In an extraordinary development, the Federal Board of Revenue (FBR) has made it mandatory for the overseas Pakistanis to submit ‘exemption certificates’ to the banks for availing exemption from income tax on ‘profit on debt’ received from remittances deposited in their local bank accounts in Pakistan.
An income tax circular number 6 of 2020 issued by the FBR here on Wednesday said:
In order to incentivize remittances by Pakistani citizens residing abroad but holding Rupee Account with a Schedule Bank in Pakistan, profit on debt to the extent of deposit made exclusively from foreign exchange is exempt from tax under Clause 79 of Part-I of Second Schedule to Income Tax Ordinance, 2001.
Sub-section 2 of section 159 of Income Tax Ordinance, 2001 requires withholding agents to deduct full amount of tax in case the taxpayer fails to produce certificate for exemption from tax under section 159(1) of Income Tax Ordinance, 2001. In case the taxpayer produces it, then bank being withholding agent, will comply with the certificate.
To qualify for relief under this clause, the account holder is required to be Pakistan citizens living abroad and profit on debt may be in no way attributable to local deposit in same account, FBR circular added.
It is worth mentioning that the income tax exemption is available to any profit on debt derived from a rupee account held with a scheduled bank in Pakistan by a citizen of Pakistan residing abroad, where the deposits in the said account are made exclusively from foreign exchange remitted into the said account.
