Final Tax Regime (FTR)
Tax collected at source is the full tax on that income. The income is kept out of taxable income, so it never pushes your slab up, and no expenses are allowed against it.
Where it applies
- Dividends (s.5, collected under s.150)
- Profit on debt such as bank profit and savings (s.7B, collected under s.151)
- Return on sukuk from an SPV (s.5AA)
- Prizes, prize bonds and lotteries (s.156)
- Non-resident royalty, fees and shipping income (s.6, s.7)
- Exports of goods (s.154) and services (s.154A) where the conditions are met
How it works, step by step
The section of law behind each step is shown beside it.
- 1Payer deducts taxs.150, s.151, s.156
The bank, company or agent deducts tax at the specified rate when paying.
- 2Tax deposited and certificate issueds.160, s.164
The withholding agent deposits the tax and issues a certificate.
- 3You declare it in the returns.115(4), s.169
FTR income goes in the separate 'final/fixed tax' section of the return, with the tax deducted.
- 4No further tax, no refunds.169(2)
Tax deducted is the final liability. If the payer deducted too little, the shortfall is payable.
Rates and rules
| Case | Rate / rule | Law |
|---|---|---|
| Dividend, general and REIT | 15% | Div III(b) |
| Dividend from IPP (pass-through) | 7.5% | Div III(a) |
| Dividend from mutual funds | 25% on the debt component and 15% on the equity component | Div III(ba) |
| Dividend where the company paid no tax (exemption, losses, credits) | 25% | Div III(d) |
| Bank or financial institution profit | 20% | Div IIIA(a) |
| Other profit on debt | 15% | Div IIIA(c) |
| Sukuk return, individual | 10% up to Rs 1 million; 12.5% above | Div IIIB |
| Royalty or fees for technical services (non-resident) | 15% of the gross amount | Div IV, s.6 |
| Shipping / air transport (non-resident) | 8% / 3% of gross receipts | Div V, s.7 |
Worked example
Bank profit of Rs 500,000: the bank deducts 20% (Rs 100,000). That is the final tax. The Rs 500,000 is not added to your salary, so your salary slab does not change.
Points to watch
- Non-ATL persons pay double the rate under the Tenth Schedule.
- FTR income still counts in your wealth reconciliation.
- Some FTR items have changed over the years; the rate applied is the one in force when the amount is paid.