To bolster tax collection and track financial transactions within the largely unregulated real estate sector, the Federal Board of Revenue (FBR) is intensifying its efforts to combat the prevalent use of cash transactions.
Senior FBR officials have revealed their intent to enforce stringent penalties and enhance monitoring mechanisms to ensure compliance with these regulations.
Back in 2019, an amendment, Section 75A, was incorporated into the Income Tax Ordinance, 2001. This amendment stipulated that no individual should acquire immovable property with a fair market value exceeding Rs. 5,000,000, or any other asset valued at more than Rs. 1,000,000, except through the use of a crossed cheque issued by a bank, a crossed demand draft, a crossed pay order, or any other crossed banking instrument that substantiates the transfer of funds between bank accounts.
Furthermore, they clarified that the fair market value of immovable property would be determined either by the Board, as specified in subsection (4) of section 68, or by the provincial authority for stamp duty purposes whichever amount is higher.
However, any transaction not conducted in accordance with the specified banking methods outlined earlier carries significant implications. Firstly, individuals involved in such transactions will not be eligible to claim deductions. This means that deductions related to aspects like depreciation, initial allowance, intangibles, and pre-commencement expenditure will not be permitted for assets purchased outside the specified banking channels.
Secondly, any cash amount used for a purchase that should have been conducted through the prescribed banking channels, as mentioned previously, will not be considered as a cost when calculating gains resulting from the sale of such an asset, as per the stipulations of section 76.
Additionally, individuals who purchase real estate worth more than five million rupees using cash or a bearer cheque will be subject to a penalty equal to 5% of the property’s value.