Seventh Schedule: Seventh Schedule

1[THE SEVENTH SCHEDULE] (See section 100A) RULES FOR THE COMPUTATION OF THE PROFITS AND GAINS OF A BANKING COMPANY AND TAX PAYABLE THEREON 1 The Seventh Schedule substituted by the Finance Act, 2007. The substituted “The Seventh Schedule” read as follows: “THE SEVENTH SCHEDULE EXPORTED GOODS [See Division IV of Part III of First Schedule] PART I [Specified goods manufactured in Pakistan] S. No. Description Description (1) (2) (3) 1. A[ ] 2. Engineering goods, including electrical goods 3. B[ ] 4. Jewellery, pharmaceuticals, C[ ], durries, horticultural products 5. Ceramic D[tiles] and wares 6. Cutlery 7. Engineering goods manufactured in Pakistan as specified in the Engineering Goods (Control) Order, 1983 8. Wooden furniture and wooden doors and windows 9. Goods specified under Chapters, Heading and Sub-Heading Nos. of the Pakistan Custom Tariff E[ ] 10. Vegetables, fresh fruit and cut flowers F[11. Processed poultry meat] AEarlier the words “Leather and textile made ups” omitted by the Finance Act, 2005. B Earlier the words , figures, brackets and comma “Goods specified under heading No.90.18of the Fifth Schedule to the Customs Act, 1969 (IV of 1969) omitted by the Finance Act, 2005. C Earlier the words “Sports goods, toilet linen including terry towels” omitted by the Finance Act, 2005. D Earlier substituted the word “tiples” by the Finance Act, 2003. E Earlier omitted by the Finance Act, 2005. F Earlier added by the Finance Act, 2002. PART II [Goods manufactured in Pakistan] S. Description Description No. (1) (2) (3) 1. Export of goods manufactured in Pakistan subject to other provisions of A[this] Schedule B[1A (1) Leather and textile made ups (2) Goods specified under heading No.90.18 of the First Schedule to the Customs Act, 1969 (IV of 1969). (3) Sports goods, toilet linen including terry towels. (4) Goods specified under Chapters, Heading and Sub- Heading Nos. of The Pakistan Customs Tariff. (i) 42.05 Other articles of leather (ii) 57.01 Hand-knitted carpets and rugs (iii) 61.01 Men and boys overcoats, jackets knitted or crocheted 733 Seventh Schedule ___________ __________________________ (iv) 61.02 Women and girls overcoats, jackets knitted or crocheted (v) 61.03 Men and boys suits, jackets, trousers, shirts knitted or crocheted (vi) 61.05 Men and boys shirts knitted or crocheted (vii) 61.06 Women and girls blouses, shirts knitted or crocheted (viii) 61.09 T-shirts knitted or crocheted (ix) 61.12 Tracksuits, swimwear knitted or crocheted (x) 63.01, 2000, 3000, 4000 Blankets, wool, cotton and MMF. (xi) 63.02 Bed linen, table linen and kitchen linen] 2. (i) Refined/treated salt (ii) Ground barytes (iii) Granite blocks and slabs (iv) Heat insulating bricks (v) Magnesite refractory 3. Sale in Pakistan of goods manufactured in Pakistan against an international tender, where the contract under which such sale is made is approved by the Commissioner A Earlier inserted by the Finance Act, 2003. B Earlier inserted by the Finance Act, 2005. PART III [Goods not covered by Part I A[, II or IV] II] S. No. Description 1. All other goods not covered under Part I B[, ] Part II C[and Part IV] of this Schedule 2. The following goods or class of goods produced or manufactured in Pakistan, namely: - D[ ] (ii) rice (iii) rice bran (iv) wheat bran (v) lamb skin E[ ] F[2A. Following types of goods not covered by other provisions of this Schedule, namely:- (i) leather and articles thereof (ii) textile and textile articles (iii) carpets (iv) surgical goods 3. Such other goods as may be notified by the Central Board of Revenue A Earlier the word “or” substituted by the Finance Act, 2005. B Earlier the word “and” substituted by the Finance Act, 2005. C Earlier inserted by the Finance Act, 2005. D Earlier the figure and word “(i) raw cotton” omitted by the Finance Act, 2005. E Earlier the bracket, figures and words “(vi) cotton yarn” omitted by the Finance Act, 2005. F Inserted by the Finance Act, 2005. A[PART IV [goods not covered by Part I, II and III] S.No. Description (i) raw cotton (ii) Cotton yarn (iii) such other goods as may be notified by the Central Board of Revenue]” A Earlier added by the Finance Act, 2005. 732 Seventh Schedule ___________ __________________________ 1. 1[Subject to the provisions of Chapter VII and VIII, income], profits and gains of a banking company shall be taken to be the balance of the income from all sources before tax, disclosed in the annual accounts required to be furnished to the State Bank of Pakistan subject to the following provisions, namely:— (a) Deduction shall be allowed in respect of depreciation, initial allowance and amortization under sections 22, 23 and 24 provided that accounting depreciation, initial allowance or amortization deduction shall be added to the income. No allowance or deduction under this rule shall be admissible on assets given on finance lease. 2[(aa) Where a taxpayer incurs expenditure on leasehold improvements in respect of leased or rented property, the amount so incurred, as reflected in the audited accounts, shall be capitalized and amortized at the rate of ten percent (10%) per annum: (i) amortization under this clause shall commence from the date on which the leasehold improvements are first put to use by the taxpayer; and (ii) in the event of termination of the lease prior to the completion of the amortization period, the unamortized balance of the capitalized leasehold improvements shall be allowed as a deduction in the tax year in which such termination occurs, after setting off any proceeds received from the disposal or transfer of such leasehold improvements.] (b) Section 21, sub-section (8) of section 22 and Part III of Chapter IV shall, mutatis mutandis, for computation of a banking company apply. 3[(ba) Notwithstanding anything contained in any applicable financial reporting standard, including International Financial Reporting Standard (IFRS) 16, the depreciation on right-of-use assets and the finance cost relating thereto shall not be admissible as a deduction. In lieu thereof, the actual rent expense incurred during the tax year shall be allowed as an expense, subject to the condition that the banking company furnishes a certificate from its external auditor to the effect that such rent expense has been actually incurred during the tax year: 1 The word “Income” substituted by the Finance Act, 2018 2 Clause (aa) inserted by the Finance Act, 2025. 3 Clause (ba) inserted by the Finance Act, 2025. 733 Seventh Schedule ___________ __________________________ Provided that, in view of the implementation of IFRS 16 with effect from the tax year 2020, where a banking company has claimed excess deductions on account of right-of-use asset depreciation and related finance costs in prior tax years, the differential amount, being the excess of such deductions over the actual rent expense incurred, shall be offered to tax in the tax year 2025; Provided further that, where the deduction claimed in respect of right-of-use asset depreciation and related finance cost in the prior tax years is less than the actual rent expense incurred, the differential amount shall be allowed as an admissible expense in the tax year 2025: Explanation. — The adjustments specified in the foregoing provisos shall be duly certified by the external auditor of the banking company.] 1[(c) Provisions for advances and off balance sheet items shall be allowed upto a maximum of 1% of total advances; 2[and provisions for advances and off-balance sheet items shall be allowed at 5% of total advances for consumers and small and medium enterprises (SMEs) (as defined under the State Bank Prudential Regulations)] provided a certificate from the external auditor is furnished by the banking company to the effect that such provisions are based upon and are in line with the Prudential Regulations. Provisioning in excess of 1% 3[of total advances for a banking company and 5% of total advances for consumers and small and medium enterprises (SMEs)] would be allowed to be carried over to succeeding years: 4[Provided that if provisioning is less than 1% of advances, for a banking company then actual provisioning for the year shall be allowed:] 5[Provided further that if provisioning is less than 5% of advances for consumers and small and medium enterprises (SMEs) then actual provisioning for the year shall be allowed and this provisioning shall be allowable from the first day of July, 2010] 6[: 1 Substituted by the Finance Act, 2009. The substituted sub-rule (c) read as follows: “(c) Provisions for classified advances and off balance sheet items shall be allowed in accordance with the provisions of sections 29 and 29A.” 2 Inserted by the Finance Act, 2010. 3 Proviso substituted by the Finance Act, 2011. The substituted proviso read as follows: “Provided that if provisioning is less than 1% of the advances, then actual provisioning for the year shall be allowed.” 4 Inserted by the Finance Act, 2011. 5 Inserted by the Finance Act, 2011. 6 Full stop substituted and new proviso inserted by the Finance Act, 2025. 734 Seventh Schedule ___________ __________________________ Provided also that the certificate from the external auditor shall be complete in all respects and shall on prescribed format containing following — (i) the amount of provision, category-wise, allowed in accordance with the Prudential Regulations issued by the State Bank of Pakistan; (ii) the amount of provision, category-wise, recognized under the International Financial Reporting Standard (IFRS) 9; (iii) the amount of provision, category-wise, as disclosed in the annual accounts of the banking company; and (iv) the amount of provision, category-wise, which is eligible for deduction under clauses (c), (d), (da), (e) and (f) of Rule 1 of this Schedule, and the certificate shall specifically identify and certify such amount, confirming its consistency with the applicable regulatory framework, the Seventh Schedule, and financial reporting standards. Explanation – For removal of the doubt, it is further clarified that in case of non-filing of certificate or incomplete filing of certificate at the time of filing of return, the provisions under rule 1(c) shall not be admissible and requirements specified herein, shall apply in respect of tax year 2025 and onwards.] 1[Explanation.- For removal of doubt, it is clarified that- (i) provision for advance and off balance sheet items allowed under this clause, at the rate of 1 percent or 5 percent, as the case may be, shall be exclusive of reversals of such provisions; (ii) reversal of “bad debts” classified as “doubtful” or “loss” are taxable as the respective provisions have been allowed under this clause; 2[ ] (iii) with effect from tax year 2020 and onward; reversal of “bad debts” classified as “loss” are taxable as the respective provisions have been allowed under this clause 3[; and] 1 Explanation added through Finance Act, 2019. 2 The word “and” omitted by the Finance Act, 2025. 3 Full stop substituted by the Finance Act, 2025. 735 Seventh Schedule ___________ __________________________ 1[(iv) only such provisions in respect of non-performing advances as are classified as “loss”, in accordance with and based upon the Prudential Regulations issued by the State Bank of Pakistan shall be admissible as an expense under clause (c) of Rule 1 of this Schedule; and (v) any provision including general provision made otherwise than in accordance with the aforesaid Prudential Regulations shall not be admissible as a deduction in computing the taxable income of a banking company under this Schedule.] 2[ ] 3[(d) The amount of “bad debts” classified as “substandard” or “doubtful” under the Prudential Regulations issued by the State Bank of Pakistan or provisions for advances, off-balance sheet items or any other financial asset classified in stage I, II or III as performing, under- performing or non-performing under any applicable accounting standard including IFRS 09 shall not be allowed as expense: Provided that only “bad debts” classified as “loss” pertaining to non-performing assets under the Prudential Regulations issued by the State Bank of Pakistan shall be allowed as expense.] 4[(da) Provisions or Expected Credit loss for Advances and off balance sheet items or any other financial asset existing before or after the 1st day of January, 2024 under IFRS 09 shall not be allowed as an expense or deduction.] 5[(e) Where any addition made under sub-rule (d) is reclassified by the taxpayer under the Prudential Regulations issued by the SBP, 6[ ] 1 Serial numbers (iv) and (v) inserted by the Finance Act, 2025. 2 Inserted by the Finance Act, 2009. Earlier sub-rule (d) was omitted by the Finance Act, 2008 which read as follows: “(d) The amount claimed as expense, on account of “irrecoverable debt” classified under the Prudential Regulations issued by the State Bank of Pakistan as “substandard”, shall not be allowed.” 3 sub-rule (d) substituted by the Finance Act, 2024. The substituted sub-rule read as follows: “[(d) The amount of “bad debts” classified as “sub-standard” 3[“or doubtful”] under the Prudential Regulations issued by the State Bank of Pakistan shall not be allowed as expense.]” 4 Sub-rule (da) inserted by the Finance Act, 2024. 5 Inserted by the Finance Act, 2009. Earlier sub-rule (e) was omitted by the Finance Act, 2008 which read as follows: “(e) Where any addition made under paragraph (d) is reclassified by the taxpayer as ‘doubtful’ or ‘loss’, under the Prudential Regulations issued by the State Bank of Pakistan, a deduction shall be allowed in computing the income for that tax year.” 6 Words “as ‘doubtful’ or” omitted though Finance Act, 2019. 736 Seventh Schedule ___________ __________________________ ‘loss’, provision of sub-rule (c) shall mutatis mutandis apply in computing the provision for that tax year.] 1[(f) Where any addition made under sub-rule (d) is reclassified by the taxpayer in a subsequent year as ‘recoverable’, a deduction shall be allowed in computing the income for that tax year.] 2[(fa) the auditor‘s certificate, as required under clause (c), shall be on the following format, namely:- [On the Letterhead of the External Auditor-Chartered Accountant Firm] CERTIFICATE UNDER RULE 1(C) OF THE SEVENTH SCHEDULE TO THE INCOME TAX ORDINANCE, 2001 FOR TAX YEAR ____________ To: The Commissioner Inland Revenue, Zone-, Federal Board of Revenue, I, the undersigned statutory auditor of [Name of Banking Company], having conducted the audit of the annual financial statements for the year ended [insert date], in accordance with the applicable auditing standards and the requirements of the Prudential Regulations issued by the State Bank of Pakistan (SBP), the International Financial Reporting Standard (IFRS) 9, and the Seventh Schedule to the Income Tax Ordinance, 2001, hereby certify the following: Table-1 Category wise Gross Provisions "In Rupees" Eligible for Allowed Recognized Disclosed Deduction under SBP Particulars under IFRS in Annual under Rule Prudential 9: Accounts 1(c), 1(d) & Regulations: 1(e) Substandard (xxxx) (xxxx) (xxxx) Doubtful (xxxx) (xxxx) (xxxx) Loss (xxxx) (xxxx) (xxxx) General Provision (xxxx) (xxxx) (xxxx) 1 Inserted by the Finance Act, 2009. Earlier sub-rule (f) was omitted by the Finance Act, 2008 which read as follows: “(f) Where any addition made under paragraph (d) is reclassified by the taxpayer in a subsequent year as ‘recoverable’, a deduction shall be allowed in computing the income for that tax year.” 2 Clause (fa) inserted by the Finance Act, 2025. 737 Seventh Schedule ___________ __________________________ Specific (xxxx) (xxxx) Stage 1 (xxxx) (xxxx) (xxxx) Stage 2 (xxxx) (xxxx) (xxxx) Stage 3 (xxxx) (xxxx) (xxxx) Others (if any) (xxxx) (xxxx) (xxxx) (xxxx) Total (xxxx) (xxxx) (xxxx) (xxxx) Table-2 Category wise Reversal against Provisions "In Rupees" Taxable Under SBP Disclosed Recognized under Rule Particulars Prudential in Annual under IFRS 9: 1(c), 1(d) & Regulations: Accounts: 1(e): Substandard (xxxx) (xxxx) (xxxx) Doubtful (xxxx) (xxxx) (xxxx) Loss (xxxx) (xxxx) (xxxx) General Provision (xxxx) (xxxx) (xxxx) Specific (xxxx) (xxxx) Stage 1 (xxxx) (xxxx) (xxxx) Stage 2 (xxxx) (xxxx) (xxxx) Stage 3 (xxxx) (xxxx) (xxxx) Others (if any) (xxxx) (xxxx) (xxxx) (xxxx) Total (xxxx) (xxxx) (xxxx) (xxxx) We further certify that the above amounts have been derived from and are consistent with: (i) The relevant provisions of the Prudential Regulations of SBP; (ii) IFRS 9 and applicable financial reporting frameworks; (iii) The disclosures made in the audited financial statements of the banking company; and (iv) The eligibility criteria specified in clause (c), (d) and (e) of Rule 1 of the Seventh Schedule to the Income Tax Ordinance, 2001. This certificate is issued specifically for the purpose of compliance with the proviso to Rule 1(c) of the Seventh Schedule to the Income Tax Ordinance, 2001, as applicable for the tax year 2025 and onwards. For and on behalf of [Name of Audit Firm and Signing Partner] Chartered Accountants] 738 Seventh Schedule ___________ __________________________ (g) 1[Subject to the aforesaid clauses of rule 1 of this Schedule] Adjustment made in the annual accounts, on account of 2[ 3[the application of International Financial Reporting Standard IFRS-09 (Financial Instruments),] or policy or any guidelines or instructions of State Bank of Pakistan 4[in respect of IFRS-09] ] shall be excluded in arriving at taxable income. 5[Provided that the provisions of this clause, to the extent of the amendments made herein, shall apply in respect of the tax year 2025 and onwards.] 6[Explanation.─ For removal of doubt, it is clarified that nothing in this clause shall be so construed as to allow a notional loss, or charge to tax any notional gain on any investment under any regulation or instruction unless all the events that determine such gain or loss have occurred and the gain or loss can be determined with reasonable accuracy.] (h) An adjustment shall be made for exclusions from income on account of paragraph (g) for determining the cost of related item in the financial statement in the year of disposal of such item or asset or the discharge of the liability, as the case may be. 7[Explanation.- For removal of doubt, it is clarified that nothing contained in this Schedule shall be so construed as to restrict power of Commissioner, while conducting audit of the income tax affairs under section 177, to call for record or such other information and documents as he may deem appropriate in order to examine accounts and records to conduct enquiry into expenditure, income, assets and liabilities of a banking company and all provisions of this Ordinance shall be applicable accordingly.] 2. (i) Where a deduction is allowed for any expenditure (other than on account of charge for irrecoverable debt) in the manner referred to in rule 1 and the liability or a part of the liability to which the deduction relates is not paid within three years of 1 Expression inserted by the Finance Act, 2025. 2 Expression “application of international accounting standards 39 and 40” substituted by the Finance Act, 2024. 3 Expression “any applicable accounting standard” substituted by the Finance Act, 2025. 4 Expression inserted by the Finance Act, 2025. 5 Proviso inserted by the Finance Act, 2025. 6 Added by the Finance Act, 2017 7 Explanation added through Finance Act, 2019. 739 Seventh Schedule ___________ __________________________ the end of the tax year in which the deduction was allowed, the unpaid amount of the liability shall be chargeable to tax under the head “Income from Business” in the first tax year following the end of three years. (ii) Where an unpaid liability is chargeable to tax as a result of the application of sub-rule (i) and such liability or a part thereof is subsequently paid, a deduction shall be allowed for the amount paid in the tax year in which the payment is made. (iii) Loss on sale of shares of listed companies, disposed of within one year of the date of acquisition, shall be adjustable against business income of the tax year. Where such loss is not fully set off against business income during the tax year, it shall be carried forward to the following tax year and set off against capital gain only. No loss shall be carried forward for more than six years immediately succeeding the tax year for which the loss was first computed. 3. Treatment for shariah compliant banking.— (1) Any special treatment for ‘Shariah Compliant Banking’ approved by the State Bank of Pakistan shall not be provided for any reduction or addition to income and tax liability for the said ‘Shariah Compliant Banking’ as computed in the manner laid down in this schedule. (2) A statement, certified by the auditors of the bank, shall be attached to the return of income to disclose the comparative position of transaction as per Islamic mode of financing and as per normal accounting principles. Adjustment to the income of the company on this account shall be made according to the accounting income for purpose of this schedule. 1[3A. Notwithstanding any other provision of this Ordinance, where any assets are transferred by an Authorized Dealer, as a consequence of a Diversified Payment Rights transaction, to a Special Purpose Vehicle, it shall be treated as a financing transaction irrespective of the method of accounting adopted by the Authorized Dealer. Explanation.— For the purpose of this clause, Diversified Payment Rights, Special Purpose Vehicle and Authorized Dealer shall mean the ‘Diversified Payment Rights’, ‘Special Purpose Vehicle’ and ‘Authorized 1 Rule 3A added by the Finance Act, 2024. 740 Seventh Schedule ___________ __________________________ Dealer’, respectively, in each case, as referred in the State Bank of Pakistan‘s Circular(s) or Regulations on Diversified Payment Rights.] 4. Head office expenditure.— (1) In case of foreign banks head office expenditure shall be allowed as deduction as per the following formula, namely:— Head office expenditure = (A/B) XC Where— A. is the gross receipts of permanent establishment in Pakistan; B. is the world gross receipts; and C. is the total Head Office expenditure. (2) The head office expenditure shall have the meaning as given in sub-sections (3) and (4) of section 105. (3) The head office expenditure shall only be allowed if it is charged in the books of accounts of the permanent establishment and a certificate from external auditors is provided to the effect that the claim of such expenditure: (i) has been made in accordance with the provision of this rule; and (ii) is reasonable in relation to operation of the permanent establishment in Pakistan. 5. Advance tax.— (1) The banking company shall be required to pay advance tax for the year under section 147 in twelve 1[ ] installments payable by 15th of every month. Other provisions of section 147 2[ ] shall apply as such. 3[(1A) A banking company required to make payment of advance tax in accordance with sub-rule (1), shall estimate the tax payable by it for the relevant Tax Year, at any time before the installment payable on 15th June, of the relevant year is due. In case the tax payable is likely to be more than the amount it is required to pay under sub-rule (1), the banking company shall furnish to the Commissioner an estimate of the amount of tax payable by it 1 The word “equal” omitted by the Finance Act, 2018. 2 The expression “except sub section (4A) and (6)” omitted by the Finance Act, 2018. 3 Inserted by S.R.O. 561(I)/2012, dated 29.05.2012. 741 Seventh Schedule ___________ __________________________ and thereafter pay in the installment due on 15th June the difference, if any, of fifty per cent of such estimate and advance tax already paid upto 15th June, of the relevant tax year. The remaining fifty per cent of the estimate shall be paid after 15th June in six equal installments payable by 15th of each succeeding month of the relevant tax year.] (2) Provisions of withholding tax under this Ordinance shall not apply to a banking company as a recipient of the amount on which tax is deductible. 6. Tax on income computed—Income computed under this Schedule shall be chargeable to tax under the head “Income from Business” and tax payable thereon shall be computed at the rate applicable in Division II of Part I of the First Schedule. 1[ ] 2[ ] 3[ ] 4[ ] 5[ ] 6[ ] 1 The expression omitted by the Finance Act, 2015. The omitted expression read as follows:- “The net income from “Dividend” and net income from “Capital Gains on sale of shares of listed companies” shall be taxed at the rate of ten 1[and twelve and a half, respectively:” 2 First proviso omitted by the Finance Act, 2015. The omitted proviso read as follows:- “Provided that where the shares of listed companies are disposed of within one year of the date of acquisition, the gain shall be taxed at the rate provided in Division II of Part I of the First Schedule:” 3 Second proviso omitted by the Finance Act, 2015. The omitted proviso read as follows:- “Provided further that the “Dividend” received by a banking company from its asset management company shall be taxed at the rate of 20%:” 4 Third proviso omitted by the Finance Act, 2015. The omitted proviso read as follows:- “Provided also that the dividend received from Money Market Funds and Income Funds shall be taxed at the rate of 25% for tax year 2013onwards.” 5 Rule (6A) omitted by the Finance Act, 2015. The omitted rule (6A) read as follows:- “6A. For the purpose of rule 6, net income from dividend shall be computed according to the following formula, namely:- (A/C) × B Where- A is the total amount of expenditure as per this Schedule; B is the gross amount of dividend received; and C is the gross amount of receipts including dividend.” 6 Rule (6B) omitted by the Finance Act, 2015. The omitted rule (6B) read as follows:- 742 Seventh Schedule ___________ __________________________ 1[6C. Enhanced rate of tax on taxable income from Federal Government securities.- (1) The taxable income arising from additional income earned from additional investment in Federal Government securities for the tax years 2020 and 2[2021], shall be taxed at the rate of 37.5% instead of the rate provided in Division II of Part I of the First Schedule. (2) A banking company shall furnish a certificate from external auditor along with accounts while e-filing return of Income certifying the amount of the money invested in Federal Government securities in preceding tax year, additional investments made for the tax year and mark-up income earned from the additional investments for the tax year. (3) Notwithstanding anything contained in this Ordinance, the Commissioner may require the banking company to furnish details of the investments in Federal Government securities to determine the applicability of the enhanced rate of tax. (4) “Additional income earned” means mark-up income earned from additional investment in Federal Government securities by the bank for the tax year. (5) “Additional investments” means average investment made in Federal Government securities by the bank during the tax year, in addition to the average investments held during the tax year 2019. (6) The taxable income arising from additional investment under sub- rule (1) shall be determined according to the following formula, namely:- Table income subject to enhanced rate of tax = A x B/C Where – A. is taxable income of the banking company; B. is mark up income earned from the additional investment for the tax year; and “6B. For the purpose of rule 6, net income from capital gains shall be computed according to the following formula, namely: (A/C) × B Where- A is the total amount of expenditure as per this Schedule; B is the gross amount of capital gains; and C is the gross amount of receipts including capital gains.” 1 New rule (6C) inserted through Finance Act, 2019. 2 The word “onwards” substituted by the Finance Act, 2021. 743 Seventh Schedule ___________ __________________________ C. is the total of the mark-up income and non-make-up income of the banking company as per accounts.] 1[ ] 2[(6A) For tax year 3[2023], the taxable income attributable to investment in the Federal Government securities shall be taxed at the rate of— (i) 55% instead of rate provided in Division II of Part I of the First schedule if the gross advances to deposit ratio as on last day of the tax year is upto 40%; (ii) 49% instead of rate provided in Division II of Part I of the First schedule if the gross advances to deposit ratio as on last day of the tax year exceeds 40% but does not exceed 50%; and (i) at the rates provided in Division II of Part I of the First schedule if gross advances to deposit ratio as on last day of the tax year exceeds 50%. 4[Explanation-I].- For the removal of doubt it is clarified that the tax rate under this sub-rule is applicable to total income attributable to total investment in Federal Government securities. 5[Explanation-2.– For removal of doubt, it is clarified that the term "gross advances and deposit" referred to in this sub-rule for the purpose of computing gross advances to deposit ratio shall be the amount of “gross advances and deposit” at the end of the accounting period and as disclosed in the annual audited accounts: 1 Sub-rules (6A) inserted by the Finance Act, 2021. 2 Sub-rules (6A) substituted by the Finance Act, 2022. The substituted sub-rule read as follows: “(6A) For tax year 2022 onwards, the taxable income attributable to investment in the Federal Government securities shall be taxed at the rate of— (i) 40% instead of rate provided in Division II of Part I of the First schedule if the assets to deposit ratio as on last day of the tax year is upto 40%; (ii) 37.5% instead of rate provided in Division II of Part I of the First schedule if the assets to deposit ratio as on last day of the tax year exceeds 40% but does not exceed 50%; and (iii) at the rates provided in Division II of Part I of the First schedule if assets to deposit ratio as on last day of the tax year exceeds 50%.” 3 The expression “2022 and onwards” substituted by The Income Tax (Amendment) Act, 2025 (Act No. XIII of 2025). 4 The existing Explanation numbered by The Income Tax (Amendment) Act, 2025 (Act No. XIII of 2025). 5 The Expression-2 and proviso added by The Income Tax (Amendment) Act, 2025 (Act No. XIII of 2025). 744 Seventh Schedule ___________ __________________________ Provided that from tax year 2025 and onwards profits and gains of a banking company shall be subjected to tax rates under Division II of Part I to the First Schedule and nothing contained in this sub- rule shall apply to compute part or whole of the tax liability of a banking company.] 1[ ] 2[7A. The provisions of section 113 shall apply to banking companies as they apply to any other resident company.] 3[(7B) From tax year 2015 and onwards, income from Dividend and income from Capital Gains shall be taxed at the rate specified in Division II of Part I of First Schedule. (7C) For tax year 4[years 2015 5[ ] 6[and onwards] ] the provisions of section 4B shall apply to banking companies and shall be taxed at the rate specified in Division IIA of Part I of First Schedule 7[:] ] 8[Provided that brought forward losses, if any, shall be excluded from income computed under this Schedule for the purpose of section 4B of this Ordinance.] 9[(7CA) The provisions of section 4C shall apply to the taxpayers under this schedule and shall be taxed at the rates specified in Division IIB of Part I of the First Schedule from tax year 10[2023] onwards.] 11[Explanation. — For removal of doubt it is clarified that the expression “tax year 2023 onwards”, means that provisions of section 4C are applicable for the tax year 2023 and for all subsequent tax years.] 1 Rule 7 omitted by the Finance Act, 2008. The omitted rule 7 read as follows: “7. The provisions of section 113 shall apply to banking companies as they apply to any other resident company.” 2 Inserted by the Finance Act, 2009. 3 Sub-rules (7B) and (7C) inserted by the Finance Act, 2010. 4 The expression “year 2015, 2016 and 2017” substituted by the Finance Act, 2018. 5 30th The figure “2020” substituted by “2021” through Finance Act, 2020 dated June, 2020 6 The expression “to 2021” substituted by the Finance Act, 2021. Earlier this expression was substituted through Tax Laws (Amendment) Ordinance, 2021. 7 Full stop substituted by “colon” though Finance Act, 2019. 8 New proviso added through Finance Act, 2019. 9 Rule (7CA) inserted by the Finance Act, 2022. 10 The figure “2022” substituted by the Finance Act, 2023. 11 Explanation added by the Finance Act, 2024. 745 Seventh Schedule ___________ __________________________ 1[(7CB) The provisions of section 99D shall apply to the taxpayers under this Schedule.] 2[7D. Reduced rate of tax on additional advances for micro, small and medium enterprises.- (1) The taxable income 3[ ] arising from additional advances to micro, small and medium enterprises, for the tax years 2020 to 2023, shall be taxed at the rate of 20% instead of the rate provided in Division II of Part I of the First Schedule- (2) A banking company shall furnish a certificate from external auditor along with accounts while e-filing return of Income certifying the amount of such advances made in preceding lax year, additional advance made for the tax year and net mark-up earned from such additional advances for the tax year. (3) Notwithstanding anything contained in this Ordinance, the Commissioner may require the banking company to furnish details of the advances to micro, small and medium enterprises to determine the applicability of the reduced rate of tax. (4) For the purposes of this rule, the term ''micro, small and medium enterprises" shall have the same meaning as provided in Prudential Regulations issued by the State Bank of Pakistan. (5) “Additional advances" means any average advances disbursed in addition to average amount of such advances made in such sector by the bank for the tax year. (6) The taxable income arising from additional advances under sub-rule (1) shall be determined according to the following formula, namely:- Taxable income subject to reduced rate of tax = A x B/C Where- A. is taxable income of the banking company; B is not mark up income earned from such additional advances for the tax year as declared in the annual accounts; and C is total of the net mark-up and non mark-up income of the banking company as per accounts. 7E. Reduced rate of tax on additional advances for low cost housing.- (l) The taxable income arising from additional advances for low cost housing, for the tax 1 Rule (7CB) added by the Finance Act, 2023. 2 Sub-rule (7D, 7E & 7F) inserted by through Finance Supplementary (Second Amendment) Act, 2019 3 Words “interest income” omitted through Finance Act, 2019. 746 Seventh Schedule ___________ __________________________ years 2020 to 2023, shall be taxed at the rate of 20% instead of the rate provided in Division II of Part I of the First Schedule1[: Provided that the taxable income arising from additional advances to Naya Pakistan Housing and Development Authority for low cost housing schemes shall be taxed at the rate of 10%.] (2) A banking company shall furnish a certificate from external auditor along with accounts while e-filing return of income certifying the amount of such advances made in preceding tax year, additional advance made for the tax year and net mark-up earned from such additional advances for the tax year. (3) Notwithstanding anything contained in this Ordinance, the Commissioner may require the banking company to furnish details of the advances made for low cost housing to determine the applicability of the reduced rate of tax. (4) For the purposes of this rule, the term "low cost housing" shall have the same meaning as provided in Prudential Regulations issued by the Stare Bark of Pakistan. (5) "Additional advances" means any average advances disbursed in addition to average amount of such advances made in such sector by the bank for the tax year 2019. (6) The taxable income arising from additional advances under sub rule.(1) shall be determined according to the following formula. namely:- Taxable income subject to reduced rate of tax = A x B/C Where- A. is taxable income of the banking company; B. is net mark-up income earned from such additional advances for the tax year as declared in the annual accounts; and C. is total of the net mark-up and non mark-up income of the banking company as per accounts. 7F. Reduced rate of tax on additional advances as Farm Credit.-- (1) The taxable income arising from additional advances for Farm Credit in Pakistan for the tax years 2020 to 2023, shall be taxed at the rate of 20% instead of the rate provided in Division II of Part 1 of the First Schedule. 1 30th Full stop substituted by colon thereafter new proviso inserted though Finance Act, 2020 dated June, 2020. 747 Seventh Schedule ___________ __________________________ (2) A banking company shall furnish a certificate from external auditor along with accounts while e-filing return of income certifying the amount of such advances made in preceding tax year, additional advance made for the tax year and net mark-up earned from such additional advances for the tax year. (3) Notwithstanding anything contained in this Ordinance, the Commissioner may require the banking company to furnish details of the advances made for Farm Credit to determine the applicability of the reduced rate of tax. (4) For the purposes of this rule, the term ''Farm Credit" shall have the same meaning as provided in Prudential Regulations issued by the State Bank of Pakistan for agriculture financing excluding such advances made to a company as defined in section 80. (5) "Additional advances" means any average advances disbursed in addition to average amount of such advances made in such sector by the bank for the tax year 2019. (6) The taxable income arising from additional advances under sub-rule (1) shall be determined according to the following formula namely:- Taxable income subject to reduced rate of tax = A x B/C Where- A. is taxable income of the banking company; B. is net mark-up income earned from such additional advances for the tax year as declared in the annual accounts: and C. is total of the net mark-up and non mark-up income of the banking company as per accounts. 8. Exemptions—(1) Exemptions and tax concessions under the Second Schedule to this Ordinance shall not apply to income of a banking company computed under this Schedule. 1[(1A) The accumulated loss under the head “Income from Business” (not being speculation business losses) of an amalgamating banking company or banking companies shall be set off or carried forward against the business profits and gains of the amalgamated company and vice versa, up to a period of six tax years immediately succeeding the tax year in which the loss was first computed in the case of amalgamated banking company or amalgamating banking company or companies.] (2) The provisions relating to group relief as contained in section 59B shall be available to the banking companies provided the holding and subsidiary companies are banking companies. The accounts of the group companies shall be 1 Inserted by the Finance Act, 2008. 748 Seventh Schedule ___________ __________________________ audited by the chartered accountants firm on the panel of auditors of the State Bank of Pakistan. The surrender and claim of loss would be subject to the approval of the State Bank of Pakistan. (3) The holding and subsidiary companies of 100% owned group of banking companies may opt to be taxed as one fiscal unit as per the provisions of section 59AA relating to group taxation subject to the approval of the State Bank of Pakistan. 1[(4) Profit on debt and capital gains from Federal Government’s sovereign debt or a sovereign debt instrument shall be exempt from tax chargeable under this Ordinance, derived by any non-resident banking company approved by the Federal Government under a sovereign agreement for the purpose of this sub-rule. (5) The provisions of sub-rule (6A) of rule 6C shall not apply to a banking company for tax year 2024.] 2[8A. Transitional provisions.— (1) Amounts provided for in the tax year 2008 and prior to the said tax year for or against irrecoverable or doubtful advances, which were neither claimed nor allowed as a tax deductible in any tax year, shall be allowed in the tax year in which such advances are actually written off against such provisions, in accordance with the provision of section 29 and 29A. (2) Amounts provided for in the tax year 2008 and prior to the said tax year for or against irrecoverable or doubtful advances, which were neither claimed nor allowed as a tax deductible in any tax year, which are written back in the tax year 2009 and thereafter in any tax year and credited to the profit and loss account, shall be excluded in computing the total income of that tax year under rule 1 of this Schedule. (3) The provisions of this Schedule shall not apply to any asset given or acquired on finance lease by a banking company up to the tax year 2008, and recognition of income and deductions in respect of such asset shall be dealt in accordance with the provisions of the Ordinance as if this Schedule has not come into force: Provided that un-absorbed depreciation in respect of such assets shall be allowed to be set-off against the said lease rental income only.] 9. Provision of Ordinance to apply— The provisions of the Ordinance not specifically dealt with in the aforesaid rules shall apply, mutatis mutandis, to the banking company. 1 Sub-rules (4) and (5) added by the Finance Act, 2023. Earlier theses sub-rules were added through S.R.O Nos. 213(I)/2023 dated 22.02.2023 and 226(I)/2023 dated 27.02.2023. 2 Added by the Finance Act, 2010. 749 Seventh Schedule ___________ __________________________ 10. The Federal Government may, from time to time, by notification in the official Gazette, amend the schedule so as to add any entry therein or modify or omit any entry therein. 750 Eighth Schedule ___________ __________________________

Effective date: 2001-09-13

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