Understanding Taxes on Banking Transactions in Pakistan
Taxes are applied to certain banking transactions. This article explains the main types of advance taxes you might encounter via Banking transactions:
1. Advance Tax on Prepaid Debit/Credit Card Transactions (Section 236Y):
This tax applies when you use a credit card, debit card, or prepaid card to make a transaction with a foreign entity (outside Pakistan).
- 5% for filers (individuals/companies registered with the Federal Board of Revenue)
- 10% for non-filers
2. Advance Tax on Cash Withdrawals (Section 231AB ):
This section mandates banks to deduct an advance tax of 0.6% on cash withdrawals exceeding Rs. 50,000 per day for individuals not on the active taxpayer list. However, it’s important to note that
Therefore, currently, there is no tax deducted on cash withdrawals for Filers.
3. Tax on Profit on Debt Instruments (Section 151):
Banks are required to withhold tax on any profit you earn from debt-related instruments like bonds or interest-bearing accounts. This tax rate depends on your filer status with the Federal Board of Revenue (FBR).
- Filers receive a more favorable rate of 15%
- Non-filers face a significantly higher deduction of 35%.
This policy incentivizes individuals and businesses to register with the tax system, promoting greater transparency and tax collection efficiency. However, it’s important to remember that this withheld amount is considered an advance tax payment. When you file your income tax return, you can claim this deduction to potentially reduce your overall tax liability.
Key Points to Remember:
- Advance tax is a pre-payment of income tax. It’s later adjusted when you file your tax return.
- The specific tax rate for card transactions depends on the nature of the transaction and your filer status.
- The tax on cash withdrawals exceeding Rs. 50,000 per day.
Conclusion:
Understanding these taxes ensures you’re prepared for any potential deductions when using banking services. Remember, tax regulations can change, so staying updated with the latest information is crucial. Consulting a tax advisor can provide personalized guidance based on your specific circumstances.
