If you are holding money on behalf of a tax defaulter, tax year 2026 could bring serious consequences for you as well. Under Pakistan’s tax laws, the Federal Board of Revenue (FBR) has the legal authority to recover unpaid taxes directly from third parties who owe or hold money for defaulting taxpayers.
This power is clearly provided under Section 140 of the Income Tax Ordinance, 2001. Here’s an interactive, practical guide to help you understand how this recovery mechanism works—and how to protect yourself.
⚠ Who Can Be Targeted Under Section 140?
FBR may issue a recovery notice to any person who:
✔ Owes money to a tax defaulter
✔ Holds money for or on account of a tax defaulter
✔ Holds money payable to the defaulter through another person
✔ Has authority to pay money to the defaulter
📌 Important:
The law defines “person” broadly. It includes individuals, companies, courts, tribunals, and authorities.
📬 How Does the Recovery Process Start?
Under Section 140(1):
• The Commissioner may issue a written notice
• The notice will specify:
O The amount to be paid
O The deadline for payment
👉 You are legally bound to comply once such a notice is served.
🛑 When Can FBR NOT Issue This Notice?
FBR cannot issue a recovery notice if:
• The taxpayer has filed an appeal under Section 127
• The appeal is pending before Commissioner (Appeals)
• The taxpayer has paid at least 10% of the disputed tax
⚖ This provides temporary protection during the appeal stage.
💰 How Much Can FBR Recover From You?
Under Section 140(2):
• If the money you hold is less than or equal to the tax due, recovery is limited to that amount
• If the money you hold is more than the tax due, recovery is limited to the tax amount only
🔁 Salary and Periodic Payments
Under Section 140(3):
• If you make regular payments (e.g., salary, commissions)
• FBR may direct you to deduct a specified amount from each payment
• This continues until the entire tax liability is recovered
📅 Payment Timing Protection
Under Section 140(4):
• FBR cannot demand payment before the money becomes payable
• You are only required to pay once funds are due to the taxpayer
🧾 Treated Like Tax Deduction
Under Section 140(5):
• Recovered amounts are treated similarly to withholding tax
• Relevant deduction rules apply
✅ Legal Protection for Third Parties
If you comply with the notice:
• You are considered to have paid on behalf of the taxpayer
• The Commissioner’s receipt is a valid discharge of your liability
• The taxpayer cannot legally claim the amount again
📄 This protection is provided under Section 140(6).
🚨 Immediate Recovery in Mega Tax Cases
Special Rule – Section 140(6A)
Immediate recovery applies if:
• The case is decided in favor of FBR at three appellate forums, including the High Court
• Recovery is limited to the lowest confirmed tax demand
• Tax payable exceeds Rs. 200 million
In such cases, recovery can proceed without waiting for time limits.
🧠 Why This Matters in Tax Year 2026
With increased enforcement expected in tax year 2026, businesses, employers, banks, and even individuals may face recovery actions for holding defaulters’ money—even unintentionally.
✅ How to Protect Yourself
✔ Keep clear records of payments and liabilities
✔ Respond immediately to any FBR notice
✔ Verify whether an appeal is pending
✔ Seek professional tax or legal advice
📌 Final Takeaway
Section 140 allows FBR to recover tax not only from defaulters but also from anyone holding their money. If you receive a recovery notice in tax year 2026, compliance is not optional—and timely action is essential.
Pro tip:
Never ignore an FBR recovery notice. Acting early can save you from legal exposure and financial loss.
Disclaimer: This article is for informational purposes only and does not constitute legal or tax advice. Tax laws and enforcement practices may change. Readers should consult qualified professionals for guidance specific to their situation.