Income tax return filing requires individuals to declare all assets and incomes made during the particular tax year. This includes any loans received from an individual, institution, employer, or relative. Failure to declare loans in a tax return can attract penalties and extra taxes to be paid by the taxpayer. In this article, we will discuss the prerequisites of taking a loan and how to declare it in a tax return.
Firstly, it is important to note that a loan is a liability in nature and must be declared in the Form 116 under the wealth statement. A loan is not considered as income, but if one fails to properly declare it in the return, tax authorities may treat it as income and assess tax on such income under Section 39.
The first prerequisite for declaring a loan is that it must be received through a banking channel. For example, if one takes a loan and then deposits such an amount via cash in the bank account, it will be difficult to justify such an amount as a loan and not income. The other condition that must be met is that the person giving the loan shall have an NTN.
Lastly, the intention of taking the loan shall be that it will be returned. If any such amount is given without an intent to take it back, it will be treated as a gift, which has its own purview of declaration.
When an employee takes a loan from an employer, if that amount is greater than one million and given on a non-interest basis, then that benchmark rate (at the year of taking the loan) will be applicable, and that interest will be treated as a part of salary and taxed thereon.
In conclusion, it is essential to declare all loans in a tax return in Pakistan to avoid any penalties and legal issues. Follow the prerequisites and declare loans under the wealth statement to ensure proper tax compliance.