Understand Pakistan's New Tax Guidelines for Property Sales - Circular No. 01 of 2023-24.
INSTRUCTIONS REGARDING MODE AND MANNER FOR PAYMNET OF TAX U/S 7E OF THE INCOME TAX ORDINANCE, 2001 ON SALE OR TRANSFER OF IMMOVABLE PROPERTY
Income Tax Circular 01 of 2023-24: New Guidelines for Property Taxation
In a recent development, the Government of Pakistan Revenue Division, Federal Board of Revenue (FBR), has issued Circular No. 01 of 2023-24, providing crucial instructions regarding the mode and manner for the payment of tax under Section 7E of the Income Tax Ordinance, 2001, in the context of property sales or transfers. These guidelines outline essential details, including tax rates, compliance procedures, and exemptions, aimed at ensuring transparency and accountability in property taxation across the country.
Key Points from Circular No. 01 of 2023-24
Tax Collection Rates
The Circular 01 of 2023-24 establishes the tax collection rates for property sales or transfers. Sellers or transferors on the Active Taxpayers’ List (ATL) are subject to a 3% tax on the gross amount of consideration received, while those not on the ATL face a 6% tax.
Deemed Income for Capital Assets
Circular 01 of 2023-24 introduces the concept of deemed income for capital assets. As of Tax Year 2022, every resident individual is deemed to have derived an income equal to 5% of the fair market value of their capital asset in Pakistan. This deemed income is subject to a tax rate of 20%, effectively 1% of the fair market value of immovable property.
New Sub-section (2A)
Finance Act 2023 brought forth a significant change by introducing sub-section (2A) in Section 236C of the Income Tax Ordinance, 2001. This sub-section mandates transferring authorities to verify that the seller or transferor has settled their tax liability under Section 7E of the Income Tax Ordinance, 2001 and has provided evidence of this in a prescribed mode, form, and manner.
Compliance Procedures for Sellers/Transferors on ATL
Mode 1: Payment Challan (CPR)
If the seller/transferor hasn’t paid the tax under Section 7E of the Income Tax Ordinance, 2001 alongside their income tax return for Tax Year 2022, they must use the separate payment challan (CPR) in the Federal Board of Revenue (FBR) online payment system. This CPR payment serves as evidence of tax payment.
Mode 2: Commissioner Inland Revenue Certificate – Form ‘A’
For those who have already declared the property in their Section 7E declaration for Tax Year 2022 or are exempt from paying tax due to court orders or authorities’ stays, they should provide a certificate known as Form ‘A.’ This certificate is issued by the Commissioner Inland Revenue having jurisdiction over the seller/transferor and serves as evidence of compliance.
Compliance Procedures for Sellers/Transferors not on ATL
Non-ATL sellers/transferors are required to pay the tax under Section 7E of the Income Tax Ordinance 2001 and provide evidence to the transferring authority using the CPR provided in the Federal Board of Revenue (FBR) online payment system.
Uniform Application of Procedure
These instructions aim for uniform application by all transferring authorities across Pakistan. Any necessary amendments will be made based on feedback and monitoring of the procedure to ensure efficient property tax compliance.
In conclusion, Circular 01 of 2023-24 brings clarity and consistency to property tax regulations in Pakistan. Sellers and transferors must adhere to the specified tax rates and compliance procedures outlined in this Circular No. 01 of 2023-24. The government’s goal is to create a fair and transparent system for property taxation that contributes to the nation’s revenue while ensuring the rights of taxpayers are protected.
Check : Circular No. 01 of 2023-2024
Instructions Regarding Mode and Manner for Payment of Tax U/S 7E of the Income Tax Ordinance, 2001 on Sales or Transfer of Immovable Property
This circular, issued by the Government of Pakistan Revenue Division, Federal Board of Revenue, provides instructions regarding the mode and manner for the payment of tax under Section 7E of the Income Tax Ordinance, 2001, concerning the sale or transfer of immovable property. Here are the key points from the circular:
Tax Collection Rate: The circular specifies that the transferring authority (those responsible for registering, recording, or attesting the transfer of immovable property) is required to collect advance adjustable income tax from the seller or transferor. The tax rate is 3% of the gross amount of consideration received if the seller/transferor is on the Active Taxpayers’ List (ATL) and 6% if they are not on the ATL.
Deemed Income for Capital Assets: A new provision introduced through the Finance Act, 2022 (Section 7E), treats every resident person as having derived income equal to 5% of the fair market value of the capital asset situated in Pakistan. This deemed income is subject to tax at a rate of 20% (1% of the fair market value of immovable property).
New Sub-section (2A): Finance Act 2023 introduced a new sub-section (2A) in Section 236C of the Ordinance. This sub-section requires the transferring authority to verify that the seller or transferor has discharged their tax liability under Section 7E and has provided evidence of this in a prescribed mode, form, and manner.
Instructions for Sellers/Transferors on ATL:
If the seller/transferor has not paid the tax under Section 7E along with their income tax return for Tax Year 2022, they must pay the due amount using a separate payment challan (CPR) provided in the FBR online payment system. The CPR payment will serve as evidence. If the seller/transferor has already declared the property in their Section 7E declaration for Tax Year 2022 or is exempt from paying tax due to any court order or authority’s stay, they should provide a certificate (Form ‘A’) issued by the Commissioner Inland Revenue holding jurisdiction over them.
Instructions for Sellers/Transferors not on ATL: Non-ATL sellers/transferors are required to pay the tax under Section 7E and provide evidence to the transferring authority using the CPR provided in the FBR online payment system.
Multiple Property Owners: If there are multiple property owners, each person should discharge their liability under Section 7E for their respective share in the property.
Uniform Application: These instructions are issued for uniform application by all transferring authorities, and amendments may be made based on feedback and monitoring of the procedure.
These instructions aim to ensure that tax payments under Section 7E are collected and verified appropriately in the context of property transactions in Pakistan. Sellers/transferors are required to follow specific procedures and provide evidence of tax payment or exemption as applicable.
“In this world, nothing can be said to be certain, except death and taxes.”
– Benjamin Franklin.
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