Digital mode of payment to be applicable from December 1

KARACHI: The digital mode for payment by corporate entities will be applicable from next week, i.e., December 1, 2021, after an extension of one month granted by the Federal Board of Revenue (FBR), official sources said on Thursday.

The government through the Tax Laws (Third Amendment) Ordinance, 2021 introduced the provisions in the Income Tax Ordinance, 2001, under which the corporate entities are required to make payment through digital mode.

The provision was to apply from November 1, 2021. However, the FBR through a Circular No 09 of 2021/22 extended the application up to November 30, 2021.

The FBR explained the application of digital mode of payment, saying that to improve documentation, a new clause (la) was inserted in Section 21 of the Income Tax Ordinance, 2021.

Previously, the payments under a single head account exceeding Rs250,000, made by any taxpayer were required to be made through cross-cheque or cross-banking instruments, including digital payments.

Through the latest amendment, the payment made by a company under a single head of account exceeding Rs250,000 other than by digital means from the business bank account of the taxpayer would not be admissible as deductions.

However, certain expenditures on account of utility bills, freight charges, travel fare, and payment of taxes and fines would continue to be admissible even though paid in cash or via traditional banking instruments, the FBR added.

The purpose behind the legislative enactment is the mode of transactions by the corporate sector in the first phase. However, owing to the lack of total digital readiness, the corporate taxpayers are allowed to switch to this mode by November 1, 2021, which is now extended to December 1, 2021.

The FBR also explained the payment of salary through the digital mode. The revenue board said that currently any salary paid or payable, exceeding Rs25,000/month has to be made through cross-cheque or direct transfer of funds to the employee’s bank account under clause (m) of Section 21 of the Income Tax Ordinance, 2021.

“In order to bring this provision in conformity with the newly inserted clause (la), in case of payments against the salary in excess of Rs25,000/month, the mode of digital payment has been added to the available modes of payments.

Recently, some reports suggested that a standing committee on finance had rejected the implementation of the digital mode of payment. However, the FBR officials said in case of rejection, the legislators would be required to amend the law that was made through the Tax Laws (Third Amendment) Ordinance, 2021.

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