FBR outlines withholding tax requirements for bank deposits, government securities and Sukuk returns, along with exceptions to minimum tax treatment.
ISLAMABAD: The Federal Board of Revenue (FBR) has outlined the tax deduction rules for profit on debt under Section 151 of the Income Tax Ordinance, 2001, for tax year 2027.
According to the Income Tax Ordinance, 2001, updated up to June 30, 2026, the provisions apply during tax year 2027, covering the period from July 1, 2026, to June 30, 2027.
Under Section 151, tax is required to be deducted at the applicable rates specified in Division IA of Part III of the First Schedule when profit on debt or yield is paid to a recipient.
The provision covers profit or yield paid on accounts, deposits, certificates under the National Savings Scheme and Post Office Savings Accounts.
It also applies to profit on debt paid by banking companies and financial institutions on accounts or deposits maintained with them. Furthermore, the section covers profit paid by the Federal Government, provincial governments and local governments on specified securities.
Tax deduction is also required when banking companies, financial institutions, certain companies and finance societies pay profit on bonds, certificates, debentures, securities or other instruments to persons other than financial institutions.
However, the tax is calculated on the gross amount of yield or profit after deducting any Zakat paid by the recipient under the Zakat and Ushr Ordinance, 1980. The deduction is made when the profit is paid to the recipient.
Tax on returns from Sukuk investments
Section 151(1A) separately requires every special purpose vehicle or company to deduct tax when paying a return on investment in Sukuk to a Sukuk holder.
The deduction applies to the gross amount of the return on investment at the rate specified in Division IB of Part III of the First Schedule to the Income Tax Ordinance, 2001.
Exceptions and minimum tax treatment
Section 151 does not apply to profit on debt that falls under Section 152(2) of the Income Tax Ordinance, 2001.
The law further provides that tax deducted under Section 151 generally constitutes a minimum tax on profit on debt earned by a taxpayer.
However, this minimum tax treatment does not apply where the taxpayer is a company or where the profit on debt is taxable under Section 7B.
These provisions establish the framework for withholding tax on specified profit-on-debt payments during tax year 2027. The applicable deduction rates are determined under the relevant divisions of Part III of the First Schedule to the ordinance.