Finance Act 2020: Cash Payment Rs250,000 Allowed as Deduction

Federal Board of Revenue (FBR) has relaxed the condition for business community by allowing deduction of cash payment up to Rs250,000 while computing business income.

According to Finance Act 2020 approved by the National Assembly amendments have been introduced to Section 21 of Income Tax Ordinance, 2001.

Section 21 of the Ordinance prescribes a list of expenditures that are not allowed as a deduction when computing Income from Business.

This includes certain expenditures that are not made through banking channels if they exceed the prescribed thresholds.

According to EY Ford Rhodes Chartered Accountants, the Finance Bill had proposed to enhance the threshold of aggregate expenditure under a single account head from Rs50 thousand to Rs250 thousand, not made through banking channels, that would be allowed as a deduction when computing Income from Business..,

Further the relaxation of a single cash transaction in the above limit has been enhanced from Rs10 thousand to Rs25 thousand.

Similarly, the threshold of salary, not paid through banking channels, has been proposed to be increased from Rs15 thousand to Rs25 thousand.

Similar to the provisions of the sales tax laws, the Bill also proposes to introduce a new Clause whereby an industrial undertaking would not be entitled to claim a deduction for any expenditure attributable to sales made to persons required to be registered but not registered under the Sales Tax Act, 1990 computed according to the following formula, namely;

(A/B) x C

Where –

  • A is the total amount of deductions claimed;
  • B is the turnover for the tax year; and
  • C is the total amount of sales exclusive of sales tax and federal excise duty to persons required to be registered but not registered under the Sales Tax Act, 1990 where sales equal or exceed rupees 100 million per person.

Provided that disallowance of expenditure under this Clause shall not exceed twenty percent of total deductions claimed and that the FBR may, by notification in the official Gazette, exempt persons or classes of persons from this Clause on the basis of hardship.

Another Clause is also proposed to be inserted under which any expenditure on account of utility bills in excess of prescribed limits and conditions would not be allowed as a deduction.

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