09/07/2025
The new amendment relates to the disallowance of business expenses under Section 21 of the Income Tax Ordinance. during assessment proceedings under Section 122, if the FBR detects that a cash transaction exceeding Rs. 200,000 has been received against a single invoice, it may disallow 50% of the related business expense which eventually increases the tax liability for the taxpayer who received the cash payment.
Now many companies have started issuing circulars to their buyers and distributors, warning them that more 200,000 cash payments will be penalized of 20.5%, and only 79.5% of the amount will be accepted as valid. The logic behind this calculation is based on the effective tax rate for large manufacturing companies, which includes 29% corporate tax, 10% super tax, and 2% WWF, totaling 41%. If 50% of a business expense is disallowed, the effective additional tax burden becomes 20.5% half of 41%. To safeguard themselves from future penalties during assessments, companies are now clearly telling buyers that if they deposit more than Rs. 200,000 in cash for a single invoice, the buyer will be responsible for their future tax impact.
