Lahore 22°C
Accrual-basis accounting
(1) A person accounting for income chargeable to tax under the head Income from Business on an accrual basis shall derive income when it is due to the person and shall incur expenditure when it is payable by the person.
(2) Subject to this Ordinance, an amount shall be due to a person when the person becomes entitled to receive it even if the time for discharge of the entitlement is postponed or the amount is payable by instalments.
(3) Subject to this Ordinance, an amount shall be payable by a person when all the events that determine liability have occurred and the amount of the liability can be determined with reasonable accuracy .
(5) Where a person has been allowed a deduction for any expenditure incurred in deriving income chargeable to tax under the head Income from Business and the person has not paid the liability or a part of the liability to which the deduction relates within three years of the end of the tax year in which the deduction was allowed, the unpaid amount of the liability shall be chargeable to tax under the head Income from Business in the first tax year following the end of the three years.
(5A) Where a person has been allowed a deduction in respect of a trading liability and such person has derived any benefit in respect of such trading liability, the value of such benefit shall be chargeable to tax under the head Income from Business for the tax year in which such benefit is received.
(6) Where an unpaid liability is chargeable to tax as a result of the application of sub-section (5) and the person subsequently pays the liability or a part of the liability, the person shall be allowed a deduction for the amount paid in the tax year in which the payment is made.
(2) Subject to this Ordinance, an amount shall be due to a person when the person becomes entitled to receive it even if the time for discharge of the entitlement is postponed or the amount is payable by instalments.
(3) Subject to this Ordinance, an amount shall be payable by a person when all the events that determine liability have occurred and the amount of the liability can be determined with reasonable accuracy .
(5) Where a person has been allowed a deduction for any expenditure incurred in deriving income chargeable to tax under the head Income from Business and the person has not paid the liability or a part of the liability to which the deduction relates within three years of the end of the tax year in which the deduction was allowed, the unpaid amount of the liability shall be chargeable to tax under the head Income from Business in the first tax year following the end of the three years.
(5A) Where a person has been allowed a deduction in respect of a trading liability and such person has derived any benefit in respect of such trading liability, the value of such benefit shall be chargeable to tax under the head Income from Business for the tax year in which such benefit is received.
(6) Where an unpaid liability is chargeable to tax as a result of the application of sub-section (5) and the person subsequently pays the liability or a part of the liability, the person shall be allowed a deduction for the amount paid in the tax year in which the payment is made.
Amendment history (7)
- Sub-section (1) substituted by the Finance Act, 2003. The substituted sub-section (1)
- The words “Central Board of Revenue” substituted by the Finance Act, 2007.
- Substituted for the word “notice” by the Finance Act, 2003.
- The comma and words “, but not before economic performance occurs” omitted by the Finance Act, 2004.
- Sub-section (4) omitted by the Finance Act, 2004. The omitted sub-section (4)
- Inserted by the Finance Act, 2003.
- Inserted by the Finance Act, 2005.
Amendment notes captured from the source page(s); they may include changes to neighbouring provisions.
Source FBR PDF page 85
Unofficial reference, compiled from the FBR’s consolidated Income Tax Ordinance 2001 (amended up to 30 June 2026). Provided for general information only — not an official FBR publication and not legal or tax advice. Always verify against the official FBR text before relying on it for filing or any decision.