The Federal Board of Revenue (FBR) has introduced a pivotal addition to the Income Tax Ordinance, 2001, with the incorporation of Section 7B. This section specifically addresses the taxation of profit on debt derived by individuals or non-corporate entities.
The updated ordinance, reflecting amendments from the Finance Act, 2021, outlines the details and parameters for the application of this new taxation provision.
Text of Section 7B:
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 five million Rupees.
Disclaimer: The text of the above section is only for information. Team PkRevenue.com makes all efforts to provide the correct version of the text. However, the team PkRevenue.com is not responsible for any error or omission.
Section 7B establishes a framework for the imposition of tax on the profit derived from debt, targeting individuals and entities falling outside the corporate structure. The tax rate is specified in Division IIIA of Part I of the First Schedule, offering clarity on the applicable rates for this category of income.
According to Sub-section (2), the tax imposed on individuals or non-corporate entities receiving profit on debt will be calculated by applying the relevant tax rate to the gross amount of the profit on debt. This approach ensures a straightforward method for determining the tax liability associated with such earnings.
However, the section also includes exemptions and limitations. Sub-section (3) outlines two specific scenarios where Section 7B does not apply:
(a) Profit on debt that is exempt from tax under this Ordinance.
(b) Profit on debt that exceeds five million Rupees.
These exemptions aim to balance the taxation framework, providing relief for certain categories of income while ensuring that the tax burden is reasonable and proportionate.
The introduction of Section 7B reflects the FBR’s commitment to refining and modernizing the tax code, aligning it with contemporary economic dynamics. The provision not only expands the scope of taxable income but also introduces measures to prevent undue taxation on smaller amounts of profit on debt.
While the disclaimer emphasizes the informational nature of the provided text, taxpayers and professionals are encouraged to consult the official documentation for precise interpretation and application. As the FBR continues its efforts to enhance tax regulations, Section 7B marks a significant step towards a more comprehensive and nuanced approach to taxing profit on debt in Pakistan.
