Are you a taxpayer in Pakistan waiting for a refund from the Federal Board of Revenue (FBR)? If your refund is delayed, the FBR is responsible for paying an additional amount as compensation. Understanding Section 171 of the Income Tax Ordinance, 2001 will help you know your rights and how much you can claim for delayed refunds in tax year 2026.
🔍 When Does the Additional Payment Apply?
Under Section 171:
• If a refund is not paid within three months from the date it becomes due, the Commissioner must pay extra compensation to the taxpayer.
• The compensation rate is KIBOR + 0.5% per annum, calculated on the refund amount from the end of the three-month period until the refund is paid.
• Important: If FBR suspects the refund claim is not valid, the additional payment is paused until the investigation is complete.
📅 When Is a Refund Considered “Due”?
Section 171 clarifies when a refund becomes due for compensation purposes:
1. Appeals & Orders: If the refund arises from an appeal to the Commissioner (Appeals), Appellate Tribunal, High Court, or Supreme Court, it becomes due on receipt of the order by the Commissioner.
2. Revision Orders: If due to a revision order under Section 122A, it becomes due on the date the order is issued.
3. Other Cases: In other situations, the refund becomes due on the date the refund order is made.
Note: For refunds under Section 170, the compensation starts from the refund order date, not the date of assessment under Section 120.
💡 Key Takeaways
• Right to Compensation: Taxpayers are entitled to compensation for delayed refunds beyond three months.
• Calculation: Compensation = Refund amount × (KIBOR + 0.5% per annum) × delay period.
• Exclusions: Cases under investigation or invalid claims are exempt until resolved.
• Transparency: Knowing the due date of your refund ensures you can monitor delays effectively.
✅ Bottom Line: Section 171 protects taxpayers by guaranteeing compensation for delayed refunds in tax year 2026. Keep track of your refund status and calculate your entitlement if payments are late.
Disclaimer: This article is for informational purposes only and does not constitute legal or tax advice. Taxpayers should consult the Federal Board of Revenue (FBR) or a qualified tax professional for guidance regarding their specific refund claims and calculations.