How do I declare a loan taken from a friend in my wealth statement?

Question

I borrowed some money to help with my business and I want to know how to record this liability so that it doesn't look like unexplained income to the FBR.

Answer 1

If you borrowed money for your business you should properly document and disclose it so it does not appear as unexplained income under Section 111 of the Income Tax Ordinance, 2001. First, ensure the loan is received through proper banking channels (not cash), and keep written evidence such as a loan agreement, lender’s CNIC/NTN, repayment terms, and bank transaction proof. In your accounting records, record it as a “Loan Payable” or “Borrowings” liability, not as income. In your income tax return and wealth statement, show the loan under liabilities and reflect the corresponding increase in cash/bank or business assets, along with proper wealth reconciliation. If the lender is a tax filer, it is safer, but even if not, you must be able to prove identity, capacity, and genuineness of the transaction to satisfy FBR in case of inquiry. Proper documentation and banking trail are the key to avoiding it being treated as unexplained income.