Disallowing expenditure: Govt likely to increase limit to Rs2.5m

ISLAMABAD: The government is likely to increase the limit from Rs200,000 to Rs 2.5 million for disallowing expenditure attributable to cash sales exceeding Rs2.5 million per transaction.

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.

The new provision introduced through Finance Act 2025 has been implemented from July 1, 2025.

The government has now proposed to implement this law in phase-wise manner to protect the revenue collection, as well as, ensure documentation. This law would be fully implemented in three years period, sources said.

Under the proposed revised law, the law would be fully implemented in three years period in phases. In the first year, the amount of Rs200,000 has been proposed to be increased to Rs 2.5 million for disallowing expenditure per transaction. In the second year, the amount would be decreased from Rs 2.5 million to Rs 1.5 million and subsequently to Rs 0.5 million. The percentage of disallowance would be decreased from 50 percent to 20 percent which would be gradually increased in three years period, the new proposal said.

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 as per Finance Act 2025.

Hence, the restriction applies solely to business income and is not applicable to individuals or entities earning income under any other head under the Finance Act 2025.

Copyright Business Recorder, 2025