Who Is Income Tax Withholding Agent

As per Income Tax Ordinance 2001, every prescribed person, is Income Tax Withholding person, further ordinance describes prescribed person as under:-

WHO ARE PRESCRIBED PERSONS

The following terms are defined in sub-section (7) of section 153 are as under: “PRESCRIBED PERSON” means:

  1. Federal Government
  2. A company, including society
  3. An association of persons constituted by or under law.
  4. A non-profit organization including NGO & welfare associations.
  5. A foreign Consultant and Contractor A
  6. Consortium or Joint Venture
  7. An exporter or an Export House for the purpose of Sub-Section (2)
  8. An association of persons having turnover of Rs.50 million or above  in tax year 2007 or in any  subsequent tax year or
  9. An individual having turnover of Rs.50 million or above in the tax year 2009 or in any subsequent year.
  10. A person registered in sales tax act 1990.

Section 153(1) of the Income Tax Ordinance, 2001 provides that every prescribed person making a payment in full or part including a payment by way of advance to a resident person or permanent establishment in Pakistan of a non-resident person:

  1. for sale of goods;
  2. for rendering of or providing of services;
  3. or the execution of a contract, other than a contract for the sale of goods or rendering of or providing of services
  4. interior decorator and lawyers otherwise than as an employee, where payment, to a single supplier, in a year, exceeds Rs. 10,000.

“SERVICES” includes the services of accountant, architect, dentist, doctors, engineers,

“SALE OF GOODS” includes a Sale of goods for cash or on credit, whether under written contract or not. Where payment, to a single supplier, in a year, exceeds Rs. 25,000.

There are two exceptions in general laws, that is payment of salaries and payment for rent, every business person has to withhold income tax before making these to payments.

“Payment of Salary” Tax deductions from employees salary as per section 149 of Income Tax Ordinance 2001, every person has to deduct income tax from salary of his employee, as per salary slabs, which is updated in every budget.

“Payment for rents” every person registered under income tax ordinance 2001, has to deduct income tax from rental payments, as per rates prescribed under section 155 of the income tax ordinance 2001.

Therefore in a way every person is income tax withholding person, subject to certain conditions and limitations as prescribed in tax laws, person making a payment in full or part including a payment by way of advance to a resident person or permanent establishment in Pakistan of a non-resident person for rendering of or providing of services, against goods supplied, against salaries, rentals for business or payment against any contract shall at the time of making the payment, deduct tax from the gross amount payable at the rate specified in Division IV of the Part III of the First Schedule. [SUB-SECTION (2) OF SECTION 153]. “A withholding agent shall, at the time of making the payment, deduct income tax from the gross amount payable (including sale tax) at the rate specified in division iii of part iii of the first schedule”.

Payment of tax in Government Treasury:

After deduction of income tax withholding tax, the person is required to submit tax into government’s treasury within 7 days from deduction. The challan for submission of withholding income tax is prepared from e.fbr portal and that is called PSID, this PSID is presented in bank for payment and a CRP is generated by FBR system, this CPR is a proof of payment, for all legal purposes. when a certificate of with held tax is requested by suppliers and employees, it can be automatically generated by FBR portal.

Filling Of Income Tax Statements U/s 149 & 165

The withholding agent is required to file a statement of withholding tax, deducted and submitted from employees salaries, which is called the statement under section 149 of the Income Tax Ordinance, 2001, and income tax withholding from payments to supplier, which is called statement under section 165 of income tax ordinance 2001.