The Federal Board of Revenue has introduced Section 114C through the Finance Act, 2025. This new provision restricts certain high-value economic transactions for people who do not have enough declared financial capacity. The main idea behind this law is simple: a person should only be allowed to make large financial transactions if their declared wealth supports it.
Purpose of Introducing Section 114C
The purpose of this section is to reduce undocumented money in the economy and ensure transparency in major financial dealings. FBR wants to make sure that expensive purchases and investments are backed by properly declared funds. This step is aimed at discouraging cash-based transactions and strengthening the tax system.
Concept of Eligible and Ineligible Persons
Section 114C introduces the concept of eligible and ineligible persons. A person is treated as eligible if they have sufficient declared resources to carry out a specific economic transaction. These resources must be shown in the latest wealth statement, in the financial statements of the previous tax year, or in a source of investment and expenditure statement filed during the year of the transaction. If a person cannot show enough declared resources, they are considered ineligible.
Meaning of Sufficient Resources
Sufficient resources mean that a person must have declared assets equal to at least one hundred and thirty percent of the value of the transaction. These resources include cash in local or foreign currency and cash-equivalent assets such as gold, stocks, bonds, receivables, or any other similar asset prescribed by law. This requirement ensures that the person has more than enough financial backing for the transaction.
Read more: How to File Tax Return for Salary Person in 2026 in Pakistan
Treatment of Exchange of Declared Assets
If a transaction involves the exchange of already declared capital assets, it will also be treated as part of cash or cash-equivalent assets. The value mentioned in the transaction agreement will be used to determine whether sufficient resources are available. This allows declared assets to be considered when assessing financial capacity.
Inclusion of Immediate Family Members
In the case of an individual, the definition of an eligible person is expanded to include immediate family members. This includes parents, spouse, and dependent children. The declared resources of these family members can be considered while determining eligibility for a transaction.
Restrictions on Ineligible Persons
An ineligible person is not allowed to carry out certain high-value transactions. These include purchasing a motor vehicle with an invoice value exceeding seven million rupees, acquiring or transferring immovable property with a fair market value above one hundred million rupees, and making investments in securities or mutual funds where the cost of acquisition exceeds fifty million rupees. The law also clarifies that investment up to fifty million rupees must be a new investment during a financial year and not a reinvestment from existing profits or liquidated assets.
Restriction on Large Cash Withdrawals
Section 114C also restricts large cash withdrawals. A person is not allowed to withdraw cash exceeding one hundred million rupees from their bank accounts. This restriction applies regardless of the nature of the transaction and is intended to control excessive cash movement.
Clarification Regarding Source of Expenditure Statement
The law clearly states that resources declared in a source of expenditure statement will not be treated as income for Section 111 of the Income Tax Ordinance. This means such declarations will not be considered unexplained income, providing relief to taxpayers who properly document their sources.
Applicability to Non-Residents and Public Companies
The provisions of Section 114C do not apply to non-resident persons and public companies. However, the restriction on large cash withdrawals still applies in these cases. This ensures that even exempt entities are not allowed unlimited cash withdrawals.
Learn more: Know how to file an Income Tax Return
Effective Date of Implementation
Section 114C will come into force from a date notified by the Federal Government through an official Gazette notification. Until this notification is issued, the provisions of this section will not be applicable.
Conclusion: What Taxpayers Should Do Now
Section 114C is a clear signal from FBR that undocumented wealth will no longer be tolerated in Pakistan. Taxpayers planning to buy cars, property, or make large investments should ensure their wealth statements reflect their true financial position. Keeping records updated, declaring assets properly, and using banking channels will help avoid future restrictions. This law is expected to play a major role in documenting the economy and improving Pakistan’s tax culture.
