Karachi, August 14, 2023 – The Federal Board of Revenue (FBR) has unveiled a significant measure for property transactions, issuing a new verification form under Section 7E of the Income Tax Ordinance, 2001.
This form is now a requirement for sellers of immovable property, designed to streamline the tax process and enhance transparency in property transactions.
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The newly introduced verification form, designed under the provisions of Section 236C (2A), mandates that property sellers must provide this document to the registering authority before any transfer of immovable property can take place. The form includes crucial details about the property, the seller, and the tax aspects of the transaction.
Key information contained within the form includes the name, address, and National Tax Number (NTN) or Computerized National Identity Card (CNIC) of the seller or transferor. It also encompasses details about the property, such as its type (plot, flat, or constructed premises), the property’s location, province, district, and tehsil or town.
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Furthermore, the seller must declare the amount chargeable under Section 7E, the fair market value of the property as declared in their income tax return, and the amount of tax paid under Section 7E for the property in question. The Commissioner Inland Revenue will then certify whether the taxpayer has duly complied with the provisions of Section 7E for the relevant tax year or if they are exempt from this requirement.
Section 236C of the Income Tax Ordinance 2001 designates the person responsible for registering, recording, or attesting the transfer of any immovable property as the “transferring authority.” This authority is now tasked with collecting advance adjustable income tax from the seller or transferor.
The tax rate for this collection is 3% of the gross consideration received by the seller or transferor, provided they are on the Active Taxpayers’ List (ATL). If the seller/transferor is not on the ATL, the tax rate increases to 6%.
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The introduction of Section 7E through the Finance Act 2022 aimed to treat every resident person as having derived income equal to 5% of the fair market value of the capital asset situated in Pakistan, subject to certain exclusions. The tax rate for this deemed income is set at 20%, effectively amounting to 1% of the fair market value of the immovable property.
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With the Finance Act 2023, a new sub-section (2A) has been introduced in Section 236C of the Ordinance. This provision bars the transferring authority from registering, recording, or attesting the transfer of any immovable property unless the seller or transferor has fulfilled their tax liability under Section 7E, providing evidence of this compliance to the transferring authority in the prescribed mode, form, and manner. This move aims to ensure that property transactions adhere to the tax regulations set forth by the FBR, promoting transparency and tax compliance in the real estate sector.
