50% Disallowance on Cash Receipts Above Rs. 200,000

🔹 New Tax Provision Introduced via Finance Act 2025

The Finance Act 2025 has introduced a significant amendment to Section 21 of the Income Tax Ordinance, 2001, by inserting a new clause (s). Under this provision, 50% of the business expenditure related to sales will be disallowed if the payment is received in cash exceeding Rs. 200,000 per invoice.

Legislative Text:

“Fifty percent of the expenditure claimed in respect of sale where the taxpayer received payment exceeding two hundred thousand rupees otherwise than through a banking channel or digital means against a single invoice containing one or more than one transactions of supply of goods or provisions of services shall be disallowed.”

🔍 What This Means:
If a taxpayer receives more than Rs. 200,000 in cash for any single invoice—regardless of whether it includes multiple items or services—half of the associated expenditure cannot be claimed as a tax-deductible expense.

✅ Key Takeaways:

• For invoices exceeding Rs. 200,000, ensure payment is made via bank transfer or digital channels.
• This rule applies per invoice, not per transaction.
• The measure aims to discourage the undocumented (cash-based) economy and encourage traceable, digital payments.

📌 Bottom Line:
To avoid tax disallowance, businesses must adopt formal banking and digital methods for high-value payments.