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Tag: profit on debt

  • TAX YEAR 2021: tax rate for profit on debt

    TAX YEAR 2021: tax rate for profit on debt

    KARACHI: Federal Board of Revenue (FBR) has updated tax rate for profit on debt to be applicable during tax year 2021 (July 01, 2020 – June 30, 2021).

    The FBR issued Income Tax Ordinance, 2001 (updated June 30, 2020) after incorporating amendments brought through Finance Act, 2020. The FBR updated following rate of tax on profit on debt.

    The rate of tax for profit on debt imposed under section 7B shall be—

    S.NOProfit on DebtRate of tax
    (1)(2)(3)
    1.Where profit on debt does not exceed Rs.5,000,00015%
    2.Where profit on debt exceeds Rs.5,000,000 but does not exceed Rs.25,000,00017.5%
    3.Where profit on debt exceeds Rs.25,000,000 but does not exceed Rs. 36,000,00020%

    The tax rate is deducted under Section 7B of Income Tax Ordinance, 2001, under which:

    Section 7B. Tax on profit on debt.—(1) Subject to this Ordinance, a tax shall be imposed, at the rate specified in Division IIIA of Part I of the First Schedule, on every person, other than a company, who receives a profit on debt from any person mentioned in clauses (a) to (d) of sub-section (1)of section 151.

    (2) The tax imposed under sub-section (1) on a person, other than a company, who receives a profit on debt shall be computed by applying the relevant rate of tax to the gross amount of the profit on debt.

    (3) This section shall not apply to a profit on debt that –

    (a) is exempt from tax under this Ordinance; or

    (b) exceeds thirty six million Rupees.

  • FBR to get information of banking deposits, payments, profit on debt

    FBR to get information of banking deposits, payments, profit on debt

    ISLAMABAD: Federal Board of Revenue (FBR) to obtain information of deposits, payments and profit on debt of account holders from banking companies.

    According to news rules proposed through SRO 686(I)/2020 issued a day earlier, to be inserted into Income Tax Rules, 2020, the banks shall be required to furnish information in the manner as specified in account holders’ deposits statement, credit card payments statements, cash withdrawal statement and profit on debt statement.

    The new draft rules the FBR notified four different forms to obtain information of deposits, withdrawals, payment through credit cards and persons receiving profit on debt.

    The rules would help in obtaining information from banks under Section 165A of Income Tax Ordinance, 2001

    As per the amendment the banks shall provide information included: a list of persons containing particular of cash withdrawal aggregating to Rs one million or more during a month; list of persons depositing Rs10 million or more in a month; persons making payment through credit/debit card above Rs250,000 in a month.

    Under the new rules, the banks shall provide details of persons making deposits, withdrawal included: CNIC/NTN, name, address, account opening date, IBAN, resident/non-resident status etc.

    Under the new rules the banks shall be required to provide such information of deposits, withdrawal and payment through credit/debit cards on a monthly basis.

    However, the information of recipients of profit on debts shall be furnished within three months from the end of the financial year.

  • FBR imposes restriction on deduction of profit on debt payable to associated enterprise

    FBR imposes restriction on deduction of profit on debt payable to associated enterprise

    ISLAMABAD: Federal Board of Revenue (FBR) has imposed restriction on deduction of profit on debt payable to associated enterprise in order to comply with OECD action on profit shifting.

    The restriction has been imposed through introduction of Section 106A of Income Tax Ordinance, 2001 through Finance Act, 2020, recently passed by the National Assembly of Pakistan.

    Tax experts at EY Ford Rhodes Chartered Accountants said that in line with Action Plan 4 of the OECD’s recommendations on Base Erosion and Profit Shifting (BEPS), the new section has been introduced which imposes a restriction on deduction of profit on debt payable to associated enterprise.

    The salient features of the new section are:

    — Deduction of foreign profit on debt in excess of fifteen percent of taxable income before depreciation, amortization and foreign profit on debt shall be disallowed to a foreign controlled resident company (other than an insurance or banking company);

    — The section shall not apply if the total foreign profit on debt claimed as a deduction is less than Rs10 million for a tax year;

    — Where the foreign profit on debt cannot be fully adjusted against the taxable income for a tax year, the excess amount shall be added to the amount of foreign profit on debt for the following tax year and shall be treated to be part of that deduction, or if there is no such deduction for that tax year, be treated as the deduction for that tax year and so on for three tax years following the year in which the foreign profit on debt was claimed as an expense;

    According to FBR sources this section shall apply in respect of foreign profit on debt accrued with effect from the first day of July, 2020, even if debts were contracted before the first day of July, 2020;

  • Banks to provide information of all recipients of profit on debt

    Banks to provide information of all recipients of profit on debt

    In a decisive move to bolster transparency in financial transactions, the Federal Board of Revenue (FBR) is set to require all banks to provide detailed information on individuals receiving profit on debt, effective from July 1, 2020.

    (more…)
  • Reviewing withholding tax on profit on debt suggested

    Reviewing withholding tax on profit on debt suggested

    KARACHI: The tax authorities have been suggested to review withholding tax rates on profit on debt in forthcoming budget.

    Overseas Investors Chamber of Commerce and Industry (OICC) in proposals for budget 2020/2021 said that through Finance Act, 2019, multiple withholding tax rates of profit on debt were introduced which are based on the profit threshold and active /in-active status of taxpayer (i.e. Profit less than Rs0.5 million is subject to tax at the rates 10 percent and 20 percent for active and in-active respectively.

    Whereas, profit greater than Rs 0.5 million is subject to tax at the rates 15 percent and 30 percent for active and in-active filer respectively).

    It has been provided that minimum tax rate on profit on debt is 15 percent as prescribed under section 7B of Income Tax Ordinance, 2001.

    So, there is no need to tax the profit at reduced rate (i.e. 10 percent), if the person has to discharge his final tax liability on such higher rate i.e. 15 percent.

    The OICCI suggested that prescribed threshold of withholding tax on profit should be deleted and there should be only two rates, for active and inactive taxpayers respectively.

  • Tax collection from profit on banking deposits jumps up by 185%

    Tax collection from profit on banking deposits jumps up by 185%

    KARACHI: The collection of withholding tax from profit on banking deposits surged by 185 percent during first eight months (July – February) 2019/2020 owing to higher interest rates maintained by the central bank.

    The withholding tax collection from profit on debt (banking deposits) increased to Rs43.75 billion during first eight months of current fiscal year as compared with Rs15.32 billion in the same period of the last fiscal year.

    The sources in Regional Tax Office (RTO)-II, Karachi, a revenue collecting arm of the FBR said that that due to prevailing high rate ofinterest attracted bank deposits.

    The State Bank of Pakistan (SBP) has keptpolicy rate unchanged at 13.25 percent. The policy rate was gradually increasing since August 2018 when the rate was 7.5 percent.

    The sources explained that under Section 151(1)(b) withholding tax is collected on profit on debt paid by banking companies or financial institutions on account or deposit maintained.

    Every banking company is required to collect 10 percent of the gross yield/profit paid up to Rs500,000 or 15 percent of the gross yield / profit paid exceeding amount Rs500,000 at the time the profit on debt is credited to the account of the recipient or is actually paid, whichever is earlier.

    The sources said that it is mandatory for the banks to collect double the amount of withholding tax from those persons receiving profit on debt but not on the Active Taxpayers List (ATL).

    The government through Finance Act, 2019 introduced 10th Schedule to the Income Tax Ordinance, 2001 to enhance the rate of withholding tax by 100 percent on certain transactions.

    The measure has been taken to force persons making large transactions and paying withholding tax on such transactions but remained outside the tax net.

    The sources said that after the implementation of the 10th Schedule the pace of return filing for Tax Year 2018 increased in order to avoid paying 100 percent higher rate of withholding tax.

  • Profit on debt above Rs36 million to be treated as normal tax

    Profit on debt above Rs36 million to be treated as normal tax

    KARACHI: The rate of tax on profit on debt above Rs36 million shall be treated as normal tax rate, tax officials said on Tuesday.

    Sources in Federal Board of Revenue (FBR) said that the tax rates were revised through Finance Act, 2019.

    The revised tax rates for profit on debt not exceeding Rs 5 million have be increased from 10 percent to 15 percent, between Rs5 million and Rs25 million tax rates have been increased from 12.5 percent to 17.5 percent and from Rs25 million to Rs36 million tax rates are being increased from 15 percent to 20 percent.

    The rate of advance withholding tax on payment of profit on debt has also been enhanced from 10 percent to 15 percent.

    Furthermore, the separate rates mentioned above would be applicable for profit on debt up to Rs.36 million and for amounts exceeding Rs36 million the profit on debt will be made part of the total income and taxed at normal rates.

    Previously the profit on debt is taxed separately and is not part of the income in normal tax regime.

    The tax rates were 10 percent, 12.5 percent and 15 percent for slabs up to five million rupees, between five million to twenty five million rupees and above twenty five million rupees, respectively.

    The FBR sources said that due to changes the tax collection under this head registered phenomenal growth during first six months of current fiscal year. The sources estimated that the collection from profit on debt had been increased by around 150 percent during July – December of 2019/2020.

    The sources said that persons not appearing on Active Taxpayers List (ATL) are also liable to pay around 30 percent as withholding tax.

    The FBR collects profit on debt under Section 7B and Section 151 of Income Tax Ordinance, 2001.

    The sources said that high interest rates attracted investment towards deposits of banking system. This factor has also contributed the high growth of tax from profit on debt.

  • Banks to provide details of persons receiving profit on debt

    Banks to provide details of persons receiving profit on debt

    ISLAMABAD: Banks will provide certain information of persons receiving profits on their deposits to the Federal Board of Revenue (FBR) after amendment in the tax rules, sources said on Monday.

    The sources said that the banks will provide details of depositors receiving profit on debt, including name, CNIC, most recent particulars including address, amount of profit on debt during the year, tax deducted etc.

    The banks are required to provide information of persons receiving profit on debt exceeding Rs500,000 during the financial year.

    According to the FBR, every banking company officer, shall file electronically on FBR’s web portal the Account Holders Deposits Statement and Credit Card Payments Statement and Cash Withdrawal Statement as specified in Form „A‟ and Form ‘B’ respectively, for immediately preceding calendar biannually.

    Every banking company officer shall furnish to the Board an annual Written off Loans Statement as specified in Form „C’ for immediately preceding calendar year within three months of the end of the preceding calendar year.

    Every banking company officer, shall furnish to the Board a copy of each currency transactions report and suspicious transactions report generated by it at the time it is submitted to the Financial Monitoring Unit under the Anti-Money Laundering Act, 2010 (VII of 2010).

    Every banking company officer, shall furnish to the Board any information and documents in addition to those mentioned in sub-rules (1) to (3) within the time allowed by the Board.

  • Withholding tax collection on profit from bank deposits surges by 194pc

    Withholding tax collection on profit from bank deposits surges by 194pc

    KARACHI: The collection of withholding tax from profit on bank deposits registered unprecedented growth of 194 percent during first quarter of first fiscal year as the tax rates increased by 100 percent for persons not on the Active Taxpayers List (ATL).

    Sources in Regional Tax Office (RTO) –II Karachi said that the withholding tax collection under Section 151(1)(b) of Income Tax Ordinance, 2001 increased to Rs14.56 billion during first quarter (July – September) of fiscal year 2019/2020 as compared with Rs4.95 billion in the corresponding period of the last fiscal year.

    The sources explained that under Section 151(1)(b) withholding tax is collected on profit on debt paid by banking companies or financial institutions on account or deposit maintained.

    Every banking company is required to collect 10 percent of the gross yield/profit paid up to Rs500,000 or 15 percent of the gross yield / profit paid exceeding amount Rs500,000 at the time the profit on debt is credited to the account of the recipient or is actually paid, whichever is earlier.

    The sources said that it is mandatory for the banks to collect double the amount of withholding tax from those persons receiving profit on debt but not on the Active Taxpayers List (ATL).

    The government through Finance Act, 2019 introduced 10th Schedule to the Income Tax Ordinance, 2001 to enhance the rate of withholding tax by 100 percent on certain transactions.

    The measure has been taken to force persons making large transactions and paying withholding tax on such transactions but remained outside the tax net.

    The sources said that after the implementation of the 10th Schedule the pace of return filing for Tax Year 2018 increased in order to avoid paying 100 percent higher rate of withholding tax.

    According to ATL updated October 21, 2019 the number of return filers were increased to 2.64 million for tax year 2018 as compared with 1.84 million returns received for tax year 2017.

  • Tax rate on interest income for Tax Year 2020

    Tax rate on interest income for Tax Year 2020

    KARACHI: Federal Board of Revenue (FBR) issued tax rate to be imposed on interest income during Tax Year 2020.

    The FBR issued Income Tax Ordinance, 2001 updated up to June 30, 2019 incorporating changes brought through Finance Act, 2019.

    The Section 7B of the Income Tax Ordinance, 2001 explained the application of income tax on profit on debt derived by a person during a tax year.

    Section 7B: Tax on profit on debt

    Sub-Section (1): Subject to this Ordinance, a tax shall be imposed, at the rate specified in Division IIIA of Part I of the First Schedule, on every person, other than a company, who receives a profit on debt from any person mentioned in clauses (a) to (d) of sub-section (1)of section 151.

    Sub-Section (2): The tax imposed under sub-section (1) on a person, other than a company, who receives a profit on debt shall be computed by applying the relevant rate of tax to the gross amount of the profit on debt.

    Sub-Section (3): This section shall not apply to a profit on debt that –

    (a) is exempt from tax under this Ordinance; or

    (b) exceeds thirty six million Rupees.

    Division IIIA of Part I of the First Schedule for the rate of tax for profit on debt imposed under section 7B shall be—

    1. Where profit on debt does not exceed Rs.5,000,000: the tax rate shall be 15 percent

    2. Where profit on debt exceeds Rs.5,000,000 but does not exceed Rs.25,000,000: the tax rate shall be 17.5 percent

    3. Where profit on debt exceeds Rs.25,000,000 but does not exceed Rs. 36,000,000: the tax rate shall be 20 percent

    Section 151 explains persons receiving profit on debt


    Section 151: Profit on debt:

    Sub-Section (1) Where –

    (a) a person pays yield on an account, deposit or a certificate under the National Savings Scheme or Post Office Savings Account;

    (b) a banking company or financial institution pays any profit on a debt, being an account or deposit maintained with the company or institution;

    (c) the Federal Government, a Provincial Government or a Local Government pays to any person profit on any security other than that referred to in clause (a) issued by such Government or authority; or

    (d) a banking company, a financial institution, a company referred

    to in sub-clauses (i) and (ii) of clause (b) of sub-section (2) of section 80, or a finance society pays any profit on any bond, certificate, debenture, security or instrument of any kind (other than a loan agreement between a borrower and a banking company or a development finance institution) to any person other than financial institution.