Understanding Withholding Tax in Pakistan: How to Claim Your Refund

If you are a Pakistani, you have most likely paid withholding tax at some point without even realizing it. Withholding tax is the deduction of tax at the source, which is typically in the form of advance tax. It is a crucial source of revenue for the Federal Board of Revenue (FBR), contributing about 41% of the total direct tax revenue collected throughout the country. This article will help you understand what withholding tax is, how it affects you, and how you can claim it back from the government.

What is Withholding Tax?

Withholding tax is a mechanism through which the government collects tax from individuals and businesses on certain sources of income or expenditure. The term “withholding” means “refusal to give something that is due or desired.” So, in the context of tax, withholding tax means “to intentionally deduct the tax which can be claimed and/or refunded later.”

Sources of Withholding Tax

Withholding tax is deducted from various sources of your income or expenditure, such as salary, dividends, interest, vehicle registration, transfer of ownership, property transactions, prepaid/postpaid/landline phone bills, and others. It is essential to understand the concept of withholding tax as it can help you save a lot of money every year, depending on your income and spending.

How to Claim Back Your Paid Withholding Tax?

Withholding tax can be refunded from the government at the end of the year. However, certain conditions must be met for this to happen. Firstly, you must pay annual tax, and secondly, you must file your tax returns on time every year. If you fulfill these conditions, you can get back the excess withholding tax you paid throughout the year.

Why Does the Government Deduct Withholding Taxes?

A common question that arises is, “why does the government deduct withholding taxes when it has to return it at the end of the year?” The answer to this is straightforward. The government deducts withholding taxes to encourage the majority of the population to file their income tax returns and declare any tax paid or unpaid by them. This way, any excess tax paid can be refunded back by filing an online refund application on the FBR portal.

How to Collect Information for a Refund of Paid Withholding Tax?

To get a refund of your paid withholding tax, you need to keep track of the receipts and bills for any expenditure incurred throughout the year. Look out for the mention of withholding tax or advance income tax and keep the receipts and bills in your possession. This way, you will have evidence of the withholding tax paid by you during the whole year. You can produce it before the FBR to verify your paid withholding tax and claim your tax refund.

Procedure for Getting Your Withholding Tax Refund

To claim your withholding tax refund, you need to visit the FBR’s IRIS Portal and fill out the refund application form. You will also need to provide evidence of the deduction of withholding tax. Once you have submitted the application and provided the necessary documents, your refund will be processed and transferred to your bank account or issued as a cheque.

Conclusion

Withholding tax is a crucial source of revenue for the government, and it is important to understand how it works and how it affects you. By keeping track of your receipts and bills, you can claim your withholding tax refund and save yourself a lot of money. Make sure to file your tax returns on time every year and fulfill the necessary conditions to get your refund. By doing so, you can ensure that you are paying the right amount of tax and getting back any excess tax paid.