Are you making payments to non-residents for business contracts, services, or investments? Understanding Section 152 of the Income Tax Ordinance, 2001 is crucial to comply with Federal Board of Revenue (FBR) regulations for tax year 2026.
Tax deduction at source (TDS) on non-resident payments ensures that Pakistan collects tax at the point of payment and prevents tax evasion.
📌 Who Needs to Deduct Tax at Source?
Section 152 applies to a variety of payments made to non-residents, including:
1. Royalties or fees for technical services
2. Payments for contracts, construction, installation, and supervisory services
3. Advertisement services via TV, satellite, or foreign media
4. Insurance or reinsurance premiums
5. Capital gains on debt securities, government securities, and sukuks
6. Payments via banking companies and exchange companies for cross-border services
🧾 Key Provisions of Section 152
1. Royalty and Technical Services (Sub-section 1)
• Tax must be deducted at the rate specified in Division IV, Part I of the First Schedule from gross payments.
2. Payments for Construction and Services (Sub-section 1A)
• Deduct TDS for full or partial payments, including advance payments, on:
o Construction, assembly, or installation projects
o Supervisory or related services
o Advertisement services on T.V. Satellite Channels
• Rate: Division II, Part III of the First Schedule
3. Insurance and Reinsurance Premiums (Sub-section 1AA)
• Deduct tax from gross payment at Division II, Part III rates.
4. Foreign Advertisement Services (Sub-section 1AAA)
• TDS applies to payments to non-resident media persons relaying from outside Pakistan.
• Tax treated as minimum tax for the non-resident.
5. Foreign Produced Commercials on TV (Sub-section 1BA)
• Deduct 20% final tax on gross payments for advertisements.
6. Offshore Digital Services (Sub-section 1C)
• Banking or financial institutions remitting fees abroad must deduct tax as per Division IV, Part I.
• Exemption: If Digital Presence Proceeds Tax is already collected.
7. Capital Gains on Securities (Sub-sections 1D & 1DA)
• Applies to Special Convertible Rupee Accounts (SCRA), FCVA, or NRVA accounts.
• Deduct tax on capital gains from debt instruments, government securities, and treasury bills.
• Short-term holdings (<6 months) may be taxed at higher rates.
8. Sukuk Returns (Sub-section 1DB)
• Deduct tax from returns on investment in sukuks for non-resident investors.
9. Cross-Border Remittances (Sub-sections 1DC & 1DD)
• Exchange companies and banking companies facilitating international transfers, card networks, and gateways must deduct tax on service charges or commissions.
• Deduction is final tax for the non-resident.
⚖ Minimum & Final Tax Rules
• Tax deducted under specific subsections (1A, 1AA, 1AAA, 1D, 1DA, 1DB, 1DC, 1DD) is final tax.
• Other payments may be minimum tax, with exceptions for manufacturers or approved cases.
📝 Filing and Approvals
• Prior approval from the Commissioner allows payments without deduction or at reduced rates.
• Non-resident representatives must file a declaration with the Commissioner before payment.
• Reduced rates cannot exceed 80% of the standard rate.
• Payments part of a cohesive business operation may be taxed at 20% of the calculated tax.
📌 Exemptions
Certain payments do not require TDS, such as:
1. Imports where title passes outside Pakistan (with proper documentation)
2. Educational and medical expenses in line with State Bank regulations
3. Payments already subject to Sections 149, 150, 156, or 233
4. Payments taxable to a permanent establishment of the non-resident
💡 Practical Compliance Tips
1. Identify non-resident payments before making any disbursement.
2. Apply correct TDS rates based on type of payment.
3. Maintain detailed records for audit and verification.
4. Seek Commissioner approval for exemptions or reduced rates.
5. Ensure digital or cross-border payments comply with Section 152 sub-sections.
✅ Takeaway
TDS on non-resident payments under Section 152 ensures Pakistan collects taxes efficiently and protects your business from penalties. Proper understanding and compliance for 2026 tax year is essential for all businesses dealing with international contracts, services, or investments.
⚠ Disclaimer
The information provided in this article is for general informational purposes only and is based on the Income Tax Ordinance, 2001, and FBR guidelines for tax year 2026. It does not constitute legal, tax, or financial advice.
Readers are advised to consult a qualified tax advisor or the Federal Board of Revenue (FBR) for guidance specific to their individual circumstances before making any decisions regarding tax deduction at source or related compliance matters.
The publisher does not accept any liability for any loss or damage incurred as a result of reliance on the information provided herein.