Is my input tax lost if I paid the supplier in cash instead of through the bank?

Paying a supplier in cash does not always cost the buyer input tax. It does once payments to that supplier in a tax period cross the section 73 threshold. From then on, the Sales Tax Act, 1990 ties the claim to how the money moved as well as to the invoice.

What does the law say?

Section 73(1) requires payment for a transaction exceeding Rs. 50,000 “in aggregate to a single supplier in a tax period” to be made by a crossed cheque, crossed bank draft, crossed pay order or another crossed banking instrument. The payment must show transfer of the sales tax invoice amount to the supplier from the buyer’s business bank account. Payments against a utility bill are excluded. The words “in aggregate to a single supplier in a tax period” were inserted by the Finance Act, 2024.

Two provisos widen what counts as payment through the bank:

• Online transfer and credit card. An online transfer from the buyer’s business account to the supplier’s business account, and a payment by credit card, both count as banking channel transactions if they can be verified from both parties’ bank statements.
• Set-off. Adjusting amounts payable and receivable with the same party counts as payment if sales tax has been charged and paid by both parties where applicable, and the Commissioner’s prior approval was sought.

Section 73(2) sets the consequence. The buyer is not entitled to input tax credit, adjustment or deduction, or to refund, repayment, drawback or zero-rating, if payment is made otherwise than as sub-section (1) requires. For a transaction on credit, the payment must be transferred in that manner within 180 days of the tax invoice being issued.

Section 73(3) applies to the supplier. The money must be deposited in the supplier’s business bank account, or the supplier loses the same entitlements.

What counts as a business bank account?

The Explanation to section 73 defines it as a bank account used by the registered person for business transactions and declared to the Commissioner through Form STR-1 or a change of particulars in the registration database. Section 22(1) separately requires registered persons to keep “banking instruments in terms of section 73” among their records. Section 22(1A) lets the Board, by notification, limit the number of business bank accounts a registered person may use for purchase and sale payments.

Worked example (illustrative figures)

A knitting unit in Lahore buys from one dye and chemical supplier during the tax period of March 2027.

Invoice	Invoice amount (including sales tax)	Paid how
4 March	Rs. 30,000	Cash
18 March	Rs. 35,000	Cash
Total to this supplier in March	Rs. 65,000

1. The aggregate to this single supplier in the tax period is Rs. 65,000, which exceeds Rs. 50,000.
2. The payments were made in cash, not from the business bank account, so section 73(2) is engaged for this supplier in this period.
3. Section 73 does not say whether only the invoice that takes the total over Rs. 50,000 is affected, or every invoice in the aggregate. The text is silent on that split.

Now take a credit purchase of yarn. The invoice is dated 5 January 2027, and the unit pays by online transfer from its declared business account.

• Days left in January after the 5th: 26
• February 2027: 28 days (running total 54)
• March: 31 (85), April: 30 (115), May: 31 (146), June: 30 (176)
• 4 more days in July: 180

The transfer must be made by 4 July 2027 to stay within the 180 days in section 73(2).

What if I export the goods made from those inputs?

Section 73(2) removes refund and zero-rating, not only input tax adjustment. For an exporting mill, input tax on a purchase paid in breach of section 73(1) cannot be recovered through a refund claim either.

What if the supplier banks the money in a personal account?

Section 73(3) puts the consequence on the supplier. He loses input tax, refund and zero-rating entitlements if the amount is not deposited in his business bank account. For online transfers, the proviso to section 73(1) also refers to the supplier’s business account and to verification from the supplier’s bank statement. A buyer paying into an undeclared supplier account may therefore struggle to show the payment met the proviso.

Common mistakes

• Counting each invoice separately. Since the Finance Act, 2024, the Rs. 50,000 test is the aggregate paid to a single supplier in a tax period.
• Setting off balances without approval. An adjustment of payables and receivables counts only with the Commissioner’s prior approval.
• Paying credit invoices late. A credit purchase paid through the bank after 180 days from the invoice date falls outside section 73(2).
• Stretching the utility bill exclusion. Section 73(1) excludes only payment against a utility bill. Purchases of yarn, dyes or chemicals are not covered by it.

What to check in the official text

• Section 73(1), (2) and (3) and the Explanation of the Sales Tax Act, 1990, as amended to 30 June 2026.
• Section 22(1)(e) and (1A) on records and business bank accounts.
• Any Board notification under section 22(1A) limiting the number of business bank accounts. No such notification is held in this corpus.