ByIn recent developments, the Federal Board of Revenue (FBR) has started issuing notices regarding advance tax payments to individuals, businesses, and associations of persons (AOPs). This includes notices for advance tax on profits earned from investments in Bahbood Saving Certificates (BSC). Investors are required to pay advance tax quarterly on their profits. This guide will address key topics such as:
Who Can Invest in Bahbood Saving Certificates?
The following categories of individuals are eligible to invest in BSC:
- Senior Citizens: Individuals aged 68 years or older.
- Widows: Unmarried widows who have not remarried.
- Joint Accounts: BSC accounts can be opened jointly, allowing collaborative investments.
- Persons with Disabilities: Individuals with disabilities whose CNIC (Computerized National Identity Card) displays a disability logo.
Difference Between Bank Deposits and Bahbood Saving Certificate Profits
Profit Taxation Structure
- Bank Deposits:
- Section 7B of the Income Tax Ordinance governs profits on debt, such as bank deposits.
- For profits less than PKR 5 million, a fixed withholding tax of 15% (for filers) or 35% (for non-filers) applies.
- For profits above PKR 5 million, the income is taxed as normal taxable income, subject to slab rates based on the individual’s taxable income.
- Behbood Saving Certificates:
- Profits from BSC are not governed by Section 7B. Instead, they fall under normal taxable income (NTR), irrespective of the profit amount.
- Tax rates on BSC profits are capped at a maximum of 5%, making it distinct from the progressive slab rates applicable to bank deposits.
Key Differences
- Withholding Tax: Unlike bank deposits, there is no withholding tax on BSC profits.
- Tax Rate: BSC profits are taxed at a capped rate of 5%, whereas bank deposits can attract higher slab rates depending on the profit amount as per Second Schedule of ITO 2001.
Taxation and Advance Tax on Behbood Saving Certificates
Advance Tax Applicability
- Bank Deposits:
- If annual profits from bank deposits exceed PKR 5 million, advance tax under Section 147 applies, as the income moves to the normal tax regime (NTR).
- Behbood Saving Certificates:
- The maximum cap of 5% tax applies to BSC profits under normal taxation rules.
- Advance tax is not applicable if:
- Total annual taxable income, including BSC profits, is less than PKR 1 million.
Formula for Advance Tax
For individuals liable to pay advance tax, the formula under Section 147 is:
Previous year tax assessed divided into four equal installments.
This calculation ensures quarterly payments align with estimated income.
Examples
- Case with Only BSC Income:
- If the annual BSC profit is less than PKR 1 million, no advance tax is payable.
- If the profit exceeds PKR 1 million, advance tax is required.
- Case with Multiple Income Sources:
- Suppose an individual earns PKR 800,000 from rental income and PKR 300,000 from BSC profits, totaling PKR 1.1 million.
- Since the total taxable income exceeds PKR 1 million, advance tax is payable.
Investing in Behbood Saving Certificates offers tax advantages, including capped tax rates and no withholding tax. However, understanding the tax treatment, advance tax implications, and eligibility is crucial for compliance and efficient tax planning.
