Banks to pay income tax on advance to deposit ratio

Banks to pay income tax on advance to deposit ratio

KARACHI: The Federal Board of Revenue (FBR) has said that in order to facilitate banking companies on payment of additional tax on earning arising from investment in government securities, a new regime has been introduced.

The FBR said that the income of banking companies earned from additional investment in federal government securities for tax year 2020 and onwards was taxable at the rate of 37.5 per cent instead of rates provided in Division II of Part I of First Schedule.

This provision has been further streamlined for prospective application. For tax year 2022 and onwards, the income arising from federal government securities shall be taxable on the basis of advances to deposit ratios of banks as under:

— 40 per cent instead of rate provided in Division II of Part I of the First schedule if advances to deposit ratio as on last day of the tax year is up to 40 per cent

— 37.5 per cent instead of rate provided in Division II of Part I of the First schedule if the advances to deposit ratio as on last day of the tax year exceeds 40 per cent but does not exceed 50 per cent

— at the rates provided in Division II of Part I of the First schedule if advances to deposit ratio as on last day of the tax year exceeds 50 per cent.

The amendments would reduce disputes regarding the calculation of additional investment and additional earning. Furthermore, the cut off rate to calculate advances to deposit ratio has been specified as last day of tax year.

These changes have been incorporated by amending Rule 6C of the Seventh Schedule. 

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