For how many years can excess minimum tax be carried forward and adjusted against later tax?

Excess minimum tax is a short-lived credit. When a company pays minimum tax on turnover that is more than its tax at the normal corporate rate, section 113 of the Income Tax Ordinance, 2001 lets it set the difference against its normal tax in later years. As amended to 30 June 2026, the window is two tax years.

What does the law say?

Section 113(2)(c) applies where tax paid under sub-section (1), the minimum tax, exceeds the actual tax payable under Part I, clause (1) of Division I, or Division II of the First Schedule. In that case “the excess amount of tax paid shall be carried forward for adjustment against tax liability under the aforesaid Part of the subsequent tax year”.

Two provisos follow:

1. Nil-tax years. If minimum tax was paid because no tax was payable or paid for the year, “the entire amount of tax paid under sub-section (1) shall be carried forward”. In a loss year the whole minimum tax goes forward, not just an excess.
2. Time limit. The amount is carried forward and adjusted against tax liability for two tax years immediately succeeding the tax year for which the amount was paid.

An Explanation, added by the Finance Act, 2023, says “the aforesaid Part” means clause (1) of Division I or Division II of Part I of the First Schedule. For a company, Division II is the corporate rate table, 29% for most companies in tax year 2027.

How has the period changed?

The footnotes to section 113 record the history of the second proviso:

Change	Period
Proviso as substituted by the Finance Act, 2021	five tax years
Finance Act, 2022 substituted the word “five”	three tax years
Finance Act, 2025 substituted the word “three”	two tax years

The Finance Act, 2025 text in this corpus reads: in section 113, sub-section (2), clause (c), in the second proviso, “for the word “three”, the word “two” shall be substituted”. The Ordinance text we hold does not contain a transitional rule for amounts paid before that change. How excess amounts from earlier years are treated is not settled by the section itself.

How does it work in practice?

Each year’s excess is its own amount with its own window. Minimum tax paid for tax year 2027 can be adjusted in tax years 2028 and 2029. Minimum tax paid for tax year 2028 can be adjusted in tax years 2029 and 2030.

The adjustment is against tax liability under the normal rate table. In a later year where the company is again paying minimum tax because its normal tax is lower, the section does not say whether any adjustment is possible that year. It also does not say whether an adjustment can bring a year’s tax below that year’s minimum tax. Section 113 does not settle either point, and this page does not resolve them.

Worked example (illustrative figures)

Karachi Packaging (Pvt) Ltd is a resident company whose business is not listed separately in Division IX, so the rate for “In all other cases”, 1.25%, applies. All figures are invented, and the 1.25% rate is assumed to stay the same in later years for the sake of the example.

Tax year 2027

1. Turnover: Rs. 400,000,000.
2. Minimum tax: Rs. 400,000,000 x 1.25% = Rs. 5,000,000.
3. Tax at the Division II rate on taxable income: Rs. 3,200,000.
4. The company pays the higher figure, Rs. 5,000,000.
5. Excess to carry forward: Rs. 5,000,000 - Rs. 3,200,000 = Rs. 1,800,000, usable in tax years 2028 and 2029.

Tax year 2028, profits recover

1. Turnover: Rs. 360,000,000. Minimum tax: Rs. 360,000,000 x 1.25% = Rs. 4,500,000.
2. Tax at the Division II rate: Rs. 7,000,000. Normal tax is higher, so section 113 does not apply this year.
3. Adjust the carried forward excess: Rs. 7,000,000 - Rs. 1,800,000 = Rs. 5,200,000.
4. Rs. 5,200,000 is still above the year’s minimum tax of Rs. 4,500,000, so the question of adjusting below minimum tax does not arise.
5. The Rs. 1,800,000 is fully used.

The same company, if profits do not recover

1. In tax years 2028 and 2029 the company again pays minimum tax because its normal tax is lower each year.
2. The two-year window for the tax year 2027 excess ends with tax year 2029.
3. Section 113 gives no further period for the Rs. 1,800,000 after that.

What if …?

What if the company made a loss? Then no tax was payable at normal rates, and the first proviso carries forward the entire minimum tax paid, for the same two tax years.

What if the company also pays Alternative Corporate Tax? That is a separate mechanism under section 113C with its own ten-year carry forward. Section 113C(5) says its mechanism does not prejudice the carry forward of minimum tax under section 113.

Common mistakes

• Using the old five or three year period. The second proviso now reads two tax years.
• Counting the year of payment as one of the two. The period is the two tax years “immediately succeeding” the year of payment.
• Adjusting against the wrong tax. The Explanation limits adjustment to tax under clause (1) of Division I or Division II of Part I of the First Schedule.
• Expecting a refund of the balance. Section 113 provides for adjustment, not refund.

What to check in the official text

Read section 113(2)(c), both provisos and the Explanation, with the footnotes recording the Finance Acts of 2021, 2022, 2023 and 2025. Check the Division IX Table for your business’s rate and the Division II Table for your normal rate. If you hold excess amounts from years before the Finance Act, 2025, the section as printed does not say which period applies to them.