Karachi, September 13, 2025 – The Federal Board of Revenue (FBR) has introduced new restrictions on deductions related to consumer loans, a move aimed at strengthening oversight of lending practices in the financial sector.
The updated provisions were included in the Income Tax Ordinance, 2001, reflecting amendments made through the Finance Act, 2025.
According to the revised Section 29A, only non-banking finance companies and the House Building Finance Corporation can claim deductions on such transactions. The law specifies that a deduction will be allowed, but it must not exceed three percent of the income generated during the tax year from consumer loans. This deduction is designed to help create reserves that offset bad debts linked to these loans, ensuring that institutions maintain financial discipline.
The FBR has also laid out rules for situations where losses exceed the reserve. If bad debts cannot be fully covered in one year, the excess amount will be carried forward for adjustment in subsequent years. This approach allows financial institutions to spread the impact of irrecoverable amounts over time, without creating sudden fiscal imbalances.
The ordinance further clarifies that a consumer loan refers to borrowing made for personal, family, or household purposes. It also extends to debts arising from credit cards, insurance premium financing, or similar arrangements, emphasizing the personal-use nature of these financial products.
By limiting deductions, the FBR aims to encourage responsible lending and safeguard the integrity of the financial system.
Disclaimer: This article is for informational purposes only. It summarizes legal provisions regarding consumer loans under the Income Tax Ordinance, 2001, as amended. It should not be treated as legal or tax advice. For personalized guidance, please consult a qualified tax professional.