Banks introduce a withholding tax when withdrawing cash

 by web desk

Banks introduce a withholding tax when withdrawing cash

Karachi, July 14, 2023 – In line with the recently implemented amendment to the Income Tax Ordinance 2001 through the Finance Act 2023, banks have started deducting withholding tax on cash withdrawals exceeding Rs 50,000 in a single day.

Banking sources have confirmed that the deduction is effective from July 1, 2023. However, this advance tax deduction applies only to individuals who are not on the Active Taxpayer List (ATL) for the 2022 tax year.

By virtue of the new amendment, a new section 231AB has been added to the Income Tax Ordinance, 2001. According to this provision, every banking company is required to deduct an advance adjustable tax of 0.6 percent from the total amount of cash. withdrawals exceeding fifty thousand rupees per day from individuals who are not on the list of active taxpayers.

To clarify, the said fifty thousand rupees represents the cumulative cash withdrawals made in a single day.

Notably, the cash withdrawal provision was originally removed through the Finance Bill 2021. However, it was reintroduced as a means of encouraging individuals to disclose their income and assets by filing annual tax returns.

Banks will deduct withholding tax on cash withdrawals on behalf of the Federal Board of Revenue (FBR). In the fiscal year 2020-21, the FBR collected an amount of Rs 15.14 billion through this tax, which was in line with the collection in the previous fiscal year.

The aim of introducing this withholding tax is to encourage greater tax compliance among individuals and to discourage the circulation of undeclared income.