How do I close my business for tax purposes, and do I still file returns afterwards?

What does the law say?

Section 117 of the Income Tax Ordinance, 2001 sets out what happens when a person stops carrying on a business. It has four parts:

1. Notice. Under section 117(1), any person discontinuing a business must give the Commissioner a notice in writing within fifteen days of the discontinuance.
2. Part-year return. Under section 117(2), the person must furnish a return of income for the period from the first day of the tax year in which the business closed to the date of closing. That period is treated as a separate tax year. The return is furnished “under the provisions of this Ordinance or on being required by the Commissioner by notice”.
3. Commissioner’s own notice. Under section 117(3), if no notice was given but the Commissioner has reasonable grounds to believe the business has discontinued or is likely to, the Commissioner may serve a notice requiring a return for the period specified, within the time specified.
4. Status of the return. Section 117(4) says a return furnished under the section is treated for all purposes of the Ordinance as a return of income.

How does it work in practice?

The tax year for an individual runs from 1 July to 30 June. When a sole proprietor closes mid-year, section 117(2) cuts that year short: the months from 1 July to the closing date become their own tax year for the closing return.

Where the return is required by a notice under section 117, section 118(5) makes it due by the date specified in the notice. Section 119(1)(a) lists “a return of income under section 114 or 117” among the returns for which a person may apply in writing to the Commissioner for more time. Section 119(2) requires that application to be made by the due date.

The Ordinance text does not state a separate due date for a part-year return that a person files on their own, without any notice. Section 118(5) covers only returns required by a section 117 notice. This page does not fill that gap.

Worked example (illustrative figures)

Nadia runs a clothing boutique in Lahore in her own name. She closes it on 31 October 2026. The dates and amounts are invented; the time limits and penalty formula are from sections 117 and 182.

1. Tax year affected. Tax year 2027 runs from 1 July 2026 to 30 June 2027, so the closure falls in tax year 2027.
2. Notice deadline. Fifteen days after 31 October 2026 is 15 November 2026. Section 117(1) requires her written notice by then.
3. Closing return period. 1 July 2026 to 31 October 2026, treated as a separate tax year under section 117(2).
4. If she sends no notice. Suppose the Commissioner serves a section 117(3) notice requiring the return by a stated date, and Nadia files 20 days late. Suppose the tax payable for the period is Rs. 30,000.
   • 0.1% of Rs. 30,000 for each day: Rs. 30 x 20 days = Rs. 600.
   • Rs. 1,000 for each day: Rs. 1,000 x 20 days = Rs. 20,000.
   • The higher of the two is Rs. 20,000, which is above the Rs. 10,000 minimum for an individual.
   • Penalty under serial 1B: Rs. 20,000.

Do I still file returns after closing?

Section 117 deals with the closing period. It does not say the person’s filing duty ends. For every later tax year, the tests in section 114(1) apply as they do to anyone. Several of them can still catch a former shopkeeper:

• clause (b)(i): having been charged to tax in respect of either of the two preceding tax years. A person who paid tax on business profit in the last year or two of trading may meet this test for the next years.
• clause (b)(vii): having obtained a National Tax Number.
• clause (b)(vi): owning a motor vehicle with engine capacity above 1000 CC, and the property tests in clauses (b)(iii) to (v).
• clause (ab): taxable income from any source, such as salary from a new job or rent, above the tax-free amount.

Section 114(4) and (5) also let the Commissioner, by notice, require a return from a person who in the Commissioner’s opinion should have filed for any of the last five completed tax years, extended to ten where no return was filed for any of the last five.

What if I had a carried-forward business loss?

A loss carried forward from the business is claimed through a return. Section 114(1)(b)(ii) makes a return compulsory for anyone who claims a carried-forward loss for a tax year. Whether a loss from a closed business can be set off in later years depends on the loss provisions in Chapter IV, which this page does not cover.

Common mistakes

• Simply stopping. Closing the shutter does not satisfy section 117(1). The notice must be in writing to the Commissioner.
• Filing a full-year return for the closing year. Section 117(2) treats the period up to the closing date as a separate tax year.
• Assuming the NTN lapses on its own. Nothing in section 117 cancels registration, and clause (b)(vii) of section 114(1) applies to anyone who has obtained an NTN.
• Throwing away the books. Section 174(3) requires accounts and documents to be kept for six years after the end of the tax year they relate to, and longer while any proceeding is pending.

What to check in the official text

Read section 117 in full, section 118(5) on the due date for a return required by notice, and section 119 on extensions. Read serial 1B of the table in section 182 for the penalty on a section 117(3) return. How registration is modified after a business closes is set by the taxpayer registration rules and Board procedures, which this page does not cover. Sales tax and provincial registrations follow their own laws and are not covered here.