Understanding the Income Tax Basics

Before you register or file your return, we suggest you learn the basic terms. Understanding these concepts makes the process easier and helps you finish the task correctly.

Taxable Income

Taxable Income is your total earnings minus allowed donations and specific deductible allowances.

Total Income

Total Income is the sum of all money you earned that is subject to tax under every category.

Head of Income

Under the Income Tax Ordinance, 2001, the law divides all income into these five categories:

• Salary
• Income from Property
• Income from Business or Profession
• Capital Gains
• Income from Other Sources

Resident

An individual is a Resident for a Tax Year if they:

• Stay in Pakistan for 183 days or more during the year;
• Stay for 120 days in the current year and spent 365 days or more in Pakistan over the previous four years;
• Work as a government official posted abroad during that Tax Year.

An Association of Persons is a Resident if it manages its business from Pakistan at any time during that year. A Company is a Resident if it was formed under Pakistani law, manages its affairs from within Pakistan, or is a local government body.

Non-Resident

Any individual, company, or group that does not meet the “Resident” rules for a specific year is a Non-Resident.

Source of Income in Pakistan

Section 101 of the law defines Pakistani income. Common sources include:

• Salaries for work performed in Pakistan;
• Salaries paid by any level of the Pakistani government, regardless of work location;
• Dividends from a local company;
• Profits on debt paid by a resident;
• Rent from property located in Pakistan;
• Pensions paid by a resident or a local branch of a foreign firm.

Foreign Source of Income

This includes any money earned that does not come from a source within Pakistan.

Person

A “Person” can be an individual, a company, a group of people, or a government organization.

Company

A company includes firms defined by the Companies Act, 2017, bodies formed under local laws, modarabas, and foreign-incorporated businesses. Since 2013, the law also includes:

• Co-operative or finance societies;
• Non-profit organizations;
• Trusts or groups established by any current law.
• Any foreign group the Board labels as a company, plus local governments and small companies.

Association of Persons

This category includes partnerships, Hindu undivided families, and groups formed under foreign law. It does not include formal companies.

Tax Year

A normal tax year lasts twelve months and ends on June 30th. We name it after the calendar year in which it ends. For example, July 1, 2024, to June 30, 2025, is Tax Year 2025.

Special Tax Year

A special tax year is any twelve-month period that ends on a different date. We name it based on the normal tax year it aligns with. For example, a year ending in December 2024 is called Tax Year 2025.

Register for Income Tax

To file your return, you must first register with the Federal Board of Revenue (FBR). Individuals can register online using the Iris Portal. However, the main officer of a company or an AOP must visit a Regional Tax Office (RTO) in person.

Taxpayer Registration Basics

Some important facts about Registration

You are officially registered once you enroll on the Iris portal. This gives you a National Tax Number (NTN) and a password. For individuals, your 13-digit CNIC is your NTN. Companies and AOPs receive a 7-digit NTN after enrolling. You must use these details to access Iris, which is the only way to file an online return.

Requirements Before Registration

Individuals should have the following ready:

• CNIC or Passport number and a working cell phone;
• An active email address and home address;
• For businesses: the name, address, and type of work;
• For employees: the employer’s name and NTN;
• For landlords: the property address.

Company and AOP officers need:

• Business name, address, and phone number;
• Principal officer’s contact details and business activity;
• Company type (like Private Limited or NGO) and registration date;
• SECP certificate or partnership deeds;
• Names, IDs, and share percentages of all major directors or partners.

Non-Resident companies with a local branch must provide:

• Branch address and SECP registration number;
• An appointment letter for their authorized representative;
• Contact details for that representative.

Non-Resident companies without a local branch need:

• Foreign business address and details of directors;
• Appointment letter for their local representative;
• Incorporation documents from their home country.

Registration Process

Online Registration

This is only for individuals. Before starting, have a computer and scanner ready. You need a phone SIM and email registered in your name. You must upload PDF copies of your bank account certificate, proof of address (ownership or lease), and a recent utility bill. Use the Iris Portal to complete this.

Registration at Facilitation Counters of Tax Houses

All individuals, AOPs, and companies can register here for Income Tax and Sales Tax.

For Individuals: Go to a Tax House with your original CNIC, SIM, email, bank certificate, and business address proof.

For AOPs: A partner must go in person with the partnership deed, firm registration, CNICs of all members, and an authorization letter signed by all partners. You also need a dedicated email for the AOP and a bank certificate in the AOP’s name.

For Companies: The principal officer must visit with the company’s incorporation certificate, director IDs, and a signed authorization letter. Bring a bank certificate in the company’s name and proof of business premises.

Modification of Income Tax Registration

You can update your registration if your information changes or if you find a mistake. You must file a modification form in Iris. A Commissioner will review your request and may ask for more details. If they refuse, you can appeal to the Chief Commissioner within 30 days.

Cancellation of Income Tax Registration

The Commissioner can cancel your registration in writing if they confirm you have no unpaid taxes and your records support the request.

Change In Particulars of Registration

If your name or address changes, tell the RTO within 14 days using the required form. If you want to change to an “industrial” business category, the RTO will first verify your factory and utility connections.

Change Your Personal Details

You can update your info in three ways:

1. Iris Portal: Log in to change your phone, email, address, or bank details.
2. FBR Helpline: Call or email to update your name, birthday, or gender.
3. Visit the RTO: You must go in person to close a business, change your tax office, or update your ID numbers. Bring all supporting documents with you.

Filing the Income Tax Return

Logging Into IRIS

Use the Iris portal to file online. If it is your first time, register first. If you have an NTN but no password, use the “E-enrollment” link to get access.

Password for IRIS Login

Enter your NTN and password to log in. FBR provides these credentials when you enroll.

Reset Password

If you forget your password, click “Forgot Password” on the login screen. The system will send codes to your email and phone so you can set a new one.

Change Password for IRIS

Once logged in, click “Change Password” at the top right to update your security.

Completion of Income Tax Returns

To finish your filing, you must complete the Return of Income and the Wealth Statement (which lists your assets and debts). FBR offers guides and videos to help you. You are successful when the forms move to the “Completed Task” folder.

Reconciliation of Wealth Statement

Your wealth statement will only submit if the math is perfect. Your wealth must change by exactly the amount your income exceeded your spending. If it does not balance, the system will block your submission.

Salaried Person – Income Tax Return

Employees use form 114(I). This simple form is for people who get more than half of their money from a salary.

Change PIN for IRIS

You can update your security PIN at any time by clicking “Change Pin” in the Iris menu.

Completing Income Tax Returns

If you make a mistake, you can fix a filed return within five years. You must apply for permission in Iris first. Once approved, you can submit the revised version.

Revising Wealth Statement

You can update your wealth statement in Iris at any time, as long as the tax office hasn’t already sent you a formal audit notice.

Filing Income Tax Return After Deadline

If you miss the date, the process is the same. Follow the steps mentioned above to complete your late filing.

Record Keeping For Income Tax Return

If you earn taxable income, you must keep your records for six years.

Persons Obligated to File Income Tax Return

You must file if you earn above a certain amount or if you belong to specific groups, such as property or car owners.

Credits, Rebates and Exemptions For Income Tax Return

You can only enjoy tax discounts and exemptions if you are an “Active Taxpayer.”

Privacy of Personal Information

If you don’t file despite earning enough, you face penalties and legal action. The FBR keeps your data private and only shows it to tax officials.

Income Tax Return Forms

If you prefer to file on paper, you can download the 2018 or 2019 forms here.

Withholding Tax Forms

We provide forms for property sales, salary deductions, and monthly tax collections. You can also find documents for tax deposits and payment receipts.

SOPs / Documents

Find the standard rules for tax automation and monitoring here.

Active Taxpayer List (ATL)

The ATL is the official record of people who filed their returns for the previous year.

ATL Update

A new list comes out every March 1st and lasts for one year. For example, the 2024 list is valid until February 2025. FBR updates this list every Monday on its website.

Entrance within Active Taxpayer List (ATL)

To be on the list, you must file the correct return for that year. Since 2018, you generally have to file by the deadline to appear on the list automatically. However, 2019 rules allow you to join later if you pay a small fee.

New companies join the list automatically if they started after June 30th. Joint accounts and minor accounts also qualify if the owners or parents are active taxpayers.

Entry in Active Taxpayer List (ATL)

If you filed your 2018 return late, pay the “Misc” surcharge in the payment system. Your name will appear on the ATL once you pay this fee.

Check Active Taxpayer Status

You can verify your status in three ways:

1. Online Portal: Use the FBR website.
2. By SMS:
   • Individuals: Text “ATL (space) CNIC” to 9966.
   • Companies: Text “ATL (space) NTN” to 9966.
   • AJ&K: Use “AJKATL” and your ID number.
3. Download: Get the full ATL file from the FBR site.

Active Taxpayer Benefits

Being on the ATL saves you money through:

• Lower taxes on bank profits and cash withdrawals.
• Cheaper car registration and transfers.
• Lower taxes when buying or selling property and stocks.
• Smaller tax bills for dividends and prize bond winnings.
• The right to claim back overpaid taxes.

Pay Income Tax

To pay what you owe, log into eFile using your Iris credentials and go to the e-Payments tab.

E-Payments

Create a payment slip (PSID) by choosing the tax year and the amount. You can pay this at any NBP or SBP branch. You can also pay through ATMs or online banking. Once you pay, the system generates a receipt (CPR) within 24 hours. Always pay on or before the due date.

Penalty for Late Payment

If you don’t pay on time, you face fines and extra charges. It is a crime that can lead to a fine or even a year in jail.

Tax Period For Income Tax Return

Returns cover a twelve-month financial year ending June 30th. For example, Tax Year 2024 covers July 2023 to June 2024. Special years also cover twelve months but end on different dates.

Income Tax Refund

You can only get a refund if you file online. The refund must show clearly in your Iris return. You must then file a separate refund application. You have two years from the filing date to do this. However, if you are not on the ATL, the government will not pay you interest for any delays in your refund.

Right of Appeal

If you and the tax department disagree about your taxes or penalties, you have the right to appeal. You start with the Commissioner (Appeals), then move to the Appellate Tribunal and the higher courts.

Persons Eligible to Appeal

Any unhappy taxpayer, whether an individual, a partner, or a company officer, can appeal. Heirs can appeal for someone who has passed away. To start, you must first pay the tax you admitted you owed. You have 30 days to file after receiving a demand notice or penalty order. Contact SARDAR KHAN & CO for more details. We have a professional team who assists you professionally.