Is the tax deducted on my bank profit final, and what changes if my profit is above Rs. 5 million?

What does the law say?

The answer depends on whether section 7B applies to your profit.

Section 7B(1) imposes tax at the Division IIIA rate “on every person, other than a company, who receives a profit on debt” from a payer listed in clauses (a) to (d) of section 151(1): National Savings and Post Office Savings, banks and financial institutions, Government securities, and certain bonds and instruments. Section 7B(2) applies the rate to the gross profit.

Section 8(1) says tax imposed under section 7B “shall be a final tax on the amount in respect of which the tax is imposed”. The amount is not chargeable under any head of income, no expenditure is deductible against it, it is not reduced by any deductible allowance or loss, and the tax is not reduced by any tax credit.

Section 7B(3) says the section “shall not apply to a profit on debt that” is exempt from tax, or “exceeds five million Rupees.”

Section 151(3) says tax deductible under section 151 is a minimum tax on the profit on debt, except where the taxpayer is a company or the profit on debt is taxable under section 7B.

How does it work in practice?

Profit on debt of an individual	Section 7B	How the profit is taxed	Status of the section 151 deduction
Up to Rs. 5,000,000	Applies	Separately, at the Division IIIA rate on gross profit	Covers the final tax under sections 7B and 8
More than Rs. 5,000,000	Does not apply	Included under “Income from Other Sources” in section 39(1)(c) and taxed with other income at Division I rates	Minimum tax under section 151(3), credited under section 168

Section 39(5) confirms the split: the “Income from Other Sources” head does not apply to income that is subject to tax under section 7B.

The rates in Division IIIA and in Division IA match: 20% for profit from a bank or financial institution, and 15% for National Savings profit, Government securities paid to an individual and other cases. So where section 7B applies, the amount the bank deducts is normally the full tax.

Worked example (illustrative figures)

Both cases are for tax year 2027, for a person on the Active Taxpayers List with no other income and no Zakat deducted.

Case 1: profit of Rs. 3,000,000. Tariq, a retired engineer in Islamabad, earns Rs. 3,000,000 on bank term deposits.

1. Section 7B applies because the profit does not exceed five million rupees.
2. Tax: 20% x Rs. 3,000,000 = Rs. 600,000, deducted by the bank.
3. Under section 8 this is final. The profit is not added to his taxable income.

Case 2: profit of Rs. 6,000,000. Farzana, a homemaker in Karachi, earns Rs. 6,000,000 on bank deposits.

1. Section 7B does not apply because the profit exceeds five million rupees.
2. Bank deduction under section 151: 20% x Rs. 6,000,000 = Rs. 1,200,000. This is a minimum tax.
3. The profit is income under section 39(1)(c). Division I, clause (1), for taxable income above Rs. 5,600,000: Rs. 1,610,000 + 45% x (Rs. 6,000,000 - Rs. 5,600,000) = Rs. 1,610,000 + Rs. 180,000 = Rs. 1,790,000.
4. Credit for tax deducted under section 168: Rs. 1,790,000 - Rs. 1,200,000 = Rs. 590,000 still payable with the return.

The Division I figure here assumes no other income and no deductible allowances. Taxable income above Rs. 10 million can attract further charges that this example does not reach.

What if my profit comes from several banks?

Section 7B(3)(b) refers to “a profit on debt that” exceeds five million rupees. It does not say whether the five million is measured per account, per bank or across all profit for the tax year. The text is silent on that point, and this page does not resolve it.

What if tax was not deducted, or was deducted at the wrong rate?

Where section 7B applies, the tax is still charged on the gross profit at the Division IIIA rate, whether or not the bank deducted it correctly. Where the profit exceeds five million rupees, the deduction is a credit against the tax on your taxable income under section 168, and any shortfall is paid with the return.

Common mistakes

• Assuming bank profit is always final. Since the Finance Act, 2019, section 151(3) calls the deduction a “minimum” tax, and section 7B only gives final treatment up to five million rupees.
• Using the old thirty-six million threshold. The Finance Act, 2021 substituted “five” for “thirty six” in section 7B(3)(b).
• Adding profit taxed under section 7B to slab income. Section 8(1)(a) says that amount is not chargeable under any head of income.

What to check in the official text

Read sections 7B, 8, 39, 151 and 168, and the Division I and Division IIIA tables in Part I of the First Schedule in the source PDF, which our site copy does not reproduce as tables.