Karachi, August 24, 2024 – Federal Board of Revenue (FBR) has explained Section 7F of Income Tax Ordinance, 2001 regarding tax on builders and developers.
The FBR released Income Tax Ordinance, 2001 updated up to June 30, 2024. The Section 7F has been inserted to the Ordinance for Tax Year 2024-25 and onwards.
The FBR said that Section 7F has been introduced regarding taxation of builders and developers. The taxable profit shall be 10% of the gross receipts from activities of construction and sale of residential, commercial and other builders, 15% of the gross receipts from activities of development and sale of residential, commercial or other plots and 12% of the gross receipts in case of both the activities above are involved.
The FBR said that the tax shall be imposed on the taxable profit as per rate specified in Division I or Division II, as the case may be, for such persons.
The FBR further stated that through an explanation, it has been clarified that the provisions of section 7F shall only apply to activities from construction and sale of residential commercial or other buildings and activities from development and sale of residential, commercial or other plots. “Any other head of income or income from any other source is excluded from the purview of this section,” the FBR added.
The FBR stated that such builders and developers while explaining the nature and source of any amount credited or investment made, money or valuable article owned or funds from which the expenditure was made, shall be allowed to take credit up to the amount of taxable profit under this section.
“Credit of amount in excess of taxable profit can only be taken if taxable income under Section 9 of Income Tax Ordinance, 2001 is more than the taxable profit and tax has been paid on such taxable income at the rate specified in Division I or II of Part I of the First Schedule,” the FBR added.
Builders and developers established by an Act of the Parliament or a Provincial Assembly or by a Presidential Order for benefit of their employees or specific housing projects are excluded from the purview of Section 7F.
As per sub-section (1) of Section 147, persons deriving incomes subject to tax under Sections 5, 6 and 7, salary income subject to deduction of tax at source and incomes subject to final tax are not liable to pay advance tax. Section 7F has not been mentioned in exclusion from payment of advance tax in sub-section (1) of Section 147. “Therefore, builders and developers falling under the purview of Section 7F shall discharge their advance tax liability on taxable profit for a tax year in four quarterly advance tax instalments,” the FBR said.
As the advance tax liability for the tax year 2025 is likely to be more than the advance tax liability computed under sub-section (4), builders and developers shall estimate their advance tax liability as per provisions of sub-section (4A) of Section 147.
The advance tax for a quarter will be computed by applying the rates specified in Division I or II of Part I of the First Schedule to quarterly taxable profit computed as a percentage of gross receipts i.e. 10% of the gross receipts from activities of construction and sale of residential, commercial or other buildings, 15% of the gross receipts from activities of development and sale of residential, commercial or other plots and 12% of the gross receipts in case both the activities above are involved.
The due dates for payment of quarterly advance tax for individuals and AOPs/companies will be same as specified in sub-sections (5) and (5A) of Section 147 of the Ordinance respectively.
Moreover, provision of sub-sections (7) to (10) of Section 147 will apply mutatis mutandis on quarterly advance tax payable under this section.
The FBR further stated that a statement of computation will be submitted by a builder or a developer on each due date for the quarters specifying computation of advance tax on the basis of taxable profit for each quarter, gross amount of receipts either in cash or deposited in bank and business bank accounts detail duty certified by a Chartered Accountants or a Cost and Management Accountant.
