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

Closing a business has its own rule in the Income Tax Ordinance. Section 117, headed “Notice of discontinued business”, sets a short deadline for telling the Commissioner and creates a part-year return. It does not deal with every later obligation, so the other filing rules still need checking once the shutters are down.

What does the law say?

Section 117 has four sub-sections:

Sub-section	What it says
117(1)	Anyone discontinuing a business must give the Commissioner written notice within fifteen days of the discontinuance.
117(2)	The person must furnish a return for the period from the first day of the tax year in which the business closed to the date of closing. The duty arises under the Ordinance or on a notice from the Commissioner. That period is treated as a separate tax year.
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 require a return for the period specified in a notice.
117(4)	A return under section 117 is treated as a return of income for all purposes, including section 120.

Section 118(5) says a return required by a notice issued under section 117 is due by the date specified in the notice.

How does it work in practice?

The notice under section 117(1) is a written notice to the Commissioner. The section does not prescribe a form in its own text, and any IRIS procedure for it is outside this corpus.

The closing return covers a short period. Because section 117(2) treats that period as a separate tax year, the income and expenses up to the closing date are reported on their own, not added to a full twelve-month year. Section 117(4) brings in section 120, so the return is treated like any other return for assessment purposes.

Section 117(2) says the return is required “under the provisions of this Ordinance or on being required by the Commissioner by notice”. Where a notice is issued, section 118(5) fixes the due date. Where no notice is issued, section 117 does not state a due date in its own words, and this page does not resolve which date applies.

Section 114(3) separately lets the Commissioner require a return for a period of less than twelve months, for example where a person has died, become bankrupt, or is about to leave Pakistan permanently, or in any other case the Commissioner considers appropriate.

Worked example (illustrative figures)

Rukhsana runs a bakery in Satellite Town, Rawalpindi, as a sole proprietor. Tax year 2027 runs from 1 July 2026 to 30 June 2027. She closes the bakery on 15 March 2027.

1. Notice: fifteen days from 15 March 2027 takes her to 30 March 2027. Her written notice to the Commissioner should reach the Commissioner by then.
2. Return period: 1 July 2026 to 15 March 2027. Section 117(2) treats this as a separate tax year.
3. Income for the period (illustrative): sales of Rs. 5,400,000 and allowable expenses of Rs. 4,900,000 give business income of Rs. 500,000 for that separate tax year.
4. After closing: from 16 March 2027 she takes a salaried job. Her position for tax year 2028 depends on section 114, not section 117.

If Rukhsana gives no notice and the Commissioner later issues a notice under section 117(3), the return is due by the date in that notice under section 118(5).

Do I still have to file returns after closing?

Section 117 deals with the year of closing. It does not say that closing a business ends the tests in section 114(1) for later years. Those tests include having taxable income above the tax-free amount, having been charged to tax in either of the two preceding tax years, and having obtained a National Tax Number. If any of them still applies to you in a later tax year, section 114 still requires a return for that year. The sections read for this page do not provide for cancelling an NTN, and this page does not cover that.

What if the Commissioner asks for the return and I miss the date?

Serial 1B of the table in section 182 covers failure to furnish a return required under section 117(3) within the time specified in the notice. The penalty is the higher of 0.1% of the tax payable for that tax year for each day of default, or Rs. 1,000 for each day of default. The minimum is Rs. 10,000 for an individual and Rs. 50,000 in all other cases.

What if the business had unused losses?

The closing return is still a return, so a loss for the part-year is reported in it. Whether and how a business loss can be carried into later years is governed by the loss provisions of the Ordinance, not by section 117. See the page on carrying forward business losses.

Common mistakes

• Simply stopping. Section 117(1) requires a written notice within fifteen days.
• Waiting for 30 September and filing a full-year return. Section 117(2) makes the closing period a separate tax year.
• Assuming the NTN stops all future filing. Section 114(1)(b)(vii) still lists having obtained an NTN as a filing test, and section 117 does not switch it off.
• Throwing away records on closing. Section 174(3) keeps the six-year retention period running after the end of the tax year to which records relate.

What to check in the official text

Read section 117 in full, section 118(5) for the notice due date, and serial 1B in the section 182 table. Check section 114(1) for each later tax year to see whether any filing test still applies. Sales tax deregistration, provincial service tax registrations and any FBR portal steps for closing a business are outside this corpus.