| Lahore: The Federal Board of Revenue (FBR) has decided to introduce penalties for cash transactions in the real estate sector in order to regulate and boost tax collection, according to news published in the leading newspaper on September 18.
Read: Tax offices to observe extended working hours on September 30: FBR
As per the details, the FBR has revealed is taking decisive steps to address the widespread use of cash for real estate transactions. A senior FBR official (whose name was not disclosed) mentioned that the board is planning to improve monitoring measures and implement strict penalties.
In 2019, an amendment known as Section 75A was introduced into the Income Tax Ordinance of 2001. This amendment prohibits individuals from acquiring immovable property with a fair market value exceeding Rs. 5,000,000 or any other asset valued at more than Rs. 1,000,000 through cash transactions. Instead, specific banking instruments, such as crossed cheques issued by banks, crossed demand drafts, crossed pay orders, or other crossed banking instruments, must be used to substantiate legitimate fund transfers between bank accounts.
Furthermore, the fair market value of immovable property will be determined by either the Board, as specified in subsection (4) of section 68, or by the provincial authority for stamp duty purposes, depending on which amount is higher.
Read: FBR announces crackdown on tax evaders across Pakistan
The news source shared that non-compliance with these banking methods will have significant consequences. Individuals involved in such transactions will not be eligible to claim deductions related to depreciation, initial allowance, intangibles, and pre-commencement expenditure for assets purchased outside of the specified banking channels.
Additionally, any cash amount used for a purchase that should have been conducted through prescribed banking channels will not be considered as a cost when calculating gains from selling such an asset, as per the stipulations of section 76. Besides these penalties, individuals purchasing real estate worth more than five million rupees using cash or a bearer cheque will face a penalty equal to 5% of the property’s value.
Read: FBR exempts tax on transfer of agricultural properties
It is important to note that the real estate sector has witnessed widespread non-compliance with these regulations, often due to a lack of awareness or the involvement of property dealers who may not be fully informed or registered. Cash transactions have remained a common preference in real estate, especially for properties valued at less than ten million. |
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