Who is Exempt from Advance Tax on Sales of Property?

Withholding Tax Relief for Property Sales by Military, Veterans, and Government Personnel: A Breakdown

The government has implemented a significant change in its tax policy, effective July 1, 2024. This change expands the scope of withholding tax exemption on the first sale of government-allotted immovable properties (land or buildings). Let’s delve deeper into what this means and who benefits from this revised policy.

What is Withholding Tax?

Withholding tax is a type of advance tax deducted at the source during a financial transaction. In this case, it applies to the sale of property. The transferring authority collects a certain percentage of the sale price and deposits it with the government. The seller can then claim this amount against their final tax liability.

Previous Exemption and its Expansion:

Prior to this change, only dependents of deceased military personnel ( شهداء Shuhada) who died in service were eligible for a withholding tax exemption on the first sale of their government-allotted property. The recent amendment to Section 236C of the Income Tax Ordinance, 2001, significantly expands this exemption to include:

  • War-wounded veterans who served in the armed forces or government.
  • Ex-servicemen (retired military personnel).
  • Serving personnel of the armed forces.
  • Retired and current employees of the federal and provincial governments.

How the Change Works:

Here’s a simplified explanation:

  1. The existing law already exempted dependents of deceased military personnel from withholding tax on the first sale of government-allotted property.
  2. The amendment adds new categories to this exemption: war-wounded veterans, ex-servicemen, serving military personnel, retired and serving government employees.

Benefits of the Exemption:

This policy revision offers several advantages:

  • Reduced financial burden: By exempting the withholding tax, the upfront costs for sellers are reduced, making it easier to manage the financial aspects of property sale.
  • Recognition of service: This exemption serves as a token of appreciation for the dedication and service of veterans and government employees.
  • Potential for higher sale prices: Without the withholding tax, sellers may be able to negotiate slightly higher selling prices as buyers wouldn’t need to factor in the withheld tax amount.

Overall Impact:

This amendment demonstrates the government’s commitment to supporting those who have served in the military or dedicated their careers to public service. The exemption eases the financial burden of property sales for these individuals and potentially allows them to benefit from slightly higher sale prices.

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