FBR and other Pakistan’s tax authorities have been instructed to issue withholding tax exemption certificates to builders and developers within seven days, as long as they have already fulfilled their tax obligations under the special tax regime.
The Federal Board of Revenue (FBR), through Circular No. 08 of 2025-26 (IR-Policy – Income Tax), clarified the application of withholding tax under Section 236C of the Income Tax Ordinance, 2001, for taxpayers covered under Section 7F.
According to the directive, Commissioners Inland Revenue must strictly follow the given timeline when processing exemption requests. If an applicant meets all requirements and submits a complete application, but no decision is made within seven working days, the system will automatically generate and issue the exemption certificate through IRIS.
This clarification replaces the earlier Circular No. 7 of 2025-26 issued on March 31, 2026, and aims to resolve concerns from builders and developers regarding advance tax deductions on property transactions.
Under Section 7F, certain builders and developers are taxed under a special regime where income is calculated as a fixed percentage of gross receipts rather than actual profits. Industry representatives had raised concerns that withholding tax under Section 236C—typically adjustable against capital gains—creates financial strain for developers operating under this framework.
Since earnings under Section 7F are treated as business income, any deduction under Section 236C leads to additional cash flow pressure, especially for those without other taxable income to offset the collected tax.
After reviewing the matter, the FBR stated that developers who have fully paid their taxes under Section 7F and have no other taxable income can apply for exemption from advance tax under Section 236C.
Eligible individuals can submit applications under Section 159 to their respective Commissioner Inland Revenue to obtain exemption certificates, allowing them to avoid withholding tax on property sales. Authorities have been directed to review each case individually, ensure all conditions are met, and decide in accordance with the law.
Read more: FBR Revises Property Valuation in Islamabad
