Karachi, July 21, 2023 – The Federal Board of Revenue (FBR) has released the method for making tax payments on deemed income under Section 7E of the Income Tax Ordinance, 2001, specifically concerning the sale or transfer of immovable property.
According to Income Tax CIRCULAR NO. 01 OF 2023-24, the FBR designates any person responsible for registering, recording, or attesting the transfer of immovable property as the “transferring authority.” This authority is now responsible for collecting advance adjustable income tax from the seller or transferor, as specified under section 236C of the Income Tax Ordinance 2001.
The tax rate is set at 3% of the gross amount of consideration received by the seller or transferor if their name appears on the Active Taxpayers’ List (ATL). In the case of non-ATL sellers or transferors, the tax rate is increased to 6%.
The Finance Act, 2022 introduced Section 7E, whereby every resident person is treated as having derived income equal to 5% of the fair market value of capital assets located in Pakistan, subject to certain exclusions. This deemed income is chargeable to tax at a rate of 20% (effectively 1% of the fair market value of immovable property).
With the Finance Act, 2023, a new sub-section (2A) was added to Section 236C of the Ordinance, imposing a condition on the transferring authority. The authority cannot register, record, or attest the transfer of any immovable property unless the seller or transferor has paid their tax liability under Section 7E, and evidence of such payment has been provided in the prescribed mode, form, and manner.
The FBR issued instructions to cater to situations arising from the change in law, specifying the mode, form, and manner of tax collection under Section 7E:
For ATL Sellers/Transferors:
• The seller/transferor can provide evidence of tax payment under Section 7E through the FBR online payment system. A separate payment challan (CPR) is provided for this purpose.
• If the seller/transferor has already declared the property in their tax return for Tax Year 2022 or if they are exempt from paying tax under Section 7E due to a court order or authority’s stay, they must furnish a certificate (Form ‘A’) issued by the relevant Commissioner Inland Revenue.
For Non-ATL Sellers/Transferors:
• Non-ATL sellers/transferors must pay the due tax under Section 7E and provide evidence of payment through the FBR online payment system using the CPR.
The instructions have been issued for uniform application of the tax payment procedure by all transferring authorities. The FBR will monitor the process and make necessary amendments if required based on feedback and observations.
This new method aims to ensure smooth tax compliance and collection on deemed income during property transactions, helping to streamline tax processes and increase revenue collection.