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Islamabad: The Federal Board of Revenue (FBR), Thursday, issued an income tax circular to clarify that the corporate taxpayers are allowed to switch over to digital mode with effect from November 1, 2021.

According to the income tax circular number 7 of 2021 issued by the FBR here on Thursday to improve documentation, a new clause (la) has been inserted in Section 21 of the Income Tax Ordinance, 2001.

The income tax circular has not defined the type of transactions covered under the digital mode.

Previously, payments under a single head account exceeding 250,000 rupees, made by any taxpayer were required to be made through crossed cheque or crossed baking instruments including digital payments.

Tax Laws (Third Amendment) Ordinance, 2021: 7 new measures introduced to broaden tax base

Through this amendment, payments made by a company under a single head of account exceeding 250,000 rupees other than by digital means from business bank account of the taxpayer notified to the Commissioner under Section 114A of the Income Tax Ordinance shall not be admissible as deductions.

However, certain expenditures on account of utility bills, freight charges, travel fare, and payment of taxes and fines would continue to be admissible even though paid in cash or via traditional banking instruments.

The purpose behind this legislative enactment is to encourage digital payments and discourage traditional mode of transactions by the corporate sector in the first phase.

However, owing to lack of total digital readiness by some corporate taxpayers, the corporate taxpayers are allowed to switch to this mode with effect from 1 November 2021.

In the intervening period, they may use digital payments or continue with the existing procedure of making payments by a cross cheque drawn on a bank or by crossed bank draft or crossed pay order or any other crossed banking instrument showing transfer of amount from the business bank account of the taxpayer. About the payment of salary via digital mode, the FBR said that currently, any salary paid or payable exceeding 25,000 rupees per month has to be made through cross cheque or direct transfer of funds to the employee’s bank account under clause (m) of section 21 of the Ordinance.

Copyright Business Recorder, 2021

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