Credit for Tax collected or deducted (Section 168)

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This blog is in continuation to the series "Curtailing the Tax Liability (Part II) - Tax Credits".


Disclaimer: This blog will be updated over the period of time with practical examples, sample letters and relevant case laws and due to the volatility of tax statutes it is subject to unprecedented changes as and when required.

Credit for Tax collected or deducted (Section 168)



(1) For the purposes of this Ordinance —

(a) the amount of any tax deducted from a payment under Division III of this Part 7[or Chapter XII] shall be treated as income derived by the person to whom the payment was made; and

(b) the amount of any tax collected under Division II of this Part 8[or Chapter XII] or deducted under Division III of this Part 9[or Chapter XII] shall be treated as tax paid by the person from whom the tax was collected or deducted.


(2) Subject to sub-sections 1[(2A), (2B),] (3) and (4), where an amount of tax has been collected from a person under Division II of this Part 2[or Chapter XII] or deducted from a payment made to a person under Division III of this Part 3[or Chapter XII], the person shall be allowed a tax credit for that tax in computing the tax due by the person on the taxable income of the person for the tax year in which the tax was collected or deducted.

4[(2A) Where a company is a member of an association of persons which is taxed in accordance with section 92 and an amount of tax has been collected from an association of persons under Division II of this Part or Chapter XII or deducted from a payment made to the said association under Division III of this Part or Chapter XII, the company shall be allowed a tax credit, in respect of tax collected or deducted from the association of persons, according to the following formula, namely:—

(A/B) x C

Where —

A is the amount of share of profits before tax received by the company as a member from the association of persons;

B is the taxable income of the association of persons; and

C is the amount of tax withheld in the name of the association of persons.

(2B) No tax credit shall be allowed for any tax collected or deducted from an association of persons in respect of an amount for which credit has been allowed under sub-section (2A) to a company being a member of the association.]

5[(3) No tax credit shall be allowed for any tax collected or deducted that is a final tax under—

(a) sub-section (7) of section 148;

(b) sub-section (3) of section 151;

(c) sub-section (1B) and (1BB) of section 152;

(d) 1[ ] sub-section (3) of section 153;

(e) sub-section (4) of section 154;

(f) sub-section (3) of section 156;

(g) sub-section (2) of section 156A;

(h) sub-section (3) of section 233;2[and]

3[ ]

(j) sub-section (3) of section 234A.]

(4) A tax credit allowed under this section shall be applied in accordance with sub-section (3) of section 4.

(5) A tax credit or part of a tax credit allowed under this section for a tax year that is not able to be credited under sub-section (3) of section 4 for the year shall be refunded to the taxpayer in accordance with section 170.

4[(6) Notwithstanding anything contained in any other law or any rules for the time being in force, no amount shall be deducted on account of service charges from the tax withheld or collected by any person under the provisions of this Ordinance.]

5[(7) In case any amount is deducted on account of service charges, by the person, the said person will be liable to pay the said amount to the Federal Government and all the provisions of this Ordinance shall apply in so far as they apply to the recovery of tax.]


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