Profit on Debt
Income tax Ordinance 2001
Overview of the Guideline
- What is Profit on debt ?
- Relevant Sections
- Rate of Tax
- Withholding of Tax
- Comparative Chart of Two Relevant Sections
- Previous year profit received
- Exemptions
What is Profit on debt
Profit received on any bank deposit, advance, loan etc.
Relevant sections
May be Tax under two sections
- 7b. Profit on debt
- 39c. Income from other sources
7B. Profit on debt
- Tax shall be imposed on a person except company who receive a profit on debt from any person mentioned in section 151(1)(a to d)
First Schedule, Part I, Division IIIA
The rate of tax on profit on debt under section 7B shall be *[15]%;
Section 8. Tax imposed shall be Final Tax
Section 7B(3) This section shall not apply to a profit on debt that –
- is exempt from tax under this Ordinance; or
- Exceeds 2[five] million Rupees.
- Profit earned by Company
- Profit from person not mentioned in section 151(1)(a to d)
- [Profit from bahbood certificate, Pensioner benefit account, Shuhada Family Welfare Account] (Separate guideline)
In this case:-
- profit on debt shall be included under the head “Income from other sources” u/s 39(c)
- Standard rate of tax will be applicable
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2. The words “thirty six” substituted by the Finance Act, 2021.
The words “thirty six” were inserted by the Finance Act, 2019.
3. The word “final” substituted through Finance Act, 2019.
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Tax withholding – Section 151(1) – First Schedule, Part III, Division IA
- Where the following persons pays profit shall deduct tax @ *[15%] of the profit
- National Savings Scheme or Post Office Savings Account
- Banking company or financial institution
- Government (Federal, Provincial or Local)
- Company *[as defined in companies Act 2017] or body corporate
- The tax deducted shall be minimum
except:
(a) taxpayer is a company (adjustable); or
(b) profit on debt is taxable under section 7B (Final)
| *. Substituted by the Finance Act, 2021. |
| Section | 7B (Profit on debt) | 7B (Profit on debt) |
| Profit From | Persons as mentioned in section 151(1)(a to d) | Persons other than mentioned in section 151(1)(a to d) |
| Profit Limit | Up to 5 million | Exceeds 5 million |
| Rate of Tax | 15% | Included in Taxable Income |
| Tax deducted status | Final | Minimum For Company: Adjustable |
| Profit received by Company | Not applicable | Taxable u/s 39 |
In case of previous year’s Profit received
Section 39(4A) (a) Where profit on debt received by a person
- From investment in National Savings Deposit Certificates including Defence Savings Certificate
- Relevant to previous years and
- As a result higher rate if tax is applicable
- The person may, by notice in writing to the Commissioner, elect for the profit to be taxed at the rate of tax that would have been applicable for that year
- An election shall be made by the due date for furnishing the person’s return of income
Exemptions from Total Income
2nd Schedule, Part I, Clause 78.
Any profit on debt shall be exempt from tax derived from;
- Foreign currency accounts held with authorised banks in Pakistan, or
- Certificate of investment issued by investment banks
in accordance with Foreign Currency Accounts Scheme introduced by the State Bank of Pakistan,
Profit earned by;
2[non-resident individual,
non-resident association of persons and
non-resident companies]
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3. Substituted by the Finance Act, 2021.
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Any profit on debt shall be exempt from tax derived from;
2nd Schedule, Part I, Clause 79.
rupee account held with a scheduled bank in Pakistan
Profit earned by;
3[non-resident individual holding a
- Pakistan Origin Card (POC) or
- National ID Card for Overseas Pakistanis (NICOP) or
- Computerized National ID Card (CNIC)]
Condition
- Where the deposits in the said account are made exclusively from foreign exchange remitted into the said account
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3. Substituted by the Finance Act, 2021.
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Following clause deleted by Finance Act 2022
Applicable only to Tax Year 2022
2nd Schedule, Part III, Clause 20
The tax payable by a person in respect of profit on debt from;
- Other than a banking or insurance company
- Investment in Federal Government securities
shall be 15% of the gross amount of the profit on debt: Provided that tax so payable shall be final tax