Advance tax under section 147: quarterly instalments in Pakistan
Advance tax under section 147 is the single most misunderstood recurring obligation for business taxpayers in Pakistan, largely because it runs on a rhythm most people never see in payroll. Salary tax is collected month by month before anyone files anything; advance tax does the same job for business income, but it puts the responsibility on the taxpayer to compute and deposit the tax in four instalments during the year itself. This guide sets out who is caught, how each instalment is worked out, when they fall due, and how the payments land back on the annual return.
What section 147 actually requires
Section 147 is a collection mechanism, not a separate tax. The final liability is still determined on the annual return under the ordinary rules for the relevant income head. What section 147 does is require that a large part of that liability is paid before the return, in quarterly instalments, so that the government collects revenue closer to when the income is earned rather than many months afterward.
The obligation applies principally to taxpayers with business income, and to certain other income where no monthly deduction is already collecting the tax. A person whose income is entirely salary subject to deduction under section 149 sits outside the instalment machinery, because the tax is already being collected each month. The distinction matters: mixing the two treatments is one of the most common errors, and it is worth confirming the correct head for each income stream in the annual income tax computation before assuming section 147 applies to the whole figure.
Who pays, and who does not
Broadly, the instalment obligation reaches business individuals, associations of persons and companies above the relevant thresholds. The following distinctions decide the question in practice:
- Salary-only taxpayers are excluded. Where section 149 deduction covers the income, section 147 does not layer a second collection on top.
- Business income is the core case. A sole proprietor, an association of persons or a company earning business profits is the intended target of the instalment regime.
- Small taxpayers below the statutory floor may be relieved. The Ordinance sets a threshold below which no instalment is required; confirm the current figure before concluding that a small business must pay.
Because the thresholds and the categories are periodically amended, the safe approach is to confirm status against the enacted law for the year rather than carry an assumption forward from a previous year.
You draw a salary, tax is deducted at source every month, and you want the return filed properly without spending a weekend inside IRIS.
How each instalment is computed
The instalment is not a guess and it is not simply a quarter of last year's tax. The statutory formula starts from the tax assessed for the latest tax year, scales it by the ratio of the current quarter's turnover to the corresponding turnover in the base year, and then deducts tax already collected by withholding in the quarter. In plain terms:
A worked illustration makes the mechanic concrete. Suppose the latest assessed tax was Rs 1,200,000 and the business expects broadly similar turnover this year. A rough quarterly instalment is Rs 300,000. If Rs 40,000 of tax was withheld from the business's receipts during the quarter, the instalment to deposit is Rs 260,000. Repeating this each quarter spreads roughly the full expected liability across the year, leaving only a small balance — or a refund — at filing.
| Quarter | Base instalment | Withholding suffered | Net to deposit |
|---|---|---|---|
| Q1 | Rs 300,000 | Rs 40,000 | Rs 260,000 |
| Q2 | Rs 300,000 | Rs 55,000 | Rs 245,000 |
| Q3 | Rs 300,000 | Rs 30,000 | Rs 270,000 |
| Q4 | Rs 300,000 | Rs 45,000 | Rs 255,000 |
The figures above are illustrative; the point is the method. Each quarter is computed on its own turnover and its own withholding, so a business with a seasonal pattern will pay uneven instalments — larger after a strong quarter, smaller after a weak one.
When the instalments fall due
The instalments are quarterly, tied to the taxpayer's tax year rather than the calendar. Because the precise dates are periodically restated and differ slightly between individuals, associations of persons and companies, they should be confirmed on the FBR due-dates page each year and entered in a compliance calendar. Missing a date does not cancel the tax; it adds default surcharge running from the due date to the date of actual payment, so a diarised reminder well ahead of each quarter end is worth more than it costs.
Lowering an instalment when income falls
The regime is not blind to a bad year. Where the current year's income will genuinely be lower than the basis on which the instalment was computed, the Ordinance allows a lower estimate to be filed with the Commissioner, supported by workings that show why. This is a real relief, but it carries a real condition: the estimate must be honest and evidenced. An unsupported low estimate filed purely to conserve cash, which later proves optimistic, exposes the taxpayer to surcharge on the difference — so the estimate should be prepared with the same care as the return itself.
How the payments reach your return
Every instalment deposited during the year is an advance payment of the final tax, and each one is credited against the liability computed on the annual return. If the four instalments plus any withholding exceed the final tax, the excess is a refundable credit — pursued through the ordinary refund process. If they fall short, the balance is payable with the return. Either way, the instalments must be reconciled to the return before submission: each deposit traced to its challan and matched to the tax credited in the taxpayer's FBR record, so that the return claims exactly what was paid and no more.
Treated properly, section 147 is simply cash-flow discipline: it turns a single large payment at filing into four manageable ones during the year, and it removes the year-end shock that catches businesses which never planned for the tax at all.
Sources
This guide is written against the official and clearly labelled professional references below. Rates, thresholds and portal procedures change between reviews, so open the primary source before relying on a figure.
Questions people also ask
When exactly are the four advance tax instalments due each year?
The instalments fall on the fifteenth day of the last month of each quarter of the tax year for individuals and associations of persons, with companies following the equivalent quarterly pattern. Because the exact dates shift with the taxpayer's tax year and are periodically restated, confirm the current instalment calendar on the FBR due-dates page before diarising them, rather than relying on last year's diary.
Does a fully salaried person have to pay advance tax under section 147?
A person whose only income is salary, from which tax is already deducted at source under section 149, is outside the section 147 instalment machinery. Advance tax under section 147 bites on business and other income where no equivalent monthly deduction is collecting the tax as it arises. A salaried person with a side business should look only at the business portion.
What happens if I underpay an advance tax instalment?
Underpaying attracts default surcharge on the shortfall, calculated from the day the instalment was due to the day it is actually paid. The tax itself does not disappear — it simply moves to the return with a surcharge attached. Paying a realistic instalment on time is almost always cheaper than paying the surcharge later, so a deliberate underpayment to preserve cash is a false economy.
Can I reduce my instalment if my income has fallen this year?
Yes. Where a taxpayer can demonstrate that the current year's income will be lower than the basis on which the instalment was computed, the Ordinance allows a lower estimate to be filed with the Commissioner, supported by workings. The estimate must be honest and evidenced; an unsupported low estimate that later proves wrong exposes the taxpayer to surcharge on the difference.
Is advance tax the same thing as withholding tax?
No, though both are payments toward the annual liability made before the return. Withholding tax is deducted by a payer at the moment of a transaction. Advance tax under section 147 is paid by the taxpayer directly, on the taxpayer's own initiative, in scheduled quarterly instalments. Both are credited on the return, and both can produce a refund if together they exceed the final tax.
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