Some banks have issued instructions to their branches, in violation of the decision of the Central Board of Revenue, to deduct 0.1 percent withholding tax from the cash withdrawn, instead of debiting the account of the drawer, it is learnt. A CBR circular, issued on Thursday said that a new section 231A has been inserted in the Income Tax Ordinance 2001, which stipulates that every banking company at the time of making payment of cash withdrawal exceeding Rs 25,000 shall deduct advance tax at the rate of 0.1 percent.
Under the instructions of Central Board of Revenue, Managing Director, Banking Services Corporation, State Bank of Pakistan, has issued instructions to all banking companies to deduct tax at the rate of 0.1 percent on payment of cash withdrawal exceeding Rs 25,000 with effect from July 1, 2005.
The tax deducted is payable in the federal government account within seven days of the deduction.
The instruction further says that the banks shall debit the accounts by an amount equivalent to 0.1 percent of the payment every time a cash withdrawal is made.
For example, a person who withdraws cash Rs 100,000 shall get full amount from the bank and not Rs 99,925. Only his accounts will be debited to the extent of Rs 75 (0.1 percent).
However, advance tax under this section shall not be collected in the case of cash withdrawals made by federal government or a provincial government, a foreign diplomat or a diplomatic mission in Pakistan and from a person who produces a certificate from the commissioner of income tax that his income during the tax year is exempt.
Failure to comply with this legal obligation shall render the concerned person liable to be treated in default under section 161 of the ITO 2001.
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