Amendments in the Seventh Schedule
Amendments in the Seventh Schedule: Finance Act, 2024 — Explanation regarding Important Amendments made in the Income Tax Ordinance, 2001
Important amendments made in Income Tax Ordinance, 2001 (“the Ordinance”) through Finance Act, 2024 are explained in the subsequent paragraphs.
Amendments in the Seventh Schedule
Prior to the Finance Act, 2024 rule 1(d) of the Seventh Schedule stated that the amount of “bad debts” classified as “substandard” or “doubtful” under the Prudential Regulations issued by the State Bank of Pakistan shall not be allowed as expense. This meant that only the amount of bad debt classified as “loss” under the prudential regulations was allowed subject to restrictions imposed under rule 1(c).
Through the Finance Act, 2024, sub-rule (d) of rule 1 has been substituted and it states that the amount of bad debts classified as “substandard” or “doubtful” under the Prudential Regulations issued by the State Bank of Pakistan or provisions for advances, off-balance sheet items or any other financial asset classified in stage I, II or III as performing, under-performing or non-performing under any applicable accounting standard including 1FRS 09 shall not be allowed as expense. Only “bad debts” classified as loss pertaining to non-performing assets under the Prudential Regulations issued by the State Bank of Pakistan shall be allowed as expense.
A new sub-rule (da) has been inserted in rule 1 which states that provisions or expected credit loss for advances and off-balance sheet items or any other financial asset existing before or after the 1″ day of January, 2024 under IFRS-09 shall not be allowed as an expense or deduction.
Prior to the Finance Act, 2024, sub-rule (g) of rule 1 stated that adjustments made in the annual accounts, on account of application of international accounting standards 39 and 40 shall be excluded in arriving at taxable income. Sub-rule (g) has been amended to mean that adjustments made in the annual accounts, on account of any applicable accounting standard or policy or any guidelines or instructions of State Bank of Pakistan shall be excluded in arriving at taxable income.
As per rule (7CA), the provisions of section 4C shall apply to the ta payers under this schedule and shall be taxed at the rates specified in Division JIB of Part I of the First Schedule from tax year 2023 onwards.
Through the Finance Act, 2024, an explanation has been inserted which clarifies that the expression “tax year 2023 onwards” means that the provisions of section 4C are applicable for the tax year 2023 and for all the subsequent tax years.
Read full text of Explanation of Finance Act, 2024 Amendments made in the Income Tax Ordinance, 2001 for more updates on taxes from FBR click here.
