Islamabad, August 3, 2025 – The Federal Board of Revenue (FBR) has clarified that bank cash deposits made by buyers into the seller’s bank account will be treated as valid payments through the banking channel under the Income Tax Ordinance, 2001.
According to Income Tax Circular No. 1 of 2025-26 issued by the FBR, this clarification comes in the wake of recent amendments introduced through the Finance Act, 2025. A new clause (s) added to Section 21 of the Income Tax Ordinance states that if a person makes a sale of Rs. 200,000 or more on a single invoice and payment is not received via a formal banking channel or digital means, then 50% of the corresponding business expenditure will be disallowed.
However, the FBR clarified that if an unregistered buyer or any person — NTN holder or not — deposits cash directly into the seller’s bank account, such cash deposit will be accepted as a valid payment through the banking system. This clarification ensures that no disallowance of expenditure will be made in such cases.
The FBR emphasized that this measure aims to encourage greater use of the formal economy while recognizing cash deposits made into banks as a legitimate part of the financial record. The move is expected to bridge the gap between the formal and informal sectors by ensuring greater compliance in large cash-based transactions.
Additionally, the FBR introduced clause (q) in Section 21, under which 10% of expenditure related to purchases from non-NTN holders will be disallowed. However, this clause excludes agricultural produce unless sold through intermediaries. The FBR retains the authority to exempt certain classes of persons based on prescribed conditions.
Furthermore, a significant amendment has also been made to Section 22 of the Ordinance. The FBR stated that depreciation expense on any capital asset will be disallowed if the asset was acquired without fulfilling the required tax withholding obligations under Sections 152 or 153. This means any amount paid to a supplier without withholding tax will not be considered part of the asset’s cost when calculating depreciation.
Overall, the FBR’s acceptance of bank cash deposits as formal payments aims to strike a balance between financial documentation and real-world business practices, promoting greater tax compliance and minimizing disputes over disallowed expenses.