FBR issues clarification regarding cash deposits
ISLAMABAD:
The Federal Board of Revenue (FBR) has announced that withholding tax (WHT) does not apply to cash deposited into bank accounts. This was clarified in a circular issued by the FBR on Monday.
The circular explained that via the Finance Act of 2010, a new section has been added to the Income Tax Ordinance of 2001. Under Section 231AA, all financial institutions are required to deduct a 0.3 per cent adjustable advance tax on cash sales of financial instruments in excess of Rs25,000.
These instruments include demand drafts, pay orders, CDRs, SDRs, RTCs and other instruments. In addition to commercial banks, this section also applies to non-banking financial institutions, exchange companies and authorised foreign exchange dealers.
The withholding tax will also be deductible on the transfer of cash through telegraphic transfer, mail transfer, online transfer or any other mode of electronic transfer. The tax will be charged even if any of the above mentioned instruments are cancelled later on.
However, the WHT will not be deductible on payments made through cross-cheques for the purchase of financial instruments. The tax will not apply to inter-bank and intra-bank transfers.
Federal and provincial governments, foreign diplomats and those individuals who possess valid tax exemption certificates have been relieved of the responsibility of paying this tax.
It is important to note that the withholding tax is adjustable in nature, and payers are eligible for refunds in case they have paid more than the required amount in income tax during the year.
The FBR issued the clarification after receiving hundreds of queries on how to deal with the changes introduced in Finance Act of 2010.
Published in The Express Tribune, August 3rd, 2010.
The Federal Board of Revenue (FBR) has announced that withholding tax (WHT) does not apply to cash deposited into bank accounts. This was clarified in a circular issued by the FBR on Monday.
The circular explained that via the Finance Act of 2010, a new section has been added to the Income Tax Ordinance of 2001. Under Section 231AA, all financial institutions are required to deduct a 0.3 per cent adjustable advance tax on cash sales of financial instruments in excess of Rs25,000.
These instruments include demand drafts, pay orders, CDRs, SDRs, RTCs and other instruments. In addition to commercial banks, this section also applies to non-banking financial institutions, exchange companies and authorised foreign exchange dealers.
The withholding tax will also be deductible on the transfer of cash through telegraphic transfer, mail transfer, online transfer or any other mode of electronic transfer. The tax will be charged even if any of the above mentioned instruments are cancelled later on.
However, the WHT will not be deductible on payments made through cross-cheques for the purchase of financial instruments. The tax will not apply to inter-bank and intra-bank transfers.
Federal and provincial governments, foreign diplomats and those individuals who possess valid tax exemption certificates have been relieved of the responsibility of paying this tax.
It is important to note that the withholding tax is adjustable in nature, and payers are eligible for refunds in case they have paid more than the required amount in income tax during the year.
The FBR issued the clarification after receiving hundreds of queries on how to deal with the changes introduced in Finance Act of 2010.
Published in The Express Tribune, August 3rd, 2010.