Taxpayers may claim credit for eligible tax collected or deducted during Tax Year 2027, subject to statutory restrictions, while unused eligible credits may qualify for refunds.
The Federal Board of Revenue (FBR) has explained the rules governing tax credits for amounts collected or deducted under Section 168 of the Income Tax Ordinance, 2001, for Tax Year 2027.
According to the Income Tax Ordinance updated up to June 30, 2026, Tax Year 2027 covers the period from July 1, 2026, to June 30, 2027.
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Section 168 provides that tax deducted from payments is treated as income derived by the recipient, while tax collected or deducted is generally treated as tax paid by the person from whom it was collected or deducted.
Subject to the conditions and exceptions specified in the law, taxpayers are entitled to claim credit for eligible tax collected or deducted when calculating their tax liability on taxable income for the relevant tax year.
The provision also addresses tax credits for companies that are members of associations of persons (AOPs). Such companies may claim credit for tax collected or deducted from the association according to a prescribed formula based on their share of profits, the association’s taxable income and the tax withheld in the association’s name.
However, Section 168 restricts credits for certain amounts treated as final tax under specified provisions, including sections 152, 152A, 154A, 156, 156A and 236Z. It also prevents duplicate tax credits in specified circumstances involving companies and associations of persons.
The law further stipulates that eligible tax credits must be applied in accordance with Section 4(3) of the ordinance. Any credit that cannot be utilised under the prescribed rules may be refunded under Section 170.
Section 168 also prohibits the deduction of service charges from tax withheld or collected under the ordinance. Any person deducting such charges is liable to pay the amount to the Federal Government, with the relevant tax recovery provisions applying.
The provisions establish the framework for recognising eligible withholding and collection taxes against taxpayers’ liabilities during Tax Year 2027, while defining restrictions on final taxes, duplicate claims and deductions for service charges.