- The Federal Board of Revenue (FBR) has introduced a verification form under Section 7E of the Income Tax Ordinance, 2001.
- The verification form requires essential details including the seller’s name, address, National Tax Number (NTN) .
- The new provision, Section 236C (2A), stipulates that the transferring authority .
The Federal Board of Revenue (FBR) has introduced a significant measure for property transactions, presenting a new verification form as per Section 7E of the Income Tax Ordinance, 2001.
This form has become a mandatory requirement for sellers of immovable property, aimed at simplifying the tax process and fostering transparency in property transactions.
The freshly introduced verification form, developed under Section 236C (2A), mandates property sellers to furnish this document to the registering authority before any transfer of immovable property can be executed. The form contains vital particulars concerning the property, the seller, and the tax facets of the transaction.
Key details encompassed in the form consist of the seller or transferor’s name, address, and either the National Tax Number (NTN) or Computerized National Identity Card (CNIC). Additionally, it covers particulars about the property, including its category (plot, flat, or constructed premises), location, province, district, and tehsil or town.
Moreover, the seller must declare the amount subject to Section 7E, the property’s fair market value as reported in their income tax return, and the tax amount paid under Section 7E for the specific property. Subsequently, the Commissioner Inland Revenue will verify whether the taxpayer has complied with the provisions of Section 7E for the pertinent tax year, or if they are exempt from this obligation.
Section 236C of the Income Tax Ordinance 2001 designates the entity responsible for registering, recording, or attesting the transfer of any immovable property as the “transferring authority.” This authority is now entrusted with collecting advance adjustable income tax from the seller or transferor.
For sellers on the Active Taxpayers’ List (ATL), the tax rate for this collection stands at 3% of the gross consideration received. However, if the seller/transferor is not on the ATL, the tax rate escalates to 6%.
The introduction of Section 7E through the Finance Act 2022 aimed to treat every resident individual as having earned an income equivalent to 5% of the fair market value of the capital asset located in Pakistan, with certain exclusions. The applicable tax rate for this assumed income is fixed at 20%, effectively amounting to 1% of the immovable property’s fair market value.
Incorporated within the Finance Act 2023 is a new sub-section (2A) in Section 236C of the Ordinance. This clause prohibits the transferring authority from registering, recording, or attesting the transfer of any immovable property unless the seller or transferor has fulfilled their tax obligation under Section 7E.
They must present evidence of this compliance to the transferring authority according to the prescribed mode, form, and manner. This step is intended to ensure that property transactions conform to the tax regulations established by the FBR, thereby fostering transparency and tax adherence in the real estate sector.