The Federal Board of Revenue (FBR) has recently announced that agricultural properties, excluding farmhouses, will not be subjected to taxation under Section 7E of the Income Tax Ordinance 2001. This clarification was provided in Circular No. 3 of 2023, which addresses the application of Section 7E specifically to farmhouses.
The provision of section 7E of the Ordinance does not apply to self-owned agricultural property where agriculture activities are carried out, excluding farmhouses and the land attached to them. Therefore, if the immovable property being sold or transferred is agricultural property (as confirmed by the property documents) excluding any farmhouses, the transferring authority will execute the transfer without requiring the seller or transferor to provide evidence of tax payment under section 7E or Form-A as mentioned in Circular No. 01 of 2023-24 dated 21st July, 2023.
However, if one or more farmhouses have been constructed on the agricultural property, then the conditions stated in Circular No. 1 of 2023-24 dated 21st July, 2023 will apply to those farmhouses in a corresponding manner. A farmhouse is defined as a house constructed on a minimum area of 2000 square yards with a minimum covered area of 5000 square feet, used as a single dwelling unit with or without an annex. If there are multiple dwelling units in a compound and the average compound area is more than 2000 square yards per unit, each dwelling unit will be treated as a separate farmhouse.
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