Govt to raise high-value cash sales limit to Rs. 2.5 million for businesses

ISLAMABAD: The government has suggested increasing limit from Rs. 200,000 to Rs. 2.5 million for disallowance of expenditure that is attributable to cash sales in excess of Rs. 2.5 million per transaction.

Amendment of Section 21 of the Income Tax Ordinance 2001 restricting deduction of expenses for cash sales in excess of Rs. 200,000 has created significant apprehension among the business community.

The government has now asked to enact this law in phases to safeguard the revenue collection as well as ensure documentation, sources added.

With the suggested new law, the law would come into effect fully in three years time in stages. In the first year, the amount of Rs. 200,000 is suggested to be raised to Rs. 2.5 million for disallowing expenditure on a transaction. In the second year, the amount would be lowered from Rs. 2.5 million to Rs. 1.5 million and then to Rs. 0.5 million.

The rate of disallowance would be reduced from 50 percent to 20 percent, which would be raised gradually in three years, the new proposal stated.

The details added that the disallowance brought through Section 21 of the Income Tax Ordinance, 2001 applies only to the head “Income from Business”, as defined under Section 18.

This provision prohibits 50 percent of the spending relating to cash transactions over Rs. 200,000 per transaction under Finance Act 2025.

Therefore, the limitation only comes into force for business income and cannot be brought into force in case of individuals or organizations receiving income under any other head.