The Federal Board of Revenue (FBR) has issued detailed guidelines for collecting taxes on the earnings of builders and real estate developers, as outlined in the budget 2024-25.
These details, published in Income Tax Circular No. 1 of 2024-25, include significant amendments to the Income Tax Ordinance 2001, particularly Section 7F, which addresses the taxation of builders and developers.
Under the new guidelines, the taxable profit for builders and developers is defined as follows:
- 10% of gross receipts from the construction and sale of residential, commercial, or other buildings.
- 15% of gross receipts from the development and sale of residential, commercial, or other plots.
- 12% of gross receipts for activities involving both construction and development.
These rules apply exclusively to activities related to the construction, development, and sale of buildings and plots, excluding any other types of income.
Builders and developers can claim credit up to the amount of taxable profit under Section 7F when explaining the nature and source of any credited amount, investment, money, or valuable article owned, or funds from which expenditure was made.
Credit for amounts exceeding the taxable profit is available only if taxable income under Section 9 surpasses the taxable profit and tax is paid at the rate stipulated in Division I or II of Part I of the First Schedule.
Additionally, entities established by an Act of Parliament, a Provincial Assembly, or by Presidential Order for the benefit of their employees or specific housing projects are excluded from Section 7F.
The advance tax for a quarter will be calculated by applying the rates specified in Division I or II of Part I of the First Schedule to quarterly taxable profit, which is a percentage of gross receipts.
Currently, no penalty or prosecution is provided in the law for individuals who discontinue business and fail to file a return, even if a notice is issued by the Commissioner.
This comprehensive approach by the FBR aims to streamline the tax collection process and ensure compliance among builders and developers in Pakistan.
