Tax Deduction Allowed on Salary up to Rs25,000 Paid in Cash

The Finance Bill 2020 has proposed major changes related to tax deduction in order to provide relief to business community. Under the proposed amendments the threshold amount has been increased up to Rs25,000 for tax deduction in case salary is paid.

According to interpretation of the Finance Bill 2020 by BDO Pakistan, the Finance Bill proposed amendments to Section 21 of the Income Tax Ordinance, 2001.

(l) The Bill seeks to enhance threshold of deduction for cash payment against business income under single account head from Rupees fifty thousand to Rupees two hundred and fifty thousand per annum.

This proposal seeks to relieve businesses from making transactions through banking channel, as it is difficult for business to make every transaction through banking channel.

Further The Bill seeks to increase the threshold of expenditure liable to be disallowed as a business expense if the same is not made through a crossed banking instrument/ online transfer of payment from Rs.10,000/- to Rs.25,000/ per transaction.

Furthermore, The Bill seeks to enhance threshold from Rs.15,000/- to Rs.25,000/- as allowable deduction against business income if the salary is paid in cash.

(p) & (q) The Bill seeks to add two new clauses to regulate limit of expenditure on account of utility bill and sales made to persons required to be registered but not registered under the Sales Tax Act, 1990 as an admissible deduction against business income where sales equal to or exceed Rs. 100 million per person. However, the disallowance of expenditure shall not exceed 20 percent of total deduction claimed.

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