The Federal Board of Revenue (FBR) allows taxpayers in Pakistan to adjust certain losses against income under specific conditions, as provided in the Income Tax Ordinance, 2001.
According to Section 56 of the Ordinance, taxpayers who incur a loss under any head of income (except “Salary”) can set it off against income from other heads within the same tax year. However, there are some restrictions — for example, business losses cannot be adjusted against income from property.
The law states that if a person cannot set off a loss in the same year, it generally cannot be carried forward to the next tax year, except where special provisions apply. Additionally, if a person faces both business losses and losses under other income heads in a single tax year, the business loss will be adjusted last.
A special rule, under Section 56A, applies to companies operating hotels. A public company registered in Pakistan, Gilgit-Baltistan, or Azad Jammu and Kashmir (AJ&K) that runs hotels in these regions can adjust its business losses against income earned from those areas starting from the tax year 2007 onward.
This provision helps promote fairness in taxation and supports businesses, especially in sectors such as hospitality, by allowing them to balance losses with income where permissible under law.
Disclaimer: This article is for informational purposes only. Taxpayers should consult the Income Tax Ordinance, 2001 or a qualified tax advisor for detailed guidance.