The Federal Board of Revenue (FBR) has said that the purchasers of the immovable properties are now required to explain the source of investment of property up to the FBR value of property. The FBR has explained through income tax circular No 9 of 2019 that previously such purchasers were required to explain the source of investment to the extent of recorded value of property. But now, the purchasers are required to explain the source of investment of property up to the FBR value of property.
As per section 236W read with clause (c) of sub-section (4) of section 111, every person responsible for registering, recording or attesting transfer of any immovable property was required to collect tax at the rate of 3% of the difference between the FBR value of property and the value recorded by the authority registering or attesting the transfer in cases where FBR value was greater than the recorded value. So by paying three percent on the difference, the purchaser was not required to explain the source of difference of amount between FBR value and the recorded value. Through the Finance Act, 2019, section 236W as well as clause (c) of sub-section (4) of section 111 have been omitted. Consequently, the purchasers are now required to explain the source of investment of property up to the FBR value of property whereas previously such purchasers were required to explain the source of investment to the extent of recorded value of property.
Prior to the Finance Act, 2019, capital gain on immovable property was separately taxed on the basis of holding period of property, The gain was taxed @ 10% if the holding period is up to one year, 7.5% if the holding period was more than or equal to one year but less than two years and @ 5% if the holding period was equal to or more than two years but less than three years. The rate of tax was zero where the holding period was more than three years.
The gain was calculated by deducting the cost of the asset from the consideration received by the person on disposal of the asset. Through the Finance Act, 2019, the holding period for taxation of capital gain of open plots has been increased to eight years and for constructed properties it has been increased to four years.
Where the holding period does not exceed one year, the total amount of gain will be taxed. The gain will be calculated by deducting the cost from the consideration received. If the holding period is more than one year but does not exceed eight years in the case of open plot or four years in the case of constructed property, 75% of the gain will be taxed. It is further clarified that form of immoveable property, whether open plot or constructed, will be determined at the time of sale of immoveable property.