Understanding the Tax Year in Pakistan
Tax year in Pakistan remains fixed from July 1 to June 30 under the Income Tax Ordinance (Amended 2024). This guide reflects the latest 2025 FBR circulars, including:
✔ New digital application process for special tax years
✔ Revised transitional tax year rules
✔ Updated penalty rates for non-compliance
Key 2025 Updates
1. Digital-Only Applications
- Since March 2025, all special tax year requests must be filed via FBR’s IRIS 2.0 Portal (no physical submissions).
- Processing time reduced to 30 days (previously 60).
2. Transitional Tax Year Changes
- Transition periods now capped at 6 months maximum (vs. 12 months pre-2025).
- Must file Form TT-12 for transitional income reporting.
3. Stricter Penalties
| Violation | New 2025 Penalty |
|---|---|
| Late tax year switch application | PKR 50,000 fine |
| Incorrect transitional filing | 0.15% daily interest (up from 0.1%) |
Revised Step-by-Step: Changing to Special Tax Year (2025)
Step 1: Portal Registration
- Register on IRIS 2.0 (requires NTN, mobile verification).
Step 2: Submit E-Application
- Upload:
- Board resolution (for companies)
- Audited financials showing need for special cycle
- Form STY-2025 (new digital form)
Step 3: Pay Fees
- PKR 10,000 processing fee (non-refundable).
- PKR 25,000 Gazette notification fee (if approved).
Step 4: Track Status
- Receive SMS updates at each stage.
- Download approval letter directly from IRIS.
2025 Deadlines to Note
- Normal Tax Year Filers: Submit returns by September 30, 2025 (for July 2024-June 2025).
- Special Tax Year Applicants: Apply before May 31, 2025 for 2026 cycle changes.
Why This Matters in 2025?
- Exporters: Align with global clients’ December year-ends to simplify reporting.
- E-commerce: Match with platform fiscal years (e.g., Amazon’s January-December).
- Avoid Penalties: 2025 penalties are 50% higher than 2024.
FAQs
Q1: Can I switch back to normal tax year after 2025?
A: Yes, but with conditions:
- Must file Form RTN-2025 on IRIS 2.0
- Wait 3 years before reapplying for special year
- Pay PKR 15,000 reversion fee
Q2: My business started in March 2025 – Which tax year applies?
A: Default is July 2024-June 2025 (normal year). However:
✔ First return covers March-June 2025 (4 months)
✔ Next year automatically aligns to July 2025-June 2026
Q3: Are there industries banned from special tax years in 2025?
A: Yes, per SRO 592(2025):
❌ Banking & insurance (must use normal year)
❌ Government contractors
❌ Taxpayers under FBR audit
Q4: How does transitional tax year work for FY 2025-26?
A: Example for switching to January-December:
- Last Normal Year: July 2024-June 2025
- Transition Year: July 2025-December 2025 (6 months)
- New Special Year: January 2026-December 2026
Note: Transition period income taxed at 5% higher rate
Q5: What’s the penalty for missing 2025 deadlines?
A: Escalating fines:
- 1-30 days late: PKR 1,000/day
- 31+ days late: Case referred to FBR Prosecution Wing
Q6: Can freelancers use special tax years?
A: Only if:
✔ Registered as sole proprietor/LLP
✔ Annual income > PKR 10M
✔ Provide client contracts proving foreign payment cycles
Q7: Where to check my tax year status?
A:
- Log in to IRIS 2.0
- Go to “Tax Year Status” dashboard
- Download Certificate of Tax Year
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