Business Income Declaration in Pakistan

Day 10: Business Income Declaration & Tax Deductions in Pakistan

Declaring business income is a crucial part of tax compliance in Pakistan. Whether you’re a freelancer, small business owner, or running a large enterprise, it is essential to understand the legal requirements, deductions available, and how to maintain proper records to avoid penalties and benefit from lawful tax savings.

Understanding Business Income in Pakistan

Under Pakistan’s Income Tax Ordinance, 2001, business income includes any income derived from trade, commerce, manufacturing, or any profit earned through the provision of services. The tax obligation applies whether the business is a sole proprietorship, partnership, or company.

Business Registration with FBR

Before filing taxes, it’s mandatory to register your business with the Federal Board of Revenue (FBR). Here’s how:

Obtain an NTN (National Tax Number) for your business.
Register on the FBR IRIS portal as a business entity.
Choose your business type (sole proprietor, AOP, or company).
Update the business profile on IRIS, mentioning the nature of business, address, contact details, etc.

Invoicing & Record Keeping

Accurate invoicing and proper record maintenance are legally required and help support your declared income and deductions. Maintain the following:

Sales invoices with serial numbers
Receipts and bank transaction records
Inventory and purchase bills
Daily expense ledger and accounts

All records must be retained for at least six years in case of audit or inquiry.

Allowable Business Expenses

The Income Tax Ordinance allows various deductions from your gross business income, reducing your taxable income. Common deductions include:

Salaries paid to employees
Utility bills and rent for business premises
Office supplies and equipment depreciation
Advertising and marketing expenses
Professional fees (e.g., legal, audit)
Travel and conveyance expenses for business

Ensure these are supported with documentary proof such as receipts, contracts, and payment evidence.

Tax Filing for Business Income

When filing your annual tax return:

Use Form 114(1) on FBR IRIS.
Declare total income from all business sources.
Declare any withholding taxes already deducted at source.
Apply for adjustment of advance tax, if any.
Attach financial statements if your annual turnover exceeds PKR 10 million.

Penalties for Non-Compliance

Failing to declare business income, maintain proper records, or submit timely returns can result in:

Penalties ranging from PKR 5,000 to PKR 50,000
Additional tax assessments by FBR
Ineligibility for appearing on the Active Taxpayer List (ATL)

Tax Filing & Consultancy Services by MTF & Co. at One Web One Hub

MTF & Co., in collaboration with One Web One Hub, offers professional tax preparation and filing services for business owners across Pakistan. Whether you’re starting a new business or running an existing one, we help with: