What is Withholding Tax?
Withholding tax is income tax deducted at source by the payer, such as a company paying a supplier, and deposited with FBR on the recipient's behalf.
Updated
Meaning
English
Withholding tax is income tax deducted at source by the payer, such as a company paying a supplier, and deposited with FBR on the recipient's behalf.
Roman Urdu
Withholding tax woh income tax hai jo paise dene wala, jaise koi company supplier ko payment karte waqt, pehle hi kaat kar FBR me jama karwata hai.
Also called WHT, tax deducted at source, advance tax, tax deduction.
Example
A stationery supplier bills a company 200,000 rupees. The company pays less than the full amount, deducts withholding tax under the Income Tax Ordinance, deposits it with FBR and gives the supplier a certificate, which the supplier uses when filing its return.
How it works
The Income Tax Ordinance, 2001 makes many payers act as withholding agents: companies and other prescribed persons paying for goods, services and contracts (section 153), banks on cash withdrawals and profit, and distributors and manufacturers on sales to retailers, among others. Rates differ by transaction, and persons not on the Active Taxpayer List generally face higher rates.
For a shop, withholding appears in two ways: tax deducted from payments it receives from corporate buyers, and advance tax collected on some of its own purchases or bills. Keep every deduction certificate, since the tax withheld can be adjusted against the final tax liability when the return is filed, unless it is a final tax.
In Nafaa
Nafaa records payments received and paid; withholding tax certificates and returns are handled by the business or its tax adviser.
Official source
FBR: Withholding tax rates and the Income Tax Ordinance, 2001 on FBR: Acts, Rules and Ordinances. Rates, thresholds and dates change with Finance Acts and S.R.O.s; check the current position with the authority or a tax adviser.
Related terms
- Active Taxpayer List (ATL)
The Active Taxpayer List is FBR's published list of persons who have filed their income tax return (or are otherwise active), which decides whether lower filer tax rates apply to them.
- NTN (National Tax Number)
The National Tax Number is a taxpayer's identification number with FBR, obtained through FBR's IRIS portal.
- Accounts Receivable
Accounts receivable is the money customers owe a business for goods or services already supplied on credit.