Can a software house get an exemption or reduced-rate certificate so clients do not deduct section 153 tax?

Yes, but only where the law supports it. Section 159 of the Income Tax Ordinance lets the Commissioner issue an exemption or lower rate certificate for an amount that would otherwise suffer deduction under section 153, provided the amount is exempt, taxed at a lower rate, or covered by a 100% tax credit. A separate power in section 153(4) is narrower and, on its text, does not reach payments for services.

What does section 159 say?

Section 159(1) applies where the Commissioner is satisfied that an amount to which Division II or III of Part V of Chapter X 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 hundred percent tax credit under the Ordinance.

Section 153 is in Division III, so payments to a software house for services are covered. On an application in writing, in the prescribed form, the Commissioner “shall” issue an exemption or lower rate certificate.

Three provisos were added for companies:

1. The Commissioner shall issue the certificate within fifteen days of the company filing its application.
2. If that does not happen, the Commissioner is deemed to have issued the certificate on expiry of fifteen days, and it is “automatically processed and issued by Iris”.
3. The Commissioner may modify or cancel a certificate issued by Iris, with reasons recorded in writing, after giving an opportunity of being heard.

Section 159(2) tells the client what to do. A person required to deduct under Division III must deduct the full amount unless a certificate under section 159(1) is in force for that deduction, in which case it must comply with the certificate.

What does section 153(4) add?

Section 153(4) is a separate power. On application by the recipient, the Commissioner may allow, by written order, payment after deduction at a reduced rate, “in cases where tax deductible under sub-section (1) is not minimum”. The reduction “shall not exceed eighty percent of the rate specified in the said Division”, except for public limited companies, where the Commissioner may allow payment without any deduction. For a company that has discharged its advance tax liability, the reduced rate certificate is due within fifteen days and is deemed issued by Iris after that.

The limit matters for a software house. Section 153(3) says tax deductible under section 153(1) is minimum tax. Its provisos take out goods sold by manufacturers or listed companies and contracts executed by listed companies. Nothing takes out services. On the wording, IT services payments are minimum-tax payments, so section 153(4) does not appear to apply to them. Section 159 contains no similar “not minimum” limit.

When would a software house qualify under section 159?

The section turns on whether the amount is exempt, taxed at a lower rate, or covered by a full tax credit. One case the Ordinance spells out is a startup under section 65F, which receives a tax credit equal to one hundred percent of tax payable for the certification year and the next two tax years. That matches clause (c) of section 159(1).

For an ordinary software house earning local income, the Ordinance does not list what makes that income “subject to tax at a rate lower” than the First Schedule rate. It also does not say how section 159 interacts with the minimum tax status given by section 153(3). This page does not resolve that question.

Worked example (illustrative figures)

Nexa Systems (Pvt) Ltd, a Karachi company, files an application under section 159(1) on 3 March 2027 with its Commissioner.

1. Fifteen days from filing expire on 18 March 2027.
2. If no certificate or refusal has issued by then, the Commissioner is deemed to have issued it, and Iris processes and issues it automatically.
3. On 25 March a client pays Nexa Rs. 2,000,000 for IT services. Without a certificate, the Division III rate for IT services in tax year 2027 is 4%, a deduction of Rs. 2,000,000 x 4% = Rs. 80,000.
4. With a certificate in force for that deduction, section 159(2) requires the client to comply with it: no deduction if it is an exemption certificate, or the lower rate stated in it.

What if the Commissioner later cancels the certificate?

The third proviso lets the Commissioner modify or cancel an Iris-issued certificate after recording reasons and giving a hearing. The section does not say what happens to payments already made while the certificate was in force.

What if our company is not a public limited company?

The “without deduction of any tax” option in section 153(4) is limited to public limited companies. For other companies, that sub-section allows only a reduced rate, and only where the deduction is not minimum tax.

Common mistakes

• Treating sections 153(4) and 159 as the same. They have different conditions. Section 153(4) is limited to deductions that are not minimum tax.
• Assuming the fifteen-day rule applies to everyone. The deemed issue provisos in section 159(1) refer to a company.
• Expecting a client to stop deducting without a certificate. Section 159(2) requires full deduction unless a certificate is in force.

What to check in the official text

Read section 159(1) and (2), and section 153(3) and (4), in the official PDF. The prescribed application form and the Iris steps are not covered by this corpus. If you rely on the startup credit, read section 65F and clause (62A) of section 2.