Jurisdiction of LHC: Deemed income tax collection suspended, exemption certificate condition withdrawn

ISLAMABAD: The Federal Board of Revenue (FBR) has made a partial modification for payment of tax on deemed income under Section 7E of Income Tax for sale and transfer of property by granting major relaxation and also withdrawing exemption certificate requirement for non-resident Pakistanis.

The FBR has implemented the judgment of the Lahore High Court (LHC) under which Section 7E will not apply under the jurisdiction of the LHC for both filers/ non-filers for the time being. The FBR clarified that contents of the Circular No.1 of 2023-24 dated 2lst July 2023 will not apply in cases falling in the jurisdiction of LHC unless the high court judgment is reversed, suspended, or vacated in an intra-court appeal or by the Supreme Court.

It said the conditions on obtaining a certificate from the income tax commissioner outlined in the circular would not apply. 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 data will be shared by the transferring authority with the chief commissioner IR concerned on a weekly basis, while provisions of section 7E are applicable only on resident persons as defined in Section 82 of the Income Tax Ordinance 2001. Non-resident individuals including non-resident Pakistanis are not required to pay tax under Section 7E, therefore, the condition of mode and manner of furnishing of evidence to the transferring authority of immovable property notified through the circular would not apply to non-resident persons. However, non-resident individuals, while selling or transferring immovable property, will furnish duly filled attached Form-B along with a scanned copy of a valid passport and in case of non-resident Pakistanis, in addition to Form-B along with scanned copy of valid passport, copy of CNIC, NICOP/POC to the transferring authority.

The transferring authority will transfer the property under sale/ transfer, after verifying the credentials declared in the Form-B and strictly ensuring that the non-resident person stay in Pakistan is less than 183 days for each applicable tax year for which non-resident individual claiming non-residency status i.e. 01.07.2021 to 30.06.2022 (tax year 2022) or 01.07.2022 to 30.06.2023 (tax year 2023) and onwards.

(ii) Provisions of sections 7E of the Income Tax Ordinance, 2001 is not attracted to an immoveable property allotted to - 1. Shaheed or dependents of a Shaheed belonging to Pakistan Armed Forces;

2. A person who dies while in the service of the Pakistan Armed Forces or the Federal and Provincial Government. 3. A war wounded person while in the service of the Pakistan Armed Forces or Federal or Provincial Government: 4. 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. I of 2023 will not apply on such categories of persons.

However. the transferring or registering authority will obtain evidence to the effect that - (a) the seller/ transferor belongs to aforesaid category of persons; (b) property under sale/ transfer has been allotted as an original allottees of such immoveable property, duly certified by the official allotment authority. (iii) 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 property will furnish to the transferring authority Computerised Payment Receipt (CPR) having a unique CPR number, bearing seller or transferor’s name, CNIC number and showing the tax paid under section 236K, date of payment as well as tax year.

If the CPR evidencing that the property under sale or transfer is acquired during the same tax year, then the tax u/s 7E is not payable to the extent of that tax year and the transferring authority will not require evidence of tax payment under section 7E or Form-A attached to Circular No. 0l of 2023-24 dated 21 July 2023 with respect to said property to the extent of said tax year in case if seller or transferor is appearing in Active Taxpayers’ List.