Can a professional get an exemption or reduced-rate certificate so clients deduct less tax from fees?

Professionals with heavy running costs often ask whether they can stop clients from taking the full rate out of every fee. The Income Tax Ordinance has two routes to a lower deduction: an order under section 153(4) and a certificate under section 159. On the current text, both are narrow for fees from services.

What does the law say?

The deduction and its rate. Section 153(1)(b) requires prescribed persons to deduct tax from payments for services. The First Schedule, Part III, Division III, paragraph (2)(ii) sets 15% for tax year 2027 on independent professional services such as those of doctors, lawyers, architects and accountants.

Minimum tax. Section 153(3) says tax deductible under section 153(1) “shall be minimum tax”. Its provisos exclude certain sales of goods by manufacturers and listed companies, and certain contracts by listed companies. They do not exclude services.

Section 153(4): Commissioner’s order. On application by the person receiving the payment, the Commissioner may, “in cases where tax deductible under sub-section (1) is not minimum”, allow payment “after deduction of tax at reduced rate but such reduction shall not exceed eighty percent of the rate specified in the said Division”. Public limited companies may be allowed payment without any deduction. Provisos set a fifteen day time limit, and deemed issue through Iris, for applications by companies.

Section 159: exemption or lower rate certificate. Section 159(1) says that where the Commissioner is satisfied that an amount to which Division III applies is:

• (a) exempt from tax under the Ordinance;
• (b) “subject to tax at a rate lower than that specified in the First Schedule”; or
• (c) subject to a hundred percent tax credit under the Ordinance,

the Commissioner shall, on written application in the prescribed form, issue an exemption or lower rate certificate. Section 159(2) then binds the payer: it deducts the full amount “unless there is in force a certificate issued under sub-section (1) relating to the collection or deduction of such tax”.

What does this mean for a professional?

Section 153(4) does not reach services. The power only exists where the tax “is not minimum”. Tax on services is minimum under section 153(3), so the condition is not met on the face of the text.

Section 159 depends on the nature of the amount. Each of the three grounds is about how the Ordinance treats the amount: exempt, taxed at a lower rate, or fully credited. The grounds do not mention expenses, low profit or losses. A professional whose fees are an ordinary taxable receipt at the normal rate does not fall under any of them as written.

Minimum tax limits the benefit anyway. Section 153(3) fixes the deducted tax as the minimum on the fees. Even a lower deduction would not reduce the minimum tax the Ordinance sets on those fees, unless the certificate itself rests on one of the section 159 grounds. The Ordinance does not spell out how a lower rate certificate interacts with minimum tax, so this page does not resolve that.

Worked example (illustrative figures)

Hina is a chartered accountant practising alone in Faisalabad. In tax year 2027 corporate clients pay her fees of Rs. 5,000,000, and her office rent, staff and software cost Rs. 4,200,000.

1. Tax deducted at 15%: Rs. 5,000,000 x 15% = Rs. 750,000.
2. Profit from the practice: Rs. 5,000,000 - Rs. 4,200,000 = Rs. 800,000.
3. Minimum tax on the fees under section 153(3): Rs. 750,000.

Hina applies for a reduced rate.

• Under section 153(4): not available, because the tax on her fees is minimum tax.
• Under section 159(1): her fees are not exempt, not taxed at a lower First Schedule rate, and not subject to a full tax credit. The high costs leading to a profit of Rs. 800,000 are not one of the listed grounds.

The deduction remains Rs. 750,000 and is her minimum tax on those fees.

What if …?

Part of the income is exempt. If a specific receipt is exempt under the Ordinance, section 159(1)(a) is the route, and the certificate would cover that amount.

The practice is run by a company. The limits on section 153(4) and the Iris provisos are written with companies in mind, and some provisos to section 153(3) turn on the type of payee. A practice run through a company is outside the scope of this page.

Common mistakes

• Relying on the old section 153(4). Before the Finance Act, 2024, section 153(4) could allow payment without deduction. The substituted text allows only a reduced rate, and still only where the tax is not minimum.
• Treating a loss as grounds for a certificate. Section 159(1) does not list it.
• Asking the client to deduct less without a certificate. Section 159(2) requires the full deduction unless a certificate is in force.

What to check in the official text

Read section 153(3) and (4) in full, including the provisos, and section 159(1) and (2). Check the prescribed application form under the Income Tax Rules. Confirm the rate in the First Schedule, Part III, Division III, paragraph (2).