The Income Tax Ordinance, 2001, has introduced Section 167, which outlines the concept of indemnity.
This provision, as updated up to June 30, 2021, through the Finance Act, 2021, serves as a shield of indemnity for individuals or entities that have deducted tax from payments as required by the ordinance. Section 167 aims to ensure that those who fulfill their tax deduction obligations are treated as having paid the deducted amount to the recipient, safeguarding them from potential disputes or claims.
The amended Section 167 reads: “Indemnity.— A person who has deducted tax from a payment under Division III of this Part or Chapter XII and remitted the deducted amount to the Commissioner shall be treated as having paid the deducted amount to the recipient of the payment for the purposes of any claim by the recipient for payment of the deducted tax.”
This provision essentially provides indemnity to individuals or entities that have deducted taxes from payments under Division III of the ordinance or Chapter XII. The indemnity assures that if the deducted amount is remitted to the Commissioner as required, the tax deductor is treated as having fulfilled their obligation to the recipient of the payment.
The indemnity under Section 167 is crucial in addressing potential disputes or claims that may arise in the course of tax deduction. It establishes a legal framework that recognizes the act of deducting and remitting taxes as equivalent to directly paying the deducted amount to the recipient. This clarity protects tax deductors from any additional financial claims related to the deducted tax.
The scope of Division III of the Income Tax Ordinance typically includes provisions related to the deduction of taxes at source. This often involves scenarios where taxes are deducted from payments made to contractors, suppliers, or other entities as per the specified rates and rules.
Industry experts have lauded the introduction of Section 167, noting that it provides a level of certainty and protection for entities involved in tax deduction processes. The indemnity ensures that tax deductors are not unduly burdened with additional financial responsibilities beyond their obligation to deduct and remit taxes as per the ordinance.
This amendment aligns with the broader objectives of simplifying tax procedures and minimizing disputes in the tax administration system. By clearly defining the legal consequences of deducting and remitting taxes, Section 167 contributes to a more transparent and efficient tax compliance environment.
Section 167 of the Income Tax Ordinance, 2001, serves as a shield of indemnity for tax deductors, providing legal protection and clarity regarding their obligations. This amendment is expected to foster confidence among entities responsible for tax deduction, contributing to a smoother and more streamlined tax administration system in Pakistan.
