My employer deducted tax from my salary but did not deposit it; am I liable?

What does the law say?

Four sections of the Income Tax Ordinance, 2001 answer this together.

Section 160, the duty to deposit. Any tax “deducted or purported to be deducted” under Division III of Part V of Chapter X, the division that covers salary, “shall be paid to the Commissioner by the person making the collection or deduction”. The words “purported to be deducted” mean the duty to pay covers tax the employer claims to have deducted, not only tax deducted correctly.

Section 161(1)(b), the employer’s personal liability. Where a person “having … deducted tax under Division III … fails to pay the tax to the Commissioner as required under section 160”, that person “shall be personally liable to pay the amount of tax to the Commissioner”. The Commissioner may pass an order and recover it.

Section 168(1)(b), the employee’s position. The amount of any tax deducted under Division III “shall be treated as tax paid by the person from whom the tax was collected or deducted”. Section 168(2) allows that person a tax credit for it in the tax year of deduction.

Section 162, the contrast. Where the employer fails to deduct at all, the Commissioner may recover the amount “from the person from whom the tax should have been collected or to whom the payment was made”. That route is written for non-deduction. The deducted-but-not-deposited case is dealt with by section 161(1)(b).

How does it work in practice?

The employer reports your deductions in quarterly statements under section 165, listing your name, CNIC, NTN, “the total amount of payments made to a person from which tax has been deducted”, and the tax deducted. Those statements are how deducted tax is linked to you. If the employer neither deposits nor reports, the tax will not appear against your CNIC, even though your pay slips show it.

Section 164(1) requires the employer to give you a certificate and copies of the Computerized Payment Receipts (CPRs) at the time of deduction. Section 164(2) asks a person filing a return to attach the CPR copies. An employer who never deposited the money has no genuine CPR to hand over.

This creates a practical gap. Section 168(1)(b) treats the deducted tax as paid by you, without any condition that the employer deposited it. But the supporting document section 164(2) asks for does not exist. The Ordinance does not say how the credit is to be verified when the employer has not deposited the tax.

Worked example (illustrative figures)

The names and amounts are made up.

Usman, a sales officer at a Gujranwala distribution firm, tax year 2027

• Monthly tax shown on pay slips: Rs. 3,000, so Rs. 36,000 for 12 months
• Tax actually deposited by the firm, with CPRs: July to December, 6 x Rs. 3,000 = Rs. 18,000
• Tax deducted but not deposited: January to June, 6 x Rs. 3,000 = Rs. 18,000

How the sections apply:

Question	Section	Result
How much tax is treated as paid by Usman?	168(1)(b)	Rs. 36,000, the full amount deducted
Who must pay the missing Rs. 18,000 to the Commissioner?	160 and 161(1)(b)	The firm, personally liable
Must the firm be heard before recovery?	161(1A)	Yes
Can Usman attach CPRs for the whole Rs. 36,000?	164(2)	Only for the Rs. 18,000 actually deposited

Usman’s pay slips, the section 164 certificate if he received one, and bank statements showing reduced net salary are his records that Rs. 36,000 was deducted.

What if the employer did not deduct at all?

Then this is not a section 161(1)(b) case. Section 161(1)(a) makes the employer personally liable for failing to deduct, and section 162 separately lets the Commissioner recover the tax from the employee. Section 161(2) lets an employer who pays the tax recover it from the employee.

What if the employer later deposits the tax?

Section 160 says tax is to be paid “within the time and in the manner as may be prescribed”. Section 168(1)(b) ties the treatment as tax paid to the deduction and says nothing about when the employer deposits it. Section 161(1B) deals with a different case, where the payee has already paid the tax that was not deducted, and charges the defaulting person default surcharge at twelve per cent per annum.

Common mistakes

• “If FBR does not show it, I have not paid it.” Section 168(1)(b) ties the treatment to deduction, not to what the employer reported.
• “The employee is jointly liable with the employer.” Section 161(1)(b) makes the deducting person personally liable. Recovery from the employee under section 162 is written for failure to deduct.
• “A pay slip is the same as a CPR.” It is evidence of deduction, not of deposit. Section 164(2) asks for CPR copies.

What to check in the official text

Read sections 160, 161 and 162 together, then section 168(1) and (2). Read section 164 for the certificate and CPR requirement and section 165 for the employer’s statements. Any offence or prosecution provision that may apply to an employer who keeps deducted tax is outside this page.