The federal Board of Revenue (FBR) will disallow 50 percent business expenditure in cases where a person makes a sale of Rs 200,000 or above on a single invoice and payment is not received through banking channel or digital means.
According to an income tax circular issued by the FBR on Monday, new clauses have been inserted to make disallowance for expenditure under certain specific circumstances:
Through Finance Act, 2025, a new clause (q) has been inserted in Section 2L of the Income Tax Ordinance,2001 whereby ten percent expenditure attributable to purchases from persons who are not NTN holder will be liable to disallowed. lt aims to enable formal sector to capture more market share as compared to that of informal sector. This provision will not apply on agriculture produce unless it is sold by middle men.
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This provision also authorizes the board to exempt any class of persons subject to conditions and limitations as it deems appropriate.
Through Finance Act 2025, a new clause (s) has been inserted in Section 21 of the Income Tax Ordinance,2001, which envisages that where a person makes a sale of Rs. 200,000 or above on a single invoice and payment is not received through banking channel or digital means 50 percent of the proportionate business expenditure attributable to such sales shall be disallowed.
For the purposes of section 21(s), it is clarified that when a person, whether an NTN holder or otherwise, deposits the cash against invoices in the bank account of the seller, the payment shall be treated as having taken place through banking channel and no disallowance of the expenditure will be made in this regard under this clause.
Through Finance Act, 2025, in section 22 of the Ordinance, the depreciation expense of any capital asset shall be inadmissible if the capital asset has been acquired without discharging the withholding obligation on the payments made under sections 152 or 153 of the Ordinance as the case may be.
The said amount paid to a supplier of capital assets on which tax was not withheld and deposited will not become part of the cost of asset for the purpose of computation of tax depreciation for the tax year in which the acquisition is made.
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