ISLAMABAD: In a significant step toward protecting real estate developers and first-time property sellers, the Lahore High Court’s Rawalpindi Bench acknowledged the legal exemption from advance tax and restrained the Federal Board of Revenue (FBR) from imposing tax on first-timers.

Justice Jawad Hassan issued the interim order in light of Section 236C (4)(b) of the Income Tax Ordinance 2001.

Section 236C of the Income Tax Ordinance mandates the collection of advance income tax at the time of sale of immovable property. This tax is applicable to both individuals and entities involved in property transactions.

The petition was filed by a high-end housing society situated along the motorway in Islamabad. Justice Hassan noted that the provision in question clearly exempts first-time sales of immovable property by the original allottee from the application of advance tax.

Interim order seeks record from FBR, PLRA on housing society’s plea; agrees no legal framework cited to override exemption

The petitioner argued that the Punjab Land Records Authority (PLRA) was illegally demanding advance tax through its online portal for sales related to its housing project in Rawalpindi, despite this statutory exemption.

It was contended that Section 236C(4)(b) of the ordinance stated that the advance tax “shall not apply to the first sale of immovable property which has been acquired or allotted as an original allottee, duly certified by the official allotment authority.” Elite Estates, being the original developer and allottee, claimed it fell squarely within this exemption.

Barrister Asad Ladha, appearing for the petitioner, submitted that PLRA’s demand lacked legal basis and procedural fairness, particularly as no relevant notification or directive from the Federal Board of Revenue (FBR) had been issued to justify the collection of such tax.

The court agreed that no proper instruction or legal framework had been cited to override the exemption.

While directing the PLRA and the FBR to appear with complete records on the next hearing date (April 28), the court provisionally allowed Elite Estates to proceed with property transfers to its 128 customers. This was made conditional upon submission of post-dated cheques and an undertaking that any tax, if found due upon final decision, would be paid promptly.

Legal experts termed this a positive development in the revival of the real estate sector. The federal government is reportedly considering abolishing the 3 per cent federal excise duty (FED) on the first sale of all immovable properties, less than a year after introducing the measure.

The federal excise duty on property sales was introduced in the FY24-25 budget, imposed on the first sale or allotment of residential and commercial properties — including apartments, houses, and plots. The Prime Minister’s Task Force on Housing strongly recommended abolishing the FED, citing its constitutional grey area and the negligible tax collection since its implementation.

A day earlier, Prime Minister Shehbaz Sharif directed the Federal Board of Revenue to speed up the implementation of long-overdue tax reforms, including the rollout of a nationwide digital invoicing system for businesses over the next few months.

Published in Dawn, April 20th, 2025