FBR sets amortisation rules for intangible assets in Tax Year 2027, including eligibility, 15-year life, disposal and deduction limits.
ISLAMABAD: The Federal Board of Revenue (FBR) has outlined the rules governing amortisation deductions for intangible assets while calculating taxable business income for Tax Year 2027.
The provisions are contained in Section 24 of the Income Tax Ordinance, 2001, updated up to June 30, 2026. The section allows eligible taxpayers to claim an amortisation deduction for qualifying intangible assets used to generate income from a taxable business.
Conditions for claiming amortisation deduction
Under Section 24, a taxpayer can claim an amortisation deduction where an intangible asset is wholly or partly used during the tax year to derive income from a business chargeable to tax and has a normal useful life of more than one year.
However, no deduction is available under this provision if the entire cost of the intangible asset has already been allowed as a deduction under another provision of the Income Tax Ordinance in the tax year in which the asset was acquired.
The annual amortisation deduction is generally calculated by dividing the cost of the intangible asset by its normal useful life in whole years.
FBR sets 15-year period for intangibles without ascertainable life
The FBR has specified that an intangible asset whose useful life cannot be ascertained will be treated as having a normal useful life of 15 years for calculating amortisation.
Where an intangible is used partly to generate taxable business income and partly for another purpose, the taxpayer can claim only the fair proportional portion of the otherwise allowable deduction.
Similarly, where the asset is not used throughout the tax year to generate taxable business income, the deduction is calculated proportionately according to the number of days for which it was used for that purpose.
Amortisation deduction cannot exceed asset cost
The FBR has clarified that total deductions claimed in the current and previous tax years in respect of an intangible asset cannot exceed its original cost.
The restriction prevents taxpayers from claiming amortisation deductions exceeding the expenditure incurred to acquire or create the asset.
Tax treatment when an intangible is disposed of
The FBR has also prescribed specific tax treatment for intangible assets disposed of during a tax year.
No amortisation deduction is allowed for the year in which the intangible asset is disposed of.
If the amount received from the disposal is higher than the written-down value of the asset, the excess is treated as taxable business income.
Where the disposal proceeds are lower than the written-down value, the difference is allowed as a deduction when calculating taxable business income for that year.
The written-down value is generally determined by reducing the cost of the intangible by the total amortisation deductions allowed in respect of the asset.
What qualifies as an intangible asset?
The FBR’s definition covers a broad range of intellectual property and other rights.
Eligible categories include:
•Patents and inventions
•Designs and models
•Secret formulas and processes
•Copyrights
•Trademarks
•Scientific and technical knowledge
•Computer software
•Motion picture films
•Export quotas
•Franchises and licences
•Intellectual property
•Contractual rights
•Expenditure providing an advantage or benefit for more than one year
However, expenditure incurred to acquire a depreciable asset or unimproved land does not fall within the definition of an intangible asset.
The provision also excludes self-generated goodwill and adjustments arising from accounting treatment in the prescribed manner.
Cost includes acquisition and development expenditure
For tax purposes, the cost of an intangible asset includes expenditure incurred to acquire or create it, as well as expenditure on its improvement or renewal.
An intangible asset that becomes available for use on a particular day is treated as being used on that day, including where the day is a non-working day.
The Section 24 provisions provide businesses with a framework for recovering the cost of qualifying long-term intangible assets through amortisation deductions.
The rules also ensure that deductions remain linked to the asset’s use in generating taxable business income and that total amortisation claims do not exceed the original cost of the intangible asset.