Bank depositors pay Rs66 billion tax on profits during FY21

KARACHI: The accountholders have paid Rs66 billion as income tax on profits derived on their deposits during the fiscal year 2020/21, official sources said on Saturday.

The tax payment in the fiscal year 2020/21 is 10 per cent higher, compared with the Rs60 billion paid in the preceding fiscal year.

The sources at the Regional Tax Office (RTO) Karachi, which has the jurisdiction over the collection of income tax on profit from the banking deposits, attributed the record deposits of the banking system to the Covid-related restrictions.

The deposits of the banking system reached a record high of Rs19.795 billion by June 30, 2021. The sources said over the last years, deposits of the banking system were increasing as the people had preferred risk-free investment.

The Federal Board of Revenue (FBR) collects the tax on profit on banking deposits under Section 151 of the Income Tax Ordinance, 2001 at the rate of 15 per cent. The banks withholding the amount at the time of payment of profit to their depositors.

The tax rate increased 100 per cent to 300 per cent in case the profit recipient is not on the Active Taxpayers List.

The sources said the collection from the deposits would further increase, as the changes have been made to Section 151 related to profit on debt.

The explanations on the Finance Act, 2021 issued by the FBR, said the scope of separate block taxation on interest income had been revised.

“Previously, the interest income up to Rs36 million in case of individual and Association of Persons (AOPs) was chargeable to tax at the rates ranging from 15 per cent to 20 per cent under [the] final tax regime.”

The FBR said by virtue of the new amendments: the interest income up to Rs5 million would be taxed at the rate of 15 per cent under the final tax regime.

If the interest income is more than 5 million, it would be taxed under the normal tax regime; while a uniform rate of 15 per cent withholding tax has been introduced on interest income under Section 151 of the ordinance.