Karachi, August 4, 2025 – The Federal Board of Revenue (FBR) has announced a significant policy shift, limiting the immunity from income tax audit to a period of three years, following amendments introduced in the Finance Act, 2025.
The change was detailed in Income Tax Circular No. 1 of 2025-26, which highlights key revisions to the Income Tax Ordinance, 2001. According to the FBR, the previous provision—introduced via the Finance Act, 2022—barred audit selection under Sections 177 and 214C for four years, provided the taxpayer’s affairs had already been audited in any of those four preceding years.
The FBR stated that the intent behind the original clause was to prevent repeated audits that were creating unnecessary hardship for compliant taxpayers. However, the clause led to confusion and inconsistent application across field formations due to varying interpretations.
To address this, the FBR has now redrafted the clause for better clarity and uniform enforcement. As per the updated law, any person whose income tax affairs have been selected for audit in any of the past three tax years will now be granted immunity from audit selection during that three-year period under Sections 177 and 214C.
The FBR emphasized that this refined approach ensures a balance between audit efficiency and taxpayer relief. By limiting audit immunity to three years, the FBR aims to streamline audit processes, reduce administrative ambiguity, and enhance compliance without imposing repeated scrutiny on the same individuals or entities.