The Federal Board of Revenue (FBR) has issued a key clarification regarding business transactions. According to the FBR, cash deposits made directly into a seller’s bank account by a buyer will now be accepted as valid payments under the Income Tax Ordinance, 2001.
This clarification comes after confusion surrounding the newly inserted clause (s) in Section 21 of the Ordinance. The clause states that if a seller receives a payment of Rs. 200,000 or more per invoice without using formal banking or digital channels, 50% of the related business expense will be disallowed for tax purposes.
However, the FBR has now clarified that this rule does not apply to direct cash deposits into a seller’s bank account. These deposits will be treated as legitimate payments through the banking system.
The FBR explained that the aim is to support the shift toward a more documented and formal economy. While the authority encourages the use of traceable and digital payment methods, it also recognizes that direct cash deposits are widely used and verifiable through the banking system.
This move is expected to ease concerns among businesses, especially small and medium enterprises that rely on cash transactions. By treating such deposits as valid, the FBR aims to reduce unnecessary tax disallowances and support tax compliance.
The clarification offers relief to sellers who often receive large payments in cash, especially in areas where digital banking access is limited. It also ensures that business expenses tied to such transactions are not unfairly penalized.
The FBR continues to update its policies to reflect practical business needs while maintaining its goal of expanding the formal economy. This latest step is part of its broader effort to modernize tax enforcement and make compliance easier for taxpayers across Pakistan.
