ISLAMABAD: Federal Board of Revenue (FBR) has explained levy of withholding tax on profit on debt for tax year 2019/2020 applicable from July 01, 2019.
The FBR said that every person, other than a company, receiving profit on debt from persons mentioned in clause (a) to (d) of sub-section (1) of Section 151 are separately taxed at the rates provided in Division IIIA of Part I of the First Schedule.
The section 151 explains:
151. Profit on debt. — (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.
The FBR said that prior to the Finance Act, 2019, the rates were 10 percent where profit on debt was up to Rs5 million, 15 percent where profit on debt was more than Rs5 million but not more than Rs25 million and 15 percent where profit of debt exceeding Rs25 million.
Through Finance Act, 2019, the rates of imposition of tax under Section 7B mentioned in Division IIIA, Part I of the First Schedule have been enhanced as:
01. Where profit on debt does not exceed Rs5 million, the tax rate shall be 15 percent;
02. Where profit on debt exceeds Rs5 million but does not exceed Rs25 million, the tax rate shall be 17.5 percent; and
03. Where profit on debt exceeds Rs25 million but does not exceed Rs36 million, the tax rate shall be 20 percent.
The FBR said that where the profit on debt exceeds Rs36 million in a tax year, section 7B will not be applicable and the profit on debt will not be separately taxed for persons other than companies.
In such cases, profit on debt will be chargeable to tax under the head ‘income from other sources’ under section 39 and tax shall be imposed at the rates specified in paragraph (1) or (2), as the case may be, of Division I, Part I of the First Schedule.