FBR Clarifies Cash Deposits as 1st Valid Payments Under Tax Law

FBR Clarifies Cash Deposits

The Federal Board of Revenue (FBR) has officially clarified that cash deposits made directly by buyers into a seller’s bank account will be considered valid payments under the Income Tax Ordinance, 2001.1

This clarification refers to a newly added clause (s) in Section 21 of the Ordinance, which previously raised concerns among businesses. According to the clause, if a seller receives a payment of Rs. 200,000 or more against a single invoice that is not routed through a proper banking channel or digital means, 50% of the corresponding business expense would be disallowed for tax calculation purposes.

However, the FBR has now confirmed that direct cash deposits into a seller’s bank account by the buyer will not trigger disallowance under this provision. Such transactions will be treated as valid payments through the banking system, even though they are cash-based.

The clarification seeks to strike a balance between encouraging the use of formal banking channels and recognizing existing transactional practices that are still legally sound and documented.

The FBR emphasized that this policy is aimed at strengthening the formal economy, without penalizing taxpayers who conduct legitimate business using bank cash deposits. This move has been welcomed by many small and medium enterprises (SMEs) and retailers who frequently deal in cash due to business norms.