Karachi, September 20, 2024 — In a significant move aimed at enhancing transparency and combating tax evasion, the Federal Board of Revenue (FBR) has mandated that all immovable property transactions exceeding Rs 5 million must be conducted through the banking channel.
This requirement, upheld for the tax year 2024-25, ensures that large-scale property purchases are properly documented and traceable within the formal banking system.
The FBR has implemented this rule under Section 75A of the Income Tax Ordinance, 2001. The section explicitly outlines the requirements for purchasing property and other high-value assets using the banking system.
According to Section 75A, the mandate applies to:
• Immovable property with a fair market value greater than Rs 5 million.
• Other assets with a fair market value exceeding Rs 1 million.
For such transactions, payments must be made through specific banking instruments, including a crossed cheque, crossed demand draft, crossed pay order, or any other banking instrument that clearly indicates the transfer of funds between bank accounts.
The provision ensures greater accountability by requiring a clear paper trail for all large transactions. The fair market value for immovable properties, as defined by this section, will be determined based on either the value notified by the FBR under Section 68 or the value established by provincial authorities for stamp duty purposes—whichever is higher.
Failure to comply with these guidelines will have serious consequences for the buyer. If the property purchase does not follow the specified banking procedures, the buyer will face penalties, including:
1. Ineligibility for Allowances: The asset will not qualify for tax allowances under Sections 22, 23, 24, and 25 of the Income Tax Ordinance, which typically relate to depreciation and other deductions.
2. Exclusion from Cost Consideration: The amount paid for the property will not be recognized as a cost when calculating capital gains under Section 76. This means that upon selling the asset, the buyer may face higher tax liabilities as they won’t be able to deduct the original purchase price when determining profits or gains.
The move is part of a broader strategy by the FBR to regulate large-scale financial transactions more strictly, ensuring that all such purchases are transparent and within the tax net. By making banking channels mandatory for significant property transactions, the FBR aims to curb illegal practices such as under-reporting of property values, money laundering, and other forms of financial malfeasance.
This mandate reinforces the government’s commitment to bolstering the formal economy and ensuring that large financial transactions are fully compliant with tax regulations. Property buyers and investors are advised to strictly adhere to these guidelines to avoid legal and financial penalties.
