Can a distributor carry forward minimum tax paid above its normal tax to later years?

A distributor with a large turnover and a small margin can end up paying minimum tax under section 113 of the Income Tax Ordinance, 2001 that is well above the tax on its actual profit. The Ordinance does not treat all of that difference as lost. Section 113(2)(c) lets the excess be carried into later years, but only for a short time.

What does the law say?

Section 113(2)(c), as amended to 30 June 2026, has three parts:

1. The main rule. Where tax paid under sub-section (1) exceeds the actual tax payable under clause (1) of Division I or Division II of Part I of the First Schedule, “the excess amount of tax paid shall be carried forward for adjustment against tax liability under the aforesaid Part of the subsequent tax year”.
2. First proviso. If minimum tax was paid because no tax was payable or paid for the year, for example because of a loss, the entire minimum tax paid is carried forward.
3. Second proviso. The amount is carried forward and adjusted against tax liability for two tax years immediately succeeding the tax year for which it was paid.

An Explanation added by the Finance Act, 2023 confirms that “the aforesaid Part” means clause (1) of Division I or Division II of Part I of the First Schedule. Division I clause (1) holds the normal rates for individuals and associations of persons; Division II holds the rates for companies.

How has the time limit changed?

The footnotes to the consolidated Ordinance record the history of the second proviso. The Finance Act, 2021 set five tax years. The Finance Act, 2022 replaced “five” with “three”. The Finance Act, 2025, section 10, replaced “three” with “two”. That Act came into force on 1 July 2025 unless it provided otherwise.

The amending text does not say whether the shorter period applies to excess minimum tax already being carried forward from years before the change. This page does not resolve that point.

Worked example (illustrative figures)

Hamza Distributors is a sole proprietor in Lahore trading in hardware, which is not in the clause (24D) Table, so the Division IX rate “in all other cases” of 1.25% applies. Turnover and normal tax figures are invented; only the rate is real, and the same rate is assumed for later years.

Tax year 2027

1. Turnover: Rs. 200,000,000.
2. Minimum tax: Rs. 200,000,000 x 1.25% = Rs. 2,500,000.
3. Tax under Division I on taxable income (assumed): Rs. 1,600,000.
4. Minimum tax paid instead: Rs. 2,500,000.
5. Excess carried forward: Rs. 2,500,000 minus Rs. 1,600,000 = Rs. 900,000.

Tax year 2028

6. Turnover: Rs. 220,000,000, so minimum tax is Rs. 220,000,000 x 1.25% = Rs. 2,750,000.
7. Tax under Division I (assumed): Rs. 3,800,000, which is higher than the minimum, so section 113 does not bite this year.
8. Adjust the carried-forward Rs. 900,000: Rs. 3,800,000 minus Rs. 900,000 = Rs. 2,900,000.
9. Rs. 2,900,000 is still above the Rs. 2,750,000 minimum for the year, and the whole Rs. 900,000 is used.

If normal tax in tax year 2028 had been lower and only part of the Rs. 900,000 had been used, the remainder could be carried to tax year 2029, the second and last year the proviso allows.

What if the adjustment would take tax below that year’s minimum?

Suppose normal tax in tax year 2028 had been Rs. 3,000,000. Deducting the full Rs. 900,000 would leave Rs. 2,100,000, which is less than that year’s Rs. 2,750,000 minimum. Section 113(2)(c) says the excess is adjusted against tax liability under Division I, and section 113(1) applies where tax payable falls below the minimum because of credits or other listed reasons. The text does not say expressly how these two rules interact in that case. This page does not resolve it.

What if the distributor made a loss?

Under the first proviso, if a loss meant no tax was payable at all and the distributor paid, say, Rs. 2,500,000 of minimum tax, the whole Rs. 2,500,000 is carried forward, subject to the same two-year limit.

Common mistakes

• Relying on the older three or five year periods. The second proviso now reads “two”.
• Treating carried-forward minimum tax as a refund. Section 113(2)(c) provides for adjustment against later normal tax, not a refund.
• Adjusting it against minimum tax. The clause directs adjustment against tax liability under clause (1) of Division I or Division II of Part I.
• Mixing it up with section 153 minimum tax. Section 113(2)(c) deals with tax paid under section 113(1). Tax deducted under section 153 has its own rule in section 153(3).

What to check in the official text

Read section 113 of the Ordinance as amended to 30 June 2026, including all three parts of sub-section (2)(c) and its footnotes, Division IX of Part I of the First Schedule for the rate that applies to you, and section 10 of the Finance Act, 2025 for the change from three years to two.