ISLAMABAD: The business community is facing practical issues while complying with a new income tax provision for disallowing 50 percent of expenditure attributable to cash sales exceeding Rs200,000 per transaction.
This new provision introduced through Finance Act 2025 has been implemented from July 1, 2025.
Tax experts told Business Recorder that the amendment to Section 24 of the Income Tax Ordinance 2001, which prohibits the deduction of expenses for cash sales exceeding Rs200,000 has generated considerable concern within the business community.
Non-filers: Banks to restrict cash withdrawals above set limit
In response, numerous companies are distributing circulars advising their customers to avoid cash payments or cash deposits into their bank accounts in compliance with this amendment.
Non-filers: Banks to restrict cash withdrawals above set limit
According to the details, the disallowance introduced via Section 24 of the Income Tax Ordinance, 2001 pertains exclusively to the head “Income from Business”, as defined under Section 18.
This provision disallows 50 per cent of expenditure attributable to cash sales exceeding Rs200,000 per transaction.
By legislative design and placement, this disallowance has no bearing on other income heads such as Rental income (Section 15 Income from Property) and Capital Gains (Section 37) and Income from Other Sources (Section 39).
Hence, the restriction applies solely to business income and is not applicable to individuals or entities earning income under any other head.
Similarly, Section 21 disallows 10 per cent of admissible business expenditure if paid to non-NTN holders. This provision also resides within the framework of “Income from Business” and does not extend to non-business income.
The disallowance under Section 21 does not affect deductions claimed under: Section 15 (Property Income); Section 12 (Salary); Sections 37 / 37A (Capital Gains) and Section 39 (Other Sources).
Both disallowance provisions—Section 24 (cash sales) and Section 21 (non-NTN payments)—are categorically limited to income assessed under the head “Income from Business”.
They have no application to rental income, capital gains, salary, or other non-business income streams. Absent any statutory deeming provision to the contrary, their scope remains confined to business taxpayers only, tax experts added.
Copyright Business Recorder, 2025
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