If a company or hospital client did not deduct tax from my professional fee, who is liable: me or the client?

A missed deduction does not cancel the tax. It moves the question of who pays it. The Income Tax Ordinance gives the Commissioner a route against the client that should have deducted, a route against the professional who was paid in full, and a penalty on the client’s own expense claim. The fee itself stays taxable in the professional’s return.

What does the law say?

The duty to deduct. Section 153(1)(b) requires every prescribed person paying a resident person “for the rendering of or providing of services” to deduct tax from the gross amount payable. The duty does not apply where payments for services total less than Rs. 30,000 in a financial year. For tax year 2027 (1 July 2026 to 30 June 2027), the rate in the First Schedule, Part III, Division III, paragraph (2)(ii) is 15% “in the case of independent professional services such as doctors, lawyers, architects, accountants, software engineers or developers, working independently”.

The client’s liability. Section 161(1)(a) covers a person who “fails to… deduct tax from a payment as required under Division III”. Such a person “shall be personally liable to pay the amount of tax to the Commissioner”, who may pass an order and recover it. Under section 161(1A), no recovery is made without first giving the client an opportunity of being heard.

Recovery from the professional. Section 162(1) lets the Commissioner pass an order and recover the amount not deducted “from the person… to whom the payment was made”. Section 162(2) adds that this recovery does not free the client from default surcharge or from the disallowance of its expense.

The client’s expense. Section 21(c) disallows any expenditure from which the payer was required to deduct tax, unless it deducted and paid that tax. A proviso says “recovery of any amount of tax under sections 161 or 162 shall be considered as tax paid”.

Your credit. Section 168(2) allows a tax credit for tax “deducted from a payment made to a person”. It applies to tax that was actually deducted.

How does it work in practice?

The client and the professional are exposed at the same time, but the Ordinance limits double collection:

• Client pays. If the Commissioner recovers from the client under section 161, section 161(2) entitles the client to recover that tax from the professional “from whom the tax should have been… deducted”.
• Professional pays. If the tax is established to have been paid by the professional, section 161(1B) says no recovery is made from the client. The client instead pays default surcharge at twelve per cent per annum, from the date it failed to deduct to the date the tax was paid.
• Client’s books. Until the tax is paid or recovered, section 21(c) denies the client a deduction for the fee in computing its business income.

For the professional, the fee is income from business and goes into the return in full. Because nothing was deducted, there is no deducted amount for section 168 to credit. Tax on that income is paid through the return rather than having been taken at source.

Section 153(3) also matters. It says the tax “deductible” under section 153(1) on the income of a resident person shall be minimum tax. Its explanation refers to “the amount on which tax is deductible”. The wording ties minimum tax to what should have been deducted, not only to what was. How the minimum tax rule works for professionals is covered on a separate page.

Worked example (illustrative figures)

Dr. Sana is a consultant radiologist in Lahore, not an employee of the hospital. In tax year 2027 a private hospital run as a company pays her Rs. 1,200,000 in reporting fees and deducts nothing.

Step	Figure
Fees paid by the hospital	Rs. 1,200,000
Rate under paragraph (2)(ii)	15%
Tax that should have been deducted: 1,200,000 x 15%	Rs. 180,000

Position of the hospital. Under section 161 it is personally liable for Rs. 180,000. Under section 21(c) it cannot deduct the Rs. 1,200,000 fee until the tax is paid or recovered.

Position of Dr. Sana. She declares the full Rs. 1,200,000 in her return. No section 168 credit is available, because no tax was deducted. Under section 162 the Commissioner could recover the Rs. 180,000 from her directly.

If Dr. Sana’s tax is paid first. Suppose it is established that the tax was paid six months after the date the hospital should have deducted it. Section 161(1B) stops recovery from the hospital, which owes default surcharge instead:

• Rs. 180,000 x 12% = Rs. 21,600 a year
• Rs. 21,600 x 6 / 12 = Rs. 10,800

What if the client is not a prescribed person?

Then there was no failure. A patient paying for a consultation, or a family paying an advocate from personal funds, is usually not on the section 153(7) list, so no deduction was required and sections 161 and 162 do not arise. The fee is still income and still goes in the return.

What if the total fees were under Rs. 30,000?

Section 153(1)(b) excludes payments for services that are less than Rs. 30,000 in aggregate in a financial year. If a prescribed client paid less than that in total, no deduction was required.

Common mistakes

• “The client missed it, so I owe nothing.” The fee is income whether or not tax was deducted, and section 162 reaches the person who was paid.
• Claiming a credit for tax never deducted. Section 168 credits deducted tax. A figure the client should have withheld is not a credit.
• Assuming both sides pay in full. Section 161(1B) stops recovery from the client once the tax is established as paid by the professional, leaving the client with default surcharge.
• Forgetting the client’s side. Section 21(c) and default surcharge are the client’s costs, and section 162(2) keeps them in place even when tax is recovered from the professional.

What to check in the official text

Read section 161 with sub-sections (1A), (1B) and (2), section 162, the proviso to section 21(c), section 168(2), and section 153(1)(b) with section 153(3). Confirm the rate in the First Schedule, Part III, Division III, paragraph (2)(ii). The Ordinance does not set out how a professional’s own payment is to be “established” for section 161(1B); that procedure is not in this corpus.