Planning to purchase a property? Wait for a minute.
Make sure your name appears on ATL.
That’s the case for those willing to invest in real estate. A whole new tenth schedule has been added in the finance act 2019 which contains provisions regarding the persons who don’t appear in the active taxpayers’ list (ATL) but want to make a financial transaction where advance tax is collected or deducted.
There are many transactions which involve deductions of advance tax and the property is one of these and perhaps the most important one.
So what’s the new procedure for purchasing a property?
Let’s discuss in detail.
If your name is not on active taxpayers list,
- Pay advance tax with a 100% increase (rate will be doubled).
- File your tax return in the year of purchase.
In other words, purchasing a property will lead you to become a filer.
But I am not required to file
There is an exception though if you are not required to file a return. Like if you are a non-resident or you are purchasing it with the foreign remittances.
You will get an exemption but you can’t decide it on your own.
Exception from Filing a Return
You have to explain it to the Withholding agent at the time of purchase.
So, if you satisfy the agent, he will send an electronic notice to FBR with the following details:
(a) Your name, CNIC/NTN number, and address
(b) Nature and amount of transaction
(C) The reason for exemption from filing
There is a 30 days time period for the notice.
If FBR accepts the reason, it will permit you.
In that case,
- Pay advance tax at a normal rate (1%).
- No need to file a tax return after the purchase.
If the guy in FBR thinks otherwise, he will notify the withholding agent.
In this case,
- Pay advance tax at double rate (2% in this case).
- File your tax return in the year of purchase.
No answer in 30 days will indicate the acceptance of the notice.
Did you get it?
You need to go through FBR even if you are exempt from filing a return.
Penalty for Not Filing a Return
If you don’t file your tax return after buying a property, then FBR has some new rules to apply.
Yes, a lengthy process begins.
Here comes the due date for filing the return (usually September the 30th).
You didn’t file and sixty days passed the due date.
FBR will make a provisional assessment order, and it will calculate your imputed income and send you a notice accordingly.
What’s the imputed income?
It’s the income on which tax would have been charged, equal to the amount of advance tax paid (more on this in the example).
So, you get the notice as a reminder to file your return.
The period for the notice is 45 days.
If you choose to respond
- File tax return for two years, the year in which you purchased the property and the preceding year.
- FBR will abate the provisional assessment order.
- You can adjust your advance tax in return.
- No further action will be taken.
Keep in mind in any case; you will have to explain the source of investment.
If you don’t respond
After 30 days of the 45 day period, FBR will compare the amount of investment with imputed income to examine which one is greater. The greater one will be taken as your concealed income, and procedure will start for the collection of tax under section 182.
Let’s take an example to understand it.
Mr. B doesn’t appear on the active taxpayers’ list and wants to purchase a property. The FBR value of the property is Rs 3,000,000.
He requests through withholding agent to get an exemption from filing a tax return.
FBR rejects the notice.
- Mr. B will pay advance tax on 100% increase i.e. Rs 60,000.
- Filing a tax return will be mandatory for him.
But he didn’t file his return after purchasing the property.
60 days after the due date, FBR makes an assessment for imputed income based on tax slabs. The imputed income, in this case, is Rs 1,100,000.
(If the taxable income of Mr. B is considered Rs 1,100,000, the tax payable would be Rs 60,000. So if the advance tax paid is Rs 60,000, The imputed income is Rs 1,100,000)
The notice comes with 45 days to respond but Mr. B takes no action.
Now FBR will consider the provisional assessment order as final and will compare it with the FBR value of the property.
The FBR value of Rs 3,000,000 is greater than imputed income i.e. Rs 1,100,000.
Rs 3,000,000 will be the concealed income of Mr. B on which tax is now due.
Calculation Of Tax Due
Taxable income of Mr. B Rs 3,000,000
Tax payable Rs 370,000 (as per tax slabs)
Paid advance Rs 60,000 (advance tax will be forfeited)
Tax due Rs 310,000
So FBR will start a proceeding for the collection of 310,000 from Mr. B.
Hope you get the big idea by now.
The Tenth schedule is not limited to the purchase of the property. It includes many transactions where FBR collects and deducts advance tax.
If you plan to buy a car, you have to take a similar route.
There are some exceptions also where FBR will collect advance tax, but the provisions of the tenth schedule won’t apply.
I am of the opinion that they should exempt the real state sector for a few years, and the route to connect it with the filing a return would have been taken gradually.
Though you have an exception if you are not required to file, you need FBR’s approval. You can’t decide it yourselves.
What’s your opinion regarding the change? Do you agree that real estate would have been exempted for a few years?