Section 73 Bank Payment Rule

Many businesses in Pakistan still pay their suppliers in cash for convenience — and unknowingly throw away their input tax in the process. Under Section 73 of the Sales Tax Act, 1990, how you pay for a purchase is just as important as having a valid tax invoice. Pay the wrong way, and FBR can disallow your entire input tax claim on that purchase, even though the tax was genuinely charged.

This guide explains the Section 73 banking rule in plain language — the Rs 50,000 limit, the 180-day credit rule, what counts as a valid payment, and how to make sure you never lose input tax over a payment method. Everything is based on the Sales Tax Act, 1990 as amended up to 30 June 2025.

What is Section 73?

Section 73 is titled "Certain transactions not admissible." Its purpose is to make sure that business purchases move through documented banking channels so that supply chains are traceable and undocumented cash dealings cannot be used to claim sales tax. It applies to registered persons claiming input tax, and it links the right to claim input tax directly to how the payment was made.

The Rs 50,000 Rule — Acceptable vs Not Acceptable

The threshold is Rs 50,000 in aggregate to a single supplier within a tax period — an important detail. It is not per invoice. If you make several smaller purchases from the same supplier in one month that together cross Rs 50,000, the banking rule applies to the total.

The 180-Day Rule for Credit Purchases

Business purchases are often on credit. Section 73 allows this, but with a deadline: where a purchase is made on credit, the payment must be transferred through the banking channel within 180 days of the date the tax invoice was issued. Miss the 180-day window and the input tax claim is disallowed — so it is worth tracking the payment due date against each invoice date, not just the supplier's own terms.

What Counts as a Valid Banking Payment

The law is flexible on the instrument, as long as the money is traceable from your business account to the supplier's:

• Crossed cheque, bank draft, pay order or any crossed banking instrument showing the invoice amount transferred in favour of the supplier.
• Online bank transfer from your business account to the supplier's business account — valid as long as it is verifiable from both parties' bank statements.
• Credit card payment — also treated as a banking-channel payment under the same verifiability condition.
• Book adjustments (where you and the same party owe each other) can count — but only if sales tax was charged and paid by both parties, and you obtained the Commissioner's prior approval before making the adjustment.

The Supplier's Side — Where the Money Must Land

Practical Examples

Example 1 — Cash payment loses the input tax

Mr. Adnan buys raw material worth Rs 200,000 (plus sales tax) from a supplier and pays in cash because it was quicker. Because the payment exceeds Rs 50,000 and was not made through a banking channel, under Section 73(2) he cannot claim the input tax on that purchase — a direct, avoidable loss.

Example 2 — Small purchases that add up

Sara buys packaging from the same supplier four times in one month, Rs 20,000 each — Rs 80,000 in total. Even though each invoice is under Rs 50,000, the aggregate to a single supplier in the tax period exceeds the limit, so those payments must go through the bank to preserve her input tax.

Example 3 — Credit purchase paid late

Mr. Faisal buys on credit and the supplier's tax invoice is dated 1 January. He finally pays by bank transfer 200 days later. Because the payment was made after the 180-day window, the input tax claim is disallowed even though it was a proper bank transfer.

How to Stay Compliant

1. Pay all business purchases from your business bank account — never cash, never a personal account, once the supplier total crosses Rs 50,000 in a month.
2. Prefer online transfer or crossed cheque and keep the bank record against each invoice.
3. Track credit invoices and clear them within 180 days of the invoice date.
4. Confirm the supplier's business account details so the money lands where Section 73(3) requires.
5. Combine this with verifying the supplier is registered and active — see the linked guides below.

Frequently Asked Questions

What is the Rs 50,000 rule under Section 73?

Any payment exceeding Rs 50,000 in aggregate to a single supplier in a tax period — excluding utility bills — must be made through a banking channel from your business bank account, not in cash. The limit is aggregate per supplier per tax period, not per invoice.

What happens if I pay a supplier in cash?

If a payment above the Rs 50,000 limit is made in cash instead of through the bank, you cannot claim input tax credit, adjustment, deduction, refund, drawback or zero-rating on that purchase under Section 73(2). The input tax is lost.

What is the 180-day rule?

For credit purchases, the bank payment must be made within 180 days of the date the tax invoice was issued. Pay later than that, and the input tax claim is disallowed.

Do online transfers and credit cards count?

Yes. Online transfer from your business account to the supplier's business account, and credit card payments, are treated as banking-channel payments — provided they are verifiable from both parties' bank statements.

Does the money have to reach the supplier's business account?

Yes. Under Section 73(3), the amount must be deposited into the supplier's business bank account. If it is not, the supplier also loses entitlement to input tax on the transaction.

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