Islamabad, July 20, 2025: In a major move toward documentation and reform, the federal government has proposed increasing the cash sales limit from Rs. 200,000 to Rs. 2.5 million per transaction under Section 24 of the Income Tax Ordinance 2001. This proposed amendment, part of the Finance Act 2025, aims to gradually phase in stricter documentation rules without immediately burdening businesses.
Currently, under Section 24, any business making cash sales above Rs. 200,000 per transaction is subject to a 50% disallowance of related expenses—a provision that has sparked concern among businesses across the country.
To address these concerns while enhancing revenue transparency, the government now plans a phased implementation over the next three years:
- Year 1: Increase the disallowance threshold to Rs. 2.5 million.
- Year 2: Lower the limit to Rs. 1.5 million.
- Year 3: Reduce it further to Rs. 0.5 million.
Simultaneously, the disallowance rate will start at 20% in Year 1 and rise gradually, reaching 50% by the third year.
This proposed amendment is focused exclusively on business income, as defined under Section 18 of the Ordinance. It does not apply to individuals or non-business income, ensuring that only commercial entities are subject to the rule.
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Why This Matters
The gradual tightening of cash transaction limits aims to balance the government’s drive for fiscal documentation with the realities faced by businesses, especially small and medium enterprises (SMEs). The phased plan allows businesses time to adapt to more transparent and traceable financial practices.
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