LAHORE: The federal government is considering raising the threshold for disallowing expenses related to cash sales from Rs200,000 to Rs2.5 million per transaction, Business Recorder reported.
The amendment to Section 24 of the Income Tax Ordinance 2001, which currently prohibits the deduction of expenses for cash sales exceeding Rs200,000, has created significant concerns among the business community. The new provision, introduced in the Finance Act 2025, took effect on July 1, 2025.
To ease the implementation and protect revenue collection while promoting documentation, the government has proposed a phased approach to this law. Under the revised plan, the disallowance limit will gradually decrease over a three-year period.
In the first year, the limit will increase to Rs2.5 million per transaction. In the second year, the limit will be reduced to Rs1.5 million, and in the third year, it will be set at Rs500,000. At the same time, the percentage of disallowed expenditure will decrease from 50% to 20%, with further increases over the course of the three years.
This disallowance, as outlined in Section 24, specifically affects “Income from Business” under Section 18 of the Income Tax Ordinance 2001. The provision applies only to business income and does not impact individuals or entities earning income from other sources under the Finance Act 2025.
