Are you engaged in the business of goods, services, or contracts in Pakistan? If yes, understanding your income tax deduction at source obligations for tax year 2026 is critical to avoid penalties and ensure compliance.
The Federal Board of Revenue (FBR) has updated the Income Tax Ordinance, 2001, clarifying tax deduction rules on payments for goods, services, and contracts under Section 153. This provision directly impacts companies, individuals, exporters, e-commerce sellers, and large taxpayers.
📌 What is Section 153 of the Income Tax Ordinance?
Section 153 governs tax deduction at source on payments made by a “prescribed person” to a resident person for:
• Sale of goods
• Rendering or provision of services
• Execution of contracts
The tax is deducted at the time of payment, including advance payments.
🧾 Tax Deduction on Sale of Goods
A prescribed person must deduct tax when making payment for the sale of goods, including toll manufacturing, if the aggregate payment exceeds Rs75,000 in a financial year.
➡ Tax rate: As specified in Division III, Part III of the First Schedule
➡ Exception: Importers who have already paid tax under Section 148 and sell goods in the same condition
🛠 Tax Deduction on Services
Payments for services such as professional, technical, or consultancy services are subject to withholding tax if total annual payments exceed Rs30,000.
✔ Includes services of accountants, lawyers, doctors, engineers, architects, and consultants
✔ Applies whether services are paid directly or through an agent or third party
📑 Tax on Contracts
Payments made for execution of contracts (excluding sale of goods or services) are also subject to tax deduction at source.
📌 Sports contracts are specifically included
📌 Public listed companies may treat contract-related tax as adjustable
🌍 Special Provision for Exporters (Sub-section 2)
Exporters and export houses must deduct tax on payments for stitching, dyeing, embroidery, washing, printing, and weaving services.
➡ Applicable rate: Division IV, Part III of the First Schedule
🛒 E-Commerce & Digital Payments (Sub-section 2A)
With growing digital trade, Section 153 also covers:
• Payment intermediaries processing digital payments
• Courier companies collecting Cash on Delivery (CoD)
These entities must collect tax on behalf of sellers of digitally ordered goods and services.
📌 This applies to:
• Online marketplaces
• Food delivery platforms
• Ride-hailing and logistics services
⚖ Minimum Tax vs Adjustable Tax
Generally, tax deducted under Section 153 is treated as minimum tax.
🔹 Exceptions:
• Manufacturers selling their own goods
• Public listed companies
• Certain contract payments to listed entities
These taxpayers may adjust withheld tax against their final tax liability.
🧾 Reduced Tax Rate Certificate
Taxpayers can apply to the Commissioner Inland Revenue for a reduced rate or exemption certificate if tax is not minimum.
Time limit:
• Certificate must be issued within 15 days
• Automatically generated via IRIS if delayed
❌ Payments Exempt from Section 153
Tax deduction does not apply to:
• Sale of imported goods already taxed under Section 148
• Refund of security deposits
• Government-supplied construction material
• Lease and buy-back assets
• Securitization of receivables and sukuks
👤 Who is a “Prescribed Person”?
Section 153 applies to payments made by:
• Federal & Provincial Governments
• Companies and AOPs
• Individuals with turnover ≥ Rs100 million
• Sales tax registered persons
• Builders and developers
• Exporters, courier services & payment intermediaries
🔍 Why Section 153 Matters for Tax Year 2026
Failure to deduct or deposit tax under Section 153 can result in:
⚠ Penalties
⚠ Disallowance of expenses
⚠ Audit exposure
Understanding these rules helps businesses stay compliant, manage cash flows, and avoid disputes with FBR.
📢 Key Takeaway
If you deal in goods, services, contracts, or digital commerce, Section 153 directly affects your tax obligations in tax year 2026. Regular review of withholding requirements and proper documentation is essential for smooth tax compliance.
Disclaimer: This article is published for general information and educational purposes only. It does not constitute legal, tax, or financial advice. Readers are advised to consult a qualified tax professional or refer to official FBR notifications and the Income Tax Ordinance, 2001 for accurate interpretation and compliance.