Clarifications and Exemptions Issued under Section 7E of the Income Tax Ordinance, 2001
The Federal Board of Revenue
(FBR) has announced a relaxation in the conditions under Section 7E of the
Income Tax Ordinance of 2001 that specifically concerns those who sell immovable
property.
This modification was
communicated via Circular No. 3 of Income Tax, issued on August 15th, 2023. The
circular eases certain requirements for sellers of immovable property mentioned
in Section 7E of the Income Tax Ordinance.
The provisions under Section 7E
of the Income Tax Ordinance of 2001 only apply to resident persons as defined
in Section 82. Non-resident individuals, including non-resident Pakistanis, are
not required to pay tax under Section 78.
Therefore, the conditions
notified through Circular No. C.No.1 of 2023-24 regarding furnishing evidence
to the transferring authority for immovable property sales do not apply to
non-residents.
Here are some key exemptions under Section 7E:
- Non-resident Individual Exemption:However, non-resident individuals selling or transferring immovable property will need to submit a duly filled Form-B along with a scanned copy of their valid passport to the transferring authority. For non-resident Pakistanis, in addition to Form-B and passport copy, they must also provide a copy of their CNIC, NICOP or POC. The transferring authority will complete the property sale/transfer only after verifying the details in Form-B and ensuring the non-resident's stay in Pakistan was less than 183 days for the applicable tax year (July 1, 2021 - June 30, 2022 or July 1, 2022 - June 30, 2023 on wards) for which they are claiming non-resident status.
- First-Year Property Acquisition Exemption: Properties acquired
during the first year where tax under section 236K has been paid by the
purchaser are exempt. The seller must provide a CPR to the transferring
authority.
- Agriculture Property Exemption: Immovable property used for
agriculture, excluding farmhouses, does not fall under Section 7E. However,
farmhouses are subject to Circular No. 1 conditions.
- Registered Local Authorities and Developers Exemption: Immovable
property owned by local authorities, development authorities, builders, or
developers registered with the DNFBP directorate are also exempt. These
entities need to furnish proper certificates to the transferring authority.
Here are two additional points
mentioned in the circular:
- Other existing contents or
provisions outlined in previous circulars remain unchanged, unless they are subsequently
substituted or amended.
- This explanatory circular is
being issued in the interim period to facilitate property sale/transfer
transactions. It will be valid only until an automated system is developed for
handling these purposes.
The circular provides relaxations
and clarifications to existing rules under Section 7E on a temporary basis
until a more permanent digital solution is implemented to automate the process
of property transactions and tax compliance.
