Do I have to file a return if my business income is below the taxable limit, and what must it include?

Being under the taxable limit and being excused from filing are two different things in the Income Tax Ordinance. Section 114 lists several tests, and income is only one of them. A small shop owner with an NTN or a chamber membership is required to file even when no tax is payable.

Who has to file a return?

Section 114(1) lists the persons who must furnish a return of income for a tax year. For an individual in business, the relevant clauses are:

• (ab) a person whose taxable income exceeds the maximum amount not chargeable to tax. For a non-salaried individual, the clause (1) table in Division I, Part I of the First Schedule charges 0% where taxable income does not exceed Rs. 600,000.
• (ae) a person whose income for the year is subject to final taxation under any provision of the Ordinance.
• (b) a person not covered by the earlier clauses who:
  • (i) was charged to tax for either of the two preceding tax years;
  • (ii) claims a loss carried forward for the tax year;
  • (iii) to (v) owns immovable property of 500 square yards or more, or certain flats, in the areas the clauses describe;
  • (vi) owns a motor vehicle above 1000 cc;
  • (vii) has obtained a National Tax Number;
  • (viii) holds a commercial or industrial electricity connection with an annual bill above Rs. 500,000;
  • (ix) is a resident registered with a chamber of commerce and industry, a trade or business association, a market committee or a listed professional body;
  • (x) is a resident individual required to file a foreign income and assets statement under section 116A.
• (c) persons or classes of persons notified by the Board.

Section 114(1A) separately says an individual whose income from business exceeds Rs. 300,000 but not Rs. 400,000 in a tax year must file.

Section 114(4) lets the Commissioner, by notice, require a return from a person who should have filed but did not. Under section 114(5), such a notice can cover up to the last five completed tax years, or ten where no return was filed for any of the last five.

What must the return include?

Section 114(2) says a return:

• is in the prescribed form, with the prescribed annexures, statements or documents;
• fully states the particulars required by the form, including a declaration of the records kept by the taxpayer;
• is signed by the individual;
• is accompanied by evidence of payment of the tax due on the return;
• is accompanied by a wealth statement under section 116;
• is accompanied by a foreign income and assets statement under section 116A, where that applies.

Section 114(2A) requires the return to be filed electronically on IRIS as the Board prescribes. Section 116(2) requires every resident individual filing a return to include a wealth statement and a wealth reconciliation statement. Section 116(1) describes what a wealth statement covers: assets and liabilities, including foreign ones, those of a dependent spouse, minor children and other dependents, assets transferred to others, and total expenditure.

The sections covered on this page do not require an individual’s business accounts to be audited. The prescribed forms and annexures themselves are set by the Board and are not reproduced in this corpus.

When is it due?

Section 118(3)(b) makes the return of any person other than a company due on or before 30 September following the end of the tax year. Section 118(4) makes the wealth statement due by the same date. Section 118(6) says a return from a person not on the National Tax Number Register who fails to apply in the prescribed form with the return is not treated as a return.

Section 119 allows a written application for more time, made by the due date. The Commissioner may grant it for absence from Pakistan, sickness or other misadventure, or any other reasonable cause. It is normally up to fifteen days unless exceptional circumstances justify longer. Section 119(6) says an extension does not change the due date for paying tax, for default surcharge purposes.

Worked example (illustrative figures)

Ahmed repairs mobile phones in Saddar, Karachi. His taxable income for tax year 2027 is Rs. 450,000, inside the 0% band. He obtained an NTN two years ago and is registered with the local traders’ association. His shop’s commercial electricity bill for the year is Rs. 360,000.

• Clause (ab): does not apply, because Rs. 450,000 does not exceed Rs. 600,000.
• Clause (b)(viii): does not apply, because Rs. 360,000 does not exceed Rs. 500,000.
• Clause (b)(vii): applies, because he has obtained an NTN.
• Clause (b)(ix): applies, because he is registered with a trade association.

Ahmed must file a return for tax year 2027, with a wealth statement and wealth reconciliation, by 30 September 2027. His tax is nil, but the return is still required.

What if I file late?

Serial 1 of the table in section 182 sets the penalty for failing to file a return under section 114 by the due date. It is the higher of 0.1% of the tax payable for each day of default, or Rs. 1,000 for each day of default. The minimum is Rs. 10,000 for an individual with seventy-five percent or more income from salary, and Rs. 50,000 in all other cases. The maximum is two hundred percent of tax payable. The penalty is reduced by 75%, 50% and 25% if the return is filed within one, two or three months after the due date or extended due date. The entry does not spell out how the minimum and the reductions interact, and this page does not resolve that.

Common mistakes

• Treating “no tax” as “no return”. Section 114(1)(b) requires returns from many people with no tax payable.
• Forgetting the wealth statement. Section 114(2)(e) and section 116(2) make it part of the return.
• Applying for an extension after 30 September. Section 119(2) requires the application by the due date.
• Using the salaried table. A sole proprietor whose income is mainly business uses clause (1), not clause (2), of Division I.

What to check in the official text

Read the full list in section 114(1)(b), especially the property clauses, which depend on location and size. Check whether the Board has notified any class of persons under section 114(1)(c). The prescribed return form and annexures are set by the Board and are outside this corpus.