Can FBR question the source of money remitted into Pakistan, and is there a yearly limit on the protection?

FBR can ask anyone to explain where money came from, including money that arrived from abroad. Section 111 of the Income Tax Ordinance, 2001 is the provision that lets it do so, and sub-section (4) of the same section gives banked foreign remittances a protected amount each tax year. This page reads the section as amended to 30 June 2026, which governs tax year 2027 (1 July 2026 to 30 June 2027).

What does section 111(1) allow FBR to do?

Section 111(1) applies where an amount is credited in a person’s books, a person has made an investment or owns money or a valuable article, a person has incurred expenditure, or a person has concealed income. If the person “offers no explanation about the nature and source” of the amount, or the explanation is not, in the Commissioner’s opinion, satisfactory, clause (a) says the amount “shall be included in the person’s income chargeable to tax under the head “Income from Other Sources” to the extent it is not adequately explained”.

Three words in that text matter to a person with remittances:

• Explanation. The rule bites only where the source is unexplained or the explanation is not accepted.
• Commissioner’s opinion. The judgment on whether an explanation is satisfactory is the Commissioner’s.
• Extent. Only the unexplained part is added, not the whole amount.

What does section 111(4) protect?

Section 111(4) says sub-section (1) does not apply to foreign exchange that meets four conditions together:

Condition in section 111(4)	What it means in plain words
Remitted from outside Pakistan	The money came from abroad
Through normal banking channels	Sent through the banking system, or a channel the Explanation deems equivalent
Not exceeding five million rupees in a tax year	The protected amount is capped per tax year
Encashed into rupees by a scheduled bank, with the bank’s certificate produced	The bank converted it to rupees and certifies that it did

The Explanation to section 111(4) adds that remittance “through money service bureaus, exchange companies or money transfer operators” is deemed to be foreign exchange remitted through normal banking channels.

What does the law say about amounts above the limit?

The Ordinance does not say that the excess over five million rupees is taxable. It says only that section 111(4) does not reach it. Money above the limit therefore sits under the ordinary section 111(1) rule: it is added to income only to the extent the person does not explain its nature and source to the Commissioner’s satisfaction.

The footnotes in the consolidated text show that sub-section (4) has been substituted more than once. The version replaced by the Finance Act, 2004 had no amount limit at all. The current text sets the limit at “five million Rupees in a tax year”.

Which tax year is the amount included in?

Section 111(2) sets the timing. An amount relating to money or assets situated in Pakistan, or Pakistan-source concealed income, is included in the tax year to which it relates. An amount relating to assets or expenditure outside Pakistan, or foreign-source concealed income, is included in the tax year immediately before the year in which the Commissioner discovers it. Section 111(2A) says the year of discovery is the year the Commissioner issues a notice asking for an explanation.

Worked example (illustrative figures)

Sana works in Manchester and remits to her own bank account in Lahore through her UK bank. In tax year 2027 the scheduled bank encashes the following into rupees:

1. August 2026: Rs. 2,400,000
2. January 2027: Rs. 1,900,000
3. May 2027: Rs. 1,500,000

Total for the tax year: Rs. 2,400,000 + Rs. 1,900,000 + Rs. 1,500,000 = Rs. 5,800,000.

• Protected by section 111(4), with the bank certificate: Rs. 5,000,000.
• Not covered by section 111(4): Rs. 5,800,000 - Rs. 5,000,000 = Rs. 800,000.

The Rs. 800,000 is not taxed for that reason alone. If the Commissioner asks for the source under section 111(1), Sana can explain it, for example with her foreign salary records. Only an amount she does not adequately explain would be added to her income.

What if the money was kept in foreign currency?

Section 111(4) speaks of foreign exchange that is “en-cashed into rupees by a scheduled bank”. The text does not say how the sub-section applies to foreign currency that stays in a foreign currency account and is never converted into rupees. This page does not answer that point; the words of the sub-section are the place to start.

What if the money came in cash or through an informal hawala?

Cash carried in, or money paid through a channel that is not a banking channel and not one of the operators named in the Explanation, does not meet the “normal banking channels” condition. Section 111(4) then gives no protection, and the ordinary section 111(1) test applies.

Common mistakes

• Treating Rs. 5 million as a tax-free allowance. Section 111(4) only removes the unexplained-income rule. It does not exempt income under any other head.
• Assuming the excess is taxed automatically. Section 111(1) adds only what is not adequately explained.
• Forgetting the certificate. The protection is stated to apply where the bank’s certificate is produced.
• Counting by calendar year. The limit is per tax year, which runs 1 July to 30 June.

What to check in the official text

Read section 111(1), (2), (2A), (4) and the Explanation to sub-section (4) in the official PDF of the Ordinance amended to 30 June 2026. Section 111(5) allows the Board to make rules for the section; any such rules, and the form of the bank’s encashment certificate, are outside this corpus. Foreign exchange regulations of the State Bank of Pakistan are also not covered here.