Why is it important to file an income tax return? The process of filing annual returns for the financial year ending on June 30, 2025 has begun. The last date has been set for September 30, 2025. The FBR has started sending messages to the public to file their income tax returns on time.
Now the question is why is it mandatory to file income tax return? Why is it necessary and what are its benefits? This is the question that often comes to the minds of people that why should we file return?
Who is required to file return?
Income Basis:
- annual income is Rs. 6 lakh or more.
- income falls under the final taxation category.
- has paid any tax in the last two years.
- business income is Rs. 4 lakh or more.
Assets Basis:
- owns a property measuring 500 square yards or more or owns a flat within the municipal limits.
- owns a flat measuring 1,000 square feet and is located in a rating area.
- owns a vehicle with an engine capacity of more than 1,000 cc.
- Who has an NTN (i.e., is registered with the FBR). If someone has made an NTN, then he is required to file a return every year, even if he is retired or his income is not taxable.
Other Basis:
- Has taken a commercial or industrial electricity connection and his annual bill is more than Rs. 5000.
- Is a member of any chamber of commerce, trade body, business association or professional body (such as Pakistan Medical Council, ICAP, ICMA, etc. Additionally, filing an income tax return is mandatory to obtain registration and annual membership status.
- Moreover, filing income tax return has also been made mandatory for the promotion of government teachers. Their promotion will not be possible without submitting returns.
Why is it important to file an income tax return?
In some cases, there is a legal restriction that filing return is not necessary, but in practice it becomes mandatory to work. For example, a widow is not legally required to file returns, but if she is buying land or doing business, then it is mandatory for her to file returns.
Powers of the Commissioner:
If a person has not filed returns for the last five years, the Commissioner has the power to issue a notice and demand the filing of returns for the last 10 years.
However, if the Commissioner finds any record that proves that the person concerned has foreign assets or foreign income, he will definitely exercise this power.
Who are not required to file a return?
- A widow.
- A person who is under 25 years of age and disabled.
- A non-resident person, even if he owns property in Pakistan.
Why we should file Tax Returns?
Now the question arises that why should we file income tax returns and what is its purpose? Like many other countries, return filing is mandatory in Pakistan. In many countries, it is a rule that even if you do not have taxable income, it is still necessary to file returns.
There are many benefits of filing tax returns. When you file an income tax return, you disclose your total income, expenses, and assets. If you are a business owner, your business expenses are included, and if you are employed, your salary and personal expenses are shown.
The reason behind Returns Filing?
When you file your return for the first time, you have to file a wealth statement with it, in which you disclose all your valuable assets including property, vehicles, jewelry, household goods, personal items. After that, you have to disclose the changes in your assets every year.
The purpose of this is that if you have purchased assets worth more than your income, you will have to explain where they came from. For example, if you filed your return in 2024 and declared assets worth 2 million, but in 2025 you bought a property worth 6 million, you will have to explain where the 4 million came from? Was it a loan, a gift or some other source?
How Tax evasion is traced?
The FBR’s online system is very active. Whenever a vehicle or property is purchased, it is reported to the FBR. They check in the system how many assets the buyer had before and how many now. This is used to assess whether there is any revenue evasion. Many people do not declare their assets so that the question of where the money came from does not arise.
Example 1
After declaring assets for the first time, assets have to be shown every year. If someone is evading taxes, it can be detected. For example, if an employee earns 1 million annually, saves 5 million after personal expenses, but he buys a car worth 2 million, then the question will arise as to where this extra money came from? This is a way to catch tax evasion.
The benefits of Tax Returns Filing?
Now the question also arises as to what is the benefit of filing a return? Its first benefit is that you save on taxes. For example, if you keep money in the bank, you can save up to 50 percent in taxes. There is also savings on buying property. Apart from this, if you have paid more taxes than you have, you can also get a refund on filing a return. But if you don’t file a return, on the one hand you will have to pay more taxes and on the other hand you will not get a refund.
Example 2
Suppose a person buys a property worth Rs 50 lakh
If that person is a filer, he will have to pay only 3% tax, i.e. Rs 1.5 lakh.
If the same person is a non-filer, he will have to pay 12% tax, i.e. Rs 6 lakh — Rs 4.5 lakh more than a filer.
Now the advantage of being a filer is that the tax paid on the property is “adjustable”, i.e. you can claim it in the form of a refund.
But if you are a non-filer:
Not only will you have to pay three times more taxes, but that money cannot be refunded, to claim a refund, you must be a filer and file annual returns regularly.
Final Thoughts
Filing returns is mandatory for individuals who meet this condition based on their income, assets or registration. This not only keeps your income and assets transparent but also provides tax savings, refund rights and convenience in business and personal transactions. For best advisory services please get in touch with us through our website by filling out the Contact Us form, or reach out via our social media accounts.
