Withholding Tax on Profit on Debt
In Pakistan, withholding tax on profit on debt is applicable to interest income earned from various types of debt instruments, including bonds, debentures, and other securities. The profit on the debt has the same connotation as interest or markup. The profit on debt in Pakistan under Section 151 of the Income Tax Ordinance, 2001 refers to the:
The tax rate varies depending on the type of debt instrument and the status of the recipient as given below:
Status of a Sukuk-Holder | Tax Rate |
Company | 25% |
Individual and Association of Persons If the return on sukuk is more than one million | 12.5% |
Individual and Association of persons if the return on investment is less than one million. | 10% |
*Sukuk is an Islamic financial instrument, similar to a bond. It complies with the principles of Islamic Sharia. It is a substitute for the traditional Western interest-paying bond structure.
The tax is usually withheld at the source of payment, which means that the payer of the interest income is responsible for deducting the tax from the payment and remitting it to the tax authorities.
For example, banks debit the withholding tax to the saving account of a client while crediting the bank profit and credit the tax withheld to the Federal Board of Revenue.
The withholding tax on profit on debt under the Section 151 of the Income Tax Ordinance, 2001 shall be the minimum tax, except where:-
It is important to note that tax laws and rates can change over time, so it is advisable to consult with a tax professional or refer to the latest tax regulations for accurate and up-to-date information on withholding tax on profit on debt in Pakistan.
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