New income tax instructions for property transfers

July 23, 2023 (MLN): Federal Board of Revenue has issued a circular pertaining to income tax instructions regarding the mode and manner for the payment of tax under section 7E of the Income Tax Ordinance, 2001, concerning the sale or transfer of immovable property.

According to the circular, any person responsible for registering, recording, or attesting the transfer of immovable property (referred to as the "transferring authority") is designated as the person responsible for collecting advance adjustable income tax from the seller or transferor.

The tax collection rate is 3% of the gross amount of consideration received by the seller or transferor if their name appears on the Active Taxpayers' List (ATL) and 6% if they are not on the ATL.

A new sub-section (2A) in section 236C of the Income Tax Ordinance, introduced through the Finance Act 2023, prohibits the transferring authority from registering, recording, or attesting the transfer of immovable property unless the seller or transferor has fulfilled their tax liability under section 7E.

Evidence of this tax payment must be furnished to the transferring authority in the prescribed mode, form, and manner.

For sellers or transferors who are on the ATL, they are required to provide evidence of discharging their tax liability under section 7E in one of the following ways:

1. Paying the tax along with their income tax return filed for Tax Year 2022 and producing evidence of payment using a separate payment challan (CPR) provided in the FBR online payment system.
2. Furnishing a certificate, Form 'A,' issued by the Commissioner Inland Revenue with jurisdiction over the seller/transferor, if the property has already been declared in their 2022 tax return or if they are exempt from paying tax under section 7E due to a court or authority's stay.

In the case of multiple property owners, each individual must fulfill their liability under section 7E for their respective share in the property.

For non-ATL sellers or transferors, they are required to pay the tax due under section 7E and provide evidence of payment using the separate payment challan (CPR) in the FBR online payment system.

These instructions have been issued for uniform application by all transferring authorities.

Amendments may be made to these instructions based on feedback and monitoring of the procedure.

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