Are you earning profit from bank deposits, National Savings Certificates, or government bonds? Then it’s important to understand how tax is deducted at source (TDS) on these earnings. The Federal Board of Revenue (FBR) explains the rules under Section 151 of the Income Tax Ordinance, 2001 for tax year 2026.
💰 What Is Profit on Debt?
Profit on debt refers to returns or yields earned from deposits, bonds, certificates, or sukuks. It includes:
• Interest on bank accounts or financial institution deposits
• Profit from National Savings Schemes or Post Office Savings Accounts
• Returns on government-issued securities
• Income from bonds, certificates, debentures, or financial instruments (excluding loans between borrower and bank)
📜 How FBR Collects Tax on Your Profit
According to Section 151(1):
• The payer of the profit (bank, institution, or government authority) deducts tax at source at the rates specified in Division IA of Part III of the First Schedule
• Deduction is calculated on the gross amount of profit, reduced by Zakat paid, if applicable
• This ensures tax is collected immediately when profit is credited
Special Rule for Sukuk Holders
Under Section 151(1A):
• Special purpose vehicles or companies making sukuk payments must deduct tax at the rate in Division IB of Part III of the First Schedule
❌ Exceptions
Tax deduction under Section 151 does not apply if:
• The profit is already taxed under Section 152(2)
• The recipient is a company, or
• Profit is taxable under Section 7B
🔹 Key Points for Depositors
• Tax is deducted at source, meaning your bank or financial institution handles it
• Tax on deposits is treated as a minimum tax for individuals
• No additional tax is usually required unless your total taxable income exceeds thresholds
✅ Why You Should Know This
Understanding TDS on deposits helps you:
• Avoid underpayment of taxes
• Claim adjustments or refunds where applicable
• Keep track of your taxable income from savings and investments
Disclaimer: This article is for informational purposes only and does not constitute legal or tax advice. Consult a qualified tax professional for advice specific to your situation.