FBR Introduced Penalties on Cash Transactions in the Real Estate Sector
In a bid to curb the prevalent use of cash in real estate deals, the Federal Board of Revenue (FBR)has announced stringent measures that could reshape the landscape of property transactions. An unnamed senior official from the FBR recently disclosed plans to tighten monitoring strategies and impose severe penalties for non-compliance.
The FBR’s move stems from an amendment introduced in 2019, known as Section 75A within the Income Tax Ordinance of 2001. This critical amendment explicitly prohibits the use of cash in property transactions exceeding a fair market value of Rs. 5,000,000 or any other asset valued over Rs. 1,000,000. Instead, the amendment mandates the use of specific banking instruments like crossed cheques, demand drafts, pay orders, or other forms of crossed banking instruments to substantiate legitimate fund transfers between bank accounts.
Moreover, the determination of the fair market value of immovable property will be carried out either by the Board or the provincial authority for stamp duty purposes, based on the higher valuation amount specified in subsection (4) of section 68.
The repercussions for non-adherence to these banking protocols are significant. Individuals involved in cash transactions for property acquisition will face disqualification from claiming deductions related to depreciation, initial allowance, intangibles, and pre-commencement expenditure for assets purchased outside the specified banking channels.
Additionally, any cash utilized in a purchase that should have been conducted through prescribed banking channels will not be considered a cost when calculating gains from the subsequent sale of such an asset, as outlined in section 76. Furthermore, individuals engaging in real estate transactions exceeding five million rupees through cash or bearer cheques will face a penalty equivalent to 5% of the property’s value.
The real estate sector, known for its historical preference for cash transactions, has often seen non-compliance with these regulations. This non-compliance could be attributed to a lack of awareness or the involvement of property dealers who might not be fully informed or registered. Cash transactions, especially prevalent for properties valued under ten million rupees, have been a common practice in the industry.
The FBR’s latest measures signal a pivotal shift in the real estate landscape. It aims not only to bring transparency but also to ensure compliance with taxation laws, potentially reshaping how property transactions are conducted in Pakistan. Investors, property dealers, and stakeholders in the real estate sector are urged to familiarize themselves with these new regulations to avoid severe penalties and disruptions in their transactions. For the latest Real Estate News and Blogs, visit EstateHives Blogs