How To file FBR 147 notice for advance tax in Pakistan

Advance Tax under Section 147 of the Income Tax Ordinance, 2001 is a tax system used by the Federal Board of Revenue (FBR) in Pakistan, where certain taxpayers are required to pay their income tax in installments before the end of the tax year. This system ensures that tax is collected progressively throughout the year, instead of at the year-end, improving cash flow for the government.

Key Points of Advance Tax under Section 147

1. Who is Liable to Pay Advance Tax? Advance tax under Section 147 is applicable to:

   • Companies
   • Association of Persons (AOPs)
   • Individuals with significant income not subject to withholding tax (e.g., business income, rental income)

   Taxpayers with predictable and continuous income are often required to pay advance tax, especially when a large part of their income is not already taxed at source.

2. Calculation of Advance Tax: Advance tax is based on the estimated income of the taxpayer for the ongoing tax year. It is calculated as follows:

   • For individuals and AOPs, the tax is based on the last assessed tax liability.
   • For companies, it is based on the estimated income for the current year or past year's tax returns.

3. Installments and Payment Deadlines: The advance tax is payable in four quarterly installments, and the deadlines are as follows:

   • 1st Installment: Due by September 25th (25% of the estimated tax liability).
   • 2nd Installment: Due by December 25th (50% of the total tax, less the first installment).
   • 3rd Installment: Due by March 25th (75% of the total tax, less previous installments).
   • 4th Installment: Due by June 15th (100% of the total tax, less previous installments).

4. Exemptions from Advance Tax: Not all taxpayers are required to pay advance tax. Certain individuals and entities are exempt, such as:

   • Individuals whose income is primarily subject to withholding tax.
   • New businesses in their first year of operations.
   • Income that is subject to minimum tax or final tax regimes may also be exempt.

5. Calculation Formula: The advance tax amount is calculated using the formula:

   $$\text{Advance Tax Payable} = \frac{\text{Last Year’s Tax Liability} + \text{Estimated Income Increase}}{4}$$

   The tax is then divided into four installments, payable quarterly.

6. Adjustment of Advance Tax: The advance tax paid throughout the year is adjusted at the time of filing the annual income tax return. If the advance tax paid is greater than the actual tax liability for the year, the taxpayer may either apply for a refund or adjust the excess amount against future tax liabilities.

7. Failure to Pay Advance Tax: If a taxpayer fails to pay advance tax within the specified timeframe, penalties, and additional surcharges may be applied. This can lead to additional costs and complications during the final tax assessment.

How Section 147 Helps FBR and Taxpayers:

• For FBR: It helps maintain a consistent revenue stream for the government throughout the fiscal year, avoiding a massive collection burden at the end of the tax year.
• For Taxpayers: It reduces the burden of paying a large lump sum at the end of the tax year and allows for easier cash flow management by paying smaller, more frequent amounts.

In summary, advance tax under Section 147 ensures timely tax collection and helps both the FBR and taxpayers manage taxes more effectively throughout the year.

To file an FBR 147 notice for advance tax in Pakistan, you need to follow the procedure outlined by the Federal Board of Revenue (FBR). Here’s a step-by-step guide on how to file the notice:

Step-by-Step Process to File FBR 147 Notice for Advance Tax:

1. Login to IRIS System:

   • Go to the FBR IRIS portal at https://iris.fbr.gov.pk.
   • Enter your username and password to log in.

2. Navigate to the Notice:

   • Once logged in, go to the "My Tasks" section.
   • Look for the notice related to Section 147 (Advance Tax). This notice will typically appear as a task in your dashboard if you’ve been issued a notice for advance tax by the FBR.

3. Respond to the Notice:

   • Click on the notice to open it.
   • Review the details of the notice, such as the amount of tax and the due dates for payment.

4. Determine Advance Tax Liability:

   • Calculate your advance tax liability, based on your estimated income for the current tax year.
   • Advance tax is calculated in four installments, payable on quarterly bases as per the following schedule:
     • 1st Installment: 25% of the total estimated tax by September 25th.
     • 2nd Installment: 50% of the total estimated tax (after including the first installment) by December 25th.
     • 3rd Installment: 75% by March 25th.
     • 4th Installment: 100% by June 15th.

5. Submit a Reply:

   • In IRIS, after opening the notice, you will have the option to respond to the notice by submitting details regarding your estimated income and the advance tax payments.
   • You will need to submit a challan form for the advance tax payment you are making.

6. Generate Challan Form (PSID):

   • To pay advance tax, generate a Payment Slip ID (PSID) by going to the Payment section.
   • Select the appropriate head of account for advance tax and enter the amount.
   • The system will generate a PSID, which you can use to make the payment at a bank or through online banking.

7. Make Payment:

   • You can pay the advance tax using the PSID at any designated bank or through your bank's online payment system.
   • After payment, keep a copy of the payment receipt for your records.

8. Submit Payment Proof:

   • Once the payment is made, go back to IRIS and upload the payment proof (challan form) under the appropriate section.

9. Confirmation:

   • After filing your reply and making the payment, ensure that your advance tax notice is marked as filed or responded in IRIS.

By completing these steps, you will have successfully filed your FBR 147 notice for advance tax.