In a move to bring more transparency and compliance to the real estate sector, the Federal Board of Revenue (FBR) has rolled out a fresh verification form under the recently established Section 7E of the Income Tax Ordinance, 2001. According to a report published on August 15, this initiative aims to regularize immovable property transactions in the market.
Karachi: FBR Introduces New Verification Form to Regulate Real Estate Transactions
This newly introduced verification form has now become a mandatory requirement for sellers of immovable properties. The prime objective is to align property transactions with FBR’s tax regulations, fostering accountability and tax adherence within the real estate domain. Under the provisions of Section 236C (2A), sellers are now mandated to complete this form and submit it to the registering authority before the property’s transfer can take place.
Containing pivotal details about the property, the seller, and the associated tax implications, the form encompasses information such as the seller’s name, address, tax identification number, and property specifics including type, location, and assessed value. The seller is required to declare the property’s value as per the fair market value mentioned in the income tax return, along with the tax payment made under Section 7E. The Commissioner of Inland Revenue will then verify adherence to the rules or assess eligibility for exemptions.
Income Tax Ordinance 2001
Section 236C of the Income Tax Ordinance 2001 defines the body responsible for overseeing the registration, recording, or attestation of immovable property transfers as the ‘transferring authority’. This entity is entrusted with collecting advance adjustable income tax from the seller or transferor. For individuals categorized as Active Taxpayers (ATL), the tax rate for this collection stands at 3% of the received consideration. However, if the seller or transferor doesn’t fall under the ATL category, the tax rate escalates to 6%.
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Introduced through the Finance Act 2022, Section 7E outlines that resident individuals are deemed to earn an income equivalent to 5% of their property’s fair market value in Pakistan, with specific exceptions. The tax rate for this presumed income is set at 20%, effectively accounting for 1% of the property’s fair market value.
Aligned with the amendments of the Finance Act 2023, a fresh sub-section (2A) has been appended to Section 236C of the Ordinance. This addition makes it a requirement to fulfill tax obligations under Section 7E for immovable property transfers to be registered, recorded, or attested. Evidence of compliance must be submitted to the transferring authority as stipulated. This alteration aims to ensure that property transactions seamlessly adhere to FBR’s tax regulations, reinforcing transparency and tax adherence within the realm of real estate.