ISLAMABAD, Feb 29: The Federal Board of Revenue (FBR) has directed the withholding agents not to insist on production of a specific exemption certificate from the banking companies.

An income tax circular No. 2 of 2008 issued on Friday said the decision came in the wake of reports that withholding agents dealing with banking companies did not comply with the provision of the income tax rules and insist on production of a specific exemption certificate for making payment without deduction of tax.

It was clarified that provisions of the seventh schedule to the Income Tax Ordinance were applicable from January 1, 2008 (relevant to tax-year 2009) and no tax was required to be deducted at the time of making payment to a banking company.

It has clearly been provided under rule 5 (2) of the seventh schedule that provisions of withholding tax under the ordinance shall not apply to a banking company as a recipient of the amount on which tax is deductible.

A new section 100 A has been inserted in the Income Tax Ordinance, 2001, through the Finance Act, 2007, which provides that income, profit and gains of a banking company and tax payable thereon shall be computed in accordance with the rules in seventh schedule, which has also been provided through the said act by substituting the earlier one.