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Tag: Income Tax Ordinance 2001

  • Provincial registered taxpayers require to pay advance income tax

    Provincial registered taxpayers require to pay advance income tax

    KARACHI: Persons registered for sales tax with the provincial revenue authorities are required to pay advance income tax to Federal Board of Revenue (FBR) on the basis turnover declared before the provincial revenue authorities.

    According to Section 147A of Income Tax Ordinance, 2001, every provincial sales tax registered person shall be liable to pay adjustable advance tax at the rate of three per cent of the turnover declared before the provincial revenue authority.

    The Section 147A is read as:

    Advance tax from provincial sales tax registered person.-

    Sub-Section (1): Every provincial sales tax registered person shall be liable to pay adjustable advance tax at the rate of three per cent of the turnover declared before the provincial revenue authority.

    Sub-Section (2): The advance tax under sub-section (1) shall be paid monthly at the time when sales tax return is to be filed with the provincial revenue authority.

    Sub-Section (3): Advance tax paid under this section may be taken into account while working out advance tax payable under section 147.

    Sub-Section (4): The provisions of this Ordinance shall apply to any advance tax due under this section as if the amount due were tax due under an assessment order.

    Sub-Section (5): A taxpayer who has paid advance tax under this section for a tax year shall be allowed a tax credit for that tax in computing the tax due by the taxpayer on the taxable income of the taxpayer for that year.

    Sub-Section (6): A tax credit allowed for advance tax paid under this section shall be applied in accordance with sub-section (3) of section 4.

    Sub-Section (7): A tax credit or part of a tax credit allowed under this section for a tax year that is not able to be credited under sub-section (3) of section 4 for the year shall be refunded to the taxpayer in accordance with section 170.

    Sub-Section (8): This section shall not apply to a person whose name was appearing in the active taxpayers’ list on the thirtieth day of June of the previous tax year.

  • Tax Amendment Ordinance: Salient features of changes introduced to income tax law

    Tax Amendment Ordinance: Salient features of changes introduced to income tax law

    ISLAMABAD: Federal Board of Revenue (FBR) on Wednesday issued salient features of amendment to Income Tax Ordinance, 2001 made through Tax Law (Second Amendment) Ordinance, 2019.

    (more…)
  • Procedure to get extension for filing return, statement

    Procedure to get extension for filing return, statement

    KARACHI: In case a person unable to file annual return and wealth statement by due date the he/she has right to get extension in date on various grounds by furnishing an application to Commissioner Inland Revenue.

    Section 119 of the Income Tax Ordinance, 2001 provided the procedure to get date extension in filing annual return and wealth statement.

    Section 119: Extension of time for furnishing returns and other documents.

    (1) A person required to furnish —

    (a) a return of income under section 114 or 117;

    (c) a statement required under sub-section (4) of section 115; or

    (d) a wealth statement under section 116,

    may apply, in writing, to the Commissioner for an extension of time to furnish the return, or statement, as the case may be.

    (2) An application under sub-section (1) shall be made by the due date for furnishing the return of income, or statement to which the application relates.

    (3) Where an application has been made under sub-section (1) and the Commissioner is satisfied that the applicant is unable to furnish the return of income, 3[ ] or 4[ ] statement to which the application relates by the due date because of —

    (a) absence from Pakistan;

    (b) sickness or other misadventure; or

    (c) any other reasonable cause,

    the Commissioner may, by order, in writing, grant the applicant an extension of time for furnishing the return, or statement, as the case may be.

    (4) An extension of time under sub-section (3) should not exceed fifteen days from the due date for furnishing the return of income, employer’s certificate, or statement, as the case may be, unless there are exceptional circumstances justifying a longer extension of time:

    Provided that where the Commissioner has not granted extension for furnishing return under sub-section (3) or sub-section (4), the Chief Commissioner may on an application made by the taxpayer for extension or further extension, as the case may be, grant extension or further extension for a period not exceeding fifteen days unless there are exceptional circumstances justifying a longer extension of time.

    (6) An extension of time granted under sub-section (3) shall not, for the purpose of charge of default surcharge under sub-section (1) of section 205, change the due date for payment of income tax under section 137.

  • Final tax regime for certain amount under Income Tax Ordinance

    Final tax regime for certain amount under Income Tax Ordinance

    KARACHI: Federal Board of Revenue (FBR) has defined final tax regime for certain income with certain conditions explained under Income Tax Ordinance, 2001.

    Following are the income falling under Final Tax Regime under the Ordinance:

    Section 5: Tax on dividends

    Section 6: Tax on certain payments to non-residents.—

    Section 7: Tax on shipping and air transport income of a non-resident person.

    Section 5AA: Tax on return on investments in sukuks.

    Section 7A: Tax on shipping of a resident person.

    Section 7B: Tax on profit on debt.

    The Section 8 of the Ordinance explained the scheme and terms and conditions
    General provisions relating to taxes imposed under sections 5, 6 and 7
    (1)-Subject to this Ordinance, the tax imposed under Sections 5, 5AA, 6, 7, 7A and 7B shall be a final tax on the amount in respect of which the tax is imposed and—

    (a) such amount shall not be chargeable to tax under any head of income in computing the taxable income of the person who derives it for any tax year;

    (b) no deduction shall be allowable under this Ordinance for any expenditure incurred in deriving the amount;

    (c) the amount shall not be reduced by —

    (i) any deductible allowance; or

    (ii) the set off of any loss;

    (d) the tax payable by a person under section 5, 5A, 5AA, 6, 7, 7A and 7B shall not be reduced by any tax credits allowed under this Ordinance; and

    (e) the liability of a person under section 5, 6 or 7 shall be discharged to the extent that —

    (i) in the case of shipping and air transport income, the tax has been paid in accordance with section 143 or 144, as the case may be; or

    (ii) in any other case, the tax payable has been deducted at source under Division III of Part V of Chapter X.

  • Tenth Schedule enforces income tax return filing

    Tenth Schedule enforces income tax return filing

    KARACHI: The Tenth Schedule introduced to Income Tax Ordinance, 2001 has proved its importance as it compelled people for filing their income tax returns.

    The importance of this schedule can be proved as return filing witnessed record high of 2.71 million for tax year 2018. This schedule will remain productive for tax year 2019 and onward for forcing people making financial transactions to file their returns.

    “The newly introduced Tenth Schedule, which envisages the entire path to be adopted by the Inland Revenue Department to enforce the persons who make financial transactions yet choose not to file their returns of income,” officials of Federal Board of Revenue (FBR) said.

    They said that prior to Finance Act, 2019, a concept of non-filer existed in the Ordinance whereby higher tax rates of withholding were prescribed for persons who were non-filers. Such non-filers could claim adjustment of the higher tax collected at the time of filing of income tax returns.

    “The aim was to compel the non-filers to file their returns of income. However, it was observed that the non-filers, even though subjected to higher withholding rates, still had a propensity not to file their returns.”

    This proved detrimental to the exercise of expansion or tax base. This was due to the absence of an explicit provision specifying a standard procedure for action against such persons.

    Through the Finance Act, 2019, the concept of Non-Filers was done away with and a new concept regarding persons not appearing in the active taxpayers’ list was introduced. The officials said that this concept was a major paradigm shift from the erstwhile non-filer higher tax regime in that it not only penalized those persons not appearing in the ATL but also introduced an effective mechanism for enforcing returns from such persons.

    In this regard, a new section 100BA has been introduced which provides that collection or deduction of advance income tax, computation of income and tax payable thereon should be determined in accordance with the rules in the newly introduced the Tenth Schedule.

    Under this schedule persons whose names are not appearing in the ATL will be subjected to hundred percent increased rate of tax.

  • Tax exemption available on ‘profit on debt’ if security issued outside Pakistan

    Tax exemption available on ‘profit on debt’ if security issued outside Pakistan

    KARACHI: Tax exemption is available to profit on debt where security issued outside Pakistan for raising loan.

    Officials in Federal Board of Revenue (FBR) on Wednesday said that tax exemption is available on profit on debt in certain conditions.

    According to Income Tax Ordinance, 2001, any profit received by a non-resident person on a security issued by a resident person shall be exempt from tax under this Ordinance where—

    (a) the persons are not associates;

    (b) the security was widely issued by the resident person outside Pakistan for the purposes of raising a loan outside Pakistan for use in a business carried on by the person in Pakistan;

    (c) the profit was paid outside Pakistan; and

    (d) the security is approved by the FBR for the purposes of this section.

    The income tax exemption is also available to any scholarship granted to a person to meet the cost of the person’s education shall be exempt from tax under this Ordinance, other than where the scholarship is paid directly or indirectly by an associate.

    Any income received by a spouse as support payment under an agreement to live apart] shall be exempt from tax under the Ordinance.

    The officials said income tax exemption is also available to the income derived by the federal government, provincial government, and local government.

    The income of the Federal Government shall be exempt from tax under the Ordinance.

    The income of a Provincial Government or a Local Government in Pakistan shall be exempt from tax under this Ordinance, other than income chargeable under the head “Income from Business” derived by a Provincial Government or Local Government from a business carried on outside its jurisdictional area.

    Any payment received by the Federal Government, a Provincial Government or a Local Government shall not be liable to any collection or deduction of advance tax.

    Exemption under this section shall not be available in the case of corporation, company, a regulatory authority, a development authority, other body or institution established by or under a Federal law or a Provincial law or an existing law or a corporation, company, a regulatory authority, a development authority or other body or institution set up, owned and controlled, either directly or indirectly, by the Federal Government or a Provincial Government, regardless of the ultimate destination of such income as laid down in Article 165A of the Constitution of the Islamic Republic of Pakistan:

    Provided that the income from sale of spectrum licenses and renewal thereof by Pakistan Telecommunication Authority on behalf of the Federal Government after the first day of March 2014 shall be treated as income of the Federal Government and not of the Pakistan Telecommunication Authority.

  • Penalties for not filing, late filing income tax return, wealth statement

    Penalties for not filing, late filing income tax return, wealth statement

    KARACHI: The tax laws have defined both soft and harsh penalties for persons having taxable income or registered with tax authorities but failed to file their annual returns or file their returns after the due date.

    According to Income Tax Ordinance, 2001 updated up to June 30, 2019 issued by the Federal Board of Revenue (FBR) explained the different amount of fine and penalties for non-compliance to mandatory requirement.

    Section 114 of the Ordinance is related to persons required to file annual income tax returns and Section 116 is related to filing of wealth statement.

    According to Income Tax Ordinance, 2001:

    — Where any person fails to furnish a return of income as required under section 114 within the due date.

    Such person shall pay a penalty equal to 0.1 percent of the tax payable in respect of that tax year for each day of default subject to a maximum penalty of 50 percent of the tax payable provided that if the penalty worked out as aforesaid is less than forty thousand rupees or no tax is payable for that tax year such person shall pay a penalty of forty thousand rupees:

    Provided that If seventy-five percent of the income is from salary and the amount of income under salary is less than five million Rupees, the minimum amount of penalty shall be five thousand Rupees.

    Explanation.— For the purposes of this entry, it is declared that the expression “tax payable” means tax chargeable on the taxable income on the basis of assessment made or treated to have been made under section 120, 121, 122 or 122C.

    — Where any person fails to furnish wealth statement or wealth reconciliation statement.

    Such person shall pay a penalty of “0.1 percent of the taxable income per week or Rs 100,000 whichever is higher.”

    — Where any person fails to furnish a foreign assets and income statement within the due date.

    Such persons shall pay a penalty of 2 percent of the foreign income or value of the foreign assets for each year of default.

    — Where a person:

    (a) makes a false or misleading statement to an Inland Revenue Authority either in writing or orally or electronically including a statement in an application, certificate, declaration, notification, return, objection or other document including books of accounts made, prepared, given, filed or furnished under this Ordinance;

    (b) furnishes or files a false or misleading information or document or statement to an Income Tax Authority either in writing or orally or electronically;

    (c) omits from a statement made or information furnished to an Income Tax Authority any matter or thing without which the statement or the information is false or misleading in a material particular.

    Such person shall pay a penalty of twenty five thousand rupees or 100 percent of the amount of tax shortfall whichever is higher:

    Provided that in case of an assessment order deemed under section 120, no penalty shall be imposed to the extent of the tax shortfall occurring as a result of the taxpayer taking a reasonably arguable position on the application of this Ordinance to the taxpayers’ position.

    Under Section 182A where return not filed within due date, the FBR said that such person shall not be included in the active taxpayers’ list for the year for which return was not filed within the due date:

    Provided that without prejudice to any other liability under this Ordinance, the person shall be included in the active taxpayers’ list on filing return after the due date, if the person pays surcharge at Rupees-

    (i) twenty thousand in case of a company;

    (ii) ten thousand in case of an association of persons;

    (iii) one thousand in case of an individual.

    Explanation.—For the removal of doubt it is clarified that the provisions of this section shall apply from tax year 2018 and onwards for which the first Active Taxpayers List is to be issued on first day of March, 2019 under Income Tax Rules, 2002.; and

    (b) not be allowed, for that tax year, to carry forward any loss under Part VIII of Chapter IV;

    (c) not be issued refund during the period the person is not included in the active taxpayers’ list; and

    (d) not be entitled to additional payment for delayed refund under section 171 and the period the person is not included in the active taxpayers’ list, shall not be counted for computation of additional payment for delayed refund.

    The income tax ordinance also explained under Section 191 that any person who, without reasonable excuse, fails to —

    (a) comply with a notice under sub-section (3) and sub-section (4) of section 114 or sub-section (1) of section 116; shall commit an offence punishable on conviction with a fine or imprisonment for a term not exceeding one year, or both.

    If a person convicted of an offence, without reasonable excuse, to furnish the return of income or wealth statement to which the offence relates within the period specified by the Court, the person shall commit a further offence punishable on conviction with a fine not exceeding fifty thousand rupees or imprisonment for a term not exceeding two years, or both.

  • Information of account holders to be furnished by banks under Section 165A

    Information of account holders to be furnished by banks under Section 165A

    KARACHI: Federal Board of Revenue (FBR) and banks have agreed on sharing information of financial transactions made by account holders.

    The information to be furnished by the banks was to be implemented in 2013 but due to litigation it was not enforced.

    However, on November 27, 2019 the banks, in a meeting with FBR chairman, agreed to provide information of transactions. They also agreed to withdraw cases filed against implementation of Section 165A.

    The Section 165A was introduced to Income Tax Ordinance, 2001 through Finance Act, 2013.

    165A. Furnishing of information by banks

    (1) Notwithstanding anything contained in any law for the time being in force including but not limited to the Banking Companies Ordinance, 1962 (LVII of 1962), the Protection of Economic Reforms Act, 1992 (XII of 1992), the Foreign Exchange Regulation Act, 1947 (VII of 1947) and the regulations made under the State Bank of Pakistan Act, 1956 (XXXIII of 1956), if any, on the subject every banking company shall make arrangements to provide to the Board in the prescribed form and manner,—

    (a) a list of persons containing particulars of cash withdrawals exceeding fifty thousand Rupees in a day and tax deductions thereon, aggregating to Rupees one million or more during each preceding calendar month.”

    (b) a list containing particulars of deposits aggregating rupees ten million or more made during the preceding calendar month;

    (c) a list of payments made by any person against bills raised in respect of a credit card issued to that person, aggregating to rupees two hundred thousand or more during the preceding calendar month;

    (d) a list of persons receiving profit on debt exceeding five hundred thousand rupees and tax deductions thereon during preceding financial year.

    (2) Each banking company shall also make arrangements to nominate a senior officer at the head office to coordinate with the Board for provision of any information and documents in addition to those listed in sub-section (1), as may be required by the Board.

    (3) The banking companies and their officers shall not be liable to any civil, criminal or disciplinary proceedings against them for furnishing information required under this Ordinance.

    (5) Subject to section 216, all information received under this section shall be used only for tax purposes and kept confidential.

  • Cash gifts received without banking channel chargeable to tax

    Cash gifts received without banking channel chargeable to tax

    ISLAMABAD: Any cash gift received by a person other than banking channel will be treated as chargeable to tax, sources in Federal Board of Revenue (FBR) said on Thursday.

    The sources said that in the past people were taking advantage of incentives granted on gifts and concealed their income to evade taxes.

    However, the change in the law through last budget those people will no more dodge the tax authorities of claiming gift from their relatives and evade taxes.

    The FBR had conducted an analysis of income tax returns filed in previous years, which showed that huge amount of non recurring receipts from un-related persons are transferred in the garb of gifts to avoid incidence of taxation.

    The sources said that in order to discourage this practice of undisclosed receipts, Section 39 of Income Tax Ordinance, 2001 had been amended through Finance Act, 2019.

    The amendment enabled the tax authorities to include any amount or fair market value of any property received by a person without consideration or received as a gift in income under the head ‘income from other sources.’

    However, gift received from grandparents, parents, spouse, brother, sister, son or a daughter shall not be included in such income.

    The new income provision is subject to sub-section 3 of Section 39 which states that an amount received by a person otherwise than by a cross cheque drawn on a bank or through a banking channel from a person holding a National Tax Number (NTN) shall be treated as income chargeable to tax under the head ‘income from other sources’.

    This means that the gift received by a person is chargeable to tax if gift is not received from grandparents, parents, spouse, brother, sister, son or a daughter of the recipient.

    However, even if cash gift is received from the relations mentioned above but the same has not be received through cross cheque or banking channel, as the case may be, the amount of gift will still be added in income chargeable to tax under the head, income from other sources.