” substituted through Finance Act, 2019.

(a) taxpayer is a company; or

(b) profit on debt is taxable under section 7B.]

152. Payments to non-residents.— (1) Every person paying an amount of 1[royalty] or fees for technical services to a non-resident person that is chargeable to tax under section 6 shall deduct tax from the gross amount paid at the rate specified in Division IV of Part I of the First Schedule.

2[(1A) Every person making a payment in full or part (including a payment by way of advance) to a non-resident person on the execution of –

(a) a contract or sub-contract under a construction, assembly or installation project in Pakistan, including a contract for the supply of supervisory activities in relation to such project; or

(b) any other contract for construction or services rendered relating thereto; or

(c) a contract for advertisement services rendered by T.V. Satellite Channels,

shall deduct tax from the gross amount payable under the contract at the rate specified in Division II of Part III of the First Schedule.]

3[(1AA) Every person making a payment of insurance premium or re- insurance premium to a non-resident person shall deduct tax from the gross amount paid at the rate specified in Division II of Part III of the First Schedule.]

4[(1AAA)Every person making a payment for advertisement services to a non-resident media person relaying from outside Pakistan shall deduct tax from the gross amount paid at the rate specified in 5[Division II] of Part III of the First Schedule.]

6[ ]

 

1Substituted for the word “royalties” by the Finance Act, 2002.
2Inserted by the Finance Act, 2006. 3 Inserted by the Finance Act, 2008. 4Inserted by the Finance Act, 2012.
5The expression “Division IIIA” substituted by the Finance Act, 2017.
6Sub-section (1B) inserted by the Finance Act, 2006.

1[(1B) The tax deductible under sub-sections (1A), (1AA) and (1AAA) shall be a minimum tax on the income of the non-resident persons in respect of payments mentioned therein.

(1BA) Every person responsible for making payment directly or through an agent or intermediary to a non-resident person for foreign produced commercial for advertisement on any television channel or any other media, shall deduct tax at the rate of twenty percent from the gross amount paid. The tax deductible under this sub-section shall be final tax on the income of non-resident person arising out of such payment.]

2[ ]

3[ ]
4[ ]

5[(1C) Every banking company or a financial institution remitting outside Pakistan an amount of fee for offshore digital services, chargeable to tax under section 6, to a non-resident person on behalf of any resident or a permanent establishment of a non-resident in Pakistan shall deduct tax from the gross amount paid at the rate specified in Division IV of Part I of the First Schedule.]

6[(1D) Every banking company or a financial institution maintaining special convertible rupee account (SCRA) of a non-resident company having no permanent establishment in Pakistan shall deduct tax from capital gain arising on the disposal of debt instruments and Government securities including treasury bills and Pakistan investment bonds invested through SCRA at the rate specified in Division II of Part III of the First Schedule.

 

1 Sub-sections (1B), (1BB) and (1BBB) substituted by the Finance Act, 2021. The substituted sub- sections read as follows:
“(1B) The tax 1[deductible] under sub-section (1A) shall be a 1[minimum] tax on the income of a non-
resident person arising from a contract 1[.]
(1BB) The tax 1[deductible] under sub-section (1AA) shall be a 1[minimum] tax on the income of the non-resident person arising out of such payment.]
(1BBB) The tax deductible under sub-section (1AAA) shall be minimum tax on the income of non- resident person arising out of such payment.”
2Proviso omitted by the Finance Act, 2019 omitted proviso read as follow:
Provided that the provisions of this sub-section shall not apply in respect of a non-resident person unless he opts for the final tax regime.
3 Sub-section (1BB) inserted by the Finance Act, 2008.
4The new Sub-section (1BBB) inserted through Finance Act, 2020 dated 30th June, 2020.
5Inserted by the Finance Act, 2018.
6New sub-sections (1D) and (1E) inserted through Tax Laws (Second Amendment), 2019 dated 26th
December, 2019.

1[(1DA) Every banking company maintaining a Foreign Currency Value Account (FCVA) or a non-resident Pakistani Rupee Value Account (NRVA) of a non-resident individual holding Pakistan Origin Card (POC) or National ID Card for Overseas Pakistanis (NICOP) or Computerized National ID Card (CNIC) shall deduct tax from capital gain arising on the disposal of debt instruments and government securities and certificates (including Shariah compliant variant) invested through aforesaid accounts at the rate specified in Division II of Part III of the First Schedule.]

2[(1DB) Every special purpose vehicle or a company, at the time of making payment of a return on investment in sukuks to a non-resident sukuk holder shall deduct tax from the gross amount of return on investment at the rate specified in Division IB of Part III of the First Schedule.] ]

3[(1DC) Every exchange company licensed by the State Bank of Pakistan shall deduct tax at the time of making payment of service charges or commission or fee, by whatever name called, to the global money transfer operators, international money transfer operators or such other persons engaged in international money transfers or cross-border remittances for facilitating outward remittances, at the rates given in Division IV, Part I of the First Schedule:

Provided that where such person retains service charges or commission or fee, by whatever name called from the amount payable to the exchange company on any account, the exchange company shall be deemed to have paid the service charges or commission or fee, by whatever name called and the exchange company shall collect the tax accordingly.

(1DD) Every banking company while making payment to card network company or payment gateway or any other person, of any transaction fee or licensing fee or service charges or commission or fee by whatever name called or interbank financial telecommunication services, shall deduct tax at the rates given in Division IV, Part I of the First Schedule:

Provided that where card network company or payment gateway or any other person retains money in relation to aforementioned services from the amount payable to the banking company on any account, the banking company shall be deemed to have paid the amount and the banking company shall collect the tax accordingly]

 

1 Sub-section (1DA) inserted by the Finance Act, 2021. Earlier this insertion was made through Tax Laws (Amendment) Ordinance, 2021.
2 Sub-section (1DB) inserted by the Finance Act, 2021.
3 Sub-sections (1DC) and (1DD) inserted by the Finance Act, 2022.

1[(1E) The tax deductible under sub-sections (1D), (1DA) 2[(IDB), (1DC) and (IDD)] shall be a final tax in respect of persons and income mentioned therein.]

(2) Subject to sub-section (3), every person paying an amount to a non-resident person (other than an amount to which sub-section (1) 3[or sub- section (1A) 4[, (1AA)] 5[, (1AAA), 6[(1C)] or (2A)] applies)] shall deduct tax from the gross amount paid at the rate specified in Division II of Part III of the First Schedule.
7[(2A) Every prescribed person making a payment in full or part including a payment by way of advance to a permanent establishment in Pakistan of a non- resident person—
8[(a)] for the sale of goods 9[except where the sale is made by the importer of the goods and tax under section 148 in respect of such goods has been paid and the goods are sold in the same condition as they were when imported];
10[(b)] for the rendering of or providing services; and
11[(c)] on the execution of a contract, other than a contract for the sale of goods or the rendering of or providing services, shall, at the time of making the payment, deduct tax from the gross amount payable (including sales tax, if any) at the rate specified in Division II of Part III of the First Schedule.]
12[(2AA)sub-section (1AA) shall not apply to an amount, with the written approval of the Commissioner, hat is taxable to a permanent establishment in Pakistan of the non-resident person.]

 

1 Sub-section (1E) substituted by the Finance Act, 2021. Earlier an amendment was made through Tax Laws (Amendment) Ordinance, 2021. The substituted sub-section read as follows:
“(1E) The tax deductible under sub-section (1D) shall be a final tax on the income of the non-
resident company arising out of such capital gain.”
2 The expression “and (1DB)” substituted by the Finance Act, 2022.
3Inserted by the Finance Act, 2007. 4Inserted by the Finance Act, 2010. 5 Inserted by the Finance Act, 2012. 6Inserted by the Finance Act, 2019 7 Added by the Finance Act, 2012.
8Clause (i) re-numbered by Finance Act 2017.
9Added by the Finance Act, 2016.
10Clause (ii) re-numbered by Finance Act 2017. 11Clause (iii) re-numbered by Finance Act 2017. 12 Added by the Finance Act, 2012.

1[(2B) the tax deductible under sub-section (2A) shall be minimum tax: Provided that tax deductible under clause (a) of sub-section (2A)
shall not be minimum tax where payments are received for sale of goods by a
company being a manufacturer of such goods.]
(3) Sub-section (2) does not apply to an amount —
(a) that is subject to deduction of tax under section 149, 150, 2[ ] 3[
] 156 4[or 233];
(b) with the written approval of the Commissioner, that is taxable to a permanent establishment in Pakistan of the non-resident person;
(c) that is payable by a person who is liable to pay tax on the amount as representative of the non-resident person under sub- section (3) of section 172; or
(d) where the non-resident person is not chargeable to tax in respect of the amount.
(4) Where a person claims to be a representative of a non-resident person for the purposes of clause (c) of sub-section (3), the person shall file a declaration to that effect with the Commissioner prior to making any payment to the non-resident person.
5[6[(4A) The Commissioner may, on application made 7[in the prescribed form] by the recipient of payment referred to in sub-section (1A) having permanent establishment in Pakistan, or by a recipient of payment referred to in sub-section (2A), as the case may be, and after making such inquiry as the Commissioner thinks fit, allow by order in writing, in cases where the tax deductable under sub-

 

1Sub-section (2B) substituted through Finance Act, 2020 dated 30th June, 2020 the substituted sub- section read as follows:
“(2B) The tax deductible under clause (b) of sub-section (2A) shall be a minimum tax and the provisions of
sub-clauses (i), (ii) and (iii) of clause (b) of
sub-section (3) 1[ ] of section 153 shall mutatis mutandis apply.”
2 The figure and comma “153,” omitted by the Finance Act, 2012. 3The figure and comma “155,” omitted by the Finance Act, 2013. 4Inserted by the Finance Act, 2006.
5Inserted by the Finance Act, 2015.
6Sub-section (4A) substituted by the Finance Act, 2017. The substituted sub-section (4A) reads as follows:
“(4A) The Commissioner may, on application made by the recipient of a payment referred to in sub-section (2A)
and after making such inquiry as the Commissioner thinks fit, may allow in cases where the tax deductable under sub-section (2A) is adjustable, by order in writing, any person to make the payment, without deduction of tax or deduction of tax at a reduced rate.”;]
7The words inserted through Finance Act, 2020 dated 30th June, 2020

section (1) or sub-section (2A) is 1[not minimum tax], any person to make the payment without deduction of tax or deduction of tax at a reduced rate.”;] ]

2[(4B) The Commissioner may, in case of payment that constitutes part of an overall arrangement of a cohesive business operation as referred to in paragraph (ii) of sub-clause (g) of clause (41) of section 2, on application made by the person making payment and after making such inquiry, as the Commissioner thinks fit, allow by order in writing, the person to make payment after deduction of tax equal to 3[twenty] percent of the tax chargeable on such payment under sub- section (1A):

Provided that the credit of the tax so deducted shall be available to the permanent establishment of the non-resident accounting for overall profits arising on the overall cohesive business operation.]

(5) Where a person intends to make a payment to a non-resident person without deduction of tax under this section,4[other than payments liable to reduced rate under relevant agreement for avoidance of double taxation,] the person shall, before making the payment, furnish to the Commissioner a notice in writing setting out —

(a) the name and address of the non-resident person; 5[ ]

(b) the nature and amount of the payment 6[;and

(c) such other particulars as may be prescribed.]

7[(5A) The Commissioner on receipt of notice shall 8[, within thirty days,] pass an order accepting the contention or making the order under sub-section (6).]

(6) Where a person has notified the Commissioner of a payment under sub-section (5) and the Commissioner has reasonable grounds to believe that the non-resident person is chargeable to tax under this Ordinance in respect of the

 

1The word “adjustable” substituted through Finance Act, 2019.
2New sub-section (4B) inserted through Finance Act, 2019.
3The word “thirty” substituted by “twenty” through Finance Act, 2020 dated 30th June, 2020
4Inserted by the Finance Act, 2008.
5The word “and” omitted through Finance Act, 2020 dated 30th June, 2020
6The “full stop” substituted by “semi colon” and the word “and” thereafter new clause (c) added through Finance Act, 2020 dated 30th June, 2020.
7 Inserted by the Finance Act, 2003.
8Inserted by the Finance Act, 2004.

payment, the Commissioner may, by 1[order] in writing, direct the person making the payment to deduct tax from the payment in accordance with sub-section (2).
(7) Sub-section (5) shall not apply to a payment on account of –
2[(a) an import of goods where title to the goods passes outside Pakistan and is supported by import documents, except where —

(i) the supply is made in connection with the overall arrangement for the supply of goods, installation, construction, assembly, commission, guarantees or supervisory activities and all or principal activities are undertaken or performed either by the associates of the person supplying the goods or its permanent establishment, whether or not the title passes outside Pakistan and whether or not the goods are imported in the name of the associate or any other person; or

(ii) the supply is made by a resident person or a Pakistan permanent establishment of a non-resident person in connection with the overall arrangement as referred to in sub-clause (i); or” ]

(b) educational and medical expenses remitted in accordance with the regulations of the State Bank of Pakistan.

3[(8) In this section “prescribed person” means a prescribed person as defined in sub-section (7) of section 153.]

4[ ]

5[ ]

1 The word “notice” substituted by the Finance Act, 2004.
2Clause (a) subsituited by the finance Act 2018, the substituated clause (a) is read as follows
“(a) an import of goods where title to the goods passes outside Pakistan2[and is supported by import documents], except an 2[ ] import that is part of an overall arrangement for the supply of goods, their installation, and any commission and guarantees in respect of the supply where –
(i) the supply is made by the head office outside Pakistan of a person to a permanent establishment of the person in Pakistan;
(ii) the supply is made by a permanent establishment of the person outside Pakistan to a permanent establishment of the person in Pakistan;
(iii) the supply is made between associates; or
(iv) the supply is made by a resident person or a Pakistan permanent establishment of a non- resident person; or”
3 Added by the Finance Act, 2012.
4 Inserted by the Finance Act, 2016.
5 Section 152A omitted by the Finance Act, 2021. The omitted section read as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

“152A. Payment for foreign produced commercials.─ (1) Every person responsible for making payment directly or through an agent or intermediary to a non resident person for foreign produced commercial for advertisement on any television channel or any other media shall deduct tax at the rate of twenty percent from the gross amount paid.
(2) The tax deductable under sub-section (1), shall be final tax on the income of non- resident person arising out of such payment.”

1[153. Payments for goods, services and contracts.— (1) Every prescribed person making a payment in full or part including a payment by way of advance to a resident person 1[ ] 2[ ] —

1 Section 153 substituted by the Finance Act, 2011. The substituted section 153 read as follows: “153. Payments for goods and services. — (1) Every prescribed person making a payment in full or part including a payment by way of advance to a resident person or permanent establishment in Pakistan of a non-resident person—
(a) for the sale of goods;
(b) for the rendering of or providing of services;
(c) on the execution of a contract, other than a contract for the sale of goods or the rendering of or providing of services,
shall, at the time of making the payment, deduct tax from the gross amount payable at the rate specified in Division III of Part III of the First Schedule.
(1A) Every exporter or an export house making a payment in full or part including a payment by way of advance to a resident person or permanent establishment in Pakistan of a non-resident person for the rendering of or providing of services of stitching, dying, printing, embroidery, washing, sizing and weaving, shall at the time of making the payment, deduct tax from the gross amount payable at the rate specified in Division IV of Part III of the First Schedule.
(2) The gross amount payable for a sale of goods shall include the sales tax, if any, payable in respect of the sale.
(3) Omitted.
(4) The Commissioner may, on application made by the recipient of a payment referred to in sub-section (1) and after making such enquiry as the Commissioner thinks fit, allow, by order in writing, any person to make the payment without deduction of tax.
(5) Sub-section (1) shall not apply to –
(a) a sale of goods where –
(i) the sale is made by the importer of the goods;
(ii) the importer has paid tax under section 148 in respect of the goods; and
(iii) the goods are sold in the same condition they were in when imported;
(b) a refund of any security deposit;
(ba) a payment made by the Federal Government, a Provincial Government or a Local Government] to a contractor for construction materials supplied to the contractor by the said Government or the authority;
(bb) a cotton ginner who deposits in the Government Treasury, an amount equal to the amount of tax deductible on the payment being made to him, and evidence to this effect is provided to the “prescribed person”;
(c) the purchase of an asset under a lease and buy back agreement by a modaraba, leasing company, banking company or financial institution; or
(d) any payment for securitization of receivables by a Special Purpose Vehicle to the Originator.
(e) Omitted.
(6) The tax deducted under this section shall be a final tax on the income of a resident person arising from transactions referred to in sub-section (1) or (1A):
Provided that sub-section (6) shall not apply to companies in respect of transactions referred to in clause (b) of sub-section (1):
Provided further that this sub-section shall not apply to payments received on account of—
(i) advertisement services, by owners of newspapers and magazines;
(ii) sale of goods and execution of contracts by a public company listed on a registered stock exchange in Pakistan; and
(iii) the rendering of or providing of services referred to in sub-clause (b) of sub-section (1):
Provided that tax deducted under sub-clause (b) of sub-section (1) of section 153 shall be minimum tax.

(a) for the sale of goods 3[including toll manufacturing] 4[, except where payment is less than seventy-five thousand Rupees in aggregate, during a financial year];

(b) for the rendering of or providing of services 5[except where payment is less than thirty thousand Rupees in aggregate, during a financial year];

(c) on the execution of a contract, 6[including contract signed by a sportsperson] 7[but not including] a contract for the sale of goods

(6A) The provisions of sub-section (6) in so far as they relate to payments on account of supply of goods from which tax is deductible under this section shall not apply in respect of a company being a manufacturer of such goods.
(6B) Omitted previously.
(7) Omitted previously.
(8) Where any tax is deducted by a person making a payment to a Special Purpose Vehicle, on behalf of the Originator, the tax is credited to the Originator.
(8A) Omitted previously.
(9) In this section, –
“prescribed person” means –
(a) the Federal Government;
(b) a company;
(c) an association of persons constituted by, or under law; (cc) a non-profit organization;
(d) a foreign contractor or consultant;
(e) a consortium or joint venture;
(f) an exporter or an export house for the purpose of sub-section (1A);
(g) an association of persons, having turnover of fifty million rupees or above in tax year 2007 1[or in any subsequent tax year .
(h) an individual, having turnover of fifty million rupees or above in the tax year 2009 or in any subsequent year.
“services” includes the services of accountants, architects, dentists, doctors, engineers, interior decorators and lawyers, otherwise than as an employee.
“sale of goods” includes a sale of goods for cash or on credit, whether under written contract or not “manufacturer” for the purpose of this section means, a person who is engaged in production or manufacturing of goods, which includes-
(a) any process in which an article singly or in combination with other articles, material, components, is either converted into another distinct article or produce is so changed, transferred, or reshaped that it becomes capable of being put to use differently or distinctly; or
(b) a process of assembling, mixing, cutting or preparation of goods in any other manner.”
1The word “or” omitted through Finance Act, 2020 dated 30th June, 2020
2The words “permanent establishment in Pakistan of a non-resident person” omitted by the Finance Act, 2012.
3The words inserted through Finance Act, 2020 dated 30th June, 2020
4Inserted by the Finance Act, 2018. 5Inserted by the Finance Act, 2018. 6Inserted by the Finance Act, 2014.
7 The words “other than” substituted by the words “but not including” by the Finance Act, 2014.

or the rendering of or providing services, shall, at the time of making the payment, deduct tax from the gross amount payable (including sales tax, if any) at the rate specified in Division III of Part III of the First Schedule 1[;]

2[Provided that where the recipient of the payment under clause (b) receives the payment through an agent or any other third person and the agent or, as the case may be, the third person retains service charges or fee, by whatever name called, from the payment remitted to the recipient, the agent or the third person shall be treated to have been paid the service charges or fee by the recipient and the recipient shall collect tax along with the payment received.]
(2) Every exporter or an export house making a payment in full or part including a payment by way of advance to a resident person or permanent establishment in Pakistan of a non-resident person for rendering of or providing services of stitching, dying, printing, embroidery, washing, sizing and weaving, shall at the time of making the payment, deduct tax from the gross amount payable at the rate specified in Division IV of Part III of the First Schedule.

(3) The tax 3[deductible] under 4[ ] sub-section (1) and under sub-section
(2) of this section, on the income of a resident person or 5[ ], shall be 6[minimum] tax.

Provided that,—

(a) tax deducted under clause (a) of sub-section (1) shall 7[not be minimum tax] where payments are received on sale or supply of goods, by a, —

(i) company being a manufacturer of such goods; or

(ii) public company listed on a registered stock exchange in Pakistan;

 

1Fullstop substituted by the Finance Act, 2017.
2Added by the Finance Act, 2017.
3 The words “deducted” substituted by the Finance Act, 2012.
4The words “clauses (a) and (c) of” omitted through Finance Act, 2020 dated 30th June, 2020
5The words “ permanent establishment in Pakistan of a non-resident person” omitted by the Finance Act, 2012.
6The word “final” substituted by the Finance Act, 2019
7The words “be adjustable” substituted through Finance Act, 2019.

1[ ]

(c) tax deducted under clause (c) of sub-section (1) shall be adjustable if payments are received by a public company listed on a registered stock exchange in Pakistan, on account of execution of contracts2[ ] 3[ ] 4[.

“Explanation.— For the removal of doubt, it is explained that the income of resident person referred to in sub-section (3) means the amount on which tax is deductible under sub-section (1) or
(2) of this section.]

5[ ]

6[ ]

(4) The Commissioner may, on application made by the recipient of a payment referred to in sub-section (1) and after making such inquiry as the Commissioner thinks fit, may allow in cases where tax deductible under sub- section (1) is 7[not minimum], by an order in writing, any person to make the payment,—

1 Clause (b) omitted through Finance Act, 2020 dated 30th June, 2020 the omitted clause reads as follow:-
“(b) tax deductible shall be a minimum tax on transactions referred to in clause (b) of sub-section (1).” 1[“(i) where the aforesaid minimum tax for providing or rendering services, in respect of sectors as specified in clause (94) of Part IV of the Second Schedule is in excess of tax payable under Division II of Part. I of the First Schedule, the excess amount of tax paid shall be carried forward for adjustment against tax liability under the aforesaid Part of the subsequent tax year;”]

1[“(ii) where the excess tax is not wholly adjusted, the amount not adjusted shall be carried forward to the following tax year and adjusted against tax liability under the aforesaid Part for that year, and so on, but the said excess shall not be carried forward to more than five tax years immediately succeeding the tax year for which the excess was first paid; and”]

1[“(iii) the said excess amount shall not be carried forward in case of a company for which provisions of this clause are not applicable under clause (94) of Part IV of the Second Schedule; 1[ ] “;]

2substituted “.” by the Finance Act, 2015
3The word “and” omitted by the Finance Act, 2016.
4 Semi colon substituted with a full stop and new explanation added by the by the Finance (Supplementary) Act, 2022.
5 Claude (d) omitted through Finance Act, 2020 dated 30th June, 2020 the omitted clause read as follows: “(d)tax deducted under clause (c) of sub-section (1) in respect of a sportsperson shall be
5[minimum] tax 5[ ] 5[; and] “
6 Claude (e) omitted through Finance Act, 2020 dated 30th June, 2020 the omitted clause read as follows: “(e) tax deducted under clause (b) of sub-section (1) by person making payments to electronic and print media for advertising services shall be 6[minimum] tax 6[ ].”
7 The word “adjustable” substituted by the Finance Act 2019

(a) without deduction of tax; or
(b) deduction of tax at a reduced rate 1[;

Provided that the Commissioner shall issue certificate for payment under clause (a) of sub-section (1) without deduction of tax within fifteen days of filing of application to a 2[company] if advance tax liability has been discharged:

Provided further that the Commissioner shall be deemed to have issued the exemption certificate upon the expiry of fifteen days to the aforesaid 3[ ] company and the certificate shall be automatically processed and issued by Iris:

Provided also that the Commissioner may modify or cancel the certificate issued automatically by Iris on the basis of reasons to be recorded in writing after providing an opportunity of being heard.]

4[ ]

(5) Sub-section (1) shall not apply to —

(a) a sale of goods where the sale is made by the importer of the goods and tax under section 148 in respect of such goods has been paid and the goods are sold in the same condition as they were when imported;

5[ ]

(c) a refund of any security deposit;

(d) a payment made by the Federal Government, a Provincial Government or a Local Government to a contractor for

1Full stop substituted by sami colon and new provisos added through Finance Act, 2020
2 The words “public company listed on a registered stock exchange in Pakistan” substituted by the Finance Act, 2021.
3 The words “public listed” omitted by the Finance Act, 2021.
4Sub-section (4A) omitted through Finance Act, 2019, omitted sub-section read as follows:
(4A) The Commissioner, on an application made by the recipient of a payment referred to in clause (94) of Part IV of the Second Schedule, in cases where the said recipient has fulfilled the conditions as specified in the said clause, by an order in writing for a period of at least three months, may allow any person to make the payment without deduction of tax in respect of payments as referred to in clauses (b) of sub-section (1) of section 153:
Provided that the recipient of the payment has made advance payment of tax equal to two percent of the total turnover of the corresponding period of the immediately preceding tax year.
5 Clause (b) omitted by the Finance Act, 2021. The omitted clause read as follows:
“(b) payments made to traders of yarn by the taxpayers specified in the zero- rated regime of sales tax (as provided under clause (45A) of Part-IV of the Second Schedule);”

construction materials supplied to the contractor by the said Government or the authority;

1[ ]

(f) the purchase of an asset under a lease and buy back agreement by a modaraba, leasing company, banking company or financial institution; or

(g) any payment for securitization of receivables2[“or issuance of
sukuks”] by a Special Purpose Vehicle to the Originator.

(6) Where any tax is deducted by a person making a payment for a Special Purpose Vehicle, on behalf of the Originator, the tax is credited to the Originator.

(7) In this section, —

(i) “prescribed person” means—

(a) the Federal Government;

(b) a company;

(c) an association of persons constituted by, or under law;

(d) a non-profit organization;

(e) a foreign contractor or consultant;

(f) a consortium or joint venture;

(g) an exporter or an export house for the purpose of sub- section (2);

 

 

 

1 Clause (e) omitted by the Finance Act, 2016. The omitted clause (e) read as follows:-
“(e) a cotton ginner who deposits in the Government Treasury, an amount equal to the amount of tax deductible on the payment being made to him, and evidence to this effect is provided to the “prescribed person”.
2 Inserted by the Presidential Order No.F.2(1)/2016-Pub dated 31.08.2016.

(h) an association of persons, having turnover of 1[one hundred] million rupees or above in 2[any of the preceding tax years]; 3[ ]

(i) an individual, having turnover of 4[one hundred] million rupees or above in 5[any of the preceding tax years]; 6[ ]

[(j) a person registered under the Sales Tax Act, 1990 7[having turnover of one hundred million rupees or more in any of the preceding tax years]; 8[or]]

9[(k) a person deriving income from the business of construction and sale of residential, commercial or other buildings (builder); or

(l) a person deriving income from the business of development and sale of residential, commercial or other plots (developer).]

(ii) “services” includes the services of accountants, architects, dentists, doctors, engineers, interior decorators and lawyers, otherwise than as an employee;

(iii) “sale of goods” includes a sale of goods for cash or on credit, whether under written contract or not;

(iv) “manufacturer” means a person who is engaged in production or manufacturing of goods, which includes—

(a) any process in which an article singly or in combination with other articles, material, components, is either converted into another distinct article or product is so changed, transferred, or reshaped that it becomes capable of being put to use differently or distinctly; or

 

1 The word “fifty” substituted through Finance Act, 2020 dated 30th June, 2020
2 The expression “tax year 2007 or in any subsequent tax year” substituted by the finance Act 2018.
3 The word “or” omitted by the Finance Act, 2013.
4 The word “fifty” substituted through Finance Act, 2020 dated 30th June, 2020
5The expression “the tax year 2009 or in any subsequent tax year” substituted by the finance Act 2018.
6The word “or” omitted by the finance Act 2018.
7The expression inserted through Finance Act, 2020 dated 30th June, 2020
8Inserted by the finance Act 2018.
9Added by the Finance Act, 2018.

(b) a process of assembling, mixing, cutting or preparation of goods in any other manner; and
(v) “turnover” means—
(a) the gross sales or gross receipts, inclusive of sales tax and federal excise duty or any trade discounts shown on invoices, or bills, derived from the sale of goods;
(b) the gross fees for the rendering of services for giving benefits including commissions;
(c) the gross receipts from the execution of contracts; and
(d) the company’s share of the amounts stated above of any association of persons of which the company is a member.]

1[ ]

2[ ]

3[ ]
154. Exports. — (1) Every authorised dealer in foreign exchange shall, at the time of realisation of foreign exchange proceeds on account of the export of goods by an exporter, deduct tax from the proceeds at the rate specified in Division IV of Part III of the First Schedule.
4[ ]

1 Section 153A omitted by the Finance Act, 2013. Earlier it was substituted by the Finance Act, 2012, which was inserted by the Finance Act, 2008. The omitted section 153A read as follows:
“153A. Payment to traders and distributors.— (1) Every manufacturer, at the time of sale to
distributors, dealers and wholesalers, shall collect tax at the rate specified in Part IIA of the First Schedule, from the aforesaid persons, to whom such sales have been made.
(2) Tax credit for the tax collected under sub-section (1) shall be allowed in computing the tax due by the person on the taxable income for the tax year in which the tax was collected.”
2New section 153B inserted through Finance Act, 2019.
3 Section 153B omitted by the Finance Act, 2021. The omitted section read as follows:
“153B. Payment of royalty to resident persons.- (1) Every person paying an amount of royalty, in full or in part including by way of advance, to a resident person shall deduct tax from the gross amount payable (including Federal excise duty and provincial sales tax, if any) at the rate specified in Division IIIB of Part III of the First Schedule.
(2) The tax deductible under sub-section (1) shall be adjustable.”
4 Sub-sections (2) omitted by the Finance Act, 2022. The omitted sub-section read as follows:
“(2) Every authorised dealer in foreign exchange shall, at the time of realisation of foreign exchange proceeds on account of the commission due to an indenting commission agent, deduct tax from the proceeds at the rate specified in Division IV of Part III of the First Schedule.”

(3) Every banking company shall, at the time of realisation of the proceeds on account of a sale of goods to an exporter under an inland back-to- back letter of credit or any other arrangement as prescribed by the 1[Board], deduct tax from the amount of the proceeds at the rate specified in Division IV of Part III of the First Schedule.
2[(3A) The Export Processing Zone Authority established under the Export Processing Zone Authority Ordinance, 1980 (VI of 1980), shall at the time of export of goods by an industrial undertaking located in the areas declared by the Federal Government to be a Zone within the meaning of the aforesaid Ordinance, collect tax at the rate specified in Division IV of Part III of the First Schedule.]

3[(3B) Every direct exporter and an export house registered under the Duty and Tax Remission for Exports Rules, 2001 provided in Sub-Chapter 7 of Chapter XII of the Customs Rules, 2001 shall, at the time of making payment for a firm contract to an indirect exporter defined under the said rules, deduct tax at the rates specified in Division IV of Part III of the First Schedule.]

4[(3C) The Collector of Customs at the time of clearing of goods exported shall collect tax from the gross value of such goods at the rate specified in Division IV of Part III of the First Schedule.]

(4) The tax 5[deductible] under 6[this section] shall be a final tax on the income arising from the 7[transactions referred to in this section].

8[“(5) The provisions of sub-section (4) shall not apply to a person who opts not to be subject to final taxation:

Provided that this sub-section shall be applicable from tax year 2015 and the option shall be exercised every year at the time of filing of return under section 114:

Provided further that the tax deducted under this sub-section shall be minimum tax.”]

1 The words “Central Board of Revenue” substituted by the Finance Act, 2007.
2 Inserted by the Finance Act, 2003. 3 Inserted by the Finance Act, 2003. 4 Inserted by the Finance Act, 2009.
5The words “deducted” substituted by the Finance Act, 2012.
6The word, figures, brackets and commas “sub-section (1), (3), (3A) or (3B)” substituted by the Finance Act, 2006.
7The words ”export or sale to an exporter” substituted by the Finance Act, 2007.
8Inserted by the Finance Act, 2015

1[154A. Export of Services.— (1) Every authorized dealer in foreign exchange shall, at the time of realization of foreign exchange proceeds on account of the following, deduct tax from the proceeds at the rates specified in Division IVA of Part III of the First Schedule –

(a) exports of computer software or IT services or IT enabled services 2[where the exporter is registered with and duly certified by the Pakistan Software Export Board (PSEB).];

(b) services or technical services rendered outside Pakistan or exported from Pakistan;

(c) royalty, commission or fees derived by a resident company from a foreign enterprise in consideration for the use outside Pakistan of any patent, invention, model, design, secret process or formula or similar property right, or information concerning industrial, commercial or scientific knowledge, experience or skill made available or provided to such enterprise;

(d) construction contracts executed outside Pakistan 3[:

(da) foreign commission due to an indenting commission agent;]
(e) other services rendered outside Pakistan as notified by the Board from time to time;

(2) The tax deductible under this section shall be a final tax on the income arising from the transactions referred to in this section, upon fulfilment of the following conditions –

(a) return has been filed;

4[(b) withholding tax statements for the relevant tax year have been filed if required under the Ordinance;] and

(b) sales tax returns under Federal or Provincial laws have been filed, if required under the law;

(d) no credit for foreign taxes paid shall be allowed.

1 Section 154A inserted by the Finance Act, 2021.
2 The expression “in case tax credit under section 65F is not available” substituted by the Finance Act, 2022.
3 The expression “; and“ substituted with colon and new clause (da) inserted by the Finance Act, 2022.
4 Clause (b) substituted by the Finance Act, 2022. The substituted clause read as follows: “(b) withholding tax statements for the relevant tax year have been filed;”

(3) The provisions of sub-section (2) shall not apply to a person who does not fulfill the specified conditions or who opts not to be subject to final taxation:

Provided that the option shall be exercised every year at the time of filing of return under section 114.

1[ ]

(5) The Board in consultation with State Bank of Pakistan shall prescribe mode, manner and procedure of payment of tax under this section.

(6) The Board shall have power to include or exclude certain services for applicability of provisions of this section.]

155. 2[Rent of immoveable] property.— (1) 3[Every] prescribed person making a payment in full or part (including a payment by way of advance) to any person on account of rent of immovable property (including rent of furniture and fixtures, and amounts for services relating to such property) shall deduct tax from the gross amount of rent paid at the rate specified in Division V of Part III of the First Schedule.

4[Explanation.- “gross amount of rent” includes the amount referred to in sub- section (1) or (3) of section 16, if any.]

5[Explanation.— For removal of doubt, it is clarified that the sub section (1) shall apply when a payment is made on account of rent of immoveable property irrespective of head of income]

6[ ]

7[(3) In this section, “prescribed person” means –

1 Sub-section (4) omitted by the Finance Act, 2022. The omitted sub-section read as follows:
“(4) Where a taxpayer, while explaining the nature and source of any amount, investment, money, valuable article, expenditure, referred to in section 111, takes into account any source of income which is subject to final tax in accordance with the provisions of this section, he shall not be entitled to take credit of a sum that can be reasonably attributed to the business activity or activities mentioned in sub- section (1).]
2 The words “income from” substituted by the Finance Act, 2021.
3 The words, brackets, figure and comma “Subject to sub-section (2), every” substituted by the Finance Act, 2006.
4Inserted by the Finance Act, 2006.
5 Added by the Finance Act, 2021.
6 Sub-section (2) omitted by the Finance Act, 2010. The omitted sub-section (2) read as follows: “(2) The tax deducted under sub-section (1) shall be a final tax on the income from property.”
7Sub-section (3) substituted by the Finance Act, 2006. The substituted sub-section (3) read as follows:

(i) the Federal Government;
(ii) a Provincial Government;
(iii) 1[Local Government];
(iv) a company;
(v) a non-profit organization2[or a charitable institution];
(vi) a diplomatic mission of a foreign state; 3[ ]
4[(via) a private educational institution, a boutique, a beauty parlour, a hospital, a clinic or a maternity home;]
5[(vib) individuals or association of persons paying gross rent of rupees one and a half million and above in a year; or]
(vii) any other person notified by the 6[Board] for the purpose of this section.]
156. Prizes and winnings.—(1) Every person paying 7[prize on] a prize bond, or winnings from a raffle, lottery, 8[prize on winning a quiz, prize offered by companies for promotion of sale,] or cross-word puzzle shall deduct tax from the gross amount paid at the rate specified in Division VI of Part III of the First Schedule.
(2) Where a prize, referred to in sub-section (1), is not in cash, the person while giving the prize shall collect tax on the fair market value of the prize.

9[(3) The tax 10[deductible] under sub-section (1) or collected under 11[sub-]section (2) shall be final tax on the income from prizes or winnings referred to in the said sub-sections.]

“(3) In this section, “prescribed person” means the Federal Government, a Provincial Government, local authority, a company, a non-profit organisation or a diplomatic mission of a foreign state.”
1The words “local authority” substituted by the Finance Act, 2008.
2Inserted by the Finance Act, 2013.
3 The word “or” omitted by the Finance Act, 2013.
4 Inserted by the Finance Act, 2013.
5 Inserted by the Finance Act, 2013.
6 The words “Central Board of Revenue” substituted by the Finance Act, 2007.
7 Inserted by the Finance Act, 2002.
8Inserted by the Finance Act, 2003.
9 Sub-section (3) substituted by the Finance Act, 2002. The substituted sub-section (3) read as follows: “(3) The tax deducted under sub-section (1) shall be a final tax on the prize bond or winnings.“
10 The words “deducted” substituted by the Finance Act, 2012.
11Inserted by the Finance Act, 2014.

1[156A. Petroleum Products.— (1) Every person selling petroleum products to a petrol pump operator shall deduct tax from the amount of commission or discount allowed to the operator at the rate specified in Division VIA of Part III of the First schedule.
(2) The tax 2[deductible] under sub-section (1) shall be a final tax on the income arising from the sale of petroleum products to which sub-section (1) applies.]
3[ ]
4[ ]
5[158.Time of deduction of tax.— A person required to deduct tax from an amount paid by the person shall deduct tax —

 

 

1 Added by the Finance Act, 2004.
2 The words “deducted” substituted by the Finance Act, 2012.
3 Section 156B omitted through Finance Act, 2020 dated 30th June, 2020 the omitted section read as follows: 156B. Withdrawal of balance under Pension Fund.— (1) A pension fund manager making payment from individual pension accounts, maintained under any approved Pension Fund, shall deduct tax at the rate specified in sub-section (6) of section 12 from any amount –
(a) withdrawn before the retirement age 3[:]
3[Provided that the tax shall not be deducted in case of the eligible person suffering from any disability as mentioned in sub-rule (2) of rule 17 of the Voluntary Pension System Rules, 2005 which renders him unable to continue with any employment at the age which he may so elect to be treated as the retirement age or the age as on the date of such disability if not so elected by him.]
3[Provided further that the tax shall not be deducted on the share of the nominated survivor of the deceased eligible person and would be treated as if the eligible person had reached the age of retirement.]
(b) withdrawn, if in excess of 3[fifty per cent] of his accumulated balance at or after the retirement age:
3[Provided that the tax shall not be deducted in case, the balance in the eligible persons’ individual pension account is invested in an approved income payment plan of a pension fund manager or paid to a life insurance company for the purchase of an approved annuity plan or is transferred to another individual pension account of the eligible person or the survivors’ pension account in case of death of the eligible person maintained with any other pension fund manager as specified in the Voluntary Pension System Rules, 2005.
4 Omitted by the Finance Act, 2002. The omitted section 157 read as follows:
“157. Petroleum products.- (1) Every person selling petroleum products to a petrol pump operator shall deduct tax from the amount of commission or discount allowed to the operator at the rate specified in Division VII of Part III of the First Schedule.
(2) The tax deducted under sub-section (1) shall be a final tax on the income arising from the sale of petroleum products to which sub-section (1) applies.”
5Substituted by the Finance Act, 2002. The substituted section 158 read as follows:
“158. Time of deduction of tax.- A person required to deduct tax from an amount paid by the person shall deduct the tax at the earlier of –
(a) the time the amount is credited to the account of the recipient; or
(b) the time of amount is actually paid.”

(a) in the case of deduction under section 151, at the time the amount is 1[paid or] credited to the account of recipient 2[, whichever is earlier]; and
(b) in other cases, at the time the amount is actually paid 3[;and] 4[“(c) amount actually paid shall have the meaning as may be
prescribed.”;]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1 Inserted by the Finance Act, 2003. 2 Inserted by the Finance Act, 2003. 3Substituted “.” By Finance Act, 2015. 4Added by the Finance Act, 2015.

Division IV
General Provisions Relating to the Advance Payment of Tax or the Deduction of Tax at Source

159. Exemption or lower rate certificate.— (1) Where the Commissioner is satisfied that an amount 1[ ] to which Division II or III of this Part 2[or Chapter XII] applies is –

(a) exempt from tax under this Ordinance; or

(b) subject to tax at a rate lower than that specified in the First Schedule 3[; or

(c) is subject to hundred percent tax credit under 4[under this Ordinance], ]

the Commissioner shall, upon application in writing by the person,5[in the prescribed form] issue the person with an exemption or lower rate certificate 6[:

Provided that in case of a company, the Commissioner shall issue exemption or lower rate certificate under this section within fifteen days of filing of application by the company:

Provided further that the Commissioner shall be deemed to have issued the exemption certificate upon the expiry of fifteen days from filing of application by the aforesaid company and the certificate shall be automatically processed and issued by Iris:

Provided also that the Commissioner may modify or cancel the certificate issued automatically by Iris on the basis of reasons to be recorded in writing after providing an opportunity of being heard.]

7[(1A) The Commissioner shall, upon application from a person,8[in the prescribed form] whose income is not likely to be chargeable to tax under 9[ ] this

1The words “paid to a person” omitted by the Finance Act, 2003.
2Inserted by the Finance Act, 2002.
3Comma substituted by a semi colon and a new clause (c) added by the Finance Act, 2014.
4 The expression “section 100C” substituted by the Finance Act, 2021.
5The words inserted through Finance Act, 2020 dated 30th June, 2020
6 Full stop substituted and three provisos added by the Finance Act, 2021.
7 Inserted by the Finance Act, 2003.
8The words inserted through Finance Act, 2020 dated 30th June, 2020
9 The word “the” omitted by the Finance Act, 2004.

Ordinance, issue exemption certificate for the profit on debt referred to in clause
(c) of sub-section (1) of section 151.]

(2) A person required to collect advance tax under Division II of this Part or deduct tax from a payment under Division III of this Part 1[or deduct or collect tax under Chapter XII] shall collect or deduct the full amount of tax specified in Division II or III 2[or Chapter XII], as the case may be, unless there is in force a certificate issued under sub-section (1) relating to the collection or deduction of such tax, in which case the person shall comply with the certificate.

3[ 4[ ] ]
5[ ]

6[ [ ] ]

7[(6) Notwithstanding omission of sub-sections (3), (4) and (5), any notification issued under the said sub-sections and for the time being in force, shall continue to remain in force, unless rescinded by the Board through notification in the official Gazette.]
160. Payment of tax collected or deducted.— Any tax that has been collected or purported to be collected under Division II of this Part or deducted or purported to be deducted under Division III of this Part 8[or deducted or collected, or purported to be deducted or collected under Chapter XII] shall be paid to the

1 Inserted by the Finance Act, 2003.
2 Inserted by the Finance Act, 2003.
3Sub-section (3) substituted by the Finance Act, 2008. The substituted sub-section (3) read as follows: “(3) The Board may, from time to time, by notification in the official Gazette, amend the rates of withholding tax prescribed under the Ordinance.”
4Omitted by Finance Act, 2015. The omitted sub-section (3) read as follows:-
“(3) The Board may, from time to time, by notification in the official Gazette –
(a) amend the rates of withholding tax prescribed under this Ordinance; or
(b) exempt persons, class of persons, goods or class of goods from withholding tax under this Ordinance.”
5Omitted by Finance Act, 2015. The omitted sub-section (4) read as follows:-
“(4)All such amendments shall have effect in respect of any tax year beginningon any date before or after the commencement of the financial year in which the notification is issued and shall not be applicable in respect of income on which tax withheld is treated as discharge of final tax liability.
6Omitted by Finance Act, 2015. The omitted sub-section (4) read as follows:-
“(5) The Board shall place all notifications issued under sub-section (3) in a financial year before both Houses of Majlis-e-Shoora (Parliament).”
7Inserted by the Finance Act, 2015
8 Inserted by the Finance Act, 2002.

Commissioner by the person making the collection or deduction within the time and in the manner as may be prescribed.
161. Failure to pay tax collected or deducted.— (1) Where a person–
(a) fails to collect tax as required under Division II of this Part 1[or Chapter XII] or deduct tax from a payment as required under Division III of this Part 2[or Chapter XII] 3[or as required under section 50 of the repealed Ordinance]; or
(b) having collected tax under Division II of this Part 4[or Chapter XII] or deducted tax under Division III of this Part 5[or Chapter XII] fails to pay the tax to the Commissioner as required under section 160, 6[or having collected tax under section 50 of the repealed Ordinance pay to the credit of the Federal Government as required under sub-section (8) of section 50 of the repealed Ordinance,]

the person shall be personally liable to pay the amount of tax to the Commissioner
7[who may 8[pass an order to that effect and] proceed to recover the same.]

9[(1A) No recovery under sub-section (1) shall be made unless the person referred to in sub-section (1) has been provided with an opportunity of being heard.

(1B) Where at the time of recovery of tax under sub-section (1) it is established that the tax that was to be deducted from the payment made to a person or collected from a person has meanwhile been paid by that person, no recovery shall be made from the person who had failed to collect or deduct the tax but the said person shall be liable to pay 10[default surcharge]at the rate of 11[“twelve”]per cent per annum from the date he failed to collect or deduct the tax to the date the tax was paid.]

1 Inserted by the Finance Act, 2003.
2 Inserted by the Finance Act, 2002.
3Inserted by the Finance Act, 2003. Earlier this was inserted by S.R.O. 633(I)/2002, dated 14.09.2002 which stands rescinded by SRO 608(I)/2003, dated 24.06.2003 with effect from 01.07.2003.
4Inserted by the Finance Act, 2003.
5 Inserted by the Finance Act, 2002.
6 Inserted by the Finance Act, 2003. Earlier this was inserted by S.R.O. 633(I)/2002, dated 14.09.2002 which stands rescinded by SRO 608(I)/2003, dated 24.06.2003 with effect from 01.07.2003.
7Inserted by the Finance Act, 2002.
8 Inserted by the Finance Act, 2003.
9New sub-sections “(1A) & (1B)” inserted by the Finance Act, 2002. 10The words “additional tax” substituted by the Finance Act, 2010. 11The word “eighteen” substituted by Finance Act, 2015.

(2) A person personally liable for an amount of tax under sub-section (1) as a result of failing to collect or deduct the tax shall be entitled to recover the tax from the person from whom the tax should have been collected or deducted.

1[(3) The Commissioner may, after making, or causing to be made, such enquiries as he deems necessary, amend or further amend an order of recovery under sub-section (1), if he considers that the order is erroneous in so far it is prejudicial to the interest of revenue:

Provided that the order recovery shall not be amended, unless the person referred to in sub-section (1) has been provided an opportunity of being heard.]

162. Recovery of tax from the person from whom tax was not collected or deducted.— (1) Where a person fails to collect tax as required under Division II of this Part 2[or Chapter XII] or deduct tax from a payment as required under Division III of this Part 3[or Chapter XII,] the Commissioner may 4[pass an order to that effect and] recover the amount not collected or deducted from the person from whom the tax should have been collected or to whom the payment was made.

(2) The recovery of tax under sub-section (1) does not absolve the person who failed to deduct tax as required under Division III of this Part 5[or Chapter XII] from any other legal action in relation to the failure, or from a charge of 6[default surcharge] or the disallowance of a deduction for the expense to which the failure relates, as provided for under this Ordinance.
163. Recovery of amounts payable under this Division.— The provisions of this Ordinance shall apply to any amount required to be paid to the Commissioner under this Division as if it were tax due under an assessment order.
164. Certificate of collection or deduction of tax.—(1) Every person collecting tax under Division II of this Part or deducting tax from a payment under Division III of this Part 7[or 8[deducting or collecting tax under] Chapter XII] shall, at the time of collection or deduction of the tax, furnish to the person from whom the tax has been collected or to whom the payment from which tax has been deducted has

1New sub-section (3) added through Finance Act, 2019.
2 Inserted by the Finance Act, 2003. 3 Inserted by the Finance Act, 2002. 4 Inserted by the Finance Act, 2003. 5 Inserted by the Finance Act, 2002.
6The words “additional tax” substituted by the Finance Act, 2010. The substituted provision has been made effective from 05.06.2010 by sub-clause (77) of clause 8 of the Finance Act, 2010. Earlier the substitution was made through Finance (Amendment) Ordinance, 2009 which was re-promulgated as Finance (Amendment) Ordinance, 2010 and remained effective till 05.06.2010.
7 Inserted by the Finance Act, 2002.
8 Inserted by the Finance Act, 2003.

been made, 1[copies of the 2[Computerized Payment Receipt (CPR)] or any other equivalent document along with] a certificate setting out the amount of tax collected or deducted and such other particulars as may 3[ ] be prescribed4[:

Provided that in case of persons or class of persons notified as SWAPS agent, SWAPS Payment Receipt (SPR) shall be replaced with Computerized Payment Receipt (CPR).]

(2) A person required to furnish a return of taxable income for a tax year shall attach to the return 5[copies of the 6[Computerized Payment Receipt (CPR) or SWAPS Payment Receipt (SPR)] on the basis of which a certificate is] provided to the person under this section in respect of tax collected or deducted in that year 7[ ].]

8[164A. Payment of tax collected or deducted by SWAPS agents.- (1) Subject to the Ordinance, the Board may, by notification in the official gazette, notify any person or class of persons required to deduct or collect tax under the Ordinance to integrate with Synchronized Withholding Administration and Payment System and to act as SWAPS agent within the time and in the manner as may be prescribed.

(2) The tax collected or purported to be collected or deducted or purported to be deducted under the Ordinance by a notified SWAPS agent and credited to the Commissioner through digital mode, shall be treated to have been paid under section 160 of the Ordinance.

(3) Where tax has been paid by a notified SWAPS agent in accordance with sub-section (2) of this section, copy or number of SWAPS Payment Receipt (SPR) shall replace copy or number of Computerized Payment Receipts (CPR) for the purposes of the Ordinance.

(4) Any notified SWAPS agent shall not be eligible for tax credit under Part X of Chapter III of the Ordinance and exemption under any of the provisions of the Ordinance if notified SWAPS agent fails to integrate with Board.

 

1 Inserted by the Finance Act, 2009.
2 The words “challan of payment“ substituted by the Finance Act, 2022.
3 The words “pass an order to that effect and” omitted by the Finance Act, 2004.
4 The Full stop substituted with colon and proviso added by the Finance Act, 2022.
5The words “any certificate” substituted by the Finance Act, 2009.
6 The words “challan of payment“ substituted by the Finance Act, 2022.
7 The words and figure “and such certificate shall be treated as sufficient evidence of the collection or deduction for the purposes of section 168”.
8 Section 164A inserted by the Finance Act, 2022.

(5) All persons from whom the tax has been collected or deducted by the notified SWAPS agents shall be eligible for credit of tax withheld against SPR issued by SWAPS Agent.
(6) All other provisions of the Ordinance, not specifically dealt with in this section, shall, mutatis mutandis, apply to the notified SWAPS agents.]

165. Statements.— (1) Every person collecting tax under Division II of this Part 1[or Chapter XII 2[or the Tenth Schedule]] or deducting tax from a payment under Division III of this Part 3[or Chapter XII 4[or the Tenth Schedule]] shall, 5[ ] furnish to the Commissioner a 6[quarterly] statement in the prescribed form setting out—

(a) the name, 7[Computerized National Identity Card Number, National Tax Number] and address of each person from whom tax has been collected under Division II of this Part 8[or Chapter XII 9[or the Tenth Schedule]] or to whom payments have been made from which tax has been deducted under Division III of this Part 10[or Chapter XII 11[or the Tenth Schedule]] in 12[each 13[quarter]]
(b) the total amount of payments made to a person from which tax has been deducted under Division III of this Part 14[or Chapter XII 15[or the Tenth Schedule]] in 16[each 17[quarter]]
(c) the total amount of tax collected from a person under Division II of this Part 18[or Chapter XII 19[or the Tenth Schedule]] or deducted from

1 Inserted by the Finance Act, 2003.
2After expression “Chapter XII” the words “or the Tenth Schedule” inserted by the Finance Act, 2019.
3Inserted by the Finance Act, 2002.
4After expression “Chapter XII” the words “or the Tenth Schedule” inserted by the Finance Act, 2019.
5The words “within two months after the end of the financial year or within such further time as the Commissioner may allow by order in writing, ” omitted by the Finance Act, 2010.
6The word “biannual” substituted through Finance Act 2020 dated 30th June, 2020
7Inserted by the Finance Act, 2011.
8 Inserted by the Finance Act, 2003.
9After expression “Chapter XII” the words “or the Tenth Schedule” inserted by the Finance Act, 2019.
10Inserted by the Finance Act, 2002.
11After expression “Chapter XII” the words “or the Tenth Schedule” inserted by the Finance Act, 2019.
12The words “the year” substituted by the Finance Act, 2010.
13 The word ”half year” substituted through Finance Act, 2020 dated 30th June, 2020
14Inserted by the Finance Act, 2002.
15After expression “Chapter XII” the words “or the Tenth Schedule” inserted by the Finance Act, 2019.
16The words “the year” substituted by the Finance Act, 2010.
17The word “half year” substituted through Finance Act, 2020 dated 30th June, 2020
18 Inserted by the Finance Act, 2003.
19After expression “Chapter XII” the words “or the Tenth Schedule” inserted by the Finance Act, 2019.

payments made to a person under Division III of this Part 1[or Chapter XII 2[or the Tenth Schedule]] in3[each 4[quarter]]; and
(d) such other particulars as may be prescribed 5[:]
6[Provided that every person as provided in sub-section (1) shall be required to file withholding statement even where no withholding tax is collected or deducted during the period 7[:]
“Provided further that this section shall not apply where information required under sub-section (1) has been furnished under section 165A.”;]

8[Explanation.— For the removal of doubt, it is clarified that this sub- section overrides all conflicting provisions contained in the Protection of Economic Reforms Act, 1992 (XII of 1992), the Banking Companies Ordinance, 1962 (LVII of 1962), the Foreign Exchange Regulation Act, 1947 (VII of 1947) and the regulations made under the State Bank of Pakistan Act, 1956 (XXXIII of 1956), if any, on the subject, in so far as divulgence of information under section 165 is concerned.]
9[(1A) Every person involved or engaged in economic transactions as prescribed by the Board shall furnish to the Commissioner a quarterly statement in the prescribed form and manner. ”;and]
10[(2) Every prescribed person collecting tax under Division II of this Part or Chapter Xll 11[or the Tenth Schedule] or deducting tax under Division III of this
Part of Chapter Xll 12[or the Tenth Schedule] shall furnish statements under sub- section (l) 13[or (1A)] as per the following schedule, namely:-

 

1Inserted by the Finance Act, 2002.
2After expression “Chapter XII” the words “or the Tenth Schedule” inserted by the Finance Act, 2019.
3The words “the year” substituted by the Finance Act, 2010.
4 The word “half year” substituted through Finance Act, 2020 dated 30th June, 2020
5Full stop substituted by the Finance Act, 2010.
6Inserted by the Finance Act, 2010.
7Full stop substituted by colon and thereafter new provision added through Finance Act 2020 dated 30th June, 2020
8 Added by the Finance Act, 2013.
9New sub-section (1A) inserted through Finance Act, 2020 dated 30th June 2020.
10Sub-section (2) substituted through Finance Supplementary (Second Amendment) Act, 2019.
11In section 165 expression “Chapter XII” wherever occurs the words “or the Tenth Schedule” inserted by the Finance Act, 2019.
12After expression “Chapter XII” the words “or the Tenth Schedule” inserted by the Finance Act, 2019.
13The expression added through Finance Act, 2020 dated 30th June, 2020

1[(a) in respect of quarter ending on the 31st day of March, on or before the 20th day of April;

(b) in respect of quarter year ending on the 30th day of June, on or before the 20th day of July;

(c) in respect of quarter ending on the 30th day of September, on or before the 20th day of October; and

(d) in respect of quarter ending on or before the 31st day of December, on or before the 20th day of January.]

2[(2A) Any person who, having furnished statement under sub-section (1) or sub-section (2), discovers any omission or wrong statement therein, may file a revised statement within sixty days of filing of statement under sub-section (1) or sub-section (2), as the case may be.]
3[(2B) Notwithstanding anything contained in this section, the Commissioner as he deems lit may by notice in writing require any person, collecting or deducting tax under this Ordinance, to furnish a statement for any period specified in the notice within such period of time as may be specified in the notice.]
4[(3) 5[Board] may prescribe a statement requiring any person to furnish information 6[ ] in respect of any transactions in the prescribed form and verified in the prescribed manner 7[.] ]

8[(4) A person required to furnish a statement under sub-section 9[(1)], may apply in writing, to the Commissioner for an extension of time to furnish the statement after the due date and the Commissioner if satisfied that a reasonable cause exists for non-furnishing of the statement by the due date may, by an order in writing, grant the applicant an extension of time to furnish the statement.]

 

1The clauses (a) and (b) substituted through Finance Act, 2020 dated 30th June, 2020 the substituted clauses read as follows:
(a) in respect of the half-year ending on the 30th June, on or before the 31st day of July; and
(b) in respect of the half-year ending on the 31st December, on or before the 31st day of January.
2Inserted by the Finance Act, 2017.
3 Sub-section (2B) inserted through Finance Supplementary (Second Amendment) Act, 2019.
4Inserted by the Finance Act, 2006.
5The words “Central Board of Revenue” substituted by the Finance Act, 2007.
6The word “periodically” omitted by the Finance Act, 2011.
7Colon substituted by the Finance Act, 2011.
9Inserted by the Finance Act, 2006.
10The figure “(2)” substituted by the Finance Act, 2010.

1[(5) The Board may make rules relating to electronic furnishing of statements under this section including,-

(a) mandatory electronic filing of statements; and

(b) determination of eligibility of the data of such statements and e- intermediaries, etc.]
2[(6) Every person deducting tax from payment under section 149 shall furnish to the Commissioner an annual statement in the prescribed form and manner 3[.]
4[ ]

5[(7) Every prescribed person collecting tax under Division II of this Part, Chapter XII or the Tenth Schedule or deducting tax from a payment under Division III of this Part, Chapter XII or the Tenth Schedule shall, e-file to the Commissioner an annual statement for the relevant tax year within thirty days of the end of tax year in addition to statement to be filed under sub-section (6) of this section.

(8) Every prescribed person collecting tax under Division II of this Part or Chapter XII, the Tenth Schedule or deducting tax from a payment under Division III of this Part, Chapter XII or the Tenth Schedule shall also e-file to the Commissioner a statement in the prescribed form reconciling the amounts mentioned in annual statement filed under sub-section (7) with the amounts declared in the return, audited accounts or financial statements by the due date of filing of return of income as provided under section 118 of the Ordinance.]

6[165A. Furnishing of information by banks.— (1) Notwithstanding anything contained in any law for the time being in force including but not limited to the Banking Companies Ordinance, 1962 (LVII of 1962), the Protection of Economic Reforms Act, 1992 (XII of 1992), the Foreign Exchange Regulation Act, 1947 (VII of 1947) and the regulations made under the State Bank of Pakistan Act, 1956 (XXXIII of 1956), if any, on the subject every banking company shall make arrangements to provide to the Board in the prescribed form and manner,—

1Inserted by the Finance Act, 2006.
2Added by the Finance Act, 2011.
3Semi-colon substituted by the Finance Act, 2013.
4 Proviso omitted by the Finance Act, 2013. The omitted proviso read as follows:
“Provided that annual statement shall also be filed where the income exceeds three hundred thousand rupees but does not exceed three hundred and fifty thousand rupees in a tax year.”
5 Sub-sections (7) and (8) added by the Finance Act, 2021.
6Added by the Finance Act, 2013.

1[(a) a list of persons containing particulars of cash withdrawals exceeding fifty thousand Rupees in a day and tax deductions thereon 2[ ], aggregating to Rupees one million or more during each preceding calendar month.”;]
(b) a list containing particulars of deposits aggregating rupees 3[ten] million or more made during the preceding calendar month;
(c) a list of payments made by any person against bills raised in respect of a credit card issued to that person, aggregating to rupees 4[two] hundred thousand or more during the preceding calendar month;
5[(d) a list of persons receiving profit on debt 6[ ] 7[ ] and tax deductions thereon during preceding financial year] 8[; and
9[ ]

(f) a list of persons containing particulars of their business accounts opened or re-designated during each preceding calendar month.]

(2) Each banking company shall also make arrangements to nominate a senior officer at the head office to coordinate with the Board for provision of any information and documents in addition to those listed in sub-section (1), as may be required by the Board.

(3) The banking companies and their officers shall not be liable to any civil, criminal or disciplinary proceedings against them for furnishing information required under this Ordinance.

1 Clause (a) substituted by the Finance Act, 2018 ,the substituted clause is read as follows:-
“ (a) online access to its central database containing details of its account holders and all transactions made in their accounts;”
2 Words “for filers and non-filers” omitted through Finance Act, 2019.
3The word “one” substituted by the Finance Act, 2018.
4The word “one” substituted by the Finance Act, 2018.
5 Clause (d) substituted by the Finance Supplementary (Amendment) Act, 2018. The substituted clause
(d) read as follows:
“a consolidated list of loans written off exceeding rupees one million during a calendar year” and
6The expressions “exceeding 6[ ] five hundred thousand rupees” omitted through Finance Act, 2020 dated 30th June, 2020
7Words “for non-filers” omitted through Finance Act, 2019.
8 Full stop substituted with semi colon and the word “and” and a new clause added by the by the Finance (Supplementary) Act, 2022.
9 Clause (e) omitted by the Finance Supplementary (Amendment) Act, 2018. The omitted clause (e)
read as follows:
“(e) a copy of each currency transactions report and suspicious transactions report generated and submitted by it to the Financial Monitoring Unit under the Anti-Money Laundering Act, 2010 (VII of 2010).”

(4) Subject to section 216, all information received under this section shall be used only for tax purposes and kept confidential.]
1[165B. Furnishing of information by financial institutions including banks.— (1) Notwithstanding anything contained in any law for the time being in force including but not limited to the Banking Companies Ordinance, 1962 (LVII of 1962), the Protection of Economic Reforms Act,1992 (XII of 1992), the Foreign Exchange Regulation Act, 1947 (VII of1947) and any regulations made under the State Bank of Pakistan Act,1956 (XXXIII of 1956) on the subject, every financial institution shall make arrangements to provide information regarding non-resident2[or any other reportable] persons to the Board in the prescribed form and manner for the purpose of automatic exchange of information under bilateral agreement or multilateral convention.

(2) 3[All] information received under this section shall be used only for tax and related purposes and kept confidential.”]
4[(3) For the purpose of this section, the terms “reportable person” and “financial institution” shall have the meaning as provided in Chapter XIIA of the Income Tax Rules, 2002.]
166. Priority of tax collected or deducted. — (1) Tax collected by a person under Division II 5[of this Part or Chapter XII] or deducted from a payment under Division III of this Part 6[or Chapter XII] shall be —

(a) held by the person in trust for the 7[Federal] Government; and

(b) not subject to attachment in respect of any debt or liability of the person.
(2) In the event of the liquidation or bankruptcy of a person who has collected 8[ ] or deducted tax from a payment under Division III of this Part 9[or Chapter XII], the amount collected or deducted shall not form part of the estate of the person in liquidation or bankruptcy and the Commissioner shall have a first claim for that amount before any distribution of property is made.

1Inserted by the Finance Act, 2015.
2Inserted by the Finance Act, 2017.
3The word and figure “Subject to section 216, all” substituted by the Finance Act, 2016.
4Added by the Finance Act, 2017 5Inserted by the Finance Act, 2003. 6Inserted by the Finance Act, 2002. 7 Inserted by the Finance Act, 2003.
8 The words “tax under Division II of this Part” omitted by the Finance Act, 2003.

(3) Every amount that a person is required to deduct from a payment under Division III of this Part 1[or Chapter XII] shall be –
(a) a first charge on the payment; and
(b) deducted prior to any other amount that the person may be required to deduct from the payment by virtue of an order of any Court or under any other law.
167. Indemnity.— A person who has deducted tax from a payment under 2[Division III of this Part] 3[or Chapter XII] and remitted the deducted amount to the Commissioner shall be treated as having paid the deducted amount to the recipient of the payment for the purposes of any claim by the recipient for payment of the deducted tax.

168. Credit for tax collected or deducted. — (1) For the purposes of this Ordinance —
(a) the amount of any tax deducted from a payment under Division III of this Part 4[or Chapter XII] shall be treated as income derived by the person to whom the payment was made; and
(b) the amount of any tax collected under Division II of this Part 5[or Chapter XII] or deducted under Division III of this Part 6[or Chapter XII] shall be treated as tax paid by the person from whom the tax was collected or deducted.

(2) Subject to sub-sections 7[(2A), (2B),] (3) and (4), where an amount of tax has been collected from a person under Division II of this Part 8[or Chapter XII] or deducted from a payment made to a person under Division III of this Part 9[or Chapter XII], the person shall be allowed a tax credit for that tax in computing the tax due by the person on the taxable income of the person for the tax year in which the tax was collected or deducted.

10[(2A) Where a company is a member of an association of persons which is taxed in accordance with section 92 and an amount of tax has been collected

1 Inserted by the Finance Act, 2003.
2 Substituted for the words, figure and comma “Division II, Division III” by the Finance Act, 2003.
3 Inserted by the Finance Act, 2002. 4Inserted by the Finance Act, 2002. 5Inserted by the Finance Act, 2003. 6 Inserted by the Finance Act, 2002. 7Inserted by the Finance Act, 2018. 8 Inserted by the Finance Act, 2003. 9Inserted by the Finance Act, 2002.

from an association of persons under Division II of this Part or Chapter XII or deducted from a payment made to the said association under Division III of this Part or Chapter XII, the company shall be allowed a tax credit, in respect of tax collected or deducted from the association of persons, according to the following formula, namely:—

(A/B) x C

Where —

A is the amount of share of profits before tax received by the company as a member from the association of persons;

B is the taxable income of the association of persons; and

C is the amount of tax withheld in the name of the association of persons.

(2B) No tax credit shall be allowed for any tax collected or deducted from an association of persons in respect of an amount for which credit has been allowed under sub-section (2A) to a company being a member of the association.]

1[(3) No tax credit shall be allowed for any tax collected or deducted that is a final tax under—

2[(a)]
3[(b)]
4[(c)]
5[(ca) sub-section (1E) of section 152;

1Sub-section (3) substituted by the Finance Act, 2011. The substituted sub-section (3) read as follows:
“(3) No tax credit shall be allowed for any tax collected or deducted that is a final tax under
clauses (a), (b) and (d) of sub-section (1) of section 151, sub-section (1B) of section 152, sub-section (6)] of section 153, sub-section (4) of section 154, section 155 sub-section (3) of section 156, sub- section (2) of section 156A, section 233, clauses (a) and (b) of sub-section (1) of section 233A or sub-section (5) of section 234 or section 234A.
2 In section 168 in sub-section (3) clause (a) omitted by the Finance Act, 2019 the omitted clause read as follows: (a) sub-section (7) of section 148;
3 In section 168 in sub-section (3) clause (b) omitted by the Finance Act, 2019 the omitted clause read as follows: (b) sub-section (3) of section 151;
4 In section 168 in sub-section (3) clause (c) omitted by the Finance Act, 2019 the omitted clause read as follows: (c) sub-section (1B) and (1BB) of section 152;
5 After omitted clause (c) new clauses (ca) and (cb) inserted through Finance Act, 2020 dated 30th
June, 2020

(cb) sub-section (2) of section 152A;]
1[(d)] 2[ ]
(e) sub-section (4) of section 154;
3[(ea) sub-section (2) of section 154A;]
(f) sub-section (3) of section 156;
(g) sub-section (2) of section 156A;
4[(h)] 5[and] 6[ ]
7[(j)] ]
(4) A tax credit allowed under this section shall be applied in accordance with sub-section (3) of section 4.

(5) A tax credit or part of a tax credit allowed under this section for a tax year that is not able to be credited under sub-section (3) of section 4 for the year shall be refunded to the taxpayer in accordance with section 170.

8[(6) Notwithstanding anything contained in any other law or any rules for the time being in force, no amount shall be deducted on account of service charges from the tax withheld or collected by any person under the provisions of this Ordinance.]
9[(7) In case any amount is deducted on account of service charges, by the person, the said person will be liable to pay the said amount to the Federal Government and all the provisions of this Ordinance shall apply in so far as they apply to the recovery of tax.]

169. Tax collected or deducted as a final tax.—(1) This section shall apply where —

1 In section 168 in sub-section (3) clause (d) omitted by the Finance Act, 2019 the omitted clause read as follows: 6[ ] sub-section (3) of section 153;
2The words, comma and brackets “clauses (a), (c) and (d) of” omitted by the Finance Act, 2013.
3 Clause (ea) inserted by the Finance Act, 2021.
4In section 168 in sub-section (3) clause (b) omitted by the Finance Act, 2019 the omitted clause read as follows: sub-section (3) of section 233;2[and]
5Added by the Finance Act, 2013.
6Clause (i) omitted by the Finance Act, 2013. The omitted clause (i) read as follows: “(i) sub-section (5) of section 234; and”
7 In section 168 in sub-section (3) clause (b) omitted by the Finance Act, 2019 the omitted clause
read as follows: Sub-section (3) of section 234(A)
8 Added by the Finance Act, 2009.
9 Added by the Finance Act, 2009.

1[ ]
(b) the 2[tax required to be deducted] is a final tax under 3[sub-section (1E) of section 152, 152A], sub-section (4) of section 154, 4[sub-section (2) of section 154A] 5[ ] sub-section (3) of section 156, 6[ ] 7[sub-section
(2) [or] 8section 156A or 9[ ]10[ ] ] on the income from which it 11[was deductible].

(2) Where this section applies —

(a) the income shall not be chargeable to tax under any head of income in computing the taxable income of the person;

(b) no deduction shall be allowable under this Ordinance for any expenditure incurred in deriving the income;

(c) the amount of the income shall not be reduced by —

(i) any deductible allowance under Part IX of Chapter III; or

(ii) the set off of any loss;

(d) the tax deducted shall not be reduced by any tax credit allowed under this Ordinance; 12[ ]

1 Clause (a) omitted through Finance Act, 2020 the substituted clause read as follows: “(a) the 1[advance tax required to be collected 1[or paid]] is a final tax under sub-section (7) of section 148 1[,148A] 1[ ] 1[or section 234A] on the income to which it relates; or”
2 The words “deduction of tax” substituted by the Finance Act, 2012.
3 The expressions “sub-section (3) of section 151], sub-section (1B) 3[or sub-section (1BB)] of section 152, 3[ 3[ ] sub-section (3) of section 153], 3[ 3[sub-section (1AAA) of section 152”substituted by Finance Act, 2020 dated 30th June, 2020
4 Inserted by the Finance Act, 2021.
5The word, digit and comma “section 155,” omitted by the Finance Act, 2010.
6 The words, figures and brackets “or sub-section (2) of section 157” omitted by the Finance Act, 2002
7Inserted by the Finance Act, 2004.
8The word “of” substituted by the word “or” by the Finance Act, 2014.
9The expressions omitted through Finance Act, 2020 dated 30th June, 2020 the omitted expressions read as follows: “sub-section 9[(1) and] (3) of section 233”
10The words, brackets, figure and letters “or clause (a) and clause (b) of sub-section (1) of section
233A” omitted by the Finance Act, 2008.
11 The words “has been deducted” substituted by the Finance Act, 2012.
12The word “and” omitted by the Finance Act, 2012.

(e) there shall be no refund of the tax collected or deducted 1[unless the tax so collected or deducted is in excess of the amount for which the taxpayer is chargeable under this Ordinance2[; and].]

3[(f) tax deductible has not been deducted, or short deducted, the said non-deduction or short deduction may be recovered under section 162, and all the provisions of this Ordinance shall apply accordingly.]

(3) Where all the income derived by a person in a tax year is subject to final taxation under the provisions referred to in sub-section (1) or under sections 5, 6 4[and] 7 5[ ] 6[an assessment shall be treated to have been made under section 120 7[ ]

8[Explanation.— The expression, “an assessment shall be treated to have been made under section 120” means,—

(a) the Commissioner shall be taken to have made an assessment of income for that tax year, and the tax due thereon equal to those respective amounts specified in the return 9[ ] ; and

(b) the return 10[ ] shall be taken for all purposes of this Ordinance to be an assessment order.]

11[ ]

1Added by the Finance Act, 2002.
2Full stop substituted by the Finance Act, 2012.
3Added by the Finance Act, 2008.
4Comma substituted by the Finance Act, 2013.
5The words, figure, comma and brackets “and 15, (other than dividend received by a company)” omitted by the Finance Act, 2013.
6Inserted by the Finance Act, 2002.
7The expression omitted through Finance Act, 2020 dated 30th June, 2020 the omitted expressions read as follows: “and the person shall not be required to furnish a return of income under section 114 for the year”
8Inserted by the Finance Act, 2010.
9 The expression omitted through Finance Act, 2020 dated 30th June, 2020 the omitted expressions read as follows: “or statement under “sub-section (4) of section 115”
10 The expression omitted through Finance Act, 2020 dated 30th June, 2020 the omitted expressions
read as follows: “or statement under “sub-section (4) of section 115”
11 Omitted by the Finance Act, 2004. The omitted sub-section (4) read as follows:
“(4) Where a taxpayer, while explaining the nature and source of any amount, investment, money, valuable article, expenditure, referred to in section 111, takes into account any source of income which is subject to tax in accordance with the provisions of sections 148, 153, 154, 156 or sub-

1[(4) Where the tax collector or deducted is final tax under any provision of this Ordinance and hundred percent higher tax rate has been prescribed for the said tax under the Tenth Schedule, the final tax shall be the tax rate prescribed in the First Schedule and the excess tax collected under the Tenth Schedule specified for persons not appearing in the active taxpayers’ list shall be adjustable in case the return is filed before finalization of assessment as provided in rule 4 of the Tenth Schedule.]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

section (5) of section 234, he shall not be entitled to take credit of any sum as is in excess of an amount which if taxed at a rate or rates, other than the rate applicable to the income chargeable to tax under aforesaid sections 148, 153, 154, 156 or sub-section (5) of section 234 would have resulted in tax liability equal to the tax payable in respect of income under any of the aforesaid sections.”
1 In section 169 for sub-section (4) substituted through Finance Act, 2019, substituted sub-section read as follows:
(4) Where the tax collected or deducted is final tax under any provision of the Ordinance and separate
rates for filer and non-filer have been prescribed for the said tax, the final tax shall be the tax rate for filer and the excess tax deducted or collected on account of higher rate of non-filer shall be adjustable in the return filed for the relevant tax year.

PART VI
REFUNDS

170. Refunds.— (1) A taxpayer who has paid tax in excess of the amount which the taxpayer is properly chargeable under this Ordinance may apply to the Commissioner for a refund of the excess.

1[(1A) Where any advance or loan, to which sub-clause (e) of clause (19) of section 2 applies, is repaid by a taxpayer, he shall be entitled to a refund of the tax, if any, paid by him as a result of such advance or loan having been treated as dividend under the aforesaid provision.]

(2) An application for a refund under sub-section (1) shall be –

(a) made in the prescribed form;

(b) verified in the prescribed manner; and

(c) made within 2[three] years of the later of –

(i) the date on which the Commissioner has issued the assessment order to the taxpayer for the tax year to which the refund application relates; or

(ii) the date on which the tax was paid.

(3) Where the Commissioner is satisfied that tax has been overpaid, the Commissioner shall —

(a) apply the excess in reduction of any other tax due from the taxpayer under this Ordinance;

(b) apply the balance of the excess, if any, in reduction of any outstanding liability of the taxpayer to pay other taxes; and

(c) refund the remainder, if any, to the taxpayer.

(4) The Commissioner shall, within 3[sixty] days of receipt of a refund application under sub-section (1), serve on the person applying for the refund an order in writing of the decision 4[after providing the taxpayer an opportunity of being heard].

1Inserted by the Finance Act, 2003.
2The word “two” substituted by the Finance Act, 2016.
3The word “forty five” substituted by the Finance Act, 2009.

1[(5) A person aggrieved by—

(a) an order passed under sub-section (4); or

(b) the failure of the Commissioner to pass an order under sub- section (4) within the time specified in that sub-section,

may prefer an appeal under Part III of this Chapter.]

2[(6) The Board may make rules regulating procedure for expeditious processing and automatic payment of refunds through centralized processing system with effect from a date to be notified by the Board.]

3[170A. Electronic processing and electronic issuance of Refunds by the Board.—Notwithstanding anything contained in section 170 of this Ordinance, commencing from tax year 2021, the Board may process and issue refund to the taxpayer who has filed the return of income without requiring refund application by the taxpayer to the extent of tax credit verified by the Board’s computerized system as may be prescribed. The refund amount sanctioned under this section shall be electronically transferred in the taxpayer’s notified bank account.]

171. Additional payment for delayed refunds.—(1) Where a refund due to a taxpayer is not paid within three months of the date on which it becomes due, the Commissioner shall pay to the taxpayer a further amount by way of compensation at the rate of 4[ 5[KIBOR plus 0.5 per cent] ] per annum of the amount of the refund computed for the period commencing at the end of the three month period and ending on the date on which it was paid 6[:]

7[Provided that where there is reason to believe that a person has claimed the refund which is not admissible to him, the provision regarding the payment of such additional amount shall not apply till the investigation of the claim is completed and the claim is either accepted or rejected.]
(2) For the purposes of this section, a refund shall be treated as having become due —

1 Sub-section (5) substituted by the Finance Act, 2003. The substituted sub-section (5) read as follows: “(5) A person dissatisfied with a decision referred to in sub-section (4) may challenge the
decision only under Part III of this Chapter.”
2New sub-section (6) added through Finance Act, 2020 dated 30th June,2020
3 Section 170A inserted by the Finance Act, 2021.
4The word “KIBOR” substituted by the Finance Act, 2012.
5 The word “fifteen” substituted by Finance Act, 2015.
6Full stop substituted by the Finance Act, 2009.

(a) in the case of a refund required to be made in consequence of an order on an appeal to the Commissioner (Appeals), an appeal to the Appellate Tribunal, a reference to the High Court or an appeal to the Supreme Court, on the date of receipt of such order by the Commissioner; 1[or]
(b) in the case of a refund required to be made as a consequence of a revision order under section 2[122A], on the date the order is made by the Commissioner; or
(c) in any other case, on the date the refund order is made.

3[Explanation.—For the removal of doubt, it is clarified that where a refund order is made on an application under sub- section (1) of section 170, for the purpose of compensation, the refund becomes due from the date refund order is made and not from the date the assessment of income treated to have been made by the Commissioner under section 120.]

4[171A. Payment of refund through income tax refund bonds.- (1) Notwithstanding anything contained in sections 170 and 171, the income tax refunds payable under this Ordinance may also be paid through income tax refund bonds to be issued by FBR Refund Settlement Company Limited, in book-entry form through an establishment licensed by the Securities and Exchange Commission of Pakistan as a central depository under the Securities Act, 2015 (III of 2015), in lieu of payment to be made through issuance of cheques or bank debit advice.

(2) The Board shall issue a promissory note to FBR Refund Settlement Company Limited, hereinafter referred to as the company, incorporating the details of refund claimants and the amount of refund determined as payable to each for issuance of income tax refund bonds, hereinafter referred to as the bonds, of the same amount.

(3) The bonds shall be issued in value in multiples of one hundred thousand rupees.

(4) The bonds so issued have maturity period of three years and shall bear annual simple profit at ten percent.

(5) The bonds shall be traded freely in the country’s secondary markets.

1 Inserted by the Finance Act, 2003.
2 Substituted for the figure “135” by the Finance Act, 2003.
3Added by the Finance Act, 2013.
4New Section 171A inserted through Finance Act, 2019.

(6) The bonds shall be approved security for calculating the statutory liquidity reserve.

(7) The bonds shall be accepted by the banks as collateral.

(8) There shall be no compulsory deduction of Zakat against bonds and
Sahib-e-Nisab may pay Zakat voluntarily according to Shariah.

(9) After period of maturity, the company shall return the promissory note to the Board and the Board shall make the payment of amount due under the bonds, along with profit due, to the bond holders.

(10) The bonds shall be redeemable in the manner as in sub-section (9) before maturity only at the option of the Board along with simple profit payable at the time of redemption in the light of general or specific policy to be formulated by the Board.

(11) The refund under sub-section (1) shall be paid in the aforesaid manner to the claimants who opt for payment in such manner.

(12) The Federal Government may notify procedure to regulate the issuance, redemption and other matters relating to the bonds, as may be required.]

PART VII
REPRESENTATIVES

172. Representatives.— (1) For the purposes of this Ordinance and subject to sub-sections (2) and (3), “representative” in respect of a person for a tax year, means –

(a) where the person is an individual under a legal disability, the guardian or manager who receives or is entitled to receive income on behalf, or for the benefit of the individual;

(b) where the person is a company (other than a trust, a Provincial Government, or 1[Local Government] in Pakistan), the principal officer of the company;

(c) where the person is a trust declared by a duly executed instrument in writing whether testamentary or otherwise (including any Wakf deed which is valid under the MussalmanWakf Validation Act, 1913 (VI of 1913)), any trustee of the trust;

(d) where the person is a Provincial Government, or 2[Local Government] in Pakistan, any individual responsible for accounting for the receipt and payment of moneys or funds on behalf of the Provincial Government or3[Local Government];

(e) where the person is an association of persons, the principal officer of the association or, in the case of a firm, any partner in the firm;

(f) where the person is the Federal Government, any individual responsible for accounting for the receipt and payment of moneys or funds on behalf of the Federal Government; or

(g) where the person is a public international organisation, or a foreign government or political sub-Division of a foreign government, any individual responsible for accounting for the receipt and payment of moneys or funds in Pakistan on behalf of the organisation, government, or political sub-Division of the government.

1The words “local authority” substituted by the Finance Act, 2008.
2The words “local authority” substituted by the Finance Act, 2008.

(2) Where the Court of Wards, the Administrator General, the Official Trustee, or any receiver or manager appointed by, or under, any order of a Court receives or is entitled to receive income on behalf, or for the benefit of any person, such Court of Wards, Administrator General, Official Trustee, receiver, or manager shall be the representative of the person for a tax year for the purposes of this Ordinance.

(3) Subject to sub-sections (4) and (5), where a person is a non-resident person, the representative of the person for the purposes of this Ordinance for a tax year shall be any person in Pakistan –

(a) who is employed by, or on behalf of, the non-resident person;

(b) who has any business connection with the non-resident person1[:]

2[Explanation.— In this clause the expression “business connection” includes transfer of an asset or business in Pakistan by a non-resident;]

(c) from or through whom the non-resident person is in receipt of any income, whether directly or indirectly;

(d) who holds, or controls the receipt or disposal of any money belonging to the non-resident person;

(e) who is the trustee of the non-resident person; or

(f) who is declared by the Commissioner by 3[an order] in writing to be the representative of the non-resident person.

(4) A bonafide independent broker in Pakistan who, in respect of any transactions, does not deal directly with, or on behalf of, a non-resident principal but deals with, or through a non-resident broker, shall not be treated as a representative of the non-resident principal in respect of such transactions, if –

(a) the transactions are carried on in the ordinary course of business through the first-mentioned broker; and

(b) the non-resident broker is carrying on such transactions in the ordinary course of its business and not as a principal.

1Semi-colon substituted by the Finance Act, 2013.
2 Added by the Finance Act, 2013.

(5) No person shall be declared 1[ ] as the representative of a non- resident person unless the person has been given an opportunity by the Commissioner of being heard.

173. Liability and obligations of representatives. — (1) Every representative of a person shall be responsible for performing any duties or obligations imposed by or under this Ordinance on the person, including the payment of tax.

(2) Subject to sub-section (4), any tax that, by virtue of sub-section (1), is payable by a representative of a taxpayer shall be recoverable from the representative only to the extent of any assets of the taxpayer that are in the possession or under the control of the representative.

(3) Every representative of a taxpayer who pays any tax owing by the taxpayer shall be entitled to recover the amount so paid from the taxpayer or to retain the amount so paid out of any moneys of the taxpayer that are in the representative’s possession or under the representative’s control.

2[(3A) Any representative, or any person who apprehends that he may be assessed as a representative, may retain out of any money payable by him to the person on whose behalf he is liable to pay tax (hereinafter in this section referred to as the “principal”), a sum equal to his estimated liability under this Ordinance, and in the event of disagreement between the principal and such a representative or a person as to the amount to be so retained, such representative or person may obtain from the Commissioner a certificate stating the amount to be so retained pending final determination of the tax liability, and the certificate so obtained shall be his authority for retaining that amount.]

(4) Every representative shall be personally liable for the payment of any tax due by the representative in a representative capacity if, while the amount remains unpaid, the representative –

(a) alienates, charges or disposes of any moneys received or accrued in respect of which the tax is payable; or

(b) disposes of or parts with any moneys or funds belonging to the taxpayer that is in the possession of the representative or which comes to the representative after the tax is payable, if such tax could legally have been paid from or out of such moneys or funds.

 

1The words “or treated” omitted by the Finance Act, 2003.
2Inserted by the Finance Act, 2003.

(5) Nothing in this section shall relieve any person from performing any duties imposed by or under this Ordinance on the person which the representative of the person has failed to perform.
PART VIII
RECORDS, INFORMATION COLLECTION AND AUDIT

174. Records.— (1) Unless otherwise authorised by the Commissioner, every taxpayer shall maintain in Pakistan such accounts, documents and records as may be prescribed.

(2) The Commissioner may disallow 1[or reduce] a taxpayer’s claim for a deduction if the taxpayer is unable, without reasonable 2[cause], to provide a receipt, or other record or evidence of the transaction or circumstances giving rise to the claim for the deduction.

(3) The accounts and documents required to be maintained under this section shall be maintained for 3[six]years after the end of the tax year to which they relate 4[:]

5[Provided that where any proceeding is pending before any authority or court the taxpayer shall maintain the record till final decision of the proceedings.]

6[Explanation.— Pending proceedings include proceedings for assessment or amendment of assessment, appeal, revision, reference, petition or prosecution and any proceedings before an Alternative Dispute Resolution Committee”] 7[:

Provided that limitation prescribed under this sub-section shall not apply to the records pertaining to income, assets, expenses or transactions to which clause (ii) of sub-section (2) of section 111 applies.]

8[(4) For the purpose of this section, the expression “deduction” means any amount debited to trading account, manufacturing account, receipts and expenses account or profit and loss account.]

1 Inserted by the Finance Act, 2003.
2The word “excuse” substituted by the Finance Act, 2003.
3The word “five” substituted by the Finance Act, 2010.
4Full stop substituted by the Finance Act, 2010.
5Added by the Finance Act, 2010.
6Added by the Finance Act, 2010.
7Full stop substituted and proviso added by the Finance Act, 2022.
8 Added by the Finance Act, 2003.

1[(5) The Commissioner may require any person to install and use an Electronic Tax Register of such type and description as may be prescribed for the purpose of storing and accessing information regarding any transaction that has a bearing on the tax liability of such person.]

175. Power to enter and search premises.— (1) In order to enforce any provision of this Ordinance (including for the purpose of making an audit of a taxpayer or a survey of persons liable to tax), the Commissioner or any officer authorised in writing by the Commissioner for the purposes of this section –

(a) shall, at all times and without prior notice, have full and free access2[including real-time electronic access]to any premises, place, accounts, documents or computer;

(b) may stamp, or make an extract or copy of any accounts, documents or computer-stored information to which access is obtained under clause (a);

(c) may impound any accounts or documents and retain them for so long as may be necessary for examination or for the purposes of prosecution;

(d) may, where a hard copy or computer disk of information stored on a computer is not made available, impound and retain the computer for as long as is necessary to copy the information required; and

(e) may make an inventory of any articles found in any premises or place to which access is obtained under clause (a).

3[(2) The Commissioner may authorize any valuer or expert to enter any premises and perform any task assigned to him by the Commissioner.]

(3) The occupier of any premises or place to which access is sought under sub-section (1) shall provide all reasonable facilities and assistance for the effective exercise of the right of access.

 

1Added by the Finance Act, 2008.
2The expression inserted through Finance Act, 2020 dated 30th June, 2020
3Sub-section (2) substituted by the Finance Act, 2003. The substituted sub-section (2) read as follows:
“(2) The Commissioner may authorise any valuer to enter any premises or place to inspect such accounts and documents as may be necessary to enable the valuer to make a valuation of an asset
for the purposes of this Ordinance.”

(4) Any accounts, documents or computer impounded and retained under sub-section (1) shall be signed for by the Commissioner or an authorised officer.

(5) A person whose accounts, documents or computer have been impounded and retained under sub-section (1) may examine them and make extracts or copies from them during regular office hours under such supervision as the Commissioner may determine.

(6) Where any accounts, documents or computer impounded and retained under sub-section (1) are lost or destroyed while in the possession of the Commissioner, the Commissioner shall make reasonable compensation to the owner of the accounts, documents or computer for the loss or destruction.

(7) This section shall have effect notwithstanding any rule of law relating to privilege or the public interest in relation to access to premises or places, or the production of accounts, documents or computer-stored information.

(8) In this section, “occupier” in relation to any premises or place, means the owner, manager or any other responsible person on the premises or place.

1[(9) For the purpose of clause (a) of sub-section (1), the Board may make rules relating to electronic real-time assess for audit or a survey of persons liable to tax.]

2[175A. Real-time access to information and databases.- (1) Notwithstanding anything contained in any law for the time being in force, including but not limited to the National Database and Registration Authority Ordinance, 2000 (Ordinance VIII of 2000), and the Emigration Ordinance, 1979(Ordinance XVIII of 1979), arrangements shall be made to provide real-time access of information and database to the Board in the prescribed form and manner by-

(a) the National Database and Registration Authority with respect to information pertaining to National Identity Card, Pakistan Origin Card, Overseas Identity Card, Alien Registration Card, and other particulars contained in the Citizen Database.

(b) the Federal Investigation Agency and the Bureau of Emigration and Overseas Employment with respect to details of international travel;

(c) the Federal Investigation Agency and the Bureau of Emigration and Overseas Employment with respect to details of international entry and exit of all persons and information pertaining to work permits, employment visas and immigration visas;

1New sub-section (9) added through Finance Act, 2020 dated 30th June, 2020
2New section 175A inserted through Finance Act, 2020 dated 30th June, 2020

(d) the Islamabad Capital Territory and provincial and local land record and development authorities with respect to record-of-rights including digitized edition of record-of-rights, periodic record, record of mutations and report of acquisition of right;

(e) the Islamabad Capital Territory and provincial Excise and Taxation Departments with respect to information regarding registration of vehicles, transfer of ownership and other associated record;

(f) All electricity suppliers and gas transmission and distribution companies with respect to particulars of a consumer, the units consumed and the amount of bill charged or paid:

Provided that where the connection is shared or is used by a person other than the owner, the name and CNIC of the owner and the user shall also be furnished:

Provided further that all electricity suppliers and gas transmission and distribution companies shall make arrangements by the 1st day of January, 2021 for allowing consumers to update the ratio of sharing of a connection or the particulars of users, as the case may be; and

(g) any other agency, authority, institution or organization notified by the Board.

(2) The Board shall make arrangements for laying the infrastructure for real-time access to information and database under sub-section (1) and aligning it with its own database in the manner as may be prescribed.

(3) Until real-time access to information and database is made available under sub-section (1), such information and data shall be provided periodically in such form and manner as may be prescribed.

(4) Subject to section 216, all information received under this section shall be used only for tax purposes and kept confidential.]

1[175B. National Database and Registration Authority (NADRA). (1) The National Database and Registration Authority shall, on its own motion or upon application by the Board, share its records and any information available or held by it, with the Board, for broadening of the tax base or carrying out the purposes of the Ordinance.

(2) The National Database and Registration Authority may —

1New section 175B inserted through Finance Act, 2022.

(i) submit proposals and information to the Board with a view to broadening the tax base;

(ii) identify in relation to any person, whether a taxpayer or not –

(a) income, receipts, assets, properties, liabilities, expenditures, or transactions that have escaped assessment or are under-assessed or have been assessed at a low rate, or have been subjected to excessive relief or refund or have been misdeclared or misclassified under a particular head of income or otherwise;

(b) the value of anything mentioned in sub-clause (a) of clause (ii), if such value is at variance with the value notified by the Board or the district authorities, as the case may be, or if no such value has been notified the true or market value; and

(iii) enter into a memorandum of understanding with the Board for a secure exchange and utilization of a person’s information.

(3) The Board may use and utilize any information communicated to it by the National Database and Registration Authority and forward such information to an income tax authority having jurisdiction in relation to the subject matter regarding the information, who may utilize the information for the purposes of the Ordinance.

(4) The National Database and Registration Authority may compute indicative income and tax liability of anyone mentioned under sub-sections (1) or
(2) by use of artificial intelligence, mathematical or statistical modeling or any other modern device or calculation method.

(5) The indicative income and tax liability computed by the National Database and Registration Authority under sub-section (4) shall be notified by the Board to the person in respect of whom such indicative income and tax liability has been determined, who shall have the option to pay the determined amount on such terms, conditions, installments, discounts, reprieves pertaining to penalty and default surcharge, and time limits that may be prescribed by the Board.

(6) In case the person against whom a liability has been determined under sub-section (4), does not pay such liability within the time prescribed under sub-section (5), the Board shall take action under the Ordinance, upon the basis of tax liability computed under sub-section (4).

(7) If the person against whom the liability has been determined under sub-section (4) pays such liability in terms of sub-section (5), such payment shall

be construed to be an amended assessment order under section 120 or sub- section (1) of section 122 or sub-section (4) of section 122, as the case may be.

(8) For the purposes of sub-sections (4) and (5), the Board may prescribe the extent of installments, reprieves pertaining to penalty and default surcharge and time limits.]

176. Notice to obtain information or evidence.— (1) The Commissioner may, by notice in writing, require any person, whether or not liable for tax under this Ordinance –

1[(a) to furnish to the Commissioner or an authorised officer, any information relevant to any tax leviable under this Ordinance or to fulfill any obligation under any agreement with foreign government or governments or tax jurisdiction, as specified in the notice; or; and]

(b) to attend at the time and place designated in the notice for the purpose of being examined on oath by the Commissioner or an authorised officer concerning the tax affairs of that person or any other person and, for that purpose, the Commissioner or authorised officer may require the person examined to produce any accounts, documents, or computer-stored information in the control of the person 2[; “or”]

3[(c) the firm of chartered accountants 4[ 5[ ] or a firm of cost and management accountants as defined under the Cost and Management Accountants Act, 1966 (XIV of 1966)], as appointed by the 6[Board or the Commissioner], to conduct audit under section 177, for any tax year, may with the prior approval of the Commissioner concerned, enter the business premises of a taxpayer, 7[ ] to obtain any information, require production of any record, on which the required information is stored and examine it

1Substituted by the Finance Act, 2015. The substituted clause (a) read as follows:-
“(a) to furnish to the Commissioner or an authorised officer, any information relevant to any tax 1[leviable] under this Ordinance as specified in the notice; or”
2 Full stop substituted by the Finance Act, 2009.
3 Inserted by the Finance Act, 2009.
4Inserted by the Finance Act, 2017.
5 Comma omitted by the Finance Act, 2022.
6The word “Board” substituted by the Finance Act, 2010. The substituted provision has been made effective from 05.06.2010 by sub-clause (77) of clause 8 of the Finance Act, 2010. Earlier the substitution was made through Finance (Amendment) Ordinance, 2009 which was re-promulgated as Finance (Amendment) Ordinance, 2010 and remained effective till 05.06.2010.
7The words and comma “selected for audit,” omitted by the Finance Act, 2012.

within such premises; and such firm may if specifically delegated by the Commissioner, also exercise the powers as provided in sub-section (4).]

1[(1A) A special audit panel appointed under sub-section (11)of section 177, for any tax year, may, with the prior approval of the Commissioner concerned, enter the business premises of a taxpayer, to obtain any information, require production of any record, on which the required information is stored and examine it within such premises and such panel may if specifically delegated by the Commissioner, also exercise the powers as provided in subsection(4).]

(2) The Commissioner may impound any accounts or documents produced under sub-section (1) and retain them for so long as may be necessary for examination or for the purposes of prosecution.

(3) 2[The person from whom information is required, may at his option, furnish the same electronically in any computer readable media.] Where a hard copy or computer disk of information stored on a computer is not made available as required under sub-section (1), the Commissioner may require production of the computer on which the information is stored, and impound and retain the computer for as long as is necessary to copy the information required.

(4) For the purposes of this section, the Commissioner shall have the same powers as are vested in a Court under the Code of Civil Procedure, 1908 (Act V of 1908), in respect of the following matters, namely: —

(a) enforcing the attendance of any person and examining the person on oath or affirmation;

(b) compelling the production of any accounts, records, computer- stored information, or computer;

(c) receiving evidence on affidavit; or

(d) issuing commissions for the examination of witnesses.

(5) This section shall have effect notwithstanding any 3[law or rules] relating to privilege or the public interest in relation to the production of accounts, documents, or computer-stored information or the giving of information.

 

1 Added by the Finance Act, 2015.
2Inserted by the Finance Act, 2005.
3The words “rule of law” substituted by the Finance Act, 2011.

1[177. Audit.— 2[(1) The Commissioner may call for any record or documents including books of accounts maintained under this Ordinance or any there law for the time being in force for conducting audit of the income tax affairs of the person and where such record or documents have been kept on electronic data, the person shall allow access to the Commissioner or the officer authorized by the Commissioner for use of machine and software on which such data is kept and the Commissioner or the officer may have access to the required information and data and duly attested hard copies of such information or data for the purpose of investigation and proceedings under this Ordinance in respect of such person or any other person:
Provided that—
(a) the Commissioner may, after recording reasons in writing call for record or documents including books of accounts of the taxpayer; and

 

1 Section 177 substituted by the Finance Act, 2004. The Substituted section 177 read as follows:- “177. Audit:- (1) The commissioner may select any person for an audit of the person’s income tax affairs having regard to-
(a) the person’s history of compliance or non-compliance with this Ordinance;
(b) the amount of tax payable by the person;
(c) the class of business conducted by the person; and
(d) any other matter that the commissioner considers relevant.
(1A) After selection of a person for audit under sub-section (1), the Commissioner shall conduct an audit of the income tax affairs (including examination of accounts and records, enquiry into expenditure, assets and liabilities) of that person.
(1B) After completion of the audit under sub-section (1A) or sub-section (3), the Commissioner may, if considered necessary, after obtaining taxpayer’s explanation on all the issues raised in the audit, amend the assessment under sub-section (1) or sub-section (4) of section 122, as the case may be.
(2) The fact that a person has been audited in a year shall not preclude the person from being audited again in the next and following years where there are reasonable grounds for such audits, particularly having regard to the factors in sub-section (1).
(3) The Central Board of Revenue may appoint a firm of Chartered Accountants as defined under the Chartered Accountants Ordinance, 1961(X of 1961), to conduct an audit of the income tax affairs of any person and the scope of such audit shall be as determined by the Central Board of Revenue on a case by case basis.
(4) Any person employed by a firm referred to in sub-section (3) may by authorised by the commissioner, in writing, to exercise the powers in sections 175 and 176 for the purposes of the conducting audit under that subsection.”
2 Sub-section (1) substituted by the Finance Act, 2010. The substituted sub-section (1) read as follows:
“(1) The Commissioner may call for any record or documents including books of accounts maintained under this Ordinance or any other law for the time being in force for conducting audit of the income tax affairs of the person and where such record or documents have been kept on electronic data, the person shall allow access to the Commissioner or the officer authorized by the Commissioner for use of machine and software on which such data is kept and the Commissioner or the officer may take into possession such machine and duly attested hard copies of such information or data for the purpose of investigation and proceedings under this Ordinance in respect of such person or any other person:
Provided that the Commissioner shall not call for record or documents of the taxpayer after expiry of six years from the end of the tax year to which they relate.”

(b) the reasons shall be communicated to the taxpayer while calling record or documents including books of accounts of the taxpayer:

Provided further that the Commissioner shall not call for record or documents of the taxpayer after expiry of six years from the end of the tax year to which they relate.]

1[(2) After obtaining the record of a person under sub-section (1) or where necessary record is not maintained, the Commissioner shall conduct an audit of the income tax affairs (including examination of accounts and records, enquiry into expenditure, assets and liabilities) of that person or any other person and may call for such other information and documents as he may deem appropriate.]

2[(2A) For the purpose of sub-section (2), the Commissioner may conduct audit proceedings electronically through video links, or any other facility as prescribed by the Board.

(2AA) Where a taxpayer—

(a) has not furnished record or documents including books of accounts;

(b) has furnished incomplete record or books of accounts; or

(c) is unable provide sufficient explanation regarding the defects in records, documents or books of accounts,

it shall be construed that taxable income has not been correctly declared and the Commissioner shall determine taxable income on the basis of sectoral benchmark ratios prescribed by the Board.

Explanation.—The expression “sectoral benchmark ratios” means standard business sector ratios notified by the Board on the basis of comparative cases and includes financial ratios, production ratios, gross profit ratio, not profit ratio, recovery ratio, wastage ratio and such other ratios in respect of such sectors as may be prescribed.]

 

1Sub-section (2) substituted by the Finance Act, 2010. The substituted sub-section (2) read as follows: “(2) After obtaining the record of a person under sub-section (1) or where necessary record
is not maintained, the Commissioner shall conduct an audit of the income tax affairs (including
examination of accounts and records, enquiry into expenditure, assets and liabilities) of that person or any other person and may call for such other information and documents as he may deem appropriate.”
2New sub-sections (2A) and (2AA) inserted through Finance Act, 2020 dated 30th June, 2020

1[ ]

2[ ]

3[ ]

4[(6) After compilation of the audit, the Commissioner shall, after obtaining taxpayer’s explanation on all the issues raised in the audit, issue an audit report containing audit observations and finding.]

5[(6A) After issuing the audit report, the Commissioner may, if considered necessary, amend the assessment under sub-section (1) or sub-section (4) of section 122, as the case may be, after providing an opportunity of being heard to the taxpayer under sub-section (9) of section 122.]

(7) The fact that a person has been audited in a year shall not preclude the person from being audited again in the next and following years where there are reasonable grounds for such audits 6[ ].
(8) The 7[Board] may appoint a firm of Chartered Accountants as defined under the Chartered Accountants Ordinance, 1961 (X of 1961) 8[or a firm of Cost and Management Accountants as defined under the Cost and Management Accountants Act, 1966 (XIV of 1966)], or a firm of Cost and Management Accountants as defined under the Cost and Management Accountants Act, 1966

1 Sub-section (3) omitted by the Finance Act, 2010. The omitted sub-section (3) read as follows: “(3) The Board shall keep the criteria confidential.”
2 Sub-section (4) omitted by the Finance Act, 2010. The omitted sub-section (4) read as follows:
“(4) In addition to the selection referred to in sub-section (2), the Commissioner may also select a person or classes of persons for an audit of the person’s income tax affairs having regard to –
(a) the person’s history of compliance or non-compliance with this Ordinance;
(b) the amount of tax payable by the person;
(c) the class of business conducted by the person; and
(d) any other matter which in the opinion of Commissioner is material for determination of correct income.”
3Sub-section (5) omitted by the Finance Act, 2010. The omitted sub-section (5) read as follows:
“(5) After selection of a person or classes of persons for audit under sub-section (2) or (4), the Commissioner shall conduct an audit of the income tax affairs (including examination of accounts and records, enquiry into expenditure, assets and liabilities) of such person or classes of persons.”
4Sub-section (6) substituted through Finance Act, 2019 substituted sub-section (6) read as follows:
(6) After completion of the audit 4[ ], the Commissioner may, if considered necessary, after obtaining taxpayer’s explanation on all the issues raised in the audit, amend the assessment under sub-section
(1) or sub-section (4) of section 122, as the case may be.
5 New sub-section (6A) inserted through Finance Act, 2019.
6The words, comma, brackets and figure “particularly having regard to the factors in sub-section (4)“ omitted by the Finance Act, 2010.
7The words “Central Board of Revenue” substituted by the Finance Act, 2007.
8 Inserted by the Finance Act, 2010.

(XIV of 1966) to conduct an audit of the income tax affairs of any person 1[or classes of persons 2[ ] ] and the scope of such audit shall be as determined by the 3[Board] 4[or the Commissioner] on a case to case basis.
(9) Any person employed by a firm referred to in sub-section (8) may be authorized by the Commissioner, in writing, to exercise the powers in sections 175 and 176 for the purposes of conducting an audit under that sub-section.]
5[(10) Notwithstanding anything contained in sub-sections (2) and (6) where a person fails to produce before the Commissioner or a firm of Chartered Accountants or a firm of Cost and Management Accountants appointed by the Board or the Commissioner under sub-section (8) to conduct an audit, any accounts, documents and records, required to be maintained under section 174 or any other relevant document, electronically kept record, electronic machine or any other evidence that may be required by the Commissioner or the firm of Chartered Accountants or the firm of Cost and Management Accountants for the purpose of audit or determination of income and tax due thereon, the Commissioner may proceed to make best judgment assessment under section
121 of this Ordinance and the assessment treated to have been made on the basis of return or revised return filed by the taxpayer shall be of no legal effect.]
6[Explanation.— For the removal of doubt, it is declared that the powers of the Commissioner under this section are independent of the powers of the Board under section 214C and nothing contained in section 214C restricts the powers of the Commissioner to call for the record or documents including books of accounts of a taxpayer for audit and to conduct audit under this section.]
7[(11) The Board may appoint as many special audit panels as may be necessary, comprising two or more members from the following:—
(a) an officer or officers of Inland Revenue;
(b) a firm of chartered accountants as defined under the Chartered Accountants Ordinance, 1961 (X of 1961);
(c) a firm of cost and management accountants as defined under the Cost and Management Accountants Act, 1966 (XIV of 1966); or

1Inserted by the Finance Act, 2009.
2The words “selected for audit by the Commissioner or by the Board” omitted by the Finance Act, 2010.
3The words “Central Board of Revenue” substituted by the Finance Act, 2007.
4Inserted by the Finance Act, 2010. 5 Added by the Finance Act, 2010. 6 Added by the Finance Act, 2013. 7 Added by Finance Act, 2015.

(d) any other person 1[including a foreign expert or specialist] as directed by the Board, to conduct an audit, including a forensic audit, of the income tax affairs of any person or classes of persons and the scope of such audit shall be as determined by the Board or the Commissioner on case-to-case basis.
2[(e) a tax audit expert deployed under an audit assistance programme of an international tax organization or a tax authority outside Pakistan:
Provided that in case the member is not an officer of Inland Revenue, the person shall only be included as a member in the special audit panel if an agreement of confidentiality has been entered into between the Board and the person, international tax organization or a tax authority, as the case may be.]
(12) Special audit panel under sub-section (1) shall be headed by a Chairman who shall be an officer of Inland Revenue.
(13) Powers under sections 175 and 176 for the purposes of conducting an audit under sub-section (11), shall only be exercised by an officer or officers of Inland Revenue, who are member or members of the special audit panel, and authorized by the Commissioner.
(14) Notwithstanding anything contained in sub-sections (2) and(6), where a person fails to produce before the Commissioner or a special audit panel under sub-section (11) to conduct an audit, any accounts, documents and records, required to be maintained under section 174 or any other relevant document, electronically kept record, electronic machine or any other evidence that may be required by the Commissioner or the panel, the Commissioner may proceed to make best judgment assessment under section 121 and the assessment treated to have been made on the basis of return or revised return filed by the taxpayer shall be of no legal effect.

(15) If any one member of the special audit panel, other than the Chairman, is absent from conducting an audit, the proceedings of the audit may continue, and the audit conducted by the special audit panel shall not be invalid or be called in question merely on the ground of such absence.
(16) Functions performed by an officer or officers of Inland Revenue as members of the special audit panel, for conducting audit, shall be treated to have been performed by special audit panel.

(17) The Board may prescribe the mode and manner of constitution, procedure and working of the special audit panel.”]

178. Assistance to Commissioner.— Every Officer of Customs, 1[ ] Provincial Excise and Taxation, District Coordination Officer, District Officers including District Officer – Revenue, the Police and the Civil Armed Forces is empowered and required to assist the Commissioner in the discharge of the Commissioner’s functions under this Ordinance.
179. Accounts, documents, records and computer-stored information not in Urdu or English language.— Where any account, document, record or computer-stored information referred to in section 174, 175 or 176 is not in the Urdu or English language, the Commissioner may, by notice in writing, require the person keeping the account, document, record or computer-stored information to provide, at the person’s expense, a translation into the Urdu or English language by a translator approved by the Commissioner for this purpose.
180. Power to collect information regarding exempt income.— The 2[Board] may, by notification in the official Gazette, authorise any department or agency of the Government to collect and compile any data in respect of incomes from industrial and commercial undertakings exempt from tax under this Ordinance.

1[PART IX
TAXPAYER’S REGISTRATION
181. Taxpayer’s registration.— (1) Every taxpayer shall apply in the prescribed form and in the prescribed manner for registration.
(2) The Commissioner having jurisdiction over a case, where necessitated by the facts of the case, may also register a taxpayer in the prescribed manner.
(3) Taxpayers’ registration scheme shall be regulated through the rules to be notified by the Board 2[ 3[“.”] ] ]
4[ 5[ ] ]
6[(4) From tax year 2015 and onwards, in case of individuals having Computerized National Identity Card (CNIC) issued by the National Database and Registration Authority, CNIC shall be used as National Tax Number.]
7[181A. Active taxpayers’ list.— (1) The Board shall have the power to institute active taxpayers’ list.
(2) Active taxpayers’ list shall be regulated as may be prescribed.]
8[181AA. Compulsory registration in certain cases.-(1) Notwithstanding anything contained in any law, for the time being in force, any application for

1Part IX ssubstituted by the Finance Act, 2008. The substituted “Part IX” read as follows:
“PART IX
NATIONAL TAX NUMBER CERTIFICATE
181. National Tax Number Certificate.- (1) Every taxpayer shall apply in the prescribed form and in the prescribed manner for a National Tax Number Certificate.
(2) An application under sub-section (1) shall be accompanied by the prescribed fee.
(3) The Commissioner having jurisdiction over an applicant under sub-section (1) may after examination of all relevant documents and evidence, and after satisfying himself of the genuineness of the application, may direct issuance of the National Tax Number Certificate for a period prescribed by Commissioner:
Provided that the Board may in the case of individuals allow use of National Identity Card, issued by the National Database and Registration Authority, in place of National Tax Number.”
2 Full stop substituted by the Finance Act, 2013.
3 Substituted “:” by the Finance Act, 2015.
4Added by the Finance Act, 2013.
5 Omitted by the Finance Act, 2015. The omitted proviso read as follows:-
“Provided that the Board may in case of individuals allow, in place of National Tax Number, use of Computerized National Identity Card issued by the National Database and Registration Authority.”
6 Added by the Finance Act, 2015.

commercial or industrial connection of electricity or natural gas, shall not be processed and such connection shall not be provided unless the person applying for electricity or gas connection is registered under section 181.]

1[181B. Taxpayer card.— Subject to this Ordinance, the Board may make a scheme for introduction of a tax-payer honour card for individual taxpayers, who fulfill a minimum criteria to be eligible for the benefits as contained in the scheme.]

2[181C. Displaying of National Tax Number.— Every person deriving income from business chargeable to tax, who has been issued a National Tax Number, shall display his National Tax Number at a conspicuous place at every place of his business.]

3[181D. Business licence scheme.- 4[(1)] Every person engaged in any business, profession or vocation shall be required to obtain and display a business licence as prescribed by the Board.]

5[(2) Where a person fails to obtain business licence under sub-section (1), the Commissioner may, in addition to and not in derogation of any punishment to which the person may be liable under this Ordinance or any other law, impose a fine of –

(a) twenty thousand Rupees, in case of a taxpayer deriving income chargeable to tax under this Ordinance; or

(b) five thousand Rupees, in all other cases.

(3) The Commissioner may, by an order in writing, cancel a business licence issued under sub-section (1) after providing an opportunity of being heard to the person, if –

(a) such person fails to notify any change in particulars within thirty days of such charge; or

(b) such person is convicted of any offence under any federal tax law.]

 

1 Added by the Finance Act, 2012.
2 Added by the Finance Act, 2013.
3 New Section (181D) inserted through Finance Act, 2019.
4 Provision re-numbered as sub-section (1) through Tax Law (Second Amendment) 2019 dated 26th December, 2019
5 New sub-sections (2) & (3) inserted through Tax Law (Second Amendment) 2019, dated 26th
December, 2019

1[181E. Record of beneficial owners.- (1) Every company and association of persons shall electronically furnish particulars of its beneficial owners in such form and manner as may be prescribed.

(2) Every company and association of persons shall update the particulars of its beneficial owners as and when there is a change in the particulars of the beneficial owners.]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1 New Section 181E inserted by the Finance Act, 2022.

PART X
PENALTY

1[182. Offences and penalties.— (1) Any person who commits any offence specified in column (2) of the Table below shall, in addition to and not in derogation of any punishment to which he may be liable under this Ordinance or any other law, be liable to the penalty mentioned against that offence in column (3) thereof:—

TABLE

 

 

 

 

 

 

 

 

 

 

 

 

1Section 182 substituted by the Finance Act, 2010. The substituted section 182 read as follows:
“182. Penalty for failure to furnish a return or statement.- (1) Any person who, without reasonable excuse, fails to furnish, within the time allowed under this Ordinance, return of income or a statement as required under sub-section (4) of section 115 or wealth statement for any tax year as required under this Ordinance shall be liable for a penalty equal to one-tenth of one per cent of the tax payable for each day of default subject to a minimum penalty of five hundred rupees and a maximum penalty of twenty-five per cent of the tax payable in respect of that tax year.
(2) Any person who, without reasonable excuse, fails to furnish, within the time allowed under this Ordinance, any statement required under section 165 shall be liable for a penalty of two thousand rupees.
(3) Where a person liable to a penalty under sub-section (2) continues to fail to furnish the statement, the person shall be liable for an additional penalty of two hundred rupees for each day of default after the imposition of the penalty under sub-section (2).”

S.
No. Offences Penalties Section of the Ordinance to which offence has
reference
(1) (2) (3) (4)
1. 1[Where any person fails to furnish a return of income as required under section 114 within the due date.] 2[ ]

3[Such person shall pay a penalty equal to higher of –

(a) 0.1% of the tax payable in respect of that tax year for each day of default; or
(b) rupees one thousand for each day of default:

Provided that minimum penalty shall be

(i) rupees ten thousand in case of individual having seventy-five percent or more income from salary; or
(ii) rupees fifty thousand in all other cases:

Provided further that maximum penalty shall not exceed two hundred percent of tax payable by the person in a tax year:

Provided also that the amount of penalty shall be reduced by 75%, 50% and 25% if the return is filed within one, two and three months respectively after the due date or extended due date of filing of return as prescribed under the law;

Explanation.— For the purposes of this entry, it is declared that the expression “tax payable” means tax chargeable on the taxable income on the basis of assessment made or treated to have been made under section 120, 121, 122 or 122D;] 114 *[and 118]
4[1A. Where any person fails to furnish a statement as required under section 5[ ] 165, or 165A 6[, 165A
or 165B] within the due date.] 7[Such person shall pay a penalty of Rs.5000 if the person had already paid the tax collected or withheld by him within the due date for payment and the statement is filed within ninety days from the due date for filing the statement and, in all other cases, a penalty of Rs.2500 for each day of default from the due date subject to a minimum penalty of Rs. 10,000] 8[:

Provided that where it stands established that no tax was required to be deducted or collected during the relevant period, minimum amount of penalty shall be ten thousand Rupees.”; 9[ ] 165 and
165A 10[, 165A
and 165B]

 

 

 

 

 

 

 

 

 

1The words and figures “Where any person fails to furnish a return of income or a statement as required under section 115 or wealth statement or wealth reconciliation statement or statement under section 165 within the due date” substituted by the Finance Act, 2013
2 The words and figures “Such person shall pay a penalty equal to 0.1% of the tax payable for each day of default
subject to a minimum penalty of five thousand rupees and a maximum penalty of 25% of the tax payable in respect of that tax year” substituted by the Finance Act, 2013.
3The expression “Such person shall pay a penalty equal to 0.1% of the tax payable in respect of that tax year for each day of default subject to a maximum penalty of 50% of the tax payable provided that if the penalty worked out as aforesaid is less than 3[forty] thousand rupees or no tax is payable for that tax year such person shall pay a penalty of 3[forty] thousand rupees] 3[:]
3[Provided that If seventy-five percent of the income is from salary and the amount of income under salary is less than five million Rupees, the minimum amount of penalty shall be five thousand Rupees]
3[:
“Provided further that if taxable income is up-to eight hundred thousand Rupees, the minimum amount of penalty shall be five thousand Rupees:
Provided also that the amount of penalty shall be reduced by 75%, 50% and 25% if the return is filed within one, two and three months respectively after the due date or extended due date of filing of return as prescribed under the law.]
3[Explanation.— For the purposes of this entry, it is declared that the expression “tax payable” means tax chargeable on the taxable income on the basis of assessment made or treated to have been made under section 120, 121, 122 or 122C.” substituted by the Finance Act, 2022.
4 Inserted by the Finance Act, 2013.
5In column (2) the figure “115” omitted through Finance Act, 2020 dated 30th June, 2020
6Inserted by the Finance Act, 2016.
7The expression “Such person shall pay a penalty of Rs. 2500 for each day of default subject to a minimum penalty of ten thousand rupees” substituted by the Finance Act, 2018.
8 Full stop substituted and proviso added by the Finance Act, 2021. Earlier these amendments were
made through Tax Laws (Second Amendment) Ordinance, 2021.
9In column (4) the figure “115” omitted through Finance Act, 2020 dated 30th June, 2020

1[1AA. Where any person fails to furnish wealth statement or wealth reconciliation
statement. Such person shall pay a penalty of 2[“0.1% of the taxable income per week or Rs.3[100,000] whichever is higher.”] 114, 4[ ] and
116]
5[IAAA Where any person fails to furnish a foreign assets and income statement
within the due date. Such persons shall pay a penalty of 2 percent of the foreign income or value of the foreign assets for each year of default. 116A]
2. Any person who fails to issue cash memo or invoice or receipt when required under this Ordinance or the rules made
thereunder. Such person shall pay a penalty of five thousand rupees or three per cent of the amount of the tax involved, whichever is higher. 174 and
Chapter VII of the Income Tax Rules.
3. Any person who is required to apply for registration under this Ordinance but fails to
make an application for registration. Such person shall pay a penalty of 6[ten] thousand rupees. 181
4. Any person who fails to notify the changes of material nature in the particulars of
registration. Such person shall pay a penalty of five thousand rupees. 181
7[ ]

8[ ]
4B Any person who contravenes the
provisions of section 181AA. Such a person shall pay a penalty at the rate of Rs. 9[100,000] for each connection provided to an unregistered person. 181AA]

 

1Inserted by the Finance Act, 2013.
2Substituted “Rs.100 for each day of default.” by the Finance Act, 2015.
3 Figure “20,000” substituted by “100,000” though Finance Act, 2019.
4In column (4) the figure “115” omitted through Finance Act, 2020 dated 30th June, 2020
5Inserted by the Finance Act, 2018.
6Word “five” substituted by “ten” through Finance Act, 2019.
7New serials “4A” and “4B” inserted through Finance Act, 2020 dated 30th June, 2020
8 S. No. 4A and entries relating thereto in column (2), (3) and (4) omitted by the Finance Act, 2021. The omitted S. No. 4 read as follows:
“4A. Any person who is required to furnish or update a taxpayer’s profile but fails
to furnish or update within the due date. Such a person shall pay a penalty of Rs. 2,500 for each day of default from the
due date subject to a minimum penalty of Rs. 10,000. 114A”

5. Any person who fails to deposit the amount of tax due or any part thereof in the time or manner laid down under this Ordinance or rules made thereunder.
1[Provided
that if the person opts to pay the tax due on the basis of an order under section 129 on or before the due date given in the notice under sub-section (2) of section 137 issued in consequence of the said order, and does not file an appeal under section 131 the penalty payable shall be reduced by 50%.] Such person shall pay a penalty of five per cent of the amount of the tax in default.
For the second default an additional penalty of 25% of the amount of tax in default.
For the third and subsequent defaults an additional penalty of 50% of the amount of tax in default. 137
6. Any person who repeats erroneous calculation in the return for more than one year whereby amount of tax 2[paid is] less than the actual tax payable under this Ordinance 3[ ]. Such person shall pay a penalty of 4[thirty] thousand rupees or three per cent of the amount of the tax involved, whichever is higher] 5[:

Provided that no penalty shall be imposed to the extent of the tax shortfall occurring as a result of the taxpayer taking a reasonably arguable position on the application of this Ordinance to the taxpayer’s position.] 137
7. Any person who fails to maintain records required under this
Ordinance or the rules made thereunder. Such person shall pay a penalty of ten thousand rupees or five per cent of the amount of tax on income whichever is higher. 174 6[,108]
8. Where a taxpayer who, without any reasonable cause, in non-
compliance with provisions of section 177— 177
(a) fails to produce the record
of documents
on receipt of first notice. Such person shall pay a penalty of 7[twenty-five] thousand rupees;
(b) fails to produce the record
or documents
on receipt of second notice; and such person shall pay a penalty of 8[fifty] thousand rupees; and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1Inserted by the Finance Act, 2011.
2 Inserted by the Finance Act, 2021. Earlier this amendment was made through Tax Laws (Second Amendment) Ordinance, 2021.
3 The words “is paid” omitted by the Finance Act, 2021. Earlier this amendment was made through Tax
Laws (Second Amendment) Ordinance, 2021.
4Word “five” substituted by “thirty” through Finance Act, 2019.
5 Full stop substituted and proviso added by the Finance Act, 2021. Earlier this amendment was made through Tax Laws (Second Amendment) Ordinance, 2021.
6Added by the Finance Act, 2017.
7The word “five” substituted by the Finance Act, 2013.
8The word “ten” substituted by the Finance Act, 2013.

(c) Fails to produce the record
or documents
on receipt of third notice. such person shall pay a penalty of 1[one hundred] thousand rupees.
9. Any person who fails to furnish the information required or to comply with any other term of the
notice served under section 1762[or 108]. Such person shall pay a penalty of 3[twenty-five] thousand rupees for the first default and 4[fifty] thousand rupees for each subsequent default. 176
10. Any person who—
(a) makes a false or misleading statement to an Inland Revenue Authority either in writing or orally or electronically including a statement in an application, certificate, declaration, notification, return, objection or other document including books of accounts made, prepared, given, filed or furnished
under this Ordinance; Such person shall pay a penalty of twenty five thousand rupees or 5[50%] of the amount of tax shortfall whichever is higher:

Provided that in case of an assessment order deemed under section 120, no penalty shall be imposed to the extent of the tax shortfall occurring as a result of the taxpayer taking a reasonably arguable position on the application of this Ordinance to the taxpayers’ position. 114, 6[ ], 116,
174, 176, 177 7[
[118]
(b)furnishes or files a false or mis- leading information or
document or statement to an Income Tax Authority either in writing or orally or
electronically;
(c) omits from a statement made or information furnished to an Income Tax
Authority any matter or thing without which the statement or the information is false or misleading in a
material particular.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1 The word “fifty” substituted by the Finance Act, 2013.
2Added by the Finance Act, 2017.
3 The word “five” substituted by the Finance Act, 2013.
4 The word “ten” substituted by the Finance Act, 2013.
5 Figure “100%” substituted by the Finance Act, 2021. Earlier this amendment was made through Tax Laws (Second Amendment) Ordinance, 2021.
6In column (4) the figure “115” omitted through Finance Act, 2020 dated 30th June, 2020
7 The words “and general” substituted by the Finance Act, 2021. Earlier this amendment was made

11. Any person who denies or obstructs the access of the Commissioner or any officer authorized by the Commissioner to the premises, place, accounts, documents,
computers or stocks. Such person shall pay a penalty of 1[fifty] thousand rupees or 2[fifty] per cent of the amount of tax involved, whichever, is higher. 175 and 177
12. Where a person has concealed income or furnished inaccurate particulars of such income, including but not limited to the suppression of any income or amount chargeable to tax, the claiming of any deduction for any expenditure not actually incurred or any act referred to in sub- section (1) of section 111, in the course of any proceeding under this Ordinance before any Income Tax authority or the appellate tribunal. Such person shall pay a penalty of 1[one hundred] thousand rupees or an amount equal to the tax which the person sought to evade whichever is higher. However, no penalty shall be payable on mere disallowance of a claim of exemption from tax of any income or amount declared by a person or mere disallowance of any expenditure declared by a person to be deductible, unless it is proved that the person made the claim knowing it to be wrong. 20, 111 and General
13. Any person who obstructs any Income Tax Authority in the performance of his
official duties. Such person shall pay a penalty of twenty five thousand rupees. 209, 210 and General.
14. Any person who contravenes any of the provision of this Ordinance for which no penalty has, specifically,
been provided in this section. Such person shall pay a penalty of five thousand rupees or three per cent of the amount of tax involved, which-ever is higher. General.
15. Any person who fails to collect or deduct tax as required under any provision of this Ordinance or fails to pay the tax collected or
deducted as required under section 160. Such person shall pay a penalty of 2[forty] thousand rupees or the 10% of the amount of tax which-ever is higher. 3[Division II or Division III of Part V of Chapter X or Chapter XII]
4[16. Any person who fails to display his NTN 5[or business licence] at the place of business as required under this Ordinance or the rules
made thereunder. Such person shall pay a penalty of five thousand rupees. 181C 6[and 181D] ]

1The Word “twenty five” substituted by “fifty” through Finance Act, 2019.
2 The words “one hundred” substituted by the Finance Act, 2021. Earlier this amendment was made

7[17. Any reporting financial institution or reporting entity who fails to furnish information or country- by-country report to the Board as required under section 107, 108
or 165B within the due date. Such reporting financial institution or reporting entity shall pay a penalty of two thousand rupees for each day of default subject to a minimum penalty of twenty five thousand rupees. 107, 108 and 165B
18. Any person who fails to keep and maintain document and information required under section 108 or
Income Tax Rules, 2002. 1% of the value of transactions, the record of which is required to be maintained under section 108 and Income Tax Rules, 2002. 108.]
8[ 9[

1The words “twenty five” substituted by “one hundred” through Finance Act, 2019.
2The words “twenty five” substituted by “forty” through Finance Act, 2019.
3 The entries “148, 149, 150, 151, 152, 153, 153A, 154, 155, 156, 156A, 156B, 158, 160, 231A, 231B,
233, 233A, 234, 234A, 235, 236, 236A,” in column (4), substituted by the Finance Act, 2021. Earlier this amendment was made through Tax Laws (Second Amendment) Ordinance, 2021.
4 Added by the Finance Act, 2013.
5 Inserted by the Finance Act, 2021. Earlier this amendment was made through Tax Laws (Second Amendment) Ordinance, 2021.
6 Inserted by the Finance Act, 2021. Earlier this amendment was made through Tax Laws (Second
Amendment) Ordinance, 2021.
7Added by the Finance Act, 2017.
8Inserted by the Finance Supplementary (Amendment) Act, 2018.
9 S. Nos. 19 and 20 omitted by the Finance Act, 2021. Earlier this amendment was made through Tax Laws (Second Amendment) Ordinance, 2021. The omitted S. Nos read as follows:

19 Where any manufacturer of a motor vehicle accepts or processes any application for booking or purchase of a locally manufactured motor vehicle in violation of the provisions of clause (a) of section 227C Such person shall pay a penalty of 5 percent of the value of the motor vehicle 227C
20 (i) Where any registering authority of Excise and Taxation Department accepts, processes or registers any application for registration of a locally manufactured motor vehicle or for the first registration of an imported vehicle in violation of the provisions of clause (a) of section 227C.

(ii) Where any authority responsible for registering, recording or attesting the transfer of immovable property accepts or processes the registration or attestation of such property in violation of the provisions of clause (b) of section 227C. Such person shall pay a penalty of 3 percent of the value of motor vehicle or immovable property. 227C”

] ]
1[“21 Any person who purchases immovable property having fair market value greater than rupees five million through cash or bearer cheque. Such person shall pay a penalty of five percent of the value of property determined by the Board under sub-section (4) of section 68 or by the provincial authority for the purpose of stamp duty, whichever is higher. 75A
22 Where an offshore tax evader is involved in offshore tax evasion in the course of any proceedings under this Ordinance before any Income Tax authority or the appellate tribunal. Such person shall pay a penalty of one hundred thousand rupees or an amount equal to two hundred per cent of the tax which the person sought to evade, whichever is higher. General
23 Where in the course of any translation or declaration made by a person an enabler has enable, guided, advised or managed any person to design, arrange or manage that transaction or declaration in such a manner which has resulted or may result in offshore tax evasion in the course of any proceedings under this Ordinance. Such person shall pay a penalty of three hundred thousand rupees or an amount equal to two hundred per cent of the tax which was sought to be evaded, whichever is higher. General
24 Any person who is involved in asset move as defined in clause (5C) of section
2 of the Ordinance from specified territory to an un- specified territory. Such person shall pay a penalty of one hundred thousand rupees or an amount equal to one hundred per cent of the tax whichever is higher. General

 

 

 

1New serial numbers (21 to 28) and corresponding entries added through Finance Act, 2019.

25 Where a Reporting Financial Institution fails to comply with any provisions of section 165B of the Ordinance or Common Reporting Standard Rules in Chapter XIIA of Income Tax Rules, 2002. Such Reporting Financial Institution shall pay a penalty of Rs.10,000 for each default and an additional Rs. 10,000 each month until the default is redressed.
26 Where a Reporting Financial Institution files an incomplete or inaccurate report under provisions of section 165B of the Ordinance and Common Reporting Standard Rules in Chapter XIIA of Income Tax Rules, 2002. Such Reporting Financial Institution shall pay a penalty of Rs.10,000 for each default and an additional Rs. 10,000 each month until the default is redressed.
27 Where a Reporting Financial Institution fails to obtain valid self-certification for new accounts or furnishes false self- certification for new accounts or furnishes false self-certification made by the Reportable Jurisdiction Person under Common Reporting Standard Rules in Chapter XIIA of Income Tax Rules, 2002. Such Reporting Financial Institution shall pay a penalty of Rs.10,000 for each default and an additional Rs. 10,000 each month until the default is redressed.
28 Where a Reportable Jurisdiction Person fails to furnish valid self-certification or furnishes false self- certification under Common Reporting Standard Rules in Chapter XIIA of Income Tax Rules, 2002. Such Reporting Financial Institution shall pay a penalty of Rs.5,000 for each default and an additional Rs. 5,000 each month until the default is redressed.]

1[29 Where any person fails to declare business bank account(s), in his registration application or fails to amend his registration profile to declare existing business
bank account(s) willfully. Such person shall pay a penalty of Rs. 10,000 for each day of default since the date of submission of application for registration or date of opening of undeclared business bank account whichever is later:

Provided that if penalty worked out as aforesaid is less than Rs.100,000 for each undeclared bank account, such person shall pay a penalty of Rs.100,000 for each undeclared business bank account:

Provided further that this provision shall be applicable from the first day of October, 2021 during which period the taxpayer may update their
registration forms. 181]
2[30 Any company or Association of
Persons who
contravenes the provisions of Section 181E. Such company or Association of Persons shall pay a penalty of Rs. 1,000,000/- for each default. 181E
31 Any person who fails to integrate or perform roles and functions as specified, after being duly notified by the Board as SWAPS Agent. Such person shall pay a penalty of:

(i) Rs.50,000 for first default of 07 days
(ii) Rs. 100,000 for second default of next 07 days
(iii) Rs. 50,000 for each week after the second consecutive week of default:

Provided that no penalty shall be imposed for the period for which extension from integration is granted by the Commissioner subject to the condition that, if the SWAPS Agent fails to integrate within such extended time, penalties shall be imposed as if no extension was granted. 164A
32 Any person, who is integrated for monitoring, tracking, reporting or recording of sales, services and similar business transactions with the Board or its computerized system, conducts such transactions in a manner so as to avoid monitoring, tracking, reporting or recording
of such transactions, or issues an invoice Such person shall pay a penalty of five hundred thousand rupees or two hundred per cent of the amount of tax involved, whichever is higher. 237A

1 S. No. 29 added by the Finance Act, 2021.
2 S. Nos. 30, 31, 32, 33 and 34 and entries relating thereto inserted by the Finance Act, 2022.

which does not carry the prescribed invoice number or QR code or bears duplicate invoice number or counterfeit QR code, or defaces the prescribed invoice number or QR code, or any person who abets commissioning of such offence.
33 Any person, who is required to integrate his business for monitoring, tracking, reporting or recording of sales, services and similar business transactions with the Board or its computerized system, fails to get himself registered under the Ordinance, and if registered, fails to integrate in the manner as required under law. Such person shall be liable to pay a penalty up to one million rupees, and if continues to commit the same offence after a period of two months after imposition of penalty as aforesaid, his business premises shall be sealed till such time he integrates his business in the manner as stipulated under sub- section (3) of section 237A, as the case may be. 237A
34 A person required to integrate his business as stipulated under sub-section (3) of section 237A, who fails to get himself registered under the Ordinance, and if registered, fails to integrate in the manner as required under the law and rules made
thereunder. Such person shall be liable to pay-
i) penalty of five hundred thousand rupees for first default;
ii) penalty of one million rupees for second default after fifteen days of order for first default;
iii) penalty of two million rupees for third default after fifteen days of order for second default;
iv) penalty of three million rupees for fourth default after fifteen days of order for third default:
Provided that if such person fails to integrate his business within fifteen days of imposition of penalty for fourth default, his business premises shall be sealed till such time he integrates his business in the manner as stipulated under sub- section (3) of section 237A:
Provided further that if the person integrates his business with the Board’s computerized system before imposition of penalty for second default, penalty for first default shall be waived by the Commissioner.] 237A

(2) The penalties specified under sub-section (1) shall be applied in a consistent manner and no penalty shall be payable unless an order in writing is

passed by the Commissioner, Commissioner (Appeals) or the Appellate Tribunal after providing an opportunity of being heard to the person concerned 1[:]

2[Provided that where the taxpayer admits his default he may voluntarily pay the amount of penalty due under this section.]

3[Explanation.—For the removal of doubt, it is clarified that establishing mens rea is not necessary for levying of penalty under this section.]

(3) Where a Commissioner (Appeals) or the Appellate Tribunal makes an order under sub-section (2), the Commissioner (Appeals) or the Appellate Tribunal, as the case may be, shall immediately serve a copy of the order on the Commissioner and thereupon all the provision of this Ordinance relating to the recovery of penalty shall apply as if the order was made by the Commissioner.
(4) Where in consequence of any order under this Ordinance, the amount of tax in respect of which any penalty payable under sub-section (1) is reduced, the amount of penalty shall be reduced accordingly.]
4[182A. Return not filed within due date.—(1) Notwithstanding anything contained in this Ordinance, where a person fails to file a return of income under section 114 by the due date as specified in section 118 or by the date as extended by the Board under section 214A or extended by the Commissioner under section 119, as the case may be, such person shall—

(a) not be included in the active taxpayers’ list for the year for which return was not filed within the due date 5[:]

6[Provided that without prejudice to any other liability under this Ordinance, the person shall be included in the active taxpayer ‘ list on filing return after the due date, if the person pays surcharge at Rupees-
(i) twenty thousand in case of a company;
(ii) ten thousand in case of an association of persons;
(iii) one thousand in case of an individual.]

“Explanation.—For the removal of doubt it is clarified that the provisions of this section shall apply from tax year 2018 and onwards for which the first

1 Full stop substituted by the Finance Act, 2012.
2 Added by the Finance Act, 2011. 3 Added by the Finance Act, 2021. 4Inserted by the Finance Act, 2018.
5Word “;and” substituted by colon through Finance Act, 2019.
6New proviso inserted through Finance Act, 2019.

Active Taxpayers List is to be issued on first day of March, 2019 under Income Tax Rules, 2002.; and

(b) not be allowed, for that tax year, to carry forward any loss under Part VIII of Chapter IV 1[ ; ]
2[(c) not be issued refund during the period the person is not included in the active taxpayers’ list; and
(d) not be entitled to additional payment for delayed refund under section 171 and the period the person is not included in the active taxpayers’ list, shall not be counted for computation of additional payment for delayed refund.]
3[ ]
4[ ]

5[183. Exemption from penalty and default surcharge.— The Federal Government may, by notification in the official Gazette, or the Board by an order published in the official Gazette for reasons to be recorded in writing, exempt any person or class of persons from payment of the whole or part of the penalty and

1Full stop substituted by semicolon through Finance Act, 2019.
2 New clauses (c) & (d) added through Finance Act, 2019.
3New sub-section (2) added through Finance Act, 2020 dated 30th June, 2020.
4 Sub-section (2) omitted by the Finance Act, 2021. The omitted sub-section read as follows:
“(2) Where a person fails to furnish or update a taxpayer’s profile within the due date or time period specified in sub-section (3) of section 114A or within the date as extended by the Board under section 214A, such person shall not be included in the active taxpayers’ list for the latest tax year ending prior to the aforesaid due date or extended date:
Provided that without prejudice to any other liability under this Ordinance, such person shall be included in the active taxpayers’ list upon filing the taxpayer’s profile after the due date or extended date, if the person pays surcharge at Rupees—
(a) twenty thousand in case of a company;
(b) ten thousand in case of an association of persons; and
(c) one thousand in case of an individual.”
5Section 183 substituted by the Finance Act, 2010. The substituted section 183 read as follows:
“183. Penalty for non-payment of tax.- (1) A taxpayer who fails to pay any tax (other than penalty imposed under this section) due under this Ordinance by the due date shall be liable for a penalty equal to –
(a) in the case of the first default, five per cent of the amount of tax in default;
(b) in the case of a second default, an additional penalty of twenty per cent of the amount of tax in default;
(c) in the case of a third default, an additional penalty of twenty-five per cent of the amount of tax in default; and
(d) in the case of a fourth and subsequent default, an additional penalty of up to fifty per cent of the amount of tax in default as determined by the Commissioner, but the total penalty in respect of the amount of tax in default shall not exceed one hundred per cent of such amount of tax.
(2) Where, in consequence of any order under this Ordinance, the amount of tax in respect of which any penalty imposed under sub-section (1) is reduced, the amount of the penalty shall be reduced accordingly.”

default surcharge payable under this Ordinance subject to such conditions and limitations as may be specified in such notification or, as the case may be, order.]
1[ ]
2[ ]
3[ ]
4[ ]

1Section 184 omitted by the Finance Act, 2010. The omitted section 184 read as follows:
“184. Penalty for concealment of income.- (1) Where, in the course of any proceedings under this Ordinance, the Commissioner, Commissioner (Appeals), or the Appellate Tribunal is satisfied that any person has either in the said proceedings or in any earlier proceedings relating to an assessment in respect of the same tax year concealed income or furnished inaccurate particulars of such income, the Commissioner, Commissioner (Appeals), or the Appellate Tribunal, as the case may be, may, by an order in writing, impose upon the person a penalty equal to the amount of tax which the person sought to evade by concealment of income or the furnishing of inaccurate particulars of such income.
(2) For the purposes of sub-section (1), concealment of income or the furnishing of inaccurate particulars of income shall include –
(a) the suppression of any income or amount chargeable to tax;
(b) the claiming of any deduction for any expenditure not actually incurred; or
(c) any act referred to in sub-section (1) of section 111.
(3) Where any income or amount declared by a taxpayer is claimed by the taxpayer to be exempt from tax or any expenditure declared by a taxpayer is claimed by the taxpayer to be deductible, the mere disallowance of such claim shall not constitute concealment of income or the furnishing of inaccurate particulars of income, unless it is proved that the taxpayer made the claim knowing it to be wrong.
(4) Where a Commissioner (Appeals) or the Appellate Tribunal makes an order under sub-section (1), the Commissioner (Appeals) or the Appellate Tribunal, as the case may be, shall immediately serve a copy of the order on the Commissioner and thereupon all the provisions of this Ordinance relating to the recovery of penalty shall apply as if the order were made by the Commissioner. (5) Where, in consequence of any order under this Ordinance, the amount of tax in respect of which any penalty imposed under sub-section (1) is reduced, the amount of the penalty shall be reduced accordingly.”
2 Section 185 omitted by the Finance Act, 2010. The omitted section 185 read as follows:
“185. Penalty for failure to maintain records.- A person who, without reasonable excuse, fails to maintain records as required under this Ordinance shall be liable for a penalty equal to –
(a) in the case of the first failure, two thousand rupees;
(b) in the case of a second failure, five thousand rupees; and
(c) in the case of a third and subsequent failure, ten thousand rupees.”
3 Section 186 omitted by the Finance Act, 2010. The omitted section 186 read as follows:
“186. Penalty for non-compliance with notice.- (1) A person who, without reasonable excuse, fails to comply with any notice served on the person under section 116 or 176 shall be liable for a penalty equal to –
(a) in the case of the first failure, two thousand rupees;
(b) in the case of a second failure, five thousand rupees; or
(c) in the case of a third and subsequent failure, ten thousand rupees.
(2) Where a person liable for a penalty under sub-section (1) has an assessed tax liability for the tax year in which the failure occurred of less than twenty thousand rupees, the amount of the penalty imposed under sub-section (1) shall be reduced by seventy-five per cent.“
4 Section 187 omitted by the Finance Act, 2010. The omitted section 187 read as follows: “187. Penalty for making false or misleading statements.- (1) Where a person –
(a) makes a statement to an income tax authority that is false or misleading in a material particular or omits from a statement made to an income tax authority any matter or thing without which the statement is false or misleading in a material particular; and

1[ ]

2[ ]

3[ ]

(b) the tax liability (including the liability for advance tax under section 147) of the person computed on the basis of the statement is less than it would have been if the statement had not been false or misleading (the difference hereinafter referred to as the “tax shortfall”),
the person shall be liable for a penalty equal to –
(i) where the statement or omission was made knowingly or recklessly, two hundred per cent of the tax shortfall; or
(ii) in any other case (other than where sub-section (2) applies), twenty-five per cent of the tax shortfall.
(2) In the case of an assessment order under section 120, no penalty shall be imposed under sub-section (1) to the extent to which the tax shortfall arose as a result of the taxpayer taking a reasonably arguable position on the application of this Ordinance to the taxpayer’s position.
(3) A reference in this section to a statement made to an income tax authority is a reference to a statement made in writing or orally to that authority acting in the performance of the authority’s duties under this Ordinance, and shall include a statement made –
(a) in an application, certificate, declaration, notification, return, objection or other document made, prepared, given, filed or furnished under this Ordinance;
(b) in information required to be furnished under this Ordinance;
(c) in a document furnished to an income tax authority otherwise than pursuant to this Ordinance;
(d) in answer to a question asked of a person by an income tax authority; or
(e) to another person with the knowledge or reasonable expectation that the statement would be conveyed to an income tax authority.”
1Section 188 omitted by the Finance Act, 2010. The omitted section 188 read as follows:
“188. Penalty for failure to give notice.- (1) Where a person fails to give notice of the discontinuance of the person’s business as required under section 117, the Commissioner may impose a penalty on the person not exceeding the amount of tax payable by the person for the tax year in which the business was discontinued.
(2) Where a person fails to give notice of the person’s appointment as liquidator as required under section 141, the Commissioner may impose a penalty on the person not exceeding ten thousand rupees.”
2Section 189 omitted by the Finance Act, 2010. The omitted section 189 read as follows:
“189. Penalty for obstruction.- Where any person obstructs the Commissioner or a taxation officer in discharge of the Commissioner or officer’s functions under this Ordinance, the Commissioner may impose a penalty on the person not exceeding ten thousand rupees.”
3Section 190 omitted by the Finance Act, 2010. The omitted section 190 read as follows:
“190. Imposition of penalty.- (1) No penalty may be imposed under this Part on any person unless the person is given a reasonable opportunity of being heard.
(2) Subject to sub-section (3), the imposition of a penalty under this Part shall be without prejudice to any other liability incurred by the person under this Ordinance.
(3) The imposition of a penalty in relation to an act or omission shall be an alternative to prosecution under Part XI of this Chapter.
(4) If a penalty has been paid under this Part and the Commissioner institutes a prosecution proceeding under Part XI of this Chapter in respect of the same act or omission, the Commissioner shall refund the amount of penalty paid, and the penalty shall not be payable unless the prosecution is withdrawn.
(5) A penalty under sections 182, 183, 185, 186 and 187 shall be imposed by the Commissioner.
(6) The provisions of Parts III and IV of this Chapter shall apply to an assessment of penalty as if it were an assessment of tax.”

PART XI
OFFENCES AND PROSECUTIONS

191. Prosecution for non-compliance with certain statutory obligations. —
(1) Any person who, without reasonable excuse, fails to —
1[(a) comply with a notice under sub-section (3)2[and sub-section (4)] of section 114 or sub-section (1) of section 116;]
(b) pay advance tax as required under section 147;
(c) comply with the obligation under Part V of this Chapter3[or chapter XII] to collect or deduct tax and pay the tax to the Commissioner;
4[(ca) furnish particulars or complete or accurate particulars of persons mentioned in sub-section (1) of section 165;]
(d) comply with a notice served under section 140 or 176;
(e) comply with the requirements of 5[sub-section (3) or sub-section
(4) of] section 141; 6[ ]
(f ) provide reasonable facilities and assistance as required under sub-section (3) of section 175 7[; 8[ ]

(g) declare business bank account(s) in the registration form or updated registration form or return of income or wealth statement] 9[;

(h) integrate his business with Board’s computerized system; or

(i) generate tax invoice verifiable by the Board’s system;”;

 

1 Substituted by the Finance Act, 2003. The substituted clause (a) read as follows:
“(a) furnish a return of income as required under section 114 or a wealth statement as required under section 116;”
2Inserted by the Finance Act, 2017
3Inserted by the Finance Act, 2017
4New clause (ca) inserted through Finance Act, 2019.
5 Inserted by the Finance Act, 2003.
6 The word “or” omitted by the Finance Act, 2021.
7 Comma substituted, the word “and” inserted and clause (g) added by the Finance Act, 2021.
8 The word “and” omitted by the Finance Act, 2022.
9 Comma substituted and clauses (h) and (i) added by the Finance Act, 2022.

shall commit an offence punishable on conviction with a fine or imprisonment for a term not exceeding one year, or both.
(2) If a person convicted of an offence under clause (a) of sub-section (1) fails, without reasonable excuse, to furnish the return of income or wealth statement to which the offence relates within the period specified by the Court, the person shall commit a further offence punishable on conviction with a fine 1[not exceeding fifty thousand rupees] or imprisonment for a term not exceeding two years, or both.
192. Prosecution for false statement in verification. — Any person who makes a statement in any verification in any return or other document furnished under this Ordinance which is false and which the person knows or believes to be false, or does not believe to be true, the person shall commit an offence punishable on conviction with a fine 2[upto hundred thousand rupees] or imprisonment for a term not exceeding three years, or both.

3[192A. Prosecution for concealment of income.— (1) Where, in the course of any proceedings under this Ordinance, any person has either in the said proceedings or in any earlier proceedings concealed income or furnished inaccurate particulars of such income and revenue impact of such concealment or furnishing of inaccurate particulars of such income is five hundred thousand rupees or more shall commit an offence punishable on conviction with imprisonment upto two years or with fine or both.
(2) For the purposes of sub-section (1), concealment of income or the furnishing of inaccurate particulars of income shall include–
(a) the suppression of any income or amount chargeable to tax;
(b) the claiming of any deduction for any expenditure not actually incurred; or
(c) any act referred to in sub-section (1) of section 111.]

4[192B. Prosecution for concealment of an offshore asset.- (1) Any person who fails to declare an offshore asset to the Commissioner or furnished inaccurate particulars of an offshore asset and revenue impact of such concealment or furnishing of inaccurate particulars is ten million rupees or more shall commit an offence punishable on conviction with imprisonment up to three years or with a fine up to five hundred thousand Rupees or both.]

1Inserted by the Finance Act, 2009. 2 Inserted by the Finance Act, 2009. 3 Inserted by the Finance Act, 2009.
4New sub section 192B inserted through Finance Act, 2019.

193. Prosecution for failure to maintain records.—A person who fails to maintain records as required under this Ordinance shall commit an offence punishable on conviction with –
(a) where the failure was deliberate, a fine1[not exceeding fifty thousand rupees] or imprisonment for a term not exceeding two years, or both; or
(b) in any other case, a fine2[not exceeding fifty thousand rupees].
194. Prosecution for improper use of National Tax Number 3[Certificate].— A person who knowingly or recklessly uses a false National Tax Number 4[Certificate] including the National Tax Number 5[Certificate] of another person on a return or other document prescribed or used for the purposes of this Ordinance shall commit an offence punishable with a fine 6[not exceeding fifty thousand rupees] or imprisonment for a term not exceeding two years, or both.

195. Prosecution for making false or misleading statements. — (1) A person who –

(a) makes a statement to 7[an income tax authority] that is false or misleading in a material particular; or

(b) omits from a statement made to 8[an income tax authority] any matter or thing without which the statement is misleading in a material particular,

shall commit an offence punishable on conviction –

(i) where the statement or omission was made knowingly or recklessly, with a fine or imprisonment for a term not exceeding two years, or both; or

(ii) in any other case, with a fine.

 

1 Inserted by the Finance Act, 2009.
2Inserted by the Finance Act, 2008.
3 The word “Card” substituted by the Finance Act, 2005. 4 The word “Card” substituted by the Finance Act, 2005. 5The word “Card” substituted by the Finance Act, 2005. 6Inserted by the Finance Act, 2009.
7 The words “a taxation officer” substituted by the Finance Act, 2002.
8The words “a taxation officer” substituted by the Finance Act, 2002.

(2) A person shall not commit an offence under sub-section (1) if the person did not know and could not reasonably be expected to have known that the statement to which the prosecution relates was false or misleading.

(3) 1[“Entry against S.No 10 in column (2) of the Table in sub-section (1) of section 182”] shall apply in determining whether a person has made a statement to 2[an income tax authority].

3[195A. Prosecution for non-compliance with notice under section 116A.— Any person who, without reasonable excuse, fails to comply with a notice under sub-section (2) of section 116A; shall commit an offence punishable on conviction with imprisonment up to one year or with a fine up to fifty thousand Rupees or both.

195B. Prosecution for enabling offshore tax evasion.– Any enabler who enables, guides or advises any person to design, arrange or manage a transaction or declaration in such a manner which results in offshore tax evasion, shall commit an offence punishable on conviction with imprisonment for a term not exceeding seven years or with a fine up to five million Rupees or both.]

196. Prosecution for obstructing 4[an income tax authority. —] A person who obstructs 5[an income tax authority]in discharge of functions under this Ordinance shall commit an offence punishable on conviction with a fine or imprisonment for a term not exceeding one year, or both.

197. Prosecution for disposal of property to prevent attachment. — Where the owner of any property, or a person acting on the owner’s behalf or claiming under the owner, sells, mortgages, charges, leases or otherwise deals with the property after the receipt of a notice from the Commissioner with a view to preventing the Commissioner from attaching it, shall commit an offence punishable on conviction with a fine 6[upto hundred thousand rupees] or imprisonment for a term not exceeding three years, or both.

198. Prosecution for unauthorised disclosure of information by a public servant.— A person who discloses any particulars in contravention of 7[sub- section 1B of section 107 or] section 216 shall commit an offence punishable on

 

1 Substituted “Sub-section (3) of section 187” by the Finance Act, 2015. 2 The words “a taxation officer” substituted by the Finance Act, 2002. 3New sub-sections (195A) & (195B) inserted through Finance Act, 2019. 4The words “a taxation officer” substituted by the Finance Act, 2002.
5The words “a taxation officer” substituted by the Finance Act, 2002.
6Inserted by the Finance Act, 2009.

conviction with a fine 1[of not less than five hundred thousand rupees] or imprisonment for a term not exceeding 2[one year], or both.

199. Prosecution for abetment. — Where a person 3[knowingly and wilfully] aids, abets, assists, incites or induces another person to commit an offence under this Ordinance, the first-mentioned person shall commit an offence punishable on conviction with a fine or imprisonment for a term not exceeding three years, or both.

200. Offences by companies and associations of persons. — (1) Where an offence under this Part is committed by a company, every person who, at the time the offence was committed, was –

(a) the principal officer, a director, general manager, company secretary or other similar officer of the company; o
(b) acting or purporting to act in that capacity,
shall be, notwithstanding anything contained in any other law, guilty of the offence and all the provisions of this Ordinance shall apply accordingly.

(2) Where an offence under this Part is committed by an association of persons, every person who, at the time the offence was committed, was a member of the association shall be, notwithstanding anything contained in any other law, guilty of the offence and all the provisions of this Ordinance shall apply accordingly.

(3) Sub-sections (1) and (2) shall not apply to a person where –

(a) the offence was committed without the person’s consent or knowledge; and

(b) the person has exercised all diligence to prevent the commission of the offence as ought to have been exercised having regard to the nature of the person’s functions and all the circumstances.
201. Institution of prosecution proceedings without prejudice to other action.— Notwithstanding anything contained in any law for the time being in force, a prosecution for an offence against this Ordinance may be instituted without prejudice to any other liability incurred by any person under this Ordinance.

 

1Inserted by the Finance Act, 2013.
2 The words “six months” substituted by the Finance Act, 2013.

1[202. Power to compound offences.—Notwithstanding any provisions of this Ordinance, where any person has committed any offence, the 2[Chief Commissioner] may, with the prior approval of the Board, either before or after the institution of proceedings, compound such offence subject to payment of tax due along with 3[default surcharge]and penalty as is determined under the provisions of this Ordinance.]
203. Trial by Special Judge.—4[(1) The Federal Government may, by notification in the official Gazette, appoint as many Special Judges as it may consider necessary, and where it appoints more than one Special Judge, it shall specify in the notification the territorial limits within which each of them shall exercise jurisdiction 5[:
Provided that the Federal Government may, by notification in official Gazette, declare that a special judge appointed under section 185 of the Customs Act 1969 (IV of 1969) shall have jurisdiction to try offences under this Ordinance.]
6[(1A) A Special Judge shall be a person who is or has been a Sessions Judge and shall, on appointment, have the jurisdiction to try exclusively an offence punishable under this Part other than an offence referred to in section 198.]
7[(1B) The provisions of the Code of Criminal Procedure, 1898 (Act V of 1898), except those of Chapter XXXVIII, thereof shall apply to the proceedings of the court of a Special Judge and, for the purposes of the said provisions, the court of Special Judge shall be deemed to be a Court of Sessions trying cases, and a person conducting prosecution before the court of a Special Judge shall be deemed to be a Public Prosecutor.]

(2) A Special Judge shall take cognisance of, and have jurisdiction to try, an offence triable under sub-section (1) only upon a complaint in writing made by the Commissioner 8[:

1Section 202 substituted by the Finance Act, 2009. The substituted sub-section “202” read as follows: “202. Power to compound offences.- Where any person has committed any offence under this Part, the Commissioner may either before or after the institution of proceedings, compound such offence and order that such person pay the amount for which the offence may be compounded.”
2The words “Director General” substituted by Finance Act, 2012.
3The words “additional tax” substituted by Finance Act, 2010.
4Sub-section (1) substituted by Finance Act, 2010. The substituted sub-section (1) read as follows: “(1) The Federal Government” may, by notification in the official Gazette, appoint as many
special judges as it may consider necessary, and where it appoints more than one Special Judge,
shall specify in the notification the territorial limits within which each of them shall exercise jurisdiction.”
5 Full stop substituted by a colon and a proviso added by the Finance Act, 2014.
6Inserted by Finance Act, 2010.
7Inserted by Finance Act, 2010.
8 Full stop substituted and proviso added by the Finance Act, 2021.

Provided that where the offence of concealment of income which has resulted in non-payment of tax of rupees one hundred and above in case of a filer and rupees twenty five million or above in case of non-filer, the procedure provided in section 203B shall be applicable.]
1[(3) The Federal Government may, by order in writing, direct the transfer, at any stage of the trial, of any case from the court of one Special Judge to the court of another Special Judge for disposal, whenever it appears to the Federal Government that such transfer shall promote the ends of justice or tend to the general convenience of parties or witnesses.]
2[(4) In respect of a case transferred to a Special Judge by virtue of sub-section
(1) or under sub-section (3), such Judge shall not, by reason of the said transfer, be bound to recall and record again any witness who has given evidence in the case before the transfer and may act on the evidence already recorded by or produced before the court which tried the case before the transfer.]
3[203A. Appeal against the order of a Special Judge.— An appeal against the order of a Special Judge shall lie to the respective High Court of a Province within thirty days of the passing of the order and it shall be heard as an appeal under the Code of Criminal Procedure 1898 (Act V of 1898) by a single Judge of the High Court.]

4[203B. Power to arrest and prosecute.—(1) Where on the basis of material evidence brought on record, as a result of audit conducted by the auditors in terms of sub-section (8) of section 177 read with section 214C of this Ordinance, an assessment is made or amended under section 121 or 122 of this Ordinance, as the case may be, and the assessing officer records a finding that the taxpayer has committed the offence of concealment of income which has resulted in non- payment of tax of Rupees one hundred million and above in case of a filer and rupees twenty five million or above in case of non-filer, the taxpayer may be arrested after obtaining written approval of the committee specified under sub- section (2).

(2) The committee under sub-section (1) shall comprise the Minister for Finance and Revenue, the Chairman of the Board and the senior most member of the Board.

(3) All arrests made under this Ordinance shall be carried out in accordance with the relevant provisions of the Code of Criminal Procedure, 1898 (Act V of 1898).

1Inserted by Finance Act, 2010. 2Inserted by Finance Act, 2010. 3Inserted by Finance Act, 2010.
4 Sections 203B to 203I added by the Finance Act, 2021.

(4) Notwithstanding anything contained in sub-sections (1) and (2) or any other provision of this Ordinance, where any person has committed offence of concealment of income or any offence warranting prosecution under this Ordinance, the Chief Commissioner with the prior approval of the Board may, either before or after the institution of any proceedings for recovery of tax, compound the offence if such person pays the amount of tax due along with such default surcharge and penalty as is determined under the provisions of this Ordinance.

(5) W