The Federal Board of Revenue (FBR) has issued detailed instructions pertaining to the payment of tax under section 7E of the Income Tax Ordinance 2001, specifically concerning the sale or transfer of immovable properties.
In circular 1 of 203, addressed to all Chief Commissioners of Inland Revenue, the FBR laid out the necessary guidelines and procedures to be followed in such transactions.
Section 236C of the Income Tax Ordinance designates any individual responsible for registering, recording, or attesting the transfer of immovable properties as the “transferring authority.” This authority is tasked with collecting advance adjustable income tax from the seller or transferor at rates of 3% for ATL-listed sellers/transferors and 6% for non-ATL individuals.
The Finance Act of 2022 introduced section 7E, which treats every resident person as having derived income equal to 5% of the fair market value of their capital asset in Pakistan, subject to specific exclusions under sub-section (2).
This deemed income is subject to a tax rate of 20%, effectively 1% of the fair market value of the immovable property.
With the Finance Act of 2023, a new sub-section (2A) was added to section 236C of the Ordinance, mandating that the transferring authority cannot process the registration, recording, or attestation of any immovable property transfer unless the seller or transferor has fulfilled their tax liability under section 7E. The seller/transferor must provide evidence of tax payment in the prescribed mode, form, and manner.
The instructions issued by the FBR offer a comprehensive approach to address situations arising from changes in the mode, form, and manner of tax collection under section 7E.
For sellers/transferors on ATL, they must produce evidence of tax payment through a separate payment challan (CPR) if not already paid along with the income tax return for TY 2022.