Selling property in Pakistan involves various legal and tax considerations. This article focuses on Section 236C of the Income Tax Ordinance (ITO) 2001, which deals with advance tax collected on the sale or transfer of immovable property.
What is Advance Tax?
Advance tax is a preliminary tax collection made at the time of registering, recording, or attesting the transfer of immovable property. It serves as a down payment towards your final tax liability arising from the sale.
Who Collects Advance Tax?
The person responsible for registering, recording, or attesting the property transfer, such as a registrar of properties, collects the advance tax. This includes authorities responsible for transfers involving local authorities, housing societies, co-operative societies, and real estate projects and then deposited with the Federal Board of Revenue.
Advance Tax Rates:
- 3%: For filers (individuals who have filed their income tax returns)
- 6%: For non-filers
Who is Exempt from Advance Tax?
- Dependants of شهدا (Shaheed): If you are a dependent of a soldier or government employee who died in service, your first sale of property acquired from the government is exempt.
- NRIs with FCVA or NRVA accounts: Non-resident individuals holding Pakistani identification cards who acquired the property through designated foreign currency accounts face no further tax liability after paying advance tax.
Additional Tax Considerations:
- Advance tax is adjustable against your final tax liability calculated under Section 37 (capital gains).
- However, if you sell and buy property within the same tax year, the advance tax becomes your minimum tax payable.
- Remember, advance tax is just an initial payment. You might have additional tax liabilities depending on your income and other factors.
Important Note:
As of 2024, a new sub-section (2A) has been added to Section 236C. This states that the transfer authority cannot register, record, or attest the transfer unless the seller or transferor has discharged their tax liability under Section 7E. This means you need to ensure your tax affairs are in order before selling your property.
Conclusion:
Understanding advance tax and other tax implications is crucial when selling property in Pakistan. This article provides a basic overview, but consulting a tax advisor is highly recommended for personalized guidance and ensuring compliance with all applicable regulations.
