Will I lose input tax if I pay my supplier in cash or pay a credit invoice late?

Many wholesale markets run on cash and long credit. Section 73 of the Sales Tax Act, 1990 is where that habit meets the sales tax system: a buyer who pays a supplier the wrong way, or too late, can lose the input tax on the purchase even though the invoice is genuine.

What does section 73 require?

Section 73(1) says that, notwithstanding anything in the Act or any other law, payment for a transaction exceeding fifty thousand rupees “in aggregate to a single supplier in a tax period”, excluding payment against a utility bill, shall be made by crossed cheque, crossed bank draft, crossed pay order or another crossed banking instrument. The instrument must show transfer of the amount of the sales tax invoice in favour of the supplier from the business bank account of the buyer.

The words “in aggregate to a single supplier in a tax period” were inserted by the Finance Act, 2024. So the Rs. 50,000 figure is tested on the total paid to one supplier in the month, not invoice by invoice.

Two provisos follow:

• Online transfers and credit cards. Online transfer from the buyer’s business account to the supplier’s business account, and credit card payments, are treated as banking channel transactions if they are verifiable from the bank statements of both buyer and supplier.
• Set-offs. Adjusting amounts payable and receivable with the same party counts as payment only if sales tax has been charged and paid by both parties, and the registered person sought the Commissioner’s prior approval.

What happens if I do not follow it?

Section 73(2) says the buyer “shall not be entitled to claim input tax credit, adjustment or deduction, or refund, repayment or draw-back or zero-rating of tax” if payment is made otherwise than as sub-section (1) prescribes. For a credit transaction, the payment must be transferred in that manner within one hundred and eighty days of issuance of the tax invoice.

Section 73(3) adds a condition on where the money lands. It must be deposited in the business bank account of the supplier, otherwise the supplier cannot claim input tax or refunds. The Explanation defines “business bank account” as an account used for business transactions and declared to the Commissioner through Form STR-1 or change of particulars in the registration database.

Section 7(1) makes the right to deduct input tax subject to section 73, which is how a payment problem becomes an input tax problem.

How does section 22 connect to this?

Section 22(1)(e) lists “banking instruments in terms of section 73” among the records a registered person must keep, alongside invoices and bank statements. Section 22(1A) lets the Board require a registered person or class of persons, by notification, to declare and use only a specified number of business bank accounts for purchase and sale payments and for paying tax.

Worked example (illustrative figures)

Kashif Enterprises, a registered wholesaler of stationery in Lahore, buys from two registered suppliers in one month. The amounts are invented; the Rs. 50,000 and 180 day limits come from section 73.

Supplier	Payments in the month	Method	Aggregate	Within section 73(1)?
Supplier A	Rs. 20,000 and Rs. 25,000	Cash	Rs. 45,000	Yes, aggregate does not exceed Rs. 50,000
Supplier B	Rs. 30,000 and Rs. 40,000	Cash	Rs. 70,000	No, aggregate exceeds Rs. 50,000 in cash

Step by step:

1. Supplier A: Rs. 20,000 + Rs. 25,000 = Rs. 45,000. This does not exceed Rs. 50,000, so section 73(1) does not require a banking instrument.
2. Supplier B: Rs. 30,000 + Rs. 40,000 = Rs. 70,000. This exceeds Rs. 50,000, so section 73(1) required payment through the banking channel from the business account.
3. Because Supplier B was paid in cash, section 73(2) is engaged for those purchases.

Section 73 does not say how the lost input tax is split when some payments to the same supplier were in cash and some through the bank. The text refers to “the amount” paid otherwise than prescribed.

A credit case: an invoice dated 10 January 2027 must be paid through the banking channel within one hundred and eighty days of issue. Counting from the day after the invoice, the 180th day is 9 July 2027.

What if I sell to unregistered customers?

Section 73(4) is a separate rule. It limits input tax attributable to supplies made to persons who are not registered, above an amount the Board prescribes with Federal Government approval. The related page on selling to unregistered persons covers it.

Common mistakes

• Testing each invoice separately. Since the Finance Act, 2024, the Rs. 50,000 figure is the aggregate paid to a single supplier in a tax period.
• Paying from a personal account. Section 73(1) requires payment from the buyer’s business bank account.
• Paying into any account the supplier names. Section 73(3) requires deposit in the supplier’s declared business bank account.
• Settling by contra without approval. A set-off counts only with the Commissioner’s prior approval and tax paid on both sides.

What to check in the official text

Read sections 7, 22 and 73 of the Sales Tax Act, 1990 as amended to 30 June 2026. Any Board notification under section 22(1A) limiting the number of business bank accounts, and any amount prescribed under section 73(4), are instruments this site does not hold. Whether a particular transfer is verifiable from both bank statements is a question of the actual records.