Karachi, September 4, 2023 – The Federal Board of Revenue (FBR) has explained the provision related to consumer loans in the updated Income Tax Ordinance, 2001, effective from July 1, 2023.
This explanation is provided through Section 29A of the Income Tax Ordinance, 2001.
READ MORE: FBR Releases Guidelines for Tax Payment on Immovable Properties Under Section 7E
The provision regarding consumer loans is outlined as follows:
(1) Deduction for Bad Debts:
A non-banking finance company or the House Building Finance Corporation is allowed a deduction, not exceeding three percent of the income for the tax year, arising from consumer loans for the creation of a reserve to offset bad debts arising from such loans.
READ MORE: New Insertion for Section 7E Declaration in Return Form Creates Legal Issues
(2) Carry Forward of Bad Debts:
In cases where the bad debt cannot be wholly set off against the reserve, any amount of bad debt exceeding the reserves shall be carried forward for adjustment against the reserve in the following years.
Explanation:
In this section, “consumer loan” is defined as a loan of money or its equivalent provided by a non-banking finance company or the House Building Finance Corporation to a debtor (consumer). These loans are primarily intended for personal, family, or household purposes and include debts created through the use of a lender’s credit card or similar arrangement, as well as insurance premium financing.
READ MORE: FBR Sets Conditions for Deduction of Bad Debts in Tax Year 2024
The clarification aims to provide a clear understanding of the provisions related to consumer loans and the creation of reserves for offsetting bad debts, particularly for non-banking finance companies and the House Building Finance Corporation.
