Savings certificates: FBR urged to rectify error in IRIS software to restore relief

ISLAMABAD: Lahore Tax Bar Association Public Interest Litigation Committee (LTBA-PILC) has urged the Federal Board of Revenue to correct an error in the IRIS income tax return software as the error takes back the relief Parliament granted to taxpayers earning profit on Behbood Savings Certificates, the Pensioners’ Benefit Account and the Shuhada Family Welfare Account.

Waheed Shahzad Butt Chairman LTBA-PILC urged FBR Chairman through the Members (IR-Legal, IR-Operations and IR-Policy) and the DG IT, and said that clause (6) of Part III of the Second Schedule to the Income Tax Ordinance, 2001 limits the tax on this profit to 5 percent. The system applies this relief through code 9309 (tax reduction), but then charges the 10% surcharge under section 4AB on the full, unreduced normal tax. “In effect, the system takes back part of the relief the legislature granted”.

Butt illustrates the error with a return showing taxable income of 11,447,109, of which 2,484,000 is Behbood etc. Normal tax is 4,241,199. The tax reduction under clause (6) is 796,132, being the difference between the tax attributable to that profit (920,332) and 5% of it (124,200). The system then charged a surcharge of 424,120, which is exactly 10% of the unreduced normal tax. The correct surcharge, computed on tax after reduction (3,445,067), is 344,507. The taxpayer has therefore been overcharged 79,613, which is exactly 10 percent of the relief the law had already granted. This overcharge appears as a balance payable, even though the admitted tax is fully paid and the correct balance is nil.

Waheed Butt added that section 4AB levies the surcharge on income tax imposed under Division I of Part I of the First Schedule. Tax already reduced by the Second Schedule is not tax payable at the normal rate, so a surcharge on it defeats the legislative intent. He called the error a flaw in the system’s logic, not a matter of assessment or the taxpayer’s choice. He also said manual rectification is no adequate substitute, because the defect will affect every taxpayer with such income whose taxable income exceeds Rs. 10 million. He reserved the taxpayer’s right to claim a refund of any resulting excess.

With the return filing deadline on October 31, 2026, Butt warned that filing the return as computed would either show a false liability or force payment of tax not lawfully due. He asks the FBR to depute a senior officer to examine the computation and contact the LTBA-PILC. Direct the IT Wing to correct the surcharge logic so that section 4AB is not charged on tax reduced under clause (6), Part III, Second Schedule. Allow the return to be filed with a computed balance of nil, and ensure no default surcharge or notice arises. Issue a clarification or public notice for all affected taxpayers.

Hopefully, the FBR will give effect to the relief granted by Parliament and uphold the rule of law in real terms: Butt added.

Copyright Business Recorder, 2026