FBR withdraws Holding Period Exemption for Advance Tax on Immovable Properties

Advance tax is a federal tax payable by buyers and sellers on a property deal. Earlier, according to the Finance Act 2001, the advance tax under sub-section 3 of section 236C was not collected if the immovable property was held for four years. According to this section, the tax rate collected was 1% of the gross amount of the consideration received.

However, the Federal Board of Revenue has decided recently to withdraw the holding period exemption of advance tax imposed on the sale and purchase of immovable properties. According to FBR, Sub-section (3) of section 236C of the Income Tax Ordinance, 2001 has been omitted. It is clear that advance tax on the sale or transfer of immovable property will be collected under this section irrespective of the holding period.

The changes and amendments in the Income Tax Ordinance 2001 for collecting withholding taxes on the sale or purchase of immovable property have been introduced through a notification. The notification mentioned that the advance tax would be collected from every seller instead of allowing an exemption for the ones who held the property for more than four years.

As per the new notification, some of the major amendments in the Income Tax Ordinance, 2001 for collecting withholding tax are:

• The revised tax rate for non-filers has been increased by 100 per cent for 236C and 250 per cent for 236K.
• A 100 per cent increase has been announced for the advance tax on the sale and purchase of immovable property.
• The rate of advance tax on sale or transfer and on purchase or transfer of immovable property had been raised from 1% to 2%.

These taxes have been increased according to the recently introduced Finance Act 2022. Furthermore, the Federal Board of Revenue stated that necessary changes had been incorporated in rule 1 of the Tenth Schedule to the Income Tax Ordinance 2001. The main agenda of increasing advance tax on immovable property is to increase tax system efficiency, boost subnational revenue autonomy, stabilise the real estate market, and improve land use quality by ensuring that people do not park their wealth in the real estate sector except in ongoing development projects.