Govt Proposes Major Relief for Businesses: Cash Transaction Cap Raised to Rs. 2.5 Million

In a significant development for the business sector, the federal government has proposed a phased revision to Section 21 of the Income Tax Ordinance, 2001, aimed at easing restrictions on cash transactions and providing relief to taxpayers engaged in business activities.
According to official sources, the limit for disallowing expenditure on cash sales has been proposed to increase from Rs. 200,000 to Rs. 2.5 million per transaction, a move that has been welcomed by the business community.
Section 21, introduced under the Finance Act 2025, disallows 50 percent of expenditure attributable to cash sales exceeding Rs. 200,000 per transaction, solely under the head “Income from Business” (as defined in Section 18).
This provision was initially introduced to curb undocumented transactions and promote digital and traceable payments. However, businesses raised concerns that the threshold was too low and would lead to compliance difficulties, especially in sectors where cash sales are predominant.
To address these concerns while still aiming to strengthen documentation and improve tax compliance, the government has now proposed a three-year phased plan for implementing this restriction:
Year 1:
-
The threshold increased to Rs. 2.5 million per transaction
-
Disallowance reduced from 50% to 20%
Year 2:
-
Threshold reduced to Rs. 1.5 million
-
Disallowance percentage increased
Year 3:
-
The threshold was lowered further to Rs. 500,000
-
Disallowance reaches the original 50% rate.
This gradual implementation strategy is designed to balance revenue protection with ease of compliance, giving businesses time to adapt and digitize their transactions.
The business community has cautiously welcomed the proposal, terming it a pragmatic approach to formalize cash-heavy segments without disrupting day-to-day operations. Tax experts say the phased rollout may also encourage digital transactions while offering sufficient breathing space to small and medium-sized enterprises (SMEs).
Importantly, the disallowance only applies to income categorized under business income and does not impact other heads of income such as salaries, capital gains, or property income.

Donald Trump Announces Ground Action Against Venezuela Soon
U.S. President Donald Trump has announced that he will soon take ground action against Venezuela. Speaking at a ceremony at…
Pakistan and Other Countries Condemn Israeli Annexation Bill
Pakistan, Saudi Arabia, Turkey, the OIC, and the Arab League, along with 17 countries and organizations, strongly condemned Israel’s approval…
Demolition of Muslim Homes Continues in India
In Prime Minister Narendra Modi’s India, bulldozer politics are in full force as the demolition of Muslim homes continues in…
United States Imposed New Sanctions on Russia, Says Trump
The United States has imposed new sanctions on Russia to pressure President Vladimir Putin to end the war in Ukraine.…

Rapid increase in HIV cases among children in Nawabshah
A serious health concern has come to light in Sindh, as officials have reported a rapid increase in HIV cases…
Dengue and Malaria Cases Continue to Rise in Interior Sindh
Dengue and malaria continue to spread rapidly across Hyderabad and several districts of interior Sindh, as hospitals remain flooded with…
An incident of violence against polio workers in Karachi
An incident of violence against polio workers in Karachi took place in FB Area Block 14, Goharabad. A team giving…
258 Prisoners in Balochistan Jails Suffer from TB, AIDS, and Hepatitis
A recent health report has revealed that 258 prisoners in Balochistan jails are suffering from TB, AIDS, and Hepatitis. These…

PCB Sends Legal Notice, Ali Tareen Tears It Up in Response
Pakistan Super League (PSL) franchise Multan Sultans owner Ali Tareen…1 hour ago
House Servant Involved in Theft of Millions Arrested in Karachi
In Karachi’s Clifton area, a house servant involved in the…2 hours ago
Donald Trump Announces Ground Action Against Venezuela Soon
U.S. President Donald Trump has announced that he will soon…2 hours ago
Pakistan Reaches Asian Youth Games Men’s Volleyball Semi-Final
Pakistan has secured a spot in the Asian Youth Games…5 hours ago
















