Finance Act 2025 introduces major tax reforms across sectors

August 04, 2025 (MLN): In a sweeping legislative update, the government has ushered in a new era of taxation through the Finance Act 2025, reshaping rules to tighten compliance, expand the formal economy, and encourage digital transactions.

The Federal Board of Revenue’s latest circular mentioned detailed insights into these reforms, which affect salaried individuals, pensioners, e-commerce vendors, researchers, and high-value asset buyers.

E-commerce Tax Regime:

A new framework mandates registration of online sellers, enforces withholding tax on digital transactions (1% for digital payments, 2% for CoD), and introduces final taxation under Section 6A. Penalties now apply for non-compliance by couriers and platforms.

Pension Taxation Update:

Pensions from former employers are now taxable at 5% if annual income exceeds Rs10 million for individuals under 70. Exemptions remain for voluntary schemes and specified conditions.

Advance Tax on Cash Withdrawals:

Non-filers withdrawing over Rs. 50,000/day will face an increased tax rate of 0.8%, up from 0.6%.

Tax Relief for Salaried Class:

Revised progressive slabs aim to reduce burden on middle-income earners, with rates starting at 1% above Rs. 600,000.

Reinstated Tax Rebate for Educators:

A 25% rebate for full-time teachers and researchers returns, applicable for tax years 2023 to 2025.

Tightened Audit Selection Criteria:

Revisions to audit selection clauses now provide a three-year immunity to taxpayers whose returns have been previously audited.

Restrictions on Unregistered Expenditures:

New clauses disallow certain expenses tied to unregistered vendors or undocumented payments, reinforcing formalization.

Capital Gains on Debt Securities:

Banks must withhold 15% tax on capital gains from debt securities sold over counters. For non-residents, a new holding period condition affects gain taxation.

Revised Property Transaction Taxes:

Adjusted rates under Sections 236C and 236K aim to simplify capital gain compliance and offer exemptions under strict use and declaration conditions.

Exemptions Rationalized:

Blanket exemptions for non-profit entities have been replaced with targeted tax credits subject to conditions under Section 100C.

Economic Transaction Eligibility:

Section 114C now bars certain high-value purchases by individuals lacking documented financial capacity, signaling an intent to curb informal wealth usage.

Extended Exemptions for Tribal Areas and Cinemas:

Deadline extensions granted to incentivize investment and cultural development.

These amendments reflect the government’s push for digital integration, audit streamlining, and expanding the formal tax base while incentivizing education and salaried workers.

Copyright Mettis Link News