Project registered with FBR: First buyer of property not required to explain source of funds

ISLAMABAD: The first purchaser of a property, including a building or a unit in the building, is not required to explain the source of funds used for purchase from a project registered with Federal Board of Revenue (FBR) under the Fixed Tax Scheme for the construction sector.

According to the frequently asked questions (FAQS) on the construction package issued by the FBR here on Tuesday, the FBR has confirmed that the incentives are available for the purchasers in terms of requirement to explain source of funds. The first purchaser of a building or a unit in the building is not required to explain the source of funds used for purchase from a project registered with FBR under this scheme if the complete payment is made before September 30, 2022 and is made through banking channels. Similarly, the source of funds will not be inquired into if a plot is purchased by December 31, 2020, the payment is made by December 31, 2020 through banking channels, the person registers himself as a builder with FBR and completes construction on such plot by September 30, 2020.

The scheme provides immunity from the provisions of section 111 of the Income Tax Ordinance, and no questions will be asked regarding nature and source of funds from investors making capital investment in new construction projects in the form of money or land, either as an individual, as an association of persons or a company, subject to the specified conditions. In case the investor is an individual, the investor shall open a new bank account and deposit such amount in it on or before December 31, 2020. Moreover, the investor shall have the ownership title of the land as on April 17, 2020.

In case the investor is a corporate shareholder/Partner of a single object company or partnership formed after April 17, 2020, the FBR explained that such amount shall be invested through a crossed banking instrument deposited in the bank account of such association of persons or company, as the case may be, on or before December 31, 2020 Land owned by a partner or shareholder as on April 17, 2020 shall be transferred to such association of persons or company, as the case may be, on or before December 31, 2020.

To another query, FBR stated that the Fixed tax scheme encompasses a new project as well as an incomplete existing project subject to completion of such projects by 30th September, 2022. A 'new project' means a construction or development project, which commences during the period starting from April 17, 2020 till December 31, 2020 and is completed on or before September 30, 2022. However, an 'existing project' means an incomplete construction or development project, which has commenced before April 17, 2020, is completed on or before September 30, 2022 and a declaration is provided in the registration form with regard to the percentage of completion of the project up to the last day of the accounting period pertaining to Tax Year 2019.

The tax payable by builders and developers on their income, profits and gains emanating from the sale of buildings or plots shall be determined on a project by project basis on the basis of specified rates per square foot/per square yard for commercial and residential buildings and commercial, residential and industrial plots.

In the case of buildings having dual usage, ie, both commercial and residential the respective rates specified for each category shall apply. Moreover, in case the development of plots and construction of buildings upon the same constitutes a single project, the respective rates for developers and builders shall both apply, the FBR added.

Copyright Business Recorder, 2020