Payment of Tax under section 7E on sale of Property

Instructions Regarding Mode and Manner for Payment of Tax u/s 7E of the Income Tax Ordinance, 2001 on Sale or Transfer of Immovable Property

Under section 236C of the Income Tax Ordinance 2001, any person responsible for registering, recording, or attesting transfer of any immovable property has been designated as the person responsible means the ‘transferring authority’ that collects Income tax from the seller or transferor of immovable property. This blog discusses scenarios on Payment of Tax under section 7E on sale of Property [Section 236C(2A)].

The rate of tax collection is 3% of the gross amount of the consideration received by the seller or transferor in case of seller’s/transferor’s name if appearing on the Active Taxpayers’ List (ATL) and 6% in case of non-ATL seller/transferor.

Through Finance Act, 2022 section 7E was introduced whereby, for tax year 2022 and onwards, every resident person has been treated to have derived as income, an amount equal to 5% of the fair market value of the capital asset situated in Pakistan subject to exclusions of the capital assets provided under sub-section (2).

Tax on deemed rental income is charged at the rate of 20% (1% of fair market value of immoveable property is the effective rate).

A new sub-section (2A) of the section 236C of the Income Tax Ordinance, 2001 was introduced in Finance Act 2023, this new section (2A) restricts the transferring authority/Registering Authority at the time of registering/ attesting or transfer of any immovable property unless the seller or transferor has discharged his tax liability under section 7E of the Ordinance and evidence to this effect has been furnished to the transferring authority in the prescribed mode, form and manner.

The following instructions are issued for catering for situations arising out of change in law prescribing mode, form and manner of collection of payment of tax u/s 7E:

Where the seller or transferor is on ATL

The said seller or transferor will provide evidence to the transferring authority that he has discharged his liability u/s 7E in any of the following modes:

If the seller/transferor has not already paid the tax u/s 7E along with his income tax return filed for TY 2022, then, such person is required to pay the due amount of tax payable under section 7E of the Ordinance and produce evidence to the transferring authority.

For this purpose, a separate payment challan (CPR) has been provided in FBR online payment system.

The payment made into government treasury through CPR in this regard will be treated as evidence for the purpose and to the extent of newly inserted sub-section (2A) of section 236C of the Ordinance; or

If the seller / transferor has already declared the said property in his declaration u/s 7E filed along with his income tax return for tax year 2022 or the said seller/transferor is not required to pay tax u/s 7E due to any stay granted by any court of law or authority, then the seller / transferor will furnish a certificate annexed as Form ‘A’ to this circular duly issued by the Commissioner Inland Revenue holding jurisdiction over the seller/transferor.

The certificate issued by the Commissioner Inland Revenue will be treated as evidence for the purpose and to the extent of newly inserted sub-section (2A) of section 236C of the Ordinance;

For the purpose of issuance of above certificate, the seller/transferor will fill the requisite particulars in attached Form ‘A’ and submit the same to the Commissioner Inland Revenue holding jurisdiction over the person. The Commissioner Inland Revenue will examine the particulars and will accordingly issue the certificate.

The said certificate will be issued by the Commissioner Inland Revenue within 7 days of the receipt of the pre-filled form ‘A’ submitted by the seller/transferor.

If property owner is more than one person, each person shall discharge liability u/s 7E with respect to his or her respective share in the said property in any of the modes described above.

Where the seller/transferor is a non-ATL person

Such person is required to pay the due amount of tax payable under section 7E of the Ordinance and provide evidence to the transferring authority. For this purpose, a separate payment challan (CPR) has been provided in FBR online payment system.

The payment made into government treasury through CPR in this regard will be treated as evidence for the purpose and to the extent of newly inserted sub-section (2A) of section 236C of the Ordinance.

These instructions have been issued for uniform application of procedure by all transferring authorities. Based on the feedback and monitoring of the procedure, suitable amendments if necessary will be made to these instructions.

Form `A’

CERTIFICATE FOR THE PURPOSE OF SECTION 236C (2A) TO BE PRESENTED BY SELLER/TRANSFEROR TO REGISTERING/RECORDING/ATTESTING AUTHORITY FOR THE TRANSFER OF IMMOVABLE PROPERTY

PARTICULARS OF SELLER/TRANSFEROR

1 Name

2 Address: (Please write complete address along with of City of District)

3 NTN – CNIC/Inc. No./Passport No.

(Please attach photocopy of CN1C)

LOCATION & PARTICULARS OF THE PROPERTY

4 Type Commemial Residential Industrial AgrIcultural (excluding Farmhouse) Farmhouse Any other immovable capital assets

5 Type Plot Flat

6 Land Size Kenai

Marla Sq. Yards Sq. feet

(PI. select only one unit of measure)

7 Covered Area Sq. Yards Sq. feet (Pl. select only one unit of measure)

8 Address: Plot/ House/ Flat/ Shop/ Office No. Street /Lane etc. No.

9 Sector! Phase / Mohalla / Block etc.

10 Province District Tehsil / Town

11 If chargeable u/s 7E, fair market value of property declared in return of Income Rs.

12 Amount of Tax paid u/s 7E on the property Rs.

13 Whether exclusion u/s 7E (2) claimed (Yes/No)

14 Reason for exclusion (please specify)

Verification

I/We solemnly declare that the particulars given in this application are correct and complete to the best my knowledge and belief,

and that nothing has been concealed.

15 Date (dd/rnm/yyyy)

16 CNIC/Passport No.

(Please attach photo copy) Name & Signature of Seller/Transferor

(FOR OFFICIAL USE OF COMMISSIONER INLAND REVENUE)

It is  certified that the taxpayer has duly complied with the provisions u/s 7E as applicable to the taxpayer for TY 2022 in respect of above mentioned immovable property or the taxpayer is not required to pay tax u/s 7E due to exemption in law or stay order of the Competent Authority/Court of Law.

Date  (dd/mrn/YVYY)

Name, Signature & Official Stamp