The Federal Board of Revenue (FBR) has exempted inherited property from payment of 1-2 percent withholding tax on transfer of immovable property under the Finance Act, 2014. According to the income tax circular issued here on Friday, the FBR has clarified that since in the case of inheritance, the property is neither purchased nor any consideration is paid, withholding tax under this section shall not be applicable.
However, in case of gifts as its genuineness cannot be determined at that stage withholding tax shall be paid on the value notified by the provincial governments, the taxpayer may claim refund, in case of genuine gift, after filing the return. Through the Finance Act, 2014, a new section 236K has been introduced according to which the purchaser of immovable property shall pay advance tax @ 1 percent of the value of the property if the purchaser is a filer, and 2 percent of the value of the property if the purchaser is a non-filer.
However, there is no tax if the value of immovable property is less than or equal to three million rupees. The prescribed person for collecting this withholding tax shall be any person responsible for registering or attesting transfer of any immovable property and the tax shall be collected at the time of registration or at the time of attestation of transfer, whichever is earlier.
The prescribed person/withholding agent under this section shall be required in file withholding statements under section 165. The advance tax collected under this section shall be adjustable against the tax liability of the purchaser at the time of filing of return. However, no tax under this section shall be collected in case of the federal government, a provincial government, a local Government, a foreign diplomatic mission, or a scheme introduced by the federal government, or a provincial government or any authority established under a federal or provincial law for expatriate Pakistanis, the FBR added.
Prior to the Finance Act, 2014 the prescribed person for collecting advance tax on purchase of domestic air ticket was the person preparing the air ticket. The prescribed person has now been changed and the airline issuing the air ticket shall now be the prescribed person for collecting this tax. The mode, manner and time of collection under this section shall be separately prescribed in the rules.
The FBR said that section 236K has been introduced through the Finance Act, 2014 which provides for collection of advance tax on air tickets of classes other than economy for journeys originating from Pakistan. Every airline issuing tickets for journey originating from Pakistan shall be the prescribed withholding agent for this section. Advance tax shall be collected in the manner air ticket charges are collected or charged. The prescribed person/withholding agent under this section shall be required to file withholding statements under section 165. The advance tax collected under this section shall be adjustable against the tax liability of the passenger at the time of return filing. The mode, manner and time of collection under this section shall be separately prescribed in the rules, the FBR stated.
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