ISLAMABAD: The Federal Board of Revenue (FBR) has implemented the judgment of the Lahore High Court (LHC) on Section 7E (tax on deemed income basis) of the Income Tax Ordinance 2001 and now Section 7E will not apply to cases (filers/non-filers) falling within the jurisdiction of the LHC.
Under an income tax circular issued by the FBR on Tuesday, the FBR has abolished the condition of obtaining exemption certificates from the Commissioner Inland Revenue from different categories of taxpayers including non-resident persons under Section 7E of the Income Tax Ordinance 2001.
Explaining the circular, real estate expert Muhammad Ahsan Malik told Business Recorder that the Section 7E would not be applicable to the transfer of immovable properties located in Punjab, irrespective of the fact that the cases are related to the filers or non-filers of income tax returns.
Therefore, all cases of Punjab will not be subjected to the provisions of Section 7E. The exclusions provided in the law from section 7E would not be required to go to the Commissioner of Inland Revenue for obtaining exemption certificates, he added.
The FBR has relaxed many procedural conditions of section 7E through the issuance of circular number 3 of 2023 issued on Tuesday.
ln order to remove any difficulty arising for the implementation of newly-introduced sub-section (2A) and in partial modification and addendum to the instructions contained in Circular No1 of 2023-24.
It is clarified that contents of the circular will not apply in cases falling in the jurisdiction of the LHC with reference to the judgment in WP no 52559 of 2022 unless the said judgment is reversed, suspended or vacated in an intra-court appeal or by the Supreme Court of Pakistan.
The FBR has also announced that non-resident individuals including non-resident Pakistanis are not required to pay tax on immovable properties under Section 7E of the Income Tax Ordinance 2001.
The FBR has also relaxed the condition of obtaining exemption certificates from the Inland Revenue Commissioners in different cases as specified in the said circular.
The FBR said that the explanatory circular, which is being issued for facilitating the sale of property or transfer transactions, will be valid for an interim period till the development of an automated system for this purpose.
The FBR has further clarified that the conditions regarding obtaining a certificate from the Commissioner outlined in Circular No1 of 2023-24 will not apply with respect to the situations enumerated. However, transferring authority of immovable property will maintain a proper record of the seller/transferor data along with relevant documents with respect to properties under sale/transfer covered under these specified situations.
The aforesaid record of data will be shared by the transferring authority with the concerned chief commissioner IR of the Regional Tax Office having jurisdiction over the seller/transfer on a weekly basis starting from the date of issuance of this circular.
Under the circular, Section 7E of the Ordinance does not apply on immoveable property owned by a local authority, a development authority and builders and developers for land development and construction, subject to the condition that such persons are registered with the Directorate General of Designated Non-Financial Business and Professions (DNFBP).
The provisions of section 7E are not applicable on a property in the first year of acquisition on which tax under section 236K has duly been paid by the purchaser. In such a case the seller/transferor of a property will furnish to the transferring authority a Computerised Payment Receipt (CPR) having a unique CPR number, bearing the seller or transferor’s name, CNIC number and showing the tax paid under section 236K, date of payment as well as tax year.
The provisions of Section 7E of the Income Tax Ordinance, 2001 is not attracted to an immoveable property allotted to Shaheed or dependents of a Shaheed belonging to Pakistan Armed Forces; a person who dies while in the service of the Pakistan Armed Forces or the federal and provincial government; a war wounded person while in the service of the Pakistan armed forces or federal or provincial government; an-ex-serviceman and serving personnel of armed forces or ex-employees or serving personnel of federal and provincial government.
Therefore, where a seller or transferor belongs to aforesaid categories of persons, the condition of mode and manner of furnishing of evidence to the transferring authority notified through Circular No 1 of 2023 will not apply on such categories of persons.
Board has received many representations as to the mode and manner of furnishing evidence regarding the application of Section 7E of the Income Tax Ordinance, 2001 (the Ordinance) for the purpose of sale or transfer of immoveable property as envisaged in sub-section (2A) of section 236C of the Ordinance.
In order to remove any difficulty arising for the implementation of the newly-introduced sub-section (2A) and in partial modification and addendum to the instructions contained in Circular No1 of 2023-24.
Special Thanks to the Business Recorder for providing such an insightful view about section 7E.
Here is the link to the story: https://www.brecorder.com/news/402581332023721217646921CircularNo.1of2023-2024