Withholding tax not applicable on all property transactions
Withholding tax not applicable on all property transactions
SOHAIL SARFRAZ
ISLAMABAD: The 0.5 percent adjustable withholding tax under section 236C of the Income Tax Ordinance 2001 on sellers of immovable property would not be applicable on property transactions where the Capital Gains Tax (CGT) is not collected under Finance Act 2012.
Sources told Business Recorder here on Sunday that the CGT on immovable property and withholding tax u/s 236C of the Income Tax Ordinance 2001 on sellers of property should not be considered as two different taxes. The CGT on the immovable property is directly linked with the 0.5 percent adjustable withholding tax. This adjustable tax would only be collected in cases where the CGT on immovable property is applicable as per new law. The CGT is not applicable on property sold beyond the period of two years and the same is the case with the withholding tax under section 236C of the Ordinance 2001. Thus, the withholding tax would not be applicable on property sold beyond the period of two years as well.
Sources dispelled impression that the 0.5 percent withholding tax would be applicable on each and every property transaction. This is also wrong that it is an entirely different tax as compared to the CGT. This withholding tax would only be applicable in cases where the CGT laws are applicable as per new Finance Act.
The FBR has facilitated the general masses by only collecting the adjustable withholding tax from persons liable to pay the CGT on immovable property. There is no need to specifically mention about the period of the applicability of the withholding tax in the law as IT-5 return form would only be applicable where the CGT on immovable property is being collected. There is no collection of the withholding tax on property transactions where CGT is not applicable.
The 0.5 withholding tax is adjustable against final payment of CGT on the immovable property. The persons paying this adjustable tax would be able to get adjustment on payment of the CGT in their income tax returns. It is a facilitative measure for not imposing the 0.5 percent withholding tax on all property transactions and it has been done to develop a system to collect information about persons engaged in property transactions.
The Board had made it mandatory for the sellers of immovable property including plots, flats, buildings and agricultural land etc to submit a new application form, ie IT-5 to the registering/transferring authorities for sale/transfer of the property/land. The Board had issued IT-5 form, i.e. an application to the registering/transferring authorities for sale/transfer of immovable property.
The registering or transferring authority would have to make four copies of the IT-5 form. The original copy would be retained by the registering/transferring authority and the remaining three copies be distributed among sellers, buyers and concerned Regional Tax Office of the FBR. The last copy to the RTO would enable the FBR to know about the property transaction for the imposition of capital gain tax on the immovable property.
The registering or transferring authorities would have to ensure that withholding tax u/s 236 of the Income Tax Ordinance 2001 has been paid by the sellers and one copy has been sent to the Regional Tax Office concerned.
Through Finance Act, 2012, Capital Gain tax on immovable property has been introduced. The gain on sale of such property within two years of acquisition shall be taxed in the laid down manner: Where the holding period of immovable property is up to one year, the rate of tax would be 10 percent and where the holding period of property is more than one year but less than two years, the rate of tax would be five percent.
Through this amendment of Finance Act, 2012, gain on sale of immovable property becomes taxable under the head capital gain. However, immovable properties sold beyond holding period of two years would bear the character of capital assets but are not taxable.
Under Section 236C of the Income Tax Ordinance, 2001, any person responsible for registering or attesting transfer of any immovable property shall at the time of registering or attesting the transfer shall collect from the seller or transferor advance tax at the rate specified in Division X of Part IV of the First Schedule.
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