FBR spells out tax specifics for real estate

ISLAMABAD: The Federal Board of Revenue has released specifics on Monday for the collection of tax on the earnings of builders and real estate developers, as well as details for collecting income tax from other sources as legislated in the 2024-25 budget.

Income tax circular No.1 of 2024-25 was published to explain the implementation of important amendments in the Income Tax Ordinance 2001. Section 7F has been enacted to address the taxation of builders and developers.

The circular stated ,that the taxable profit shall be 10 per cent of the gross receipts from construction and sale of residential, commercial, or other buildings, 15pc of the gross receipts from development and sale of residential, commercial, or other plots, and 12pc of the gross receipts if both of the activities as mentioned above are involved.

Section 7F’s requirements will only apply to activities related to the construction and sale of residential, commercial, or other buildings and activities related to the development and sale of residential, commercial, or other plots, according to the explanation provided. The provision does not apply to any other type of incomes or revenue derived from another source.

It was also clarified that such builders and developers, while explaining the nature and source of any amount credited or investment made, money or valuable article owned, or funds from which the expenditure was made, may claim credit up to the amount of taxable profit under this section.

Credit for amount in excess of taxable profit is only available if taxable income under section 9 exceeds the taxable profit and tax is paid on such taxable income at the rate stipulated in Division I or II of Part I of the First Schedule.

Moreover, builders and developers established by an Act of the Parliament or a Provincial Assembly or by a Presidential Order for benefit of their employees or specific housing projects are excluded from the purview of section 7F.

The advance tax for a quarter will be computed by applying the rates specified in Division I or II of Part-I of the First Schedule to quarterly taxable profit computed as a percentage of gross receipts i.e., 10pc of the gross receipts from activities of construction and sale ofresidential commercial or other buildings.

At present, no penalty or prosecution is provided in law where a person discontinues business and fails to file a return even in response to notice issued by the Commissioner concerned.

Published in Dawn, July 30th, 2024