# Does a certified startup still pay minimum tax, and do clients still withhold tax from its payments?

Source: https://qanoondigest.com/faq/software-houses/startup-minimum-tax-withholding-exemption
Law current to: 30 June 2026. Reviewed: 2026-09-25. Checked line by line against the law: not yet.

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## Short answer

For its three credit years, no. Section 65F allows a startup a credit of one hundred per cent of tax payable, including minimum, alternate corporate and final taxes. Separately, clause (43F) of Part IV of the Second Schedule says section 153 does not apply to a startup as recipient of payment, so clients should not deduct under it.

**Applies to:** Technology startups registered with and certified by the Pakistan Software Export Board that receive payments from local clients.

A PSEB-certified startup gets two separate reliefs from the Income Tax Ordinance. Section 65F gives it a credit that wipes out tax payable, minimum tax included, for three tax years. Clause (43F) of Part IV of the Second Schedule stops section 153 applying to payments it receives. The two have different time limits.

## What does the law say?

**The credit.** Section 65F(1) allows "a tax credit equal to one hundred per cent of the tax payable under any provisions of this Ordinance including minimum, alternate corporate tax and final taxes". Clause (b) extends it to a startup as defined in clause (62A) of section 2, for the tax year of PSEB certification and the next following two tax years. Section 65F(2) makes it conditional on filing the return, filing withholding tax statements where the startup is a withholding agent, and filing sales tax returns where required.

**The withholding switch.** Clause (43F) of Part IV of the Second Schedule reads: "The provisions of section 153 shall not apply in the case of a start-up, being recipient of payment, as defined in clause (62A) of section 2." Section 53(1)(d) says persons specified in the Second Schedule shall be "exempted from the operation of any provision of this Ordinance, subject to any conditions and to the extent specified therein". Part IV of the Second Schedule is headed "Exemption from specific provisions".

**The definition.** Clause (62A)(i) of section 2 requires a business that commenced on or after 1 July 2012, that "is engaged in or intends to offer technology driven products or services to any sector of the economy", that is registered with and certified by PSEB, and that has turnover of less than one hundred million in each of the last five tax years.

## How does minimum tax interact with the credit?

Section 113(1) applies minimum tax where, because of reasons including "the application of credits or rebates", no tax or too little tax is payable. Read alone, that might suggest a startup whose tax is cancelled by a credit falls into minimum tax.

Section 65F answers that point on its face. Its credit is against tax payable "including minimum" tax. So even where minimum tax is computed on turnover under section 113, the section 65F credit covers it in full for the three credit years, provided the section 65F(2) conditions are met. The Ordinance does not set out a step-by-step order for applying the two sections, but the wording of section 65F leaves no minimum tax outstanding.

## How does the withholding exemption work in practice?

Section 153 normally requires a prescribed person, such as a company, paying for services to deduct tax from the gross amount payable at the Division III rate, 4% for IT services in tax year 2027. Clause (43F) takes a startup, as recipient, out of that section altogether.

The Ordinance does not say how a paying client should confirm that the payee is a startup. Clause (43F) itself does not mention a certificate. The related page on exemption certificates explains the certificate route a startup can use to put its status on record.

## Worked example (illustrative figures)

Karigar AI (Pvt) Ltd, a Lahore startup certified by PSEB in tax year 2027, bills a Faisalabad textile group Rs. 3,000,000 for an inventory system.

1. Ordinary deduction for an IT services company: Rs. 3,000,000 x 4% = Rs. 120,000.
2. Karigar is a startup under clause (62A), so clause (43F) switches off section 153: deduction nil, and Karigar receives Rs. 3,000,000.
3. Suppose Karigar's tax payable for tax year 2027, including any minimum tax, is Rs. 210,000.
4. Section 65F credit: 100% x Rs. 210,000 = Rs. 210,000, so tax left to pay is nil, if it has filed its return and required statements.

## What if the three credit years are over?

The section 65F credit ends after the certification year and the next two tax years. Clause (43F) contains no time limit. It depends only on the business still meeting the clause (62A) definition, including turnover below one hundred million in each of the last five tax years. On the text, a business can stop receiving the credit and still be outside section 153, although the tax it then owes is computed without the credit.

## What if the startup misses a filing condition?

Section 65F(2) makes the credit conditional. If the startup has not filed its withholding tax statements for a year in which it paid salaries, the credit is not available for that year, and tax payable, including any minimum tax, must be paid. Clause (43F) has no filing condition of its own.

## Common mistakes

- **Assuming minimum tax always applies once income is cancelled by a credit.** Section 65F expressly reaches minimum tax.
- **Linking the withholding exemption to the three credit years.** Clause (43F) does not refer to section 65F.
- **Forgetting the turnover test.** Clause (62A)(i) requires turnover below one hundred million in each of the last five tax years.

## What to check in the official text

Read section 65F, section 113(1), section 53(1)(d), clause (62A) of section 2 and clause (43F) of Part IV of the Second Schedule in the Ordinance amended to 30 June 2026. PSEB certification procedures are not in this corpus.

## Frequently asked

### Does the section 65F credit cover minimum tax on turnover?

Yes, on its wording. Section 65F(1) allows a credit equal to one hundred per cent of the tax payable under any provision of the Ordinance including minimum, alternate corporate tax and final taxes, for the startup's certification year and the next two tax years, subject to the filing conditions in section 65F(2).

### Should a client deduct 4% from a payment to a certified startup?

Clause (43F) of Part IV of the Second Schedule says the provisions of section 153 shall not apply in the case of a start-up, being recipient of payment, as defined in clause (62A) of section 2. Section 53(1)(d) gives effect to such exemptions from specific provisions.

### Does the withholding exemption end after three years like the credit?

Clause (43F) does not set a time limit of its own. It turns on the startup definition in clause (62A), which requires PSEB certification and turnover under one hundred million in each of the last five tax years. The three-year limit is written only into section 65F.

## Citations

- [Income Tax Ordinance, 2001, section 65F (Tax credit for certain persons)](https://qanoondigest.com/ordinances/income-tax-ordinance-2001/income-tax-ordinance-2001-2026-06-30#65f-tax-credit-for-certain-persons), as amended to 2026-06-30: "a tax credit equal to one hundred per cent of the tax payable under any provisions of this Ordinance including minimum, alternate corporate tax and final taxes" Official source: https://download1.fbr.gov.pk/Docs/2026724177725705IncomeTaxOrdinanace2001.pdf
- [Income Tax Ordinance, 2001, Second Schedule, Part IV (Exemption from specific provisions), clause (43F)](https://qanoondigest.com/ordinances/income-tax-ordinance-2001/income-tax-ordinance-2001-2026-06-30), as amended to 2026-06-30 Official source: https://download1.fbr.gov.pk/Docs/2026724177725705IncomeTaxOrdinanace2001.pdf
- [Income Tax Ordinance, 2001, section 153 (Payments for goods, services and contracts)](https://qanoondigest.com/ordinances/income-tax-ordinance-2001/income-tax-ordinance-2001-2026-06-30#153-payments-for-goods-services-and-contracts), as amended to 2026-06-30: "deduct tax from the gross amount payable (including sales tax, if any) at the rate specified in Division III of Part III of the First Schedule" Official source: https://download1.fbr.gov.pk/Docs/2026724177725705IncomeTaxOrdinanace2001.pdf
- [Income Tax Ordinance, 2001, section 53 (Exemptions and tax concessions in the Second Schedule)](https://qanoondigest.com/ordinances/income-tax-ordinance-2001/income-tax-ordinance-2001-2026-06-30#53-exemptions-and-tax-concessions-in-the-second-schedule), as amended to 2026-06-30: "exempted from the operation of any provision of this Ordinance, subject to any conditions and to the extent specified therein" Official source: https://download1.fbr.gov.pk/Docs/2026724177725705IncomeTaxOrdinanace2001.pdf
- [Income Tax Ordinance, 2001, section 113 (Minimum tax on the income of certain persons)](https://qanoondigest.com/ordinances/income-tax-ordinance-2001/income-tax-ordinance-2001-2026-06-30#113-minimum-tax-on-the-income-of-certain-persons), as amended to 2026-06-30: "the application of credits or rebates" Official source: https://download1.fbr.gov.pk/Docs/2026724177725705IncomeTaxOrdinanace2001.pdf
- [Income Tax Ordinance, 2001, section 2 (Definitions)](https://qanoondigest.com/ordinances/income-tax-ordinance-2001/income-tax-ordinance-2001-2026-06-30#2-definitions), as amended to 2026-06-30: "is engaged in or intends to offer technology driven products or services to any sector of the economy" Official source: https://download1.fbr.gov.pk/Docs/2026724177725705IncomeTaxOrdinanace2001.pdf