When customers deduct tax from my payments under section 153, is that my final tax?

What does the law say?

Section 153(1) of the Income Tax Ordinance, 2001 requires a prescribed person paying a resident person to deduct tax, at the time of payment, from the gross amount payable (including sales tax) at the rates in Division III of Part III of the First Schedule. It covers three kinds of payment:

• (a) sale of goods, including toll manufacturing, except where payments are less than Rs. 75,000 in aggregate during a financial year;
• (b) services, except where payments are less than Rs. 30,000 in aggregate during a financial year; and
• (c) execution of contracts, other than contracts for goods or services.

Section 153(3) says the tax deductible under sub-sections (1) and (2) on the income of a resident person “shall be minimum tax”. The word “final” was replaced with “minimum” by the Finance Act, 2019. The provisos that make the tax not minimum, or adjustable, apply only to manufacturer companies and listed public companies. None applies to an individual. An explanation adds that the “income” meant here is the amount on which tax is deductible, that is, the payment itself.

Section 168(3) lists the final taxes for which no credit is allowed. Section 153 is not on that list, so the general rule in section 168(2) gives credit for tax deducted under it.

Who has to deduct?

Section 153(7) defines “prescribed person”. It includes the Federal Government, companies, associations of persons constituted by or under law, non-profit organisations, foreign contractors, consortiums, and builders and developers. It also includes an individual or association of persons with turnover of Rs. 100 million or more in any preceding tax year, and a sales tax registered person with turnover of Rs. 100 million or more. A small shop buying from you is usually not a prescribed person, so no section 153 deduction arises.

What rates apply in tax year 2027?

For payments made from 1 July 2026 to 30 June 2027, Division III of Part III of the First Schedule sets these rates for a recipient other than a company:

Payment	Rate on gross amount
Rice, cotton seed oil or edible oils	1.5%
Other goods	5.5%
Toll manufacturing	11%
Listed services such as transport, courier, security guard, car rental, IT and engineering services	7% (4% for IT and IT enabled services)
Independent professional services (doctors, lawyers, architects, accountants, software engineers)	15%
Advertising services by electronic and print media	1.5%
Other services	14%
Contracts	8% (15% for sportspersons)

Rule 1 of the Tenth Schedule increases a deduction rate by one hundred per cent for a person not appearing in the active taxpayers’ list.

What does “minimum tax” mean for me?

Section 153 does not itself set out the arithmetic for combining a minimum tax with normal tax for an individual. What the text does settle is this: the deduction is not final, so the receipts stay in your taxable business income, and the tax deducted is a credit under section 168(2). The word “minimum” points to the deducted amount acting as a floor for the tax on those receipts, so it is not refunded merely because your profit turned out low. The Ordinance does not spell this out inside section 153, so check how the return form applies it.

Worked example (illustrative figures)

Farah runs a packaging supply business in Karachi. In tax year 2027 a company pays her Rs. 3,000,000 (including sales tax) for cartons.

1. Rate for goods, supplier other than a company: 5.5%.
2. Tax deducted: Rs. 3,000,000 x 5.5% = Rs. 165,000.

Case A. Suppose the tax on her whole taxable income at normal rates is Rs. 240,000. The Rs. 165,000 is credited, and she pays Rs. 240,000 minus Rs. 165,000 = Rs. 75,000 with her return.

Case B. Suppose a bad year leaves the normal tax on those receipts at Rs. 100,000. On the minimum-tax reading above, her tax on them does not fall below the Rs. 165,000 already deducted, and the Rs. 65,000 difference is not refunded.

Common mistakes

• Relying on old guidance that says “final”. Before the Finance Act, 2019, section 153(3) said final. The current text says minimum.
• Confusing it with section 113. Section 113 is a separate minimum tax on turnover. For individuals, it applies only to those with turnover of Rs. 100 million or more in tax year 2017 or a later year.
• Leaving section 153 receipts out of the return. Since the tax is not final under section 168(3), section 169 does not exclude the income from taxable income.
• Ignoring the sales tax element. The deduction is on the gross amount including sales tax.

What to check in the official text

Read section 153, especially sub-sections (1), (3), (4) and (7), in the official PDF, because the site’s extracted text mixes current wording with superseded footnote text. Read Division III of Part III of the First Schedule for the full service list, and rule 1 of the Tenth Schedule. Section 153(2A), added by the Finance Act, 2025, has a separate collection rule for e-commerce sellers paid through payment intermediaries or couriers.