This article explains the rules and rates for tax on profit on debt in Pakistan of the Income Tax Ordinance, 2001.
Who pays this tax?
You’ll pay this tax if you earn profit on debt from specific sources, unless you’re a company. These sources include:
- National Savings Scheme or Post Office savings accounts
- Banking company or financial institution accounts/deposits
- Government securities (excluding National Savings Scheme)
- Bonds, certificates, debentures, etc. issued by certain entities
Tax rates:
- Filers (individuals who file tax returns): 15%
- Non-filers: 30%
Tax calculation:
The tax is calculated by applying the appropriate rate to the gross amount of your profit on debt after deducting any Zakat paid.
Important exceptions:
- This tax doesn’t apply if your profit on debt:
- Is already exempt from tax under another section.
- Exceeds Rs. 5 million.
- For companies, tax on profit on debt may be governed by different sections.
How the tax is collected:
For most sources, the payer of the profit (e.g., bank, government) will deduct the tax at source before crediting your account.
Special case for “return on investment in sukuks”:
For special purpose vehicles and companies issuing sukuks, they must deduct tax at a separate rate specified in the law.
Additional notes:
- The tax deducted under this section may be considered a minimum tax for individual taxpayers (except companies and those already taxed under Section 7B).
- Consult a tax professional for specific guidance on your situation.
Disclaimer: This is for informational purposes only and does not constitute professional tax advice.
I hope this clarifies the complex regulations surrounding tax on profit on debt in Pakistan. Remember, understanding these rules is crucial for accurate tax compliance.
