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.

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