Is there extra tax on a new car sold on 'own money' before it is registered?

“Own money” is the extra amount a buyer pays to get a new car quickly from someone who booked it earlier. The Income Tax Ordinance, 2001 does not use that phrase, but section 231B(2A) targets exactly this sale: a new, locally made vehicle sold on by its first buyer before it is registered. This page uses the Ordinance as amended to 30 June 2026, so the amounts are those for tax year 2027.

What does the law say?

Section 231B(2A) requires every motor vehicle registration authority of the Excise and Taxation Department to collect tax at the time of registration, at the rates in Division VII of Part IV of the First Schedule, if the locally manufactured motor vehicle has been sold prior to registration by the person who originally purchased it from the local manufacturer.

The rates are in clause (3) of Division VII, which applies to sub-section (2A):

Engine capacity	Tax
Up to 1000cc	Rs. 100,000
1001cc to 2000cc	Rs. 200,000
2001cc and above	Rs. 400,000

Unlike clause (1), which is a percentage of value, clause (3) is a fixed rupee amount for each band. The price of the car and the size of the premium do not change it.

How does it work in practice?

Three conditions in section 231B(2A) must all be met:

1. The vehicle is locally manufactured.
2. It was sold prior to registration.
3. The seller is the person who originally purchased it from the local manufacturer.

When they are met, the tax is collected at registration, so in practice it is collected from the person presenting the car for registration, usually the second buyer. Section 231B(5) says advance tax collected under the section is adjustable, which means it counts towards income tax for the year when a return is filed.

The original buyer is not refunded the tax the manufacturer collected from them under section 231B(3). That amount remains their own adjustable advance tax under section 231B(5).

Worked example (illustrative figures)

Nadia in Rawalpindi booked a locally assembled 1,298cc car. When it was delivered, she sold it unregistered to Usman in Faisalabad for her invoice price plus Rs. 450,000. Usman appears in the active taxpayers’ list.

1. The car is locally manufactured, sold before registration, by the original buyer. Section 231B(2A) applies.
2. Engine band in clause (3): 1001cc to 2000cc, so the tax is Rs. 200,000.
3. The Rs. 450,000 premium plays no part in the calculation.
4. At registration the Excise and Taxation registering authority collects Rs. 200,000 under section 231B(2A).

If Usman did not appear in the active taxpayers’ list, the first proviso to rule 1 of the Tenth Schedule says tax “under section 231B” is increased by two hundred percent of the First Schedule rate. The proviso does not exclude sub-section (2A). On its words, Rs. 200,000 increased by 200% of itself would be Rs. 600,000.

What if the second buyer is also asked for the registration tax under section 231B(1)?

This is a question the text does not settle clearly. Section 231B(1) applies to every registration of a motor vehicle at the clause (1) percentage rates. Section 231B(4) switches off sub-section (1) only where the tax under sub-section (3) was collected “from the same person in respect of the same vehicle”. In an own money sale, the manufacturer collected tax from Nadia, not from Usman.

Section 231B(2A) does not say whether it replaces the sub-section (1) collection for the second buyer or sits on top of it. This page does not resolve that point. Anyone in this position should read sub-sections (1), (2A) and (4) together in the official text.

What if the car was imported?

Section 231B(2A) is limited to a “locally manufactured motor vehicle”. Imported vehicles are dealt with through section 148 at import and section 231B(4); see the imported car page.

Common mistakes

• Thinking the tax is a percentage of the premium. Clause (3) is a fixed amount per engine band.
• Using the clause (1) bands. Clause (1) has nine bands from 850cc upwards; clause (3) has only three: up to 1000cc, 1001cc to 2000cc, and 2001cc and above.
• Registering in the original buyer’s name to avoid it. The condition is a sale before registration by the original buyer. Whether a later transfer is then taxed is a separate matter under section 231B(2) and clause (2) of Division VII.
• Assuming the premium itself is taxed here. Section 231B(2A) taxes the registration event. Whether the original buyer’s gain is taxable income is a separate question this page does not address.

What to check in the official text

Read section 231B(1), (2A), (4) and (5), and the Table in clause (3) of Division VII of Part IV of the First Schedule. Sub-section (2A) was inserted by the Finance Act, 2021, and the clause (3) Table was substituted by the Finance (Supplementary) Act, 2022; footnotes in the official PDF show the lower amounts it replaced, which no longer apply. Check the first proviso to rule 1 of the Tenth Schedule for the position of a person not in the active taxpayers’ list.