Most people meet the FBR once a year at filing time. Businesses, professionals and companies meet it four times a year through advance tax under Section 147. Rather than settling your whole liability in one lump at year-end, the law asks you to pay it as you earn, quarter by quarter. Get the sums or the dates wrong and the cost is a default surcharge on top. This guide explains who is caught by Section 147, how each instalment is calculated, when it falls due, and how to challenge a wrong estimate - with links to our tax calculator and filing team along the way.
What is advance tax under Section 147?
Advance tax is income tax paid during the tax year on income you are currently earning, before your annual return is filed. It is not a separate tax - it is a prepayment of your normal liability. When you file your return, every rupee of advance tax you have paid is credited under Section 168, and you either settle the small balance or claim a refund.
The FBR uses the mechanism to keep revenue flowing steadily through the year and to reduce the risk of a large unpaid liability appearing only at filing. For the taxpayer, the upside is that the burden is spread across four manageable payments instead of one heavy one.
Who has to pay it
Section 147 does not apply to everyone. You fall inside it if you are:
- An individual whose latest assessed income is PKR 1,000,000 or more (excluding salary and income already subject to final or minimum tax). Below this threshold, individuals are not required to pay.
- Every company - a company pays advance tax even if no tax was due on its last assessed income or turnover, under Section 147(6A).
- Every Association of Persons (AOP), on the same basis as companies.
Salaried people are largely outside Section 147. Income taxed at source, such as salary from which your employer deducts tax every month, is excluded from the advance tax base. That monthly deduction already functions as your advance tax. If salary is your only income, you do not pay a separate quarterly instalment.
Quarterly due dates
Advance tax is payable in four equal quarterly instalments. The due date depends on whether you are a company or not:
| Quarter | Period covered | Individuals & AOPs | Companies |
|---|---|---|---|
| 1st (September) | Jul - Sep | 15 September | 25 September |
| 2nd (December) | Oct - Dec | 15 December | 25 December |
| 3rd (March) | Jan - Mar | 15 March | 25 March |
| 4th (June) | Apr - Jun | 15 June | 15 June |
Note the final June instalment falls on 15 June for everyone - before the tax year even closes on 30 June. Missing a due date starts the clock on the default surcharge, so diarise all four.
How each instalment is calculated
The formula differs for individuals and for companies and AOPs.
Individuals
For an individual, the quarterly instalment is:
Instalment = (A ÷ 4) − B
where A is the tax assessed for the latest tax year and B is any tax already collected or deducted from you in that quarter (withholding tax under Chapter XII).
So you take last year's assessed tax, split it into four, and reduce each quarter's share by the withholding tax already taken from you that quarter. This stops you paying twice on the same income.
Companies and AOPs
Companies and AOPs use a turnover-based formula so that instalments track current-year business volume:
Instalment = (A × B ÷ C) − D
where A is turnover for the quarter, B is the tax assessed for the latest tax year, C is turnover for the latest tax year, and D is tax already paid or collected in the quarter (credited under Section 168).
A worked example
Take a self-employed consultant, Ayesha, whose latest assessed tax was PKR 400,000. Her advance tax base for the year is PKR 400,000, split into four quarters of PKR 100,000 each. In the first quarter, clients withheld PKR 20,000 of tax from her fees. Her instalment works out as:
| Step | Figure (PKR) |
|---|---|
| Latest assessed tax (A) | 400,000 |
| Quarterly share (A ÷ 4) | 100,000 |
| Less: tax withheld this quarter (B) | (20,000) |
| Advance tax payable this quarter | 80,000 |
Ayesha pays PKR 80,000 by 15 September and repeats the exercise each quarter, adjusting for whatever withholding has been deducted in the meantime. Need to estimate your own liability first? Our income tax calculator gives you a starting figure in seconds.
Estimating lower income and the 147 notice
Advance tax is based on last year's assessed tax, which can be unfair if your income has dropped. Section 147 lets you file an estimate of a lower income through the FBR IRIS portal before paying the final instalment. If the estimate is genuine, your remaining instalments are recalculated on the lower figure.
Be careful, though. Recent appellate rulings have hardened the rule that your estimate must be realistic - if you deliberately understate income and end up paying less than 90% of the tax finally chargeable, you lose the benefit and face a default surcharge. Many taxpayers first learn of their liability through a Section 147 notice issued by the Commissioner directing them to pay. Do not ignore it: respond with either payment or a properly supported estimate.
Penalty for underpayment
The teeth behind Section 147 sit in Section 205. If you pay no advance tax, or pay less than 90% of the tax chargeable for the year, you become liable to a default surcharge of 12% per annum on the shortfall, calculated from the due date until you pay.
| Situation | Consequence |
|---|---|
| Paid 90% or more of the year's tax on time | No surcharge |
| Paid under 90%, or paid late | 12% per annum default surcharge on the shortfall (s.205) |
| Ignored a Section 147 notice | Recovery action plus surcharge |
Because the surcharge runs from each due date, a small early shortfall can grow expensive by year-end. Paying on time and in full is almost always cheaper than deferring. See our guide to tax penalties and default surcharge for the wider picture.
Frequently asked questions
Who has to pay advance tax under Section 147?
Individuals with a latest assessed income of PKR 1,000,000 or more (excluding salary and income taxed at source), plus every company and AOP regardless of turnover under Section 147(6A).
When is advance tax due?
In four quarterly instalments. Individuals and AOPs pay by 15 September, 15 December, 15 March and 15 June. Companies pay by 25 September, 25 December, 25 March and 15 June.
How is the instalment calculated?
For individuals: (tax assessed last year divided by 4) minus tax already collected that quarter. Companies and AOPs use a turnover formula: (A x B / C) minus D.
Do salaried employees pay it?
No. Salary taxed at source is excluded from the Section 147 base, so employees with only salary income do not pay a separate quarterly instalment.
What if I underpay?
Under Section 205, paying less than 90% of the year's chargeable tax triggers a 12% per annum default surcharge on the shortfall from the due date.
Can I lower my instalments if income has fallen?
Yes - file a genuine estimate of lower income through IRIS before the last instalment. An unrealistic estimate exposes you to default surcharge.