Tax Law: What is a Withholding Tax? How do you get a Refund? - FBR Pakistan

What is a Withholding Tax?

Not only do you pay tax on the annual income you earn, but you pay even more in the form of sales tax and withholding tax.

According to the budget of the new financial year 2019-20, now those who have an annual income of more than Rs 6 lakh. The general impression is that those whose incomes are less than that do not fall into the tax net. Still, technically, they will not only pay tax on the annual income earned but in the case of sales tax and withholding tax, they, Despite their low income they will be paying regular taxes and there will be no record of them.

Amir Ali works as a driver in a house in Lahore and his annual income is around Rs 3 lakh. Amir Ali do not come into the tax net but they deposit thousands of rupees monthly tax in the government treasury. This is a tax withholding tax that Amir and many low-income people pay for electricity, phone and gas bills and school fees and by purchasing mobile cards.

Amir Ali does not even know that he could withdraw whatever tax he was paying from the government if his income would have been enough to get him into the tax net.

Similarly, tax filers coming into the tax net are paying it in some way but they do not know whether it is a tax that they can withdraw from the tax department or withholding tax. You can also adjust the income tax deducted by your parents.

It all seems a bit difficult to understand, but we explain what this withholding tax is called and how it can be withdrawn from the government.

Many Tax Consultants said that withholding tax only applies to those who have income.

Normal Tax

According to the Tax Consultants, there are two aspects of income tax, a normal tax in which the withholding tax is adjusted. If you have paid Withholding tax higher then actual then apply for refund. If you have paid withholding tax lesser then actual then the citizen has to pay the remaining tax out of his pocket.

Final Tax

The second is the final tax, which imposes a tax on the total receipt rather than the income. Suppose one person sells goods for one crore rupees, then the government says that instead of the income you make on one crore of selling goods, You should pay a tax of 4.5% on selling price one crore. This is called the final tax.

Similarly, if a person imports, he has to pay a final tax of 6% and he is not charged any further tax.

There is another form of withholding tax which includes a phone bill (which is over one thousand rupees), a mobile card load, electricity bill residential or commercial shop or factory, tax deducted on children's school fees or Withholding taxes payable upon purchase of a plot are adjustable taxes.

There are ways to adjust the withholding tax. When tax filer submit their tax return at the end of the year, he have the option of adjusting their withholding tax in their income.

For example, if a person is employed in a good company, that company adjusts all of his employees' withholding taxes. Employee have to submit a request to his organization that I have paid the tax, So don't deduct more tax from my salary. Good companies adjust their employees' tax and thus by this way, organizations not only facilitate their employees but also save time for the government.

There is another way to adjust the withholding tax. Suppose a businessman deducts a tax of Rs 1 lakh on income while submitting his tax return, he has paid a tax of Rs 10,000 on his commercial meter of the electricity bill. Suppose they had a tax deduction of Rs 5,000 on a telephone bill. He also bought a plot on which Rs 35,000 tax paid. Now his adjusted tax is Rs 50,000. The total tax he had to pay was one lakh rupees, so now he would submit his income tax return and tell them that he has already paid 50,000 tax and that the money should be adjusted and he will pay the tax of the remaining 50,000 rupees. 

The Income Tax Department cannot object to this. But if there is a case where the person does not adjust the tax and paid the full tax, then the tax department is allowed to refund the surplus money that a tax payer paid.

How do you get a refund?

There is a refund option on the FBR website that has to be applied. Refund application can be submitted by the same person who is a filer; the person who is not a filer cannot ask for a withholding tax refund.

The way to apply is to first submit an income tax return of the relevant year, in which a refund of the over-taxed tax is claimed and can be applied within two years of the corresponding tax year. ۔ For example, refunds for 2017 can be requested by 2019.

 The FBR website also states that the person who submitted his tax return electronically can only claim a refund.

According to an Tax Consultant says that if the tax department does not provide a refund despite receiving the application, the law will require the department to pay a fine of up to 18% on the refunded amount.

He further said, that "there are many people in the country who are paying taxes from all sides but they are unaware about this information. They don't know about their rights that they can get them back withholding tax  or they can adjust in their income tax return. That is why people do not ask for their withholding tax refunds while submitting a tax return.

Tax Consultant said that the number of tax filers in the country at present is only 13 lakhs.

He further said: 'The tax deducted when small children buying food from vendors, etc., or load credit to the mobile phone, the state is deducting a tax. Taking taxes from people who are not a part of the tax net is the same as extortion. This is not fair and should be aware to the public about their rights.