The Federal Board of Revenue (FBR) has recently issued comprehensive guidelines on how to fulfill tax obligations related to the sale or transfer of immovable properties, as mandated by section 7E of the Income Tax Ordinance 2001. In a circular (Circular 1 of 203) sent to all Chief Commissioners of Inland Revenue on Monday, the FBR aims to streamline the process and ensure compliance with tax regulations.
Understanding Tax Collection Responsibilities:
The person who is tasked with registering, recording, or attesting the transfer of any immovable property is known as the “transferring authority” under section 236C of the Income Tax Ordinance 2001. This transferring authority is responsible for collecting the seller’s or transferor’s advance adjustable income tax.
The tax rate is set at 3% of the gross amount of the payment received by the seller or transferor if their name appears on the Active Taxpayers’ List (ATL). However, if the seller or transferor’s name is not on the ATL, the tax rate increases to 6%.
Introduction of Section 7E and Deemed Income:
The Finance Act of 2022 introduced Section 7E, which states that every resident person is deemed to have earned an amount equal to 5% of the fair market value of any capital asset located in Pakistan for the tax year 2022 and beyond. The tax rate on this “deemed income” is set at 20%, which equals 1% of the fair market value of the land.
New Sub-section (2A) to Section 236C:
In the Finance Act of 2023, a new sub-section (2A) was added to Section 236C of the Ordinance. As per this addition, the transferring authority cannot register, record, or attest the transfer of any immovable property unless the seller or transferor has paid the taxes owed under Section 7E of the Ordinance. The proof of payment must be furnished in the manner prescribed by the Ordinance.
Step-by-Step Guidelines for Tax Payments:
To facilitate the tax payment process and address various scenarios arising from changes in tax laws, the following instructions have been issued:
- Seller or Transferor on ATL:
If the seller or transferor is on the ATL and hasn’t already paid the tax due under Section 7E of the Ordinance while filing their income tax return for Tax Year 2022, they must do so. Use the FBR’s online payment system and a payment challan (CPR) created for this reason to submit your payment. CPR payments shall be accepted as evidence of conformity with the amended subsection (2A) of section 236C of the Ordinance.
Alternatively, if the seller or transferor has already declared the property in their income tax return for tax year 2022 under section 7E, or if they are exempted from paying tax due to a court order or any other authority, they need to provide a certificate (Form “A”) issued by the Commissioner of Inland Revenue with jurisdiction over them. This certificate will serve as proof of compliance with the newly added sub-section (2A) of section 236C of the Ordinance.
To obtain the certificate (Form “A”), the seller or transferor must fill out the necessary information and submit it to the respective Commissioner of Inland Revenue. The Commissioner will review the details and issue the certificate accordingly within 7 days of receiving the pre-filled Form “A” from the seller or transferor.
In cases where multiple individuals jointly own the land, each owner must fulfill their share of the tax liability under Section 7E following the aforementioned guidelines.
- Seller or Transferor not on ATL:
If the seller or transferor is not listed on the ATL, they must pay the applicable tax as per Section 7E of the Ordinance. The tax payment can be made through the FBR online payment system, using the designated special payment challan (CPR). The CPR payment will serve as proof of compliance with the newly added sub-section (2A) of section 236C of the Ordinance.
Uniformity in Procedure:
The FBR emphasizes that all transferring authorities must adhere to these instructions to ensure consistency and fairness in the tax payment process. It also assures that the guidelines will be reviewed based on feedback and monitoring, and necessary changes will be made as required.
Related Article: FBR Announces Increase in Value Rates and Withholding Taxes on Immovable Properties
Conclusion:
With these detailed and precise instructions, the FBR aims to streamline the tax payment process for the sale or transfer of immovable properties. By providing clarity on tax obligations and acceptable proof of payment, the FBR seeks to ensure a smooth and transparent process for taxpayers and authorities alike. Following these guidelines will help individuals comply with tax regulations and contribute to the nation’s economic development.
