The Finance Bill 2025 introduces a new tax incentive for individuals purchasing or constructing low-cost personal housing. The newly inserted Section 63A of the Income Tax Ordinance, 2001 provides a tax credit for interest (profit on debt) paid on home loans from approved financial institutions.
This marks a major step by the Government of Pakistan to promote affordable housing, financial inclusion, and improve access to residential property ownership.
🏠 Key Highlights of Section 63A
🔹 Eligibility Criteria
To claim the tax credit under Section 63A:
The loan must be used for construction or acquisition of a single personal house or flat.
Land area for house must not exceed 2,500 sq. ft.
Total area for flat must not exceed 2,000 sq. ft.
The loan must be obtained from:
A scheduled bank,
A SECP-regulated financial institution,
A government entity, local authority, or statutory body, or
A listed public company in Pakistan.
🔹 Calculation Formula
The tax credit is calculated using this formula:
(A/B) × C
Where:
A = Tax assessed before any tax credits
B = Taxable income
C = Lower of:
Total profit on debt paid in the year
30% of taxable income
This ensures the credit is proportionate to tax payable and income earned.
🔹 Restrictions and Limitations
No double benefits: The individual cannot claim this credit if the interest is already deducted under Section 15A.
One-time claim only: If claimed once, the taxpayer cannot claim this credit for another house in the next 15 tax years.
Applies only to one personal residence, not commercial or rental properties.
💼 Practical Example
Let’s say:
Taxable income = PKR 2,000,000
Tax assessed = PKR 300,000
Profit on debt paid = PKR 600,000
30% of taxable income = PKR 600,000
Then:
A = 300,000, B = 2,000,000, C = lesser of 600,000 or 600,000 → C = 600,000
Tax credit = (300,000 / 2,000,000) × 600,000 = PKR 90,000
This amount will be credited against tax payable, reducing the individual’s liability.
✅ Purpose Behind Section 63A
This section is part of Pakistan’s broader housing policy reforms aimed at:
Encouraging affordable home ownership
Supporting the middle-income and salaried class
Promoting formal credit usage
Boosting the construction and real estate sector through legal channels
🧾 20 Frequently Asked Questions (FAQs)
Q1: What is Section 63A?
A: It provides a tax credit for individuals on interest paid for low-cost housing loans.
Q2: Who can claim this credit?
A: Individuals who took a loan for construction or purchase of their personal residence.
Q3: Is there a size limit for the house or flat?
A: Yes. Houses ≤ 2,500 sq. ft., flats ≤ 2,000 sq. ft. are eligible.
Q4: What types of loans qualify?
A: Loans from banks, SECP-regulated institutions, Government, local authorities, or listed companies.
Q5: Can I claim if I already claimed deduction under Section 15A?
A: No. Section 63A and 15A are mutually exclusive.
Q6: Is there a limit on the interest amount?
A: Yes, tax credit is limited to the lesser of actual interest or 30% of taxable income.
Q7: Is this tax deduction or tax credit?
A: It is a tax credit, directly reducing the tax liability, not taxable income.
Q8: Can I claim this for more than one house?
A: No. One claim per person, and no future claim for 15 years if already availed.
Q9: Does the house have to be completed?
A: It must be constructed or acquired. Proof of usage of loan for personal house is required.
Q10: What if I live abroad and buy a house in Pakistan?
A: Likely not eligible unless you’re a resident taxpayer using the house as personal residence.
Q11: Can rental properties qualify?
A: No. Only personal residences are covered.
Q12: What documentation is needed?
A: Loan agreement, proof of interest paid, ownership documents, and tax challans.
Q13: Will FBR audit this claim?
A: Possibly. Claims must be supported with verifiable documentation.
Q14: When does Section 63A become effective?
A: From Tax Year 2025, subject to approval of the Finance Act 2025.
Q15: Is there a specific form to claim this?
A: It will be part of the annual income tax return form under “Tax Credits” section.
Q16: Can I transfer this credit to someone else?
A: No. It is individual-specific and non-transferable.
Q17: Does it apply to joint property ownership?
A: Possibly, but only the person paying interest and filing return can claim.
Q18: What if the loan provider is not regulated?
A: Then the tax credit is not allowed. The lender must be an eligible entity.
Q19: Will it reduce my Advance Tax?
A: No. It reduces final tax payable, not advance tax liability directly.
Q20: Can I claim it retroactively for old loans?
A: No. The loan and interest payments must be from the relevant tax year.
Section 63A presents a progressive tax relief mechanism to support first-time home buyers and the housing finance market in Pakistan. With its clear eligibility criteria, structured formula, and long-term restrictions, it encourages:
Documented transactions
Use of formal financial channels
Housing ownership among the middle class
Taxpayers should ensure loan documentation and usage compliance before claiming this valuable credit.
