This Blog is written Mr. M. Nabeel Ahmed, Senior Associate Taxation Advisory Services Khilji and Co Chartered Accountants. Please read this blog and provide your valued comments.
If the remittances are through unexplained sources that is are either not supported with proper evidence or the evidence provided does not reconcile the amount remitted it falls under the category of unexplained income and concealment of assets under section 111 of the Income Tax Ordinance, 2001.
In order to avail the immunity or exemption from tax on such unexplained remittances all the foreign source remittances (Not exceeding Rs. 10 Million Sec 111(4)(a)) shall be made through banking channel at inter-banking conversion rates or in foreign currency and the Encashment Certificates thereon shall be provided as the proof of the transaction in order to show that the benefit of conversion of foreign exchange has been transferred to the government.
In case of foreign remittances is made through other than a banking channel the same becomes taxable under the Income Tax Ordinance, 2001 and the immunity provided under section 111 of the Income Tax Ordinance 2001 cannot be availed.
There are following ways to transfer foreign remittances through banking channel:
In first case the individual maintains a foreign currency account and all the remittances are transferred in US dollar or some other currency; and
The second way to transfer the same through a banking channel is that the foreign remittance is transferred in local currency and is converted by the local bank according to the interbank conversion rate
Another treatment these days we often come to see is that the foreign currency is remitted through ATM which is converted to local currency in exact amount as required that is to say that the foreign currency is converted into local currency by the foreign bank and the advantage of the exchange is not transferred to the government. In such case the remittance will remain outside the ambit of the immunity provided under section 111 of the Income Tax Ordinance, 2001 and will be subject to probe under the law.
Muhammad Nabeel Ahmed
Khilji and Co Chartered Accountants Islamabad