Tax Deduction Certificate (Pakistan)

A Tax Deduction Certificate in Pakistan captures the information the relevant authority needs for the matter it concerns and creates a dated written record of what was submitted.

Section 164(1) of the Income Tax Ordinance 2001 specifically provides that a withholding agent must furnish a Tax Deduction Certificate to each payee from whom tax has been collected or deducted under the provisions of Chapter X. This certificate serves as evidence for the payee when filing their annual income tax return under Section 114 of the Income Tax Ordinance 2001, enabling the payee to claim credit for the tax already deducted against the total tax liability computed in the return. Without the Tax Deduction Certificate, the payee cannot prove that tax was deducted at source, making it difficult to claim the corresponding credit and potentially resulting in double taxation.

The Income Tax Ordinance 2001 imposes a thorough withholding tax regime across multiple transaction types. Under Section 149, every employer must deduct income tax from salary payments to employees at the applicable slab rates under Division I of Part I of the First Schedule of the Income Tax Ordinance 2001. Under Section 150, companies must deduct withholding tax from dividend payments to shareholders. Under Section 151, banks and financial institutions regulated by the State Bank of Pakistan (SBP) must deduct withholding tax from profit on debt (interest) paid to depositors. Under Section 153, prescribed persons making payments for goods, services, or contracts must deduct withholding tax at the rates specified in Division III of Part III of the First Schedule.

The withholding agent — whether a company registered with the Securities and Exchange Commission of Pakistan (SECP) under the Companies Act 2017, a bank regulated by the SBP, a government ministry or department, or any other prescribed person under Section 153(7) of the Income Tax Ordinance 2001 — is responsible for deducting the correct amount of tax, depositing it with FBR within the time prescribed under Rule 43 of the Income Tax Rules 2002 (generally within 7 days of deduction for companies), and issuing the Tax Deduction Certificate to the payee. Failure to deduct, failure to deposit, or failure to issue the certificate each attract separate penalties under Section 182 of the Income Tax Ordinance 2001.

The FBR's IRIS portal enables electronic filing of withholding statements — the Withholding Tax Statement required under Section 165 of the Income Tax Ordinance 2001 must be filed monthly by withholding agents. The electronically filed withholding statement creates a data trail that FBR cross-references with payees' income tax returns, enabling FBR to identify payees who fail to declare income on which tax was withheld, and withholding agents who fail to deposit deducted tax.

A Tax Deduction Certificate in Pakistan is required across employment, commercial, financial, and regulatory contexts where withholding tax has been deducted and the payee needs to document it for income tax return purposes.

A Tax Deduction Certificate is required by every salaried employee in Pakistan at the end of each tax year (30 June). Every employer — government departments, public sector enterprises, private companies, NGOs, and diplomatic missions — is obligated under Section 149 of the Income Tax Ordinance 2001 to provide a Tax Deduction Certificate showing the total salary paid, total income tax deducted from salary, and the net salary paid. The employee uses this certificate when filing their annual income tax return to claim credit for the salary tax deducted by the employer.

A Tax Deduction Certificate is needed by suppliers of goods, providers of services, and contractors who have received payments from prescribed persons under Section 153 of the Income Tax Ordinance 2001. Government departments, companies, banks, and other prescribed withholding agents deduct tax at source from all payments for goods (7% for ATL filers, 14% for non-ATL filers), services (7% or 10%), and contracts (7% or 14%) — the supplier or service provider needs the Tax Deduction Certificate to claim credit for this deducted tax in their income tax return.

A Tax Deduction Certificate is required by bank account holders who receive profit on savings accounts, term deposits, and National Savings Scheme instruments. Banks regulated by the State Bank of Pakistan (SBP) and the National Savings Centre (administered by the Ministry of Finance) deduct withholding tax under Section 151 of the Income Tax Ordinance 2001 from all profit payments. The certificate from the bank or the National Savings Centre enables the depositor to claim credit for this tax in their income tax return.

A Tax Deduction Certificate is needed by shareholders of companies who receive dividend payments. Under Section 150 of the Income Tax Ordinance 2001, every company paying dividends must deduct withholding tax at the rate of 15% (for filers) from dividend payments and provide a Tax Deduction Certificate to each shareholder. Shareholders listed with the Central Depository Company of Pakistan (CDC) receive their dividend tax deduction certificates through their broker or custodian.

A Tax Deduction Certificate is required by exporters and contractors who receive export proceeds through scheduled banks. Under Section 154 of the Income Tax Ordinance 2001, banks must collect advance tax from export receipts — exporters need the Tax Deduction Certificate from the bank to claim credit for this advance tax collection in their annual income tax return or to obtain a refund under Section 170 of the Income Tax Ordinance 2001.

A valid Tax Deduction Certificate in Pakistan under Section 164 of the Income Tax Ordinance 2001 and Rule 42 of the Income Tax Rules 2002 must contain the following essential elements to be accepted by FBR and claimable as a tax credit by the payee.

Withholding Agent Details: Full legal name of the withholding agent (employer, company, bank, or government entity), NTN of the withholding agent (mandatory for cross-referencing with FBR's IRIS system), registered address, and the withholding agent's SECP company registration number (for corporate withholding agents). The withholding agent's NTN links the certificate to the withholding statements filed under Section 165 of the Income Tax Ordinance 2001 on the IRIS portal.

Payee Details: Full legal name of the payee (recipient of income), the payee's NTN (where the payee holds an NTN), the payee's NADRA CNIC number (13-digit format: XXXXX-XXXXXXX-X), and the payee's address. Where the payee does not hold an NTN — such as a salaried employee who is a first-time filer — the CNIC is the primary identifier. FBR's IRIS system uses both the NTN and CNIC to match the Tax Deduction Certificate to the payee's income tax return.

Payment Details: A description of the income paid — salary, dividend, profit on debt, payment for goods, payment for services, contract payment, export proceeds, or other income category — and the provision of the Income Tax Ordinance 2001 under which tax was deducted (Section 149 for salary, Section 150 for dividends, Section 151 for profit on debt, Section 153 for goods/services/contracts, Section 154 for exports). The tax year and the period of deduction (monthly, quarterly, or annual) must be stated.

Gross Amount Paid: The total gross amount paid to the payee before deduction of income tax, stated in Pakistani Rupees (PKR). For salaried employees, this is the total salary including all taxable allowances and benefits but excluding exempt allowances specified in Part I of the Second Schedule of the Income Tax Ordinance 2001 (such as house rent allowance up to 45% of basic salary for government employees).

Tax Deducted: The total income tax deducted from the payment during the period covered by the certificate, stated in PKR. For salaried employees, this must reconcile with the monthly tax deducted as per the salary register. For other payments, this must match the amounts deposited with FBR as per the withholding tax challans (CPRs) and reported in the monthly withholding statement filed under Section 165 of the Income Tax Ordinance 2001.

Challan / CPR Reference: The Computerised Payment Receipt (CPR) numbers and dates of the bank challans evidencing payment of the deducted tax to FBR. These CPR references allow FBR's IRIS system to verify that the claimed tax credit corresponds to actual deposits made by the withholding agent. Tax Deduction Certificates backed by verifiable CPR references are processed faster by FBR when the payee claims the credit.

Authorised Signatory: The certificate must be signed by an authorised officer of the withholding agent — typically the Chief Financial Officer, Finance Manager, or HR Manager for employers; the Branch Manager or Operations Manager for banks — with the withholding agent's official stamp. Unsigned or unstamped Tax Deduction Certificates may be rejected by FBR during return processing.

Forms-legal.com provides this Tax Deduction Certificate (Pakistan) template to assist withholding agents in discharging their obligation under Section 164 of the Income Tax Ordinance 2001 and to assist payees in understanding the information they are entitled to receive. Withholding agents should also file the monthly withholding statement under Section 165 of the Income Tax Ordinance 2001 through the IRIS portal, as FBR cross-matches the data in withholding statements against Tax Deduction Certificates claimed by payees in their income tax returns. Tax practitioners registered with the Institute of Chartered Accountants of Pakistan (ICAP) can assist withholding agents with compliance under the withholding tax regime.