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Tag: immovable properties

  • FBR issues tax rates for income from immovable properties

    FBR issues tax rates for income from immovable properties

    ISLAMABAD: Federal Board of Revenue (FBR) has issued withholding tax rate on rental income of immovable properties, which are applicable from July 01, 2019.

    The FBR issued withholding tax card for tax year starting July 01, 2019, and said that every prescribed persons (withholding agents) shall collect withholding tax under Section 155 of Income Tax Ordinance, 2001 at the time of receipt of rent of immovable property at the time the rent is actually paid.

    The FBR said that the tax shall be adjustable. The withholding tax shall be deducted at the following rates:

    A. In case of individual or Association of Persons (AOPs)

    1. Where the gross amount of rent does not exceed Rs, 200,000: No tax shall be deducted.

    2. Where the gross amount of rent exceeds Rs, 200,000 but does not exceed Rs, 600,000: 5% of the gross amount exceeding Rs, 200,000

    3. Where the gross amount of rent exceeds Rs, 600,000 but does not exceed Rs, 1,000,000: Rs, 20,000+10% of the gross amount exceeding Rs, 600,000.

    4. Where the gross amount of rent exceeds Rs, 1,000,000 but does not exceed Rs, 2,000,000: Rs,60,000+15% of the gross amount exceeding Rs, 1,000,000.

    5. Where the gross amount of rent exceeds Rs, 2,000,000 but does not exceed Rs. 4,000,000: Rs, 210,000+20% of the gross amount exceeding Rs, 2,000,000.

    6. Where the gross amount of rent exceeds Rs.4,000,000 but does not exceeds Rs. 6,000,000: Rs.610,000 plus 25 per cent of the gross amount exceeding Rs.4,000,000.

    7. Where the gross amount of rent exceeds Rs.6,000,000 but does not exceeds Rs. 8,000,000: Rs.1,110,000 plus 30 percent of the gross amount exceeding Rs.6,000,000.

    8. Where the gross amount of rent exceeds Rs.8,000,000: Rs.1,710,000 plus 35 percent of the gross amount exceeding Rs.8,000,000.

    B. The FBR said that in case of company the tax rate shall be 15 percent.

    The FBR further explained that as per Finance Act, 2019, the provisions of newly inserted 10th schedule of the Income Tax Ordinance, 2001 shall not apply on tax rental income deducted under section 155.

  • Threshold amount to purchase immovable properties removed for withholding tax collection: FBR

    Threshold amount to purchase immovable properties removed for withholding tax collection: FBR

    ISLAMABAD: Federal Board of Revenue (FBR) has removed threshold amount to purchase of immovable properties for collection of withholding tax.

    The FBR issued Income Tax Circular No. 09 dated July 30, 2019 and said that through the Finance Act, 2019, the rate of tax on purchase of immovable property under Section 236K of Income Tax Ordinance, 2001 has been reduced to 1 percent from 2 percent.

    Prior to the Finance Act, 2019, no tax was collected under Section 236K on purchase of property where the value of property up to Rs4 million.

    “Through the Finance Act, 2019, the threshold of Rs4 million for collection of tax has been removed. Now tax on purchase of property will be collected on all transactions irrespective of the value of immovable property,” the FBR said.

    The FBR said that tax under section 236C is collected from the seller or transfer at the rate of one percent of the gross amount of consideration received.

    Prior to the Finance Act 2019, this tax was not collected if the property was held for a period exceeding three years.

    Through the Finance Act, 2019, the period of three years has been extended to five years which means that tax under section 236C shall be collected if the immovable property is held for a period up to five years.

    The FBR further explained that as per section 236W read with clause (c) of sub-section (4) of Section 111, every person responsible for registering, recording or attesting transfer of any immovable property was required to collect tax at the rate of 3 percent of the difference between the FBR value of property and the value recorded by the authority registering or attesting the transfer in cases where FBR value was greater than the recorded value.

    So by paying three percent on the difference, the purchaser was not required to explain the source of difference of amount between FBR value and the recorded value.

    Through Finance Act, 2019, section 236W as well as clause (c) of sub-section (4) of Section 111 have been omitted. Consequently, the purchasers are not required to explain the source of investment of property up to the FBR value of property whereas previously such purchasers were required to explain the source of investment to the extent of recorded value of property.

  • FBR makes mandatory purchase of immovable property through banking channel

    FBR makes mandatory purchase of immovable property through banking channel

    ISLAMABAD: Federal Board of Revenue (FBR) has made mandatory the purchase of immovable property of fair market value above Rs5 million through banking channel.

    The FBR issued explanation to the Finance Act, 2019 on Tuesday regarding purchase of assets through banking channel under Section 75A of Income Tax Ordinance, 2001.

    The FBR said that a new section 75A has been introduced in the Ordinance which requires that no person shall purchase immovable property having fair market value greater than Rs.5,000,000 or any other asset having fair market value more than Rs.1,000,000 otherwise than by a crossed cheque drawn on a bank or through crossed demand draft or crossed pay order or any other crossed banking instrument showing transfer of amount from one bank account to another bank account.

    Fair market value of immovable property shall be the value notified by the Board under sub-section (4) of section 68 or the value fixed by provincial authority for the purpose of stamp duty, whichever is higher.

    In case the transaction is not through banking channel as specified above,-

    (a) such person cannot claim deductions mentioned in sections 22,23,24 & 25 on such assets. Hence, no deduction for depreciation, initial allowance, intangibles and pre-commencement expenditure shall be allowable for assets purchased otherwise than through banking channel as specified above;

    (b) the amount of purchased through cash which was required to paid through banking channel as stated above, shall not be treated as cost as per section 76 for computation of any gain in sale of such asset.
    Further, any person purchasing immovable property having fair market value greater than five million through cash or bearer cheque shall pay a penalty of 5% of the value of property determined by the Board under sub-section (4) of section 68 or the value determined by the provincial authority for the purposes of stamp duty, whichever is higher.

    The above provisions of law are illustrated through the following examples.

    Example 1

    Mr A is deriving income from business and has declared taxable income as under.

    Sale: 100,000,000.

    Cost of sales: 70,000,000.

    Breakup of cost of sale

    Initial depreciation on machinery: 10,000,000.

    Normal depreciation of machinery: 6,000,000.

    Salaries: 40,000,000.

    Fuel and utilities: 14,000,000.

    Gross profit: 30,000,000.

    Admin & distribution expenses: 10,000,000

    Taxable income: 20,000,000

    Mr. A had bought machinery of Rs40 million for the year through cash. As per section 75A, business deduction under section 22 & 23 pertaining to initial depreciation of Rs10,000,000 and normal depreciation of Rs6,000,000 shall not be admissible. Hence, Rs16,000,000 will be added in taxable income resulting in taxable income of Rs36,000,000.

    Mr. A subsequently sells the machinery after three years at Rs12,000,000. For the purpose of computing gain, the cost of the asset has to be deducted from the sale price but in this case, the machinery was purchased through cash, hence, the cash amount cannot be treated as cost. Resultantly, Rs12,000,000 will be treated as gain chargeable to tax under the head “income from business”.

    Example 2.

    Mr. B derives income from salary only. He has purchased immovable property through cash and the FBR value of the property is Rs8,000,000 but the DC value of property for the purpose of stamp duty is Rs6,000,000. As per serial No. 21 of section 182, penalty at 5 percent of FBR value of property of DC value, whichever is higher, is to be imposed. In this case, the FBR value of property is greater than DC value, hence penalty shall be imposed at 5 percent of Rs8,000,000 at Rs400,000.

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  • Comparison of new and old FBR valuations of immovable properties in Karachi

    Comparison of new and old FBR valuations of immovable properties in Karachi

    ISLAMABAD: Federal Board of Revenue (FBR) has revised valuation of immovable properties for various cities of the country in order to boost revenue collection.

    The FBR announced significant increase in valuation of immovable properties in Karachi. In order to calculate the changes in old and new valuation for the purpose of withholding tax rate following are the valuation tables:

  • FBR issues revised valuation of immovable properties for 20 cities

    FBR issues revised valuation of immovable properties for 20 cities

    ISLAMABAD: Federal Board of Revenue (FBR) on Tuesday issued notifications for implementing enhanced valuation of immovable properties in 20 major cities.

    The new valuations will be applicable from July 24, 2019.

    Following are the new valuation for 20 cities:

    (1) Abbottabad SRO 829(I)/2019

    (2) Bahawalpur SRO 830(I)/2019

    (3) Faisalabad SRO 831(I)/2019

    (4) Gujranwala SRO 846(I)/2019

    (5) Gujrat SRO 832(I)/2019

    (6) Gwadar SRO 848(I)/2019

    (7) Hyderabad SRO 833(I)/2019

    (8) Islamabad SRO 834(I)/2019

    (9) Jhang SRO 835(I)/2019

    (10) Jhelum SRO 836 (I)/2019

    (11) Karachi SRO 837(I)/2019

    (12) Lahore SRO 838(I)/2019

    (13) Mardan SRO 839(I)/2019

    (14) Multan SRO 840(I)/2019

    (15) Peshawar SRO 841(I)/2019

    (16) Quetta SRO 842(I)/2019

    (17) Rawalpindi SRO 843(I)/2019

    (18) Sahiwal SRO 844(I)/2019

    (19) Sargodha SRO 445(I)2019

    (20) Sukkur SRO 847(I)/2019

  • FBR issues withholding tax rates for sale, purchase of immovable properties

    FBR issues withholding tax rates for sale, purchase of immovable properties

    KARACHI: Federal Board of Revenue (FBR) has notified withholding tax rate for active and non-active taxpayers at the time of sale and purchase of immovable properties as amended through Finance Act, 2019 and applicable from July 01, 2019.

    The FBR said that every person registering, recording or attesting or transfer including local authorities, housing authorities, housing society cooperative society and registrar or properties shall collect withholding tax under Section 236C of Income Tax Ordinance, 2001 from seller of immovable
    property at the time of registering, recording or attesting the transfer.

    The withholding tax rate shall be one percent of gross amount of the considering received in case of active taxpayer, who filed their income tax return within due date.

    Persons not appearing in the Active Taxpayers’ List : The applicable tax rate is to be increased by 100 percent (Rule-1 of Tenth Schedule to the
    Ordinance), i.e 2 percent of the gross amount of the consideration received.

    The tax shall be minimum tax if property is acquired and disposed off within the same tax year; Otherwise adjustable.

    Advance tax, under this section, is not be collected if the immovable property is held for a period exceeding five25 years.

    The FBR said that every person registering, recording or attesting or Transfer including local authorities, housing authorities, Housing Society, Co-operative Society and registrar or properties shall collect adjustable withholding tax from the purchaser of immovable properties at the time of registering, recording of immovable properties under Section 236K of Income Tax Ordinance, 2001.

    Under Section 236K(1) the tax rate shall be one percent of the fair market value for active taxpayers.

    Persons not appearing in the Active Taxpayers’ List : The applicable tax rate is to be increased by 100% (Rule-1 of Tenth Schedule to the Ordinance), i.e 2 percent of the fair market value.

    Advance Tax on payment of installment in respect of purchase of allotment of immovable property where transfer is to be effected after making payment of all installments Under Section 236K (3) the tax rate shall be one percent of the fair market value.

    Persons not appearing in the Active Taxpayers’ List : The applicable tax rate is to be increased by 100 percent (Rule-1 of Tenth Schedule to the Ordinance), i.e 2 percent of the fair market value.

  • No immunity to concealed income invested in immovable properties

    No immunity to concealed income invested in immovable properties

    ISLAMABAD: People purchasing immovable properties are now required to make true declaration as immunity to such investment has been withdrawn.

    Sources in Federal Board of Revenue (FBR) told PkRevenue.com that an amnesty to undeclared amount was available for making investment in real estate business.

    The amnesty was granted through Income Tax (Fourth Amendment) Act, 2016 dated December 2, 2016 during Nawaz Sharif government and people took huge benefit from this scheme to whiten their money.

    The government has proposed to withdraw this provision through Finance Bill, 2019 as part of budget 2019/2020, presented on Tuesday. The proposal was accepted by the parliament and it has become part of Finance Act, 2019.

    The FBR in its income tax salient features said that 3 percent tax for not explaining the source of investment is being withdrawn.

    Section 236W was introduced to Income Tax Ordinance, 2001 through Income Tax (Fourth Amendment) Act, 2016 dated December 02, 2016.

    This section was granted immunity from declaring source of investment for the purchase of immovable properties.

    The FBR said that in Pakistan the Real Estate sector is one of the biggest sources of money laundering and is used as a parking lot for untaxed as well as ill-gotten money.

    In view of this a wide range of steps have been taken to restructure the taxation of this sector.

    The various steps being taken are as under:-

    (i) At present, the Board has issued valuation tables of immovable properties in 21 major cities wherein such properties are valued at a value higher than the DC rates. The purchasers are also required to pay 3 percent tax on the difference between the DC value and FBR value of property to explain the source of investment to the extent of differential between FBR value and DC value. The rates notified by the Board are still considerably lower than actual market value.

    It is therefore intended that FBR rates of immovable properties would be taken closer to or about 85 percent of actual market value.

    (ii) As the increase in FBR values of immovable property is going to increase the incidence of tax on genuine buyers and sellers, the rate of withholding tax on purchase of immovable property is being reduced from 2 percent to 1 percent.

    (iii) under the immunity, withholding tax on purchase of property was attracted only if the value of property is more than four million rupees. The threshold of four million rupees is being abolished and withholding tax on purchase is to be collected irrespective of the value of property.

    (iv) Under the immunity, there was no withholding tax on sale of property if the property is held for a period of more than three years. Since capital gain is to be taxed under normal tax regime even beyond the period of three years, withholding tax on sale of property would be collected where the holding period is up to five years.

    (v) Previously the law imposed restriction on registration or transfer of property having fair market value exceeding rupees five million in the name of a non-filer. The aforesaid restriction placed on purchase of immovable property has been withdrawn.

  • Cash payment above Rs5 million for immovable property to attract penalty of 5pc of total value

    Cash payment above Rs5 million for immovable property to attract penalty of 5pc of total value

    KARACHI: A person who purchases immovable property having fair market value greater than Rs5 million through cash or bearer cheque then the person is liable to pay five percent of the value of immovable property as penalty.

    From tax year 2020 starting July 01, 2019 the purchase of immovable property has been prohibited through any bearer instrument or cash if its value is above Rs5 million.

    According to the FBR if a person commits offence than such person shall pay a penalty of five percent of the value of property determined by the Board under sub-section (4) of section 68 or by the provincial authority for the purposes of stamp duty, whichever is higher.

    A new section has been inserted in the Ordinance which provides that purchase of assets set as out below shall now only be made through a crossed cheque drawn on a bank or through a crossed demand draft or crossed pay order or any other crossed banking instrument –

    (a) Immovable property having fair market value greater than Rs05 million; (b) Any other asset having fair market value of more than Rs01 million.

    For the purpose of this section, the fair market value means the value notified by FBR under Section 68(4) of the Ordinance or the value fixed by the provincial authority for the purposes of stamp duty, whichever is higher.

    In the event, the transaction of purchase of the asset is not carried out in the manner prescribed above, such asset shall not be entitled for allowance of depreciation or amortization, as specified under the Ordinance.

    The amount paid other than in the specified manner shall not be regarded as cost under Section 76 of the Ordinance for the purpose of computing gain on disposal of such asset.

    In addition a penalty of five percent of the fair market value of the asset so purchased shall also be levied.

  • FBR probes concealment in land, immovable property purchases

    FBR probes concealment in land, immovable property purchases

    ISLAMABAD: Federal Board of Revenue (FBR) has obtained data of land and immovable property transactions from provincial registrar offices and started proceedings against those who concealed the actual amount to purchase the assets.

    FBR sources said that the data had been obtained on the basis of withholding tax deduction by the property registrars. The sources said that the FBR was probing the lower values declared by the purchasers against the fair market values.

    The FBR is also probing those people who have such immovable properties where filing of income tax returns is mandatory.

    As per Section 114 of Income Tax Ordinance, 2001 following persons are required to annual income tax returns:

    — owns immovable property with a land area of two hundred and fifty square yards or more or owns any flat located in areas falling within the municipal limits existing immediately before the commencement of Local Government laws in the provinces; or areas in a Cantonment; or the Islamabad Capital Territory;

    — owns immovable property with a land area of five hundred square yards or more located in a rating area;

    — owns a flat having covered area of two thousand square feet or more located in a rating area.

    The sources said the FBR has been allowed to investigate transactions of past six years.

    The sources said that the FBR through Finance Act, 2018 notified Directorate General of Immovable Property for determination of fair market values and authorized this directorate with immense powers.

    The Directorate-General may, subject to the provisions and conditions as may be prescribed, initiate proceedings for the acquisition of property for the reasons to believe that any immovable property of a fair market value has been transferred by a person, hereinafter referred to as the transferor, to another person, hereinafter referred to as the transferee, for a consideration which is less than the fair market value of the immovable property and that the consideration for such transfer as agreed to between the transferor and transferee has been understated in the instrument of transfer for the purposes of ─

    (a) the avoidance or reduction of withholding tax obligations under this Ordinance;

    (b) concealment of unexplained amount referred to in sub- section (1) of section 111 representing investment in immovable property; or

    (c) avoidance or reduction of capital gains tax under section 37.

    The sources said that the FBR had extended the filing of income tax returns for tax year 2018 up to August 2, 2019 to facilitate persons to file their returns, especially in those cases where immovable properties had been purchased but not declared.

  • Immovable property cannot be purchased without bank account: FBR

    Immovable property cannot be purchased without bank account: FBR

    ISLAMABAD: Federal Board of Revenue (FBR) has barred purchase of immovable property by any persons making payment without banking channels.

    FBR sources told PkRevenue.com that in this regard amendment had been made to Income Tax Ordinance, 2001 in this regard.

    The sources said that amendment had been made to Income Tax Ordinance, 2001 which explained that immovable property valuing more than Rs5 million and other assets more than Rs1 million cannot be transferred without a bank accounts.

    The new section introduced through Finance Act, 2019 is reproduced as under:

    “75A. Purchase of assets through banking channel.

    (1) Notwithstanding anything contained in any other law, for the time being in force, no person shall purchase—

    (a) immovable property having fair market value greater than five million Rupees; or

    (b) any other asset having fair market value more than one million Rupees, otherwise than by a crossed cheque drawn on a bank or through crossed demand draft or crossed pay order or any other crossed banking instrument showing transfer of amount from one bank account to another bank account.

    (2) For the purposes of this section in case of immoveable property, fair market value means value notified by the Board under sub-section (4) of section 68 or value fixed by the provincial authority for the purposes of stamp duty, whichever is higher.

    (3) In case the transaction is not undertaken in the manner specified in sub-section (1),—

    (a) such asset shall not be eligible for any allowance under sections 22, 23, 24 and 25 of this Ordinance; and

    (b) such amount shall not be treated as cost in terms of section 76 of this Ordinance for computation of any gain on sale of such asset.”