Funds transfer against cash: banks to deduct 0.3 percent withholding tax: FBR

[Lahore_Real_Estate]

ISLAMABAD (July 03 2010): The Federal Board of Revenue (FBR) has informed the State Bank of Pakistan (SBP) that the banks would deduct 0.3 percent withholding tax on transfers of funds made against cash including online transfer, telegraphic transfer, mail transfer and any other mode of electronic transfer.

In this regard, the FBR has issued a clarification on 'Advance Tax on Transactions in Bank (Section 231AA)' to the SBP and Pakistan Banking Council, Karachi here on Friday.

According to the FBR letter issued to the SBP, through Finance Act 2010, new section 231AA has been introduced in the Income Tax Ordinance, 2001. Under this section every banking company; non-banking financial institution; exchange company or authorised dealer of foreign exchange is required to deduct adjustable advance tax at the rate of 0.3 percent on sale of any instrument against cash including Demand Draft; Pay order; CDR; SDR; STDR; RTC or any other instrument of bearer nature.

Such tax is also deductible on transfers if made against cash including online transfer; telegraphic transfer; mail transfer and any other mode of electronic transfer, the FBR said. This tax shall also be charged on payment if made in cash on cancellation of any of the instruments referred above. This tax shall only be charged where total amount of payments for transactions referred to above exceeds Rs 25,000 in a day.

The FBR has observed this tax shall not be deductible on payment made through a crossed cheque for purchase of any of the financial instrument as referred above and interbank and intra-bank transfers. This tax shall not be applicable on transactions made by the federal or a provincial government; a foreign diplomat or a diplomatic mission in Pakistan and a person who produces a certificate from the Commissioner that his income during the tax year is exempted.

The tax so deducted shall be paid according to the law, to the credit of the person purchasing any of the above mentioned instruments against cash and to the credit of the person receiving cash on cancellation of any of the instrument referred above. Tax deducted under this section shall be adjustable, the FBR letter added.

When contacted a tax expert explained that the benefit of withholding tax collected on banking transactions shall be availed by the person, who is making the purchase of the said instrument by payment of cash and the person who is receiving cash at the time of cancellation of such banking instrument.