Income Tax Returns Filing in Pakistan

Filing Income Tax Returns is a Duty

You have to File Your Income Tax Return Every Year

The FBR (Federal Board of Revenue) requires assessees to file information about their income and taxes thereon on annual income tax returns. All this means that you need to file your tax return every year. In this process, the FBR determines whether you owe additional taxes or if your already paid taxes should be refunded.

There is more to the process than simply withholding taxes from your earnings/income and sending them to the FBR in order to ensure you are paying the right amount of taxes.

In the beginning, your payroll withholding is usually not exactly correct:

Depending on your payroll withholding decisions at the beginning of your employment, you may be overpaying your taxes. It is also possible to take certain deductions or credits provided for in the tax law to reduce your taxes owed and therefore, get a refund on taxes already paid. Aside from your paycheck, you may also have additional income that you are legally required to report, resulting in a higher tax bill.

The Income Tax Returns Basics

You are advised to establish a basic understanding of these processes prior to Registering and Filing your Income Tax Return. This will ensure that the task is performed efficiently and appropriately.

Income Tax Returns: Taxable Income

A donation that qualifies for straight deductions and certain deduction allowances is considered taxable income.

Income Tax Returns: Total Income

The total income is the sum of all taxable income.

Income Tax Returns: Head of Income

Income is generally divided into five categories under the Income Tax Ordinance, 2001:

Salary
Property income
Profession or business income
Gains from capital;
Other sources of income

Income Tax Returns: Tax Residents

Individuals who are residents for a tax year are:

A Pakistani citizen who stays in Pakistan for one hundred and eighty-three days or more in any one year;
During the tax year, is present in Pakistan for at least one hundred twenty days, or periods of at least one hundred sixty-five days, and has been in Pakistan for more than three hundred and sixty-five days in the four years preceding the tax year; or
The employee or official is currently posted abroad as a result of working for the FBR or a provincial government during the tax year.

The control and management of an association’s affairs are wholly or partly located in Pakistan during a tax year;

Resident companies are those that are:

The company is incorporated or formed under Pakistani law;
At any time in the year, its affairs are entirely controlled and managed in Pakistan;
It is the government of a province or locality in Pakistan.

Income Tax Returns: Non-Tax Resident

Non-residents for a tax year are Associations of Persons, Companies, and Individuals who are not residents.

Income Tax Returns: Source of Income in Pakistan

The Income Tax Ordinance, 2001, provides for different types of income under different heads. Some of the common sources of income in Pakistan include

Any amount received or payable in Pakistan as a result of employment;
An employee’s salary paid by some level of government in Pakistan, whether it’s the FBR, a Provincial Government, or a Local Government;
Resident company pays dividends;
The profit from a resident’s debt payment;
The income generated by the leasing of immovable property in Pakistan; and
A resident or a permanent establishment of a non-resident may receive a pension or annuity.

Income Tax Returns: Foreign Source of Income

A source of income that is not from Pakistan.

Person

It is an individual;
Located in Pakistan or elsewhere, an organization, company, or group of persons incorporated, organized, or established; and
Governments, political subdivisions of governments, or public international organizations.

Company

The Companies Act, 2017 defines a company as follows:

Generally, a company formed by or under Pakistani law;
The modaraba;
An organization formed under the laws of a country outside Pakistan;
To expand the scope of a company, the Finance Act of 2013 has been amended.

Companies now include the following as per the Income Tax Ordinance, 2001:

An organization of any type, such as a cooperative or a finance society;
Organizations that are non-profits; and
It refers to any trust, entity, or group of people established or constituted under any applicable law.
In accordance with this Ordinance, a foreign association, whether incorporated or not, that has been declared a company by the Board, by general or special order;
Governments at the provincial level;
Pakistani Local Governments; and
An organization of small size

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Income Tax Returns: Association of Persons

Generally, it includes a firm (a group of persons who have agreed to share the profits from a business they carry on together, or any one of them acting on their behalf), a Hindu undivided family, any artificial juridical entity, or any body of persons organized under foreign law, but excludes companies.

Tax Year

This is a twelve-month period that ends on 30th June and is determined by the calendar year in which it occurs.

For example, the calendar year 2018 shall denote the tax year for the twelve months between July 01, 2017, and June 30, 2018, while the calendar year 2019 shall denote the tax year for the twelve months between July 01, 2018, and June 30, 2019. In tax law, it is called a normal tax year.

Income Tax Returns: Special Tax Year

The closing date of a Special Tax Year falls within any period of twelve months, denoted by the calendar year of the Normal Tax Year. The calendar year 2018 shall refer to the twelve-month period between January 1, 2017, and December 31, 2017, and the calendar year 2019 shall refer to the twelve-month period between October 1, 2017, and September 30, 2018.

Income Tax Registration

Registering with the Federal Board of Revenue (FBR) is the first step to filing your Income Tax Return.

The IRIS Portal allows individuals to register online for income tax purposes
Meanwhile, the principal officer of AOP and Company is required to visit the Regional Tax Office (RTO) to file the tax return

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Income Tax Payer Registration Basics

The Importance of Income Tax Registration

When enrolled on the Iris portal, individuals, companies, associations of persons (AOPs) or foreign nationals will be considered registered.

The National Tax Number (NTN) or Registration Number and password you receive when enrolling electronically with FBR is your National Tax Number (NTN).

NTN or Registration Numbers will be derived from 13-digit Computerized National Identity Cards (CNICs) for individuals.

It is the 7-digit NTN received after e-enrollment for AOP and Company.

In order to file an income tax return online, you need these credentials, which give you access to the Iris portal, which is the only way to do so.

Before starting the e-enrollment process, the Principal Officer and AOP need to ensure the following information is available.

Registering requires the following details:

Company name or AOP name
Name of company
Location of the business
A period of accounting
Number for business
Contact information via email
AOP or principal officer’s cell phone number
The main activity of the business
Industrial or business address
Public limited companies, private limited companies, unit trusts, trusts, small companies, NGOs, societies, and even modarabas are possible
Registration date
Companies must hold an incorporation certificate from the Securities and Exchange Commission of Pakistan (SECP)
A partnership deed and a registration certificate are required when a firm registers
Partnership deed in case firm is not registered
In the event of a trust, a trust deed would be required
Registrar’s stamp for a society
CNIC or NTN number of the representative
AOPs and companies with 10% or more shares should include the following information about directors and major shareholders:
- The name
- Passport / NTN / CNIC
- Share percentage

Non-resident companies with permanent establishments in Pakistan must provide the following information when applying for registration:

A company’s name
The address of your business
A period of accounting
Businesses’ phone numbers
The main activity of the business
Location of the company’s principal office
Security and Exchange Commission of Pakistan (SECP) registration number and date
A list of the principal officers and authorized representatives of the company, including their names and addresses
A letter appointing a principal officer of the company or an authorized representative
Name and cell phone number of company principal officer or authorized representative
Company’s principal officer’s email address

If a non-resident company does not have a permanent establishment in Pakistan, it must provide the following information:

Identify the company by its name
Address of a foreign business
Company directors and trustees’ names and nationalities
The accounting period
Company representative’s name and address
Letter of authority for the appointment of the company’s authorized representative
Contact information for the company’s authorized representative
The email address of the company’s authorized representative
Business activities and principal business activities
Documentation from the foreign country’s regulatory authorities regarding tax registration or incorporation

Income Tax: Requirements for Registration

Those wishing to enroll electronically should have the following information available.

A person must meet the following requirements in order to enroll in e-enrollment:

Numbers for CNICs, NICOPs, and passports
Number used on cell phone
Email address that is active
Country of origin
Postal code of residence
Duration of the accounting period
If the income is from a business:
- Name of company
- Addresses for businesses
The main activity of the business
In the case of salary income, the name and NTN of the employer
A property’s address if there is an income from it

Income Tax Registration Process

Online Registration

It is only possible to register online for:

It is for an individual, not for a company or an association;

Online registration requires the following information from the taxpayer:

The registration process should be understood;
An Internet connection, a computer, a scanner, and a scanner;
Their own CNIC-registered cell phone;
They should have a personal email address;
Scanned document in PDF of
Personal bank account maintenance certificate;
Evidence of ownership/tenancy of business premises;
Having a business requires paying the utility bill for the premises not older than three months.

Registration is available online at Iris Portal

The Registration of Tax Houses in Facilitation Counters

Tax facilitation counters are open to all:

The individual, the association of individuals, and the company;
Sales tax and income tax;

Income Tax: Registration of an Individual

Visit a tax house’s facilitation counter in person

The following documents should be taken with him:

The original CNIC;
His own SIM card is registered to his cell phone;
Address of his personal email account;
A copy of his original bank account maintenance certificate;
If owning a business, original proof of tenancy/ownership;
If you own a business, the original paid utility bill of your business premises shouldn’t be older than three months.

Income Tax Registration of an Association of Persons

Visit any Tax House’s Facilitation Counter personally

It is necessary for him to take the following documents:

When it comes to a firm, the original partnership deed;
Certificate of registration from the Registrar of Firms, if a firm is registered;
Each Member’s or Partner’s CNIC;
Members / Partners are required to sign the original letter on the letterhead of the AOP, authorizing anyone of them to register for income tax;
SIM card corresponding to the owner’s CNIC, but not yet registered with the FBR;
Contact information for the AOP via e-mail;
AOP’s original certificate of maintaining a bank account;
If owning a business, original proof of tenancy/ownership;
When operating a business, original utility bills are not older than three months.

Income Tax: Registration of a Company

Visit any Tax house’s facilitation counter in person

Take the following document with you:

A copy of the company’s incorporation certificate;
Each director’s CNIC;
Verification of the Principal Officer and authorization for him to register for income tax and sales tax on company letterhead signed by all Directors;
SIM card corresponding to the owner’s CNIC, but not yet registered with the FBR;
The company’s e-mail address;
The original certificate of the Company’s bank account;
If owning a business, original proof of tenancy/ownership;
Utility bill from business premises that is not older than three months, if the business is active.

The Registration of Income Tax Modifications

It is possible to modify a person’s tax registration

It is possible to modify a person’s tax registration after recognizing any changes or omissions in information, particulars, data or documents associated with the registration.

The relevant information would need to be changed by filing a modification form in Iris.

A person’s request for modification will be granted or denied by the Commissioner after reviewing the modification form of registration and making any inquiry deemed necessary.

It is possible for a person to file a representation before the Chief Commissioner within thirty (30) days after the decision regarding the modification.

A decision will be made on the merits of the representation by the Chief Commissioner.

The Cancellation of the Registration for Income Tax

A taxpayer’s Income Tax Registration may be canceled by the Commissioner in writing after the Commissioner has determined that the taxpayer has no outstanding liabilities. All relevant information, particulars, data, or documents associated with the taxpayer’s Registration support the cancellation.

Income Tax: Change in Registration Particulars

The registered person must notify the RTO within fourteen days if his or her name, address, or any other details in the registration certificate have changed.

When the RTO verifies the manufacturing facility and confirms the status of the manufacturer as an industrial consumer of electricity and gas, the change in the business category will be permitted.

Update Your Personal Data

The registration information recorded for filing Income Tax Returns can be changed in three (3) different ways.

When logging into Iris, one can change or update information. A person can update the following information by filling Registration Form 181 (for modification) Income Tax:

A mobile phone number
E-mail
Residence / Personal Address
Business Address
Addition of Business Branches
Legal Representative u/Sec. 87 of the Income Tax Ordinance, 2001
Bank Account

Changes to information can be made by telephone or email via the Federal Board of Revenue (FBR) helpline.

You can update the following information through the helpline:

Name
Date of Birth
Gender
Disability Status
Senior Citizen Status

Visit a Regional Tax Office (RTO) to update your information. A person must go to their relevant RTO for changes in registration regarding the following issues:

Discontinuance of business
Jurisdiction for Income Tax Return Assessment
Deregistration
Updating CNIC Number
Updating Pakistan Origin Card (POC)

Changing Income Tax Registration details requires relevant documents to be presented to RTO.

Income Tax Return Filing

Logging Into IRIS

Log into Iris to file your income tax return online. Income Tax Returns are filed online through IRIS.
The first time you file an income tax return, you will need to register.
You can file your income tax return through Iris after registering.
You can get access to Iris if you have a National Tax Number (NTN) or Registration Number but do not have credentials.
Click on ‘E-enrollment for Registered Persons.

IRIS Login Password

You receive your NTN or Registration Number and password when you enroll online with the Federal Board of Revenue (FBR). Your NTN or Registration Number and password will allow you to log in to Iris.

Reset Password

If you have forgotten your password, you can reset it on the Iris login screen by clicking ‘Forgot Password. Complete all fields with the required information.

You will receive codes via email and mobile phone. The codes must be entered into the fields provided. Your password will be reset in a new window.

Change the Password For IRIS

To change your password, log into Iris and click ‘Change Password’ in the top right-hand corner. Fill out the dialog box with the necessary information.

Income Tax Return Completion

An individual must complete the Return of Income and Wealth Statement (statement of assets and liabilities) forms in order to complete an online Income Tax Return.

The FBR Knowledge Base Portal provides step-by-step instructions on how to file Income Tax Returns and Wealth Statements in both written and video format.

When both forms in Iris have been moved from Draft to Completed Task, the submission has been confirmed.

Wealth Statement Reconciliation

If your income exceeds/falls short of your expenses, you can successfully submit a Wealth Statement once your current year’s wealth has increased/decreased from last year’s wealth by the same amount. Tax returns cannot be submitted if the wealth statement is not reconciled.

Income Tax Return: Salaried Persons

The Declaration form 114(I) facilitates the filing of Income Tax Returns by salaried individuals. An income tax return must be filed by a salaried individual by completing Declaration form 114(I).

This form is for people whose income is solely derived from their salary and other sources, where salary is greater than 50% of income.

Change PIN for IRIS

You can change your pin by logging into Iris and selecting the button ‘Change Pin’ at the top of the screen. Fill out the dialog box with the required information.

Completing Income Tax Returns

It is possible to revise a tax return within five (5) years of the original filing to correct omissions or incorrect statements.

An application for revision must be filed in Iris in order to revise an Income Tax Return filed. Iris allows you to revise your Income Tax Return after your application is approved.

Updating Wealth Statements

Iris allows you to revise your Wealth Statement (statement of assets and liabilities) until receipt of the notice required by section 122 of the Income Tax Ordinance, 2001.

Income Tax Return after Deadline

You must still complete the filing of your Income Tax Return as described above if you wish to file the online Income Tax Return after the due date.

Income Tax Return Record Keeping

It is mandatory for people with taxable income to keep their income tax returns for a period of six (6) years.

Income Tax Return Filers

Income tax returns may be required if you are a certain category of person or have income up to a certain level.

Income Tax Return Credit, Rebate and Exemption

A tax credit, rebate, or exemption can only be obtained by an active taxpayer.

Personal Information Privacy

The Income Tax Ordinance 2001 punishes and prosecutes individuals who fail to file their Income Tax Return in spite having taxable income. Tax officials are the only ones who have access to your personal information.

Income Tax Return Forms

The following forms can be downloaded if you are filing your Income Tax Return manually:

Withholding Tax Forms

Invoices for withholding taxes

Miscellaneous Forms

Tax Payment Receipt – IT-31 (REV – II)

Documents/SOPs

ACTIVE TAXPAYER LIST (ATL)

Online Income Tax Return filers are listed on the Active Taxpayer List (ATL).

ATL UPDATE

Each financial year, ATL is published on March 1st and is valid through February 30th of the following year. The Active Taxpayer List for Tax Year 2017 was published on 1st March 2018 and will remain valid until 28th February 2019. In the same manner, the Active Taxpayer List for Tax Year 2018 will be released on 1st March 2019 and will be valid until 28th February 2020.

Every Monday, the FBR updates the ATL on its website.

Income Tax: Active Taxpayer List (ATL)

The Tax Return filed by a person will be part of the current ATL

The Tax Return filed by a person will be part of the current ATL, if it pertains to the same year as the relevant ATL. A person who wants to be included in the ATL published on 1st March 2018 must have filed their 2017 tax return. The Tax Return for the tax year 2018 must be filed by anyone who wants to be a part of the ATL published on 1st March 2019.

The Finance Act of 2018 restricted the inclusion of someone’s name on ATL if they haven’t filed their tax return by their due date. An individual must file a Tax Return for the Tax Year 2018 by the specified due date to be included in the ATL published on 1st March 2019.

It is important to note, however, that under Finance Act, 2019 a person’s name can be included in ATL even if the person has filed their Tax Return after the due date.

Furthermore, a surcharge will be charged if the tax return is not filed by the due date of placement on ATL:

An ATL includes companies or AOPs that do not have to file a return due to incorporation or formation after June 30th for the tax year pertaining to the ATL.

ATL is deemed to be part of joint account holders if any of the joint account holders meet the criteria for membership.

A minor’s bank account will be considered part of ATL if the minor’s parents or guardians, or any person who deposits money into the minor’s account, meet the criteria

Entry in Active Taxpayer List (ATL)

Taxpayers who delayed the filing of their Income Tax Return for the Tax Year 2018 can pay the “Surcharge for ATL” as defined in section 182(A) of the Income Tax Ordinance 2001 by selecting the “Miscellaneous” head under the Tax Payment Nature heading.

The late filer’s name will only become part of ATL after he or she has paid the surcharge.

Status of Active Taxpayers

There are three (3) ways to check whether a taxpayer is an active taxpayer:

Verification Through Online Portal

It is possible to confirm your active status as a taxpayer through the ATL Status Check.

Check Active Taxpayer Status by SMS

Individuals can check their Active Taxpayer status by SMS by following these steps:

You can send a CNIC by typing “ATL (space) 13-digits” to 9966. Send a text message to 9966 with “ATL (space) 7 digits National Tax Number (NTN)” to check whether AOP and Company are active taxpayers.

AJ&K Active Taxpayers can check their status via SMS by following these steps:

Enter AJKATL (space) CNIC (without dashes). The number is 9966. This code is NTN AJKATL (space) and contains 11 digits and no dashes. You can send it to 9966.

Check Active Taxpayer Status By Downloading ATL

ATL is also available from

Active Taxpayer List (Income Tax)

After amendments in the Income Tax Ordinance 2001 through Finance Act 2018, the Active Tax Payer’s List of AJK will be considered equivalent to the ATL (Income Tax).

Income Tax: Active Taxpayer Benefits

There are certain benefits to being a member of the ATL:

Neither profits nor cash withdrawals are subject to reduced tax deductions by banks at source
When registering and transferring motor vehicles, withholding tax is reduced (tax already deducted)
Purchase and sale of property taxed at a lower rate
Capital gains on securities sales are subject to a lower withholding tax rate
There will be a reduction in dividend tax charges
Prize bond winnings are subject to a lower rate of withholding tax
You can claim back withheld taxes that have been overpaid

Withholding Tax Rates

Applicable Withholding Tax Rates (Updated up to June 30, 2019)

Pay Income Tax

Paying your Income Tax dues requires logging into eFile.

If you are logged in to Iris, you can also log into eFile. In order to access the e-Payments tab, the person has to log into the eFile.

Income Tax: E-Payments

On the e-Payments tab, the individual will select Income Tax Annual Return from the Create Payment drop-down menu.

You will be taken to the Income Tax e-Payment page when you select the option. You will be able to create a payment slip (PSID) on this page

Choosing the correct tax year
Entering the tax amount
Choosing a payment method
The bottom of the page has a create button.

It is time to confirm the e-Payment. Your e-Payment slip will be successfully created. National Bank (NBP) / State Bank (SBP) branches accept e-Payment slips. From the dropdown list, select the nearest city to deposit your payment slip.

You can download the PSID on your computer by clicking on the print button. Please deposit the PSID at any branch of your choice within your city.

Payment Receipt Computerized

Once the tax due is paid, the CPR (Computerized Payment Receipt) is generated. Once the payment is deposited, Iris will reflect it within 24 hours.

It is the individual’s responsibility to pay all income taxes by the date designated by the IRS.

Income Tax Through Alternate Delivery Chanels (ADC)

For information on making your tax payment through Alternate Delivery Channels (ADC), such as ATMs and Internet Banking, please refer to the User Guide.

Payment Delay Penalty

There will be a penalty or default surcharge if tax is not paid by the due date. If you fail to pay your tax dues, you will be fined or imprisoned for a term not exceeding one year, or both.

Surcharge Payment: ATL

In the PSID, click on Tax Payment Nature “Misc” head to pay “Surcharge for ATL” as defined under section 182(A) of the Income Tax Ordinance 2001.

ATL will only include the name of the late filer after the surcharge has been paid.

Income Tax Return Tax Period

There is a specific tax year associated with an income tax return.

Tax years end on 30th June, which is the last day of the financial year, and are denoted by the calendar year in which it falls. The tax year 2017 for example begins on 1st July 2016 and ends on 30th June 2017.

An annual tax year includes a special tax year, which is a period of twelve months that corresponds to the normal tax year that the closing date of the special tax year falls within. The period between January 01, 2016, and December 31, 2016, is defined as the calendar year 2017 for tax purposes, and the period between October 01, 2016, and September 30, 2017, as the calendar year 2018.

Income Tax Refunds

An electronic filing of one’s income tax return is a requirement for claiming a refund. Refunds are not available for manual returns.

Your Iris Income Tax Return should clearly reflect the refund amount.

A separate application can be filed in Iris to claim the refund resulting from the Income Tax Return. Visit your local Regional Tax Office (RTO) to find out the status of your application.

It is also possible to claim a refund after submitting your Income Tax Return, but within two years of the date of assessment (date of assessment) or from the date the tax was paid.

Refunds Rights

Those who file their Tax Returns after the specified due date will not be eligible for a refund during the period during which they are not included in ATL. The Income Tax authorities will not be liable for compensation for delayed refunds during the period when the person does not appear on ATL, and such periods do not count toward the computation of additional payments for delayed refunds.

Right of Appeal

Tax appeals usually arises from disagreements between taxpayers and tax collectors (Inland Revenue Department) regarding the quantification of taxable income and tax liability thereon, as well as default surcharges and penalties.

It is the law that lays down a procedure for resolving such disagreements, which gives the taxpayer the right to appeal a decision to the Commissioner (appeals). If still not satisfied, the taxpayer has a further right to appeal to the Appellate Tribunal as well as the higher courts of the country.

Persons Eligible to Appeal

A person may appeal any order passed by a Commissioner/Officer Inland Revenue if they are dissatisfied with it.

An Individual is an individual himself; an Association of Persons (AOP) is any member or partner, and a company is its principal officer.

An individual under legal disability or a nonresident person’s “representative” in the case of a deceased individual, or the legal representatives of the deceased individual.

Making an Appeal: Requirements

Appeals must be made on the basis of income declared and the tax due.

Appeal Time Limit

An appeal against an assessment, penalty, or any other order must be filed within thirty (30) days of receipt of notice of demand.