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FBR allows monthly salary up to Rs25,000 per employee paid in cash as business expense

FBR allows monthly salary up to Rs25,000 per employee paid in cash as business expense

ISLAMABAD: Federal Board of Revenue (FBR) has allowed monthly salary up to Rs25,000 per employee paid in cash as business expense after amendment made to Income Tax Ordinance, 2001.

The FBR on Thursday issued Income Tax Circular No. 03 to explain changes made to Income Tax Ordinance, 2001 through Finance Act, 2020.

The FBR said that section 21(m) of the Ordinance previously disallowed expenditure on account of monthly salary against business income if it was paid in excess of threshold of Rs 15,000 per month per employee and payment was made otherwise than through crossed cheque or direct transfer of funds to the employees bank account.

The FBR said that the Finance Act, 2020, had increased this threshold to Rs25,000 per month per employee for payment of salary otherwise than through crossed cheque or direct transfer of funds to the employees bank account.

The FBR further explained that Section 21(l) of the Ordinance does not allow deduction against business income if claim of a business expenditure exceeds Rs50,000/- under a single account head in aggregate and payment is made otherwise than through crossed banking instrument, online transfer of payment or credit card from business account of the taxpayer.

However, this inadmissibility of deduction did not apply if a single transaction on account of such business expenditure remained at Rs. 10,000/- or below.

“Finance Act, 2020 has increased these thresholds from Rs. 50,000 to Rs. 250,000/- and from Rs.10,000/- to 25,000/-respectively,” the FBR added.

However, the FBR said that expenditure on account of utility bills is allowed against business income under section 20 of the Ordinance.

“A new clause (p) has been added to Section 21 to disallow it if it is incurred in excess of certain limits and is in violation of certain conditions as may be prescribed by the FBR,” It added.