Cash Receipts Above Rs. 200,000 to Face 50% Expense Disallowance
Published by: S&B Advisors and Consultants (Private) Limited
Author: Ms. Saima Morkas
Date: July 8, 2025
In a significant move aimed at promoting transparency and reducing the undocumented economy, the Finance Act 2025 has introduced a stringent clause under the Income Tax Ordinance, 2001, that businesses must pay close attention to.
🧾 New Clause Inserted in Section 21 – What Has Changed?
A new clause (s) has been added to Section 21 of the Income Tax Ordinance, 2001. It states:
“Fifty percent of the expenditure claimed in respect of sale where the taxpayer received payment exceeding two hundred thousand rupees otherwise than through a banking channel or digital means against a single invoice containing one or more than one transactions of supply of goods or provisions of services shall be disallowed.”
🔍 What This Means for Businesses
If your business receives payment exceeding Rs. 200,000 in cash (i.e., not through a bank account, cheque, or digital channel) against one invoice, then 50% of the expenditure claimed against that invoice will be disallowed as a deductible business expense.
This applies even if the invoice covers multiple transactions or line items — the focus is on the invoice value and mode of payment.
📌 Example Scenario
If your business issues an invoice worth Rs. 300,000 and receives the full amount in cash, then:
Your total business expenditure recorded in relation to that transaction will be scrutinized.
50% of that expense will not be allowed as a deduction when calculating taxable income.
✅ Key Takeaways
- Always ensure payments above Rs. 200,000 are routed through banking channels or digital means.
- Structure transactions and invoicing to comply with these new conditions.
- Educate your accounting and finance teams to avoid unexpected disallowances during audit or assessment.
🎯 Why This Change?
This policy is part of the FBR’s broader effort to:
- Curb cash-based and undocumented transactions.
- Promote traceable, digital transactions in the economy.
- Ensure greater tax compliance and documentation of business operations.
📝 Need Help with Tax Compliance?
At S&B Advisors and Consultants, we specialize in helping businesses navigate evolving tax regulations. Our tax experts can:
- Review your invoicing and payment processes.
- Advise on restructuring practices for compliance.
- Represent you in case of assessments or disputes.
📞 Contact us today for a strategic compliance check and personalized advisory.
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