Advance tax on Banking Transactions

Advance tax on Banking Transactions

Advance tax on Banking Transactions: Every banking company shall collect advance adjustable tax from a non-filer at the time of sale of any instrument, including demand draft, pay order, special deposit receipt, cash deposit receipt, short term deposit receipt, call deposit receipt, rupee traveler’s cheque or any other instrument of such nature.

Every banking company shall collect advance adjustable tax from a non-filer at the time of transfer of any sum through cheque or clearing, interbank or intra bank transfers through cheques, online transfer, telegraphic transfer, mail transfer, direct debit, payments through internet, payments through mobile phones, account to account funds transfer, third party account to account funds transfers, real time account to account funds transfer, real time third party account to account fund transfer, automated teller machine (ATM) transfers, or any other mode of electronic or paper based funds transfer.

The advance tax under this section shall be collected at the rate specified in Division XXI of Part IV of the First Schedule; where the sum total of payments for all transactions mentioned in sub-section (1) or subsection (2), as the case may be, exceed fifty thousand rupees in a day.

Advance tax on Banking Transactions

For removal of doubt, it is clarified that the said fifty thousand rupees shall be aggregate transfers from all the bank accounts in a single day.

Advance tax under this section shall not be collected in the case of payments made for Federal, Provincial or local Government taxes.

The FBR has explained amendment made by Finance Act 2016 in Circular No. 7 of 2016 dated 27.7.2016 as under:

CLARIFICATION REGARDING WITHHOLDING TAX ON CASH WITHDRAWAL AND BANK TRANSACTIONS

Previously. there was confusion among the taxpayers regarding the levy of advance tax u/s 231A and 236P as to whether the amount of fifty thousand rupees of cash withdrawal or bank transactions per day was on per account basis, per bank basis or per branch basis etc.

For removing this confusion, explanation has been inserted in sections 231A & 236P of the Ordinance. It has been clarified that the fifty thousand rupees referred to in these sections shall be the aggregate of cash withdrawals or bank transactions, as the case may be, in a single day in all bank accounts of the taxpayer maintained in a banking company.

FINANCE ACT, 2015 — EXPLANATION REGARDING IMPORTANT AMENDMENTS MADE IN THE INCOME TAX ORDINANCE, 2001. NEW WITHHOLDING TAX PROVISIONS APPLIC,8BLE TO BANKING COMPANIES

Banking instruments and channels are used to acquire assets and incur major expenditures using untaxed money. Unreported business transactions are also conducted through these means. In order to bring non-compliant taxpayers into tax net and to document transactions of untaxed amounts through banking channels, a new section 236P has been introduced in the Income Tax Ordinance, 2001 through Finance Act, 2015, requiring every banking company to deduct tax @ 0.6% from non-filers,

  1. At the time of sale of any instrument, whether against cash or otherwise, including demand draft, pay order, special deposit receipt, cash deposit receipt, short term deposit receipt, call deposit receipt, rupee traveller’s cheque or any other instrument of such nature; and
  2. At the time of transfer of any sum through cheque or clearing, interbank or intra bank transfers through cheques, online transfer, telegraphic transfer, mail transfer, direct debit, payments through internet, payments through mobile phones, account to account funds transfer, third party account to account funds transfers, real time account to account funds transfer, real time third party account to account fund transfer, automated teller machine (ATM) transfers, or any other mode of electronic or paper based funds transfer.

Advance tax on Banking Transactions

A new problem has been created for the entire banking industry. All the banks would have to co-. ordinate with each other.

However, through Income Tax Laws (Amendment) Ordinance, 2015, the rate has been reduced from 0.6% to 0.3% w.e.f. July 11, 2015. This reduced rate will remain effective until 30.09.2015.

Rate of deduction of tax under this section shall remain 0.6% from 01.07.2015 to 10.07.2015. Rate of deduction of tax under this section shall be 0.6% from 01.07.2015 to 10.07.2015 and from 01-10-2015 onwards.

The bank account from where transfer is being made (through cheque, online or online banking or any other mode) shall be debited by the amount equivalent to 0.6% of payment, at the time the transfer is made.

This provision which comes into force w.e.f. July 01, 2015 shall not be applicable to PRISM transactions or transfers for tax payments.

Advance tax on Banking Transactions

However, if an amount is transferred from an account of a customer of Bank A to an account of a customer of Bank B through PRISM, section 236P shall only be inapplicable for the customer of Bank A, if the said customer of Bank A is maintaining a settlement account in PRISM i.e. a PRISM Participant’s account only.

Transfer of Zakat from a bank account shall also not attract provisions of this section, being in the nature of government levy. Similarly, no tax shall be deductible where the value of sale of instruments or amount being transferred is Rs.50,000/- or less in a single day.

This threshold is to be considered separately for sub-section (1) and sub-section (2) of section 236P. — (2/2015, dated 24.07.2015).

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