To the great relief of the business community, the Federal Board of Revenue (FBR) has clarified that cash deposits made by buyers into a seller’s bank account will now be treated as valid payments under the Income Tax Ordinance, 2001. According to reports, the clarification pertains to a newly added clause in Section 21 of the Ordinance.

 

The clause in question stated that 50 percent of business expenditures on the sale of goods exceeding Rs200,000 on a single invoice would be disallowed for tax purposes. Reports revealed that this disallowance was to be enforced if the buyer failed to make the payment through a formal banking channel.

 

Initially, reports hinted that transactions would be subject to the tax disallowance unless the buyer directly transferred the funds to the seller's account from their own bank account. This implied that cash sales and depositing cash into a seller's account for goods worth over Rs200,000 would result in the 50 percent disallowance rule.

 

However, the FBR has confirmed that deposits into the seller's bank account will be considered as a valid payment. As such, the disallowance will not be applied to such transactions.

 

As per the FBR, this would allow more businesses to transition and integrate into the formal economy, shifting away from cash transactions. The revenue watchdog reportedly acknowledged that cash deposits into the seller’s accounts will continue to remain a legitimate transaction method. 

 

The clarification by the FBR came after mounting pressure from business communities as businesses logged their frustrations against this law via protests in July 2025, as it resulted in an increase in their taxable income. As per recent reports, some members of the business community believed that the FBR was able to meet its revenue target for the first month of fiscal year (FY) 2025-26 at their expense.

 

The FRB reportedly surpassed its collection target for July 2025, by collecting Rs755 billion in revenues against the monthly target of Rs748 billion. Reports suggest that this was made possible by an improvement in indirect tax collection.

 

Data from reports indicates that the collection figure for the first month of FY 2025-26 was Rs96 billion higher compared to the corresponding period last year. This marks almost a 15 percent improvement in YoY revenue collections. If the FBR continues to generate revenues as it did in July 2025, it would help rubbish claims that the FBR met its revenue target because of the tax disallowance clause in the income tax ordinance.