A Complete Guide to Advance Tax in Pakistan

As a taxpayer in Pakistan, it is essential to have a clear understanding of the concept of advance tax and its applicability criteria. This article aims to provide an overview of advance tax and its significance in the tax regime of Pakistan.

Advance tax is charged on income chargeable to tax where the last assessed taxable income was more than one million rupees, except for specific types of income such as income from investments/sukuks, income earned by non-residents, income earned by shipping and air transport income of non-residents, income earned by freelancers/IT and IT enabled services providers if under final tax, and income earned from salary.

Under section 147 of the Income Tax Ordinance 2001, taxpayers are liable to pay advance tax. The due dates for compliance of advance tax vary and depend on the income type and amount. The advance tax is payable at the end of each quarter by 15th to 25th, and it is approximately one-fourth of the total tax payable at the end of the year.

It is important to note that even when there is no liability to pay further tax, the reporting of advance tax notices is compulsory for high-end revenue generators such as big companies and individuals with high revenues. This requirement helps the Federal Board of Revenue (FBR) to track high-revenue generating individuals and entities in Pakistan.

Failure to comply with the advance tax provisions can result in penalties and default surcharges under section 205 of the Income Tax Ordinance. Taxpayers should, therefore, submit their reply even when there is no tax payable, along with the documentary proofs of adjustable or final taxes deducted at source.

To ensure timely compliance, taxpayers can consult with tax experts or use the FBR online portal to calculate and pay their advance tax. Additionally, taxpayers can use the FBR’s tax calculator to estimate their advance tax liability.

In conclusion, understanding advance tax and its applicability criteria is crucial for all taxpayers in Pakistan. By complying with the due dates and reporting requirements, taxpayers can avoid penalties and contribute to the country’s tax revenue. Taxpayers can consult tax experts or use online portals to calculate and pay their advance tax liability and ensure timely compliance.

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