This article explains the rules surrounding tax on profit on debt in Pakistan, as outlined by the Income Tax Ordinance, 2001.
Who is affected?
This tax applies to individuals (not companies) who receive profit on debt from specific sources, including:
- National Savings Scheme or Post Office Savings Accounts (interest)
- Banking companies or financial institutions (interest on accounts/deposits)
- Federal/Provincial/Local Governments (profit on securities other than National Savings Scheme)
- Banking companies, financial institutions, specific companies, or finance societies (profit on bonds, certificates, etc.)
Tax rates:
- 15% for filers: Individuals who regularly file their income tax returns.
- 30% for non-filers: Individuals who haven’t filed their income tax returns in the past.
Tax calculation:
The tax is calculated by multiplying the applicable rate (15% or 30%) by the gross amount of the profit on debt, after deducting any Zakat paid.
Exceptions:
- Profit on debt already exempt from tax under the Ordinance.
- Profit exceeding Rs. 5 million.
Tax deduction and payment:
The payer of the profit (e.g., bank, government) is responsible for deducting the tax at the time of payment.
Special cases:
- Special purpose vehicles and companies issuing Sukuk: They deduct tax on the return on investment for Sukuk holders at a separate rate.
Important notes:
- The deducted tax might be the minimum tax payable, depending on your individual tax situation.
- Consult a tax professional for personalized advice and accurate calculations.
Key takeaways:
- This tax applies to individuals receiving certain types of interest or profit on debt.
- Tax rates differ for filers and non-filers by 100%.
- The payer usually deducts the tax at source.
- Exceptions and special cases exist.
Disclaimer: This article is for informational purposes only and does not constitute professional tax advice. Always consult a qualified tax professional for guidance on your specific circumstances.
