Federal Board of Revenue (FBR) has officially introduced a cash payment ceiling of Rs200,000 for both physical retail transactions and cash-on-delivery (COD) orders in the e-commerce sector. The directive, issued through Income Tax Circular No. 2 of 2025-26 on August 12, 2025, aims to reduce dependence on cash, foster greater adoption of digital channels, and move the country toward a cashless economy. This measure brings retail and online commerce under the same rules, ensuring clarity for businesses operating across both sectors.
The circular clarifies that any single transaction of Rs200,000 or above must be settled using banking channels or approved digital payment methods. If payments exceeding this threshold are made in cash, 50 percent of the corresponding business expenditure tied to that sale will be disallowed for tax purposes under Section 21(s) of the Income Tax Ordinance, 2001. By linking tax treatment directly to payment practices, the FBR seeks to incentivize businesses and consumers to rely more on digital transactions for higher-value purchases.
Tax professionals observed that the clarification resolves a long-standing ambiguity regarding whether COD in e-commerce was subject to the same restrictions as over-the-counter retail payments. The latest directive confirms that both forms of transactions are covered under the same ceiling. One tax advisor explained that businesses can no longer accept COD payments above Rs200,000, aligning e-commerce with physical retail rules. The directive also specifies that if a buyer deposits cash directly into the seller’s bank account against an invoice, the payment will be considered a banking channel transaction, exempt from the disallowance clause.
The change follows the introduction of new provisions through the Finance Act 2025, which added a clause in Section 21 to curtail excessive cash usage and strengthen financial transparency. Officials emphasized that the measure is part of a larger strategy to digitize economic activity, enhance tax compliance, and limit opportunities for unrecorded transactions in both retail and e-commerce sectors. With retail outlets and online platforms now equally bound by the Rs200,000 cap, the government expects broader alignment of practices across the marketplace and stronger adoption of electronic payment solutions by businesses and consumers alike.
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