In a significant clarification, the Federal Board of Revenue (FBR) has confirmed that cash deposits made directly into a seller’s bank account by a buyer will now be treated as valid payments under the Income Tax Ordinance, 2001.
The announcement comes in the context of a new clause—Section 21(s)—which had previously created confusion among businesses regarding acceptable payment methods for transactions of Rs200,000 or more on a single invoice.
Under the updated tax law, payments not made via formal banking channels or digital means can lead to disallowance of 50% of related business expenditure for tax purposes. However, FBR has now clarified that cash directly deposited into the seller’s bank account qualifies as a transaction through the banking system and therefore will not be disallowed.
The tax authority stated that this clarification is aimed at facilitating businesses during the transition to a more formal and documented economy, without penalizing legitimate practices still in use by many.
The FBR emphasized that the move seeks to strike a balance between tax compliance and business ease, especially for traders and SMEs who rely on cash deposit methods.
