The Federal Board of Revenue has explained that the rate of withholding tax under Section 231A has been increased from 0.2 to 0.3 per cent on more than Rs25,000 cash withdrawal from the banks.
FBR clearly explained that withholding tax would be applicable to the total amount and not just the amount exceeding Rs25,000.
Therefore on cash withdrawal of Rs25,000 tax to be withheld at the rate of 0.3 per cent would be nil and for Rs25,500 WHT would be Rs76.5 similarly for Rs30,000 it would be Rs90.
There had been some confusion that the WHT was levied only on the amount of cash withdrawal exceeding Rs25,000.
According to the FBR, several communications have been received in the Board seeking clarification regarding application of provisions of Section 231A of the Income Tax Ordinance 2001, with reference to paragraph No 26 of Circular No 1 of 2005 (Income Tax) dated July 5, 2005.
The issue has been examined in the Board. Sub-Section (1) of Section 231A read with Division VI of Part IV of the 1st Schedule clearly provides that tax was to be deducted at the rate of 0.2 per cent of the cash amount withdrawn.
In this regard a Circular letter C.No.1(26)WHT/2006 dated 29th April 2008 was issued by the Board wherein it was clarified that withholding tax on cash withdrawal under the provisions of section 231A shall be made on total amount of payment where the said amount exceeds Rs25,000.
The matter was further explained through numerical example: On cash withdrawal of Rs25,500 tax to be withheld @ 0.2 per cent would be 25,500×0.2%=Rs51 similarly for Rs30,000×0.2%=Rs60.
FBR said that in view of above, it is once again clarified that where cash amount withdrawn exceeds Rs25,000, tax is required to be deducted on the whole amount and not the amount exceeding Rs25,000.
FBR said that earlier explanation offered through paragraph No26 of Circular No 1 of 2005 (Income Tax) dated July 5 2005 and all other instructions/circulars, in contradiction to above clarification may be treated as withdrawn.
The rate of withholding tax under section 231A has been enhanced from 0.2 per cent to 0.3 per cent, through Finance Act, 2008.
Source: The News, 17/8/2008