Is the advance tax I paid on buying a car adjustable against my income tax, and can I get it refunded?

The income tax collected when you buy or register a car is not a separate charge that is simply lost. It is advance tax: a payment towards your income tax for the year, which you claim as a credit in your return. Where your income tax for the year is lower than the credit, the Ordinance provides a refund route. This page follows the Income Tax Ordinance, 2001 as amended to 30 June 2026, so the rates shown apply in tax year 2027 (1 July 2026 to 30 June 2027).

What does the law say?

Section 231B requires advance tax to be collected at several points: by the Excise and Taxation registering authority at first registration (sub-section (1)), on transfer (sub-section (2)), on registration of a car resold before registration (sub-section (2A)), by the manufacturer at the time of sale (sub-section (3)), and by a leasing company or bank when leasing to a person not on the active taxpayers’ list (sub-section (1A)). Sub-section (5) then says “The advance tax collected under this section shall be adjustable”. The same sub-section’s proviso takes the Federal, Provincial and Local Governments, foreign diplomats and diplomatic missions out of the section altogether.

Section 168 explains what “adjustable” means in practice. Section 168(1)(b) treats tax collected under Chapter XII, where section 231B sits, as “tax paid by the person from whom the tax was collected”. Section 168(2) allows that person a tax credit against the tax due on their taxable income “for the tax year in which the tax was collected”. Section 168(3) lists final taxes that get no credit, and section 231B is not on that list.

Section 168(5) says a credit, or part of one, that cannot be set against the year’s tax “shall be refunded to the taxpayer in accordance with section 170.”

Section 170 lets a taxpayer who has paid more than the amount properly chargeable apply to the Commissioner for a refund. The application must be in the prescribed form, verified in the prescribed manner, and made within three years of the later of the assessment order for that tax year or the date the tax was paid. The Commissioner must pass a written order within sixty days of the application, after giving the taxpayer an opportunity of being heard.

How does it work in practice?

The credit is claimed in the return for the tax year in which the tax was collected, which is the year of the sale invoice or registration, not the year you booked the car. The credit is set against your total tax for that year, whatever the source of income. For a company, the same rule applies: the tax collected from the company is credited against the company’s tax due for that year.

The credit belongs to the person from whom the tax was collected. If a car is bought in one family member’s name, the credit is that person’s, not the relative who paid.

Worked example (illustrative figures)

Rashid runs a small tailoring shop in Faisalabad and is on the active taxpayers’ list. In September 2026 he buys a new locally assembled 1000cc car. The invoice value, inclusive of all duties and taxes, is Rs. 3,200,000. His taxable income for tax year 2027 is Rs. 540,000.

1. Division VII, clause (1), row 851cc to 1000cc: 1% of the value.
2. Advance tax collected: Rs. 3,200,000 x 1% = Rs. 32,000.
3. Tax on Rs. 540,000 under clause (1) of Division I of Part I (taxable income not exceeding Rs. 600,000): 0%, so tax due is Rs. 0.
4. Credit under section 168(2): Rs. 32,000. Tax due: Rs. 0.
5. Unused credit: Rs. 32,000 - Rs. 0 = Rs. 32,000, which section 168(5) directs to a refund under section 170.

If Rashid’s tax due for the year had been Rs. 50,000, the Rs. 32,000 credit would reduce it to Rs. 18,000 and there would be no refund.

What if I was charged the higher rate for persons not on the list?

Rule 1 of the Tenth Schedule increases the section 231B tax for persons not on the active taxpayers’ list. Rule 4(3) of the Tenth Schedule says that where returns have been filed before a provisional assessment, or within forty-five days of one, “the tax deducted or collected under rule 1 shall be adjustable against the tax payable in the return filed for the relevant tax year.” The higher amount can therefore be credited when the return is filed in time under that rule.

Common mistakes

• Treating the car tax as final. Section 231B(5) makes it adjustable, and section 168(3) does not list it as final.
• Claiming it in the wrong year. Section 168(2) ties the credit to the tax year of collection.
• Assuming a refund is automatic. Section 170 sets out an application to the Commissioner with a three-year time limit.
• Forgetting the source question. Claiming the credit does not answer how the car was paid for. The wealth statement and source of funds questions are separate.

What to check in the official text

Read section 231B(5), section 168(1), (2), (3) and (5), and section 170(1) to (4). Check the Division VII clause that matches how the tax was collected, since clause (1) covers sale and first registration and clause (2) covers transfer. The collection receipt or registration record should show the tax in the claimant’s own name. FBR portal steps for filing the refund claim are outside this corpus.