Which company expenses are disallowed for cash payments, purchases from people without an NTN, or failing to integrate with FBR?

Section 21 of the Income Tax Ordinance, 2001 is a list of amounts a business may not deduct when it computes income under the head “Income from Business”. Four of its clauses aim at the cash economy, and a company that pays or is paid in cash, or buys from unregistered suppliers, can lose part of its deductions even when the expense was genuine.

What does the law say?

As amended to 30 June 2026, the relevant clauses of section 21 read as follows in plain terms:

Clause	What is disallowed	Main exceptions in the clause
(l)	Expenditure under a single account head over Rs. 250,000 in aggregate, not paid by crossed cheque, draft, pay order or other crossed banking instrument from the business bank account	Expenses up to Rs. 25,000; utility bills, freight, travel fare, postage, taxes and statutory payments
(la)	For a company, expenditure under a single account head over Rs. 250,000 in aggregate, not made “by digital means” from the business bank account notified under section 114A	Same exceptions as clause (l)
(q)	Ten percent of claimed expenditure attributable to purchases from persons who are not NTN holders	Agricultural produce: applies only to purchases from a middleman; Board may exempt by notification
(r)	Three percent of the expenditure claimed by a person who fails to install electronic resource or to act as an integrated enterprise as required by law	Subject to the method and procedure to be prescribed
(s)	Fifty percent of the expenditure claimed in respect of a sale where more than Rs. 200,000 was received against a single invoice otherwise than through a banking channel or digital means	None stated

Clause (l) accepts online transfers between business accounts and credit card payments as banking channel transactions, if they can be verified from both bank statements.

Does clause (la) apply to companies now?

Clause (la) carries its own proviso: it “shall be effective from such date as the Board may notify”. A further proviso to clause (l) says clause (l) stops applying to a company from the date clause (la) takes effect. So until the Board issues that notification, a company is tested under clause (l), which accepts crossed banking instruments. After it, only digital payment from the declared business account under section 114A satisfies the rule. This corpus does not include any such notification, so this page cannot say whether the date has been set.

What counts as integration under clause (r)?

Section 2 defines an “integrated enterprise” as a person integrated with the Board’s computerized system through a licensed integrator who fulfils the integration obligations “as may be prescribed”. Section 237A(3) says an integrated enterprise may not make a sale or render a service without generating fiscal invoices. Which companies are required to integrate is set by prescribed rules and Board notifications, not by section 21 itself. Clause (r) was substituted by the Finance Act, 2026 and now reads three percent.

Worked example (illustrative figures)

Ravi Trading Company (Pvt) Ltd, Lahore, claims the following for tax year 2027. All amounts are invented; the percentages are those in section 21.

1. Purchases from non-NTN holders. Of Rs. 40,000,000 of purchases, Rs. 6,000,000 came from suppliers with no NTN. Clause (q) disallows Rs. 6,000,000 x 10% = Rs. 600,000.
2. Cash repairs. Repairs and maintenance, one account head, total Rs. 400,000 for the year, all paid in cash. That exceeds Rs. 250,000 in aggregate and is not a listed exception, so the Rs. 400,000 is not deductible under clause (l), or clause (la) once in force.
3. A cash sale. A customer paid Rs. 750,000 in cash against one invoice. The company attributes Rs. 600,000 of its expenditure to that sale. Clause (s) disallows Rs. 600,000 x 50% = Rs. 300,000.

Total added back: Rs. 600,000 + Rs. 400,000 + Rs. 300,000 = Rs. 1,300,000.

Clause (s) does not say how expenditure is attributed to a particular sale. The Rs. 600,000 in step 3 is an assumption for the example, and the section leaves the method open.

What if the supplier gets an NTN mid-year?

Clause (q) looks at purchases “made from persons who are not National Tax Number holders”. It does not say at what date NTN status is tested. Purchases made after the supplier obtained an NTN appear to fall outside the words of the clause, but the section does not state this.

What if the cash expense is freight or a tax payment?

Freight charges, travel fare, postage, utility bills and payment of taxes, duties, fees, fines or other statutory obligations are carved out of both clause (l) and clause (la). So are expenditures not exceeding Rs. 25,000.

Common mistakes

• Testing each payment instead of the account head. Clauses (l) and (la) look at expenditure under a single account head that “in aggregate” exceeds Rs. 250,000.
• Paying from a director’s personal account. Clause (la) requires payment from the business bank account declared under section 114A.
• Thinking clause (s) only hits the sale. It disallows expenditure, not income. The sale is still fully taxable.
• Applying clause (q) to all purchases. Only purchases from non-NTN holders are affected, and only ten percent of that expenditure.

What to check in the official text

Read section 21, clauses (l), (la), (q), (r) and (s) with their provisos, section 114A on the business bank account, and section 237A on integrated enterprises. Check whether the Board has notified the effective date for clause (la), any exemption notification under clause (q), and the rules that prescribe who must integrate under clause (r). Section 21(c), which disallows expenses where withholding tax was not deducted, is a separate test covered on its own page.