Individuals falling under final tax not required to file annual returns

KARACHI: Individuals or companies falling under final tax are not required to file annual income tax returns and their statement will be treated as assessment.

According to recently updated Income Tax Ordinance, 2001, the FBR said that where all the income derived by a person in a tax year is subject to final taxation under the provisions referred to in sub-section (1) or under sections 5, 6 and an assessment shall be treated to have been made under section 120 and the person shall not be required to furnish a return of income under section 114 for the year.

The FBR explained that the expression, ‘an assessment shall be treated to have been made under section 120’ means,—

(a) the Commissioner shall be taken to have made an assessment of income for that tax year, and the tax due thereon equal to those respective amounts specified in the return or statement under sub-section (4) of section 115; and

(b) the return or the statement under sub-section (4) of section 115 shall be taken for all purposes of this Ordinance to be an assessment order.

The Section 169 of the Income Tax Ordinance, 2001 explained the final tax regime in detail.

169. Tax collected or deducted as a final tax.—

(1) This section shall apply where —

(a) the advance tax required to be collected or paid is a final tax under sub-section (7) of section 148,148A or section 234A on the income to which it relates; or

(b) the tax required to be deducted is a final tax under sub-section (3) of section 151, sub-section (1B) or sub-section (1BB) of section 152, sub-section (3) of section 153, sub-section (1AAA) of section 152, sub-section (4) of section 154, sub-section (3) of section 156, sub-section (2) or 16section 156A or sub-section (1) and (3) of section 233 on the income from which it was deductible.

(2) Where this section applies —

(a) the income shall not be chargeable to tax under any head of income in computing the taxable income of the person;

(b) no deduction shall be allowable under this Ordinance for any expenditure incurred in deriving the income;

(c) the amount of the income shall not be reduced by —

(i) any deductible allowance under Part IX of Chapter III; or

(ii) the set off of any loss;

(d) the tax deducted shall not be reduced by any tax credit allowed under this Ordinance;

(e) there shall be no refund of the tax collected or deducted unless the tax so collected or deducted is in excess of the amount for which the taxpayer is chargeable under this Ordinance; and.

(f) tax deductible has not been deducted, or short deducted, the said non-deduction or short deduction may be recovered under section 162, and all the provisions of this Ordinance shall apply accordingly.

(3) Where all the income derived by a person in a tax year is subject to final taxation under the provisions referred to in sub-section (1) or under sections 5, 6 and 7 an assessment shall be treated to have been made under section 120 and the person shall not be required to furnish a return of income under section 114 for the year.

Explanation.— The expression, “an assessment shall be treated to have been made under section 120” means,—

(a) the Commissioner shall be taken to have made an assessment of income for that tax year, and the tax due thereon equal to those respective amounts specified in the return or statement under sub-section (4) of section 115; and

(b) the return or the statement under sub-section (4) of section 115 shall be taken for all purposes of this Ordinance to be an assessment order.

(4) Where the tax collector or deducted is final tax under any provision of this Ordinance and hundred percent higher tax rate has been prescribed for the said tax under the Tenth Schedule, the final tax shall be the tax rate prescribed in the First Schedule and the excess tax collected under the Tenth Schedule specified for persons not appearing in the active taxpayers’ list shall be adjustable in case the return is filed before finalization of assessment as provided in rule 4 of the Tenth Schedule.

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