KARACHI: The Federal Board of Revenue (FBR) has introduced progressive tax regime for profit on debt in case of non-corporate taxpayers.
The rationale for introducing progressive tax rates is that prior to Finance Act, 2015, non-corporate taxpayers earning very high income from profit on debt were subjected to 10percent final tax whereas the maximum slab rate for non-corporate tax payers earning taxable incomes was 30percent or 35percent. In order to reduce the gap, progressive tax rates have been introduced.
Through Finance Act, 2015, there is no change in taxation for corporate taxpayers. For non-corporate taxpayers, tax deductible under section 151 is adjustable against tax liability, which is to be computed through a newly introduced charging section 7B.
Prior to the Finance Act, 2015, tax deductible on profit on debt under section 151 was final tax for non-corporate taxpayers. However, the tax deductible at a higher rate in the case of non-filers was adjustable. For companies, tax deductible under section 151 was adjustable against total tax liability after inclusion of income from profit on debt in total income, which is subject to corporate tax rate as provided in Division II of Part I of the First Schedule.
Gross amount received from profit on debt is now chargeable to tax as per three progressive tax slabs, the rates of which are given in Division IIIA of Part I of the First Schedule. The rate of tax is 10percent where the gross amount of profit on debt is up to Rs.25 million. For amounts exceeding Rs.25 million and up to 50 million, the tax liability is Rs 2.5 million plus 12.5percent of the amount exceeding Rs 25 million. Where the gross amount exceeds Rs.50 million, the tax liability is 5.625 million plus 15percent of the amount exceeding Rs.50 million.
The withholding agents shall continue to deduct tax at the rates given in Division IA of Part III of the First Schedule which is 10percent of the yield or profit for filers. For non-filers the rate of tax has been enhanced from 15percent to 17.5percent of the yield or profit. Hence, while the withholding agents shall deduct tax at the rates given in Division IA of Part III of the First Schedule, the tax liability shall be computed by the non-corporate taxpayer as per section 7B read with Division IIIA of Part I of the First Schedule.
The balance liability or the difference between tax deducted and tax liability as per section 7B shall be paid at the time of filing of return under sub-section (1) of section 137 of the ITO, 2001 after adjusting tax paid under section 147.