Every seller of the immovable property is bound to obtain an exemption certificate from the Commissioner Inland Revenue or pay 1 percent tax under section 7E of the Income Tax Ordinance.
A tax expert explained the implications of section 7E of the Income Tax Ordinance on the sellers of immovable properties.
He stated that all citizens of Pakistan have to go through the process of section 7E of the Income Tax Ordinance whether filer or non-filer of income tax returns. Those filers who are exempted from section 7E would also be required to go to the concerned commissioner to obtain proof of exemption.
There is a list of persons who are exempted/excluded from section 7E of the Income Tax Ordinance, but all of them have to first take an exemption certificate from the concerned Inland Revenue Commissioner.
For example, owner of one capital asset, self-owned business premises, self-owned agriculture land, capital asset allotted to Shaheeds and there are other categories of exemption mentioned in section 7E of the Income Tax Ordinance.
The exclusion or exemption from section 7E has to be verified by the concerned Commissioner Inland Revenue. All exempted categories have to go through the complicated process of seeking approvals from the Commissioner Inland Revenue despite they are exempted from section 7E of the Ordinance 2001.
The tax expert explained that there are two categories of sellers i.e. filers and non-filers.
Within the category of filers, there are sellers who are liable to pay tax or exempted from section 7E of the Income Tax Ordinance 2001.
The new tax would be applicable for tax year 2022 and onwards. The rate of tax would be one percent of the fair market value of immovable property.
In the case of non-filers, the seller would pay one percent tax of section 7E of the Income Tax Ordinance. This tax would be additional to the existing withholding tax (3 percent for filers and 6 percent for non-filers) to be paid on sales/transfers of immovable property.
Thus, non-filers would not go through the process of Commissioner IR, but pay the due amount of one percent tax which would be the fair market value of immovable property. Therefore, their incidence of tax would be increased by one percent.
The non-filer would provide evidence to the transferring authority. In this regard, the FBR has provided a separate payment challan (CPR) in FBR online payment system. This CPR would be the evidence to be provided by the non-filers to the concerned transferring authority of section 7E.
If the seller is a filer of income tax return, the said seller will provide evidence to the transferring authority that he has discharged his liability u/s 7E.
In this regard, he would go to the concerned Commissioner and obtain the exemption certificate or pay the one percent tax and submit the same to the registration or transfer authority for selling his property.
If the seller has only one immovable property and does not fall under section 7E of the Income Tax Ordinance, he would also be required to submit the exemption/exclusion certificate to the transferring authority. He would obtain the certificate from the concerned Commissioner Inland Revenue.
This is due to the reason that the transferring authority like CDA etc, do not know whether you have only one property or more which is not liable to tax under section 7E. The proof has to be provided by the filer to the transferring authority in the form of the exemption certificate.
If the seller (filer) is liable to pay tax and has not already paid the tax u/s 7E along with his income tax return filed for tax year 2022, then, such person is required to pay the due amount of tax payable under section 7E of the Income Tax Ordinance and produce evidence to the transferring authority.
The tax expert added that the biggest issue for the sellers would be obtaining an exemption certificate from the relevant Commissioner Inland Revenue for submission to the registration or transferring authority.
