In an important development concerning property transactions in Punjab, the Board of Revenue has reinforced the enforcement of Section 75A of the Income Tax Ordinance, 2001, which imposes a 5% penalty on the total value of immovable property if the transaction is conducted without a banking channel. This measure is aimed at enhancing financial transparency, curbing money laundering, and increasing tax compliance.
Understanding the 5% Penalty on Non-Banking Transactions
A recent circular from the Chief Inspector of Stamps, Board of Revenue Punjab, has directed all Sub-Registrars, Assistant Directors Land Records, and Transferring Officers to strictly ensure the collection of the 5% penalty on transactions violating this provision. This penalty applies in cases where:
- The immovable property being purchased has a fair market value exceeding Rs. 50 lakhs (5 million)
- Any other asset (besides property) has a fair market value exceeding Rs. 10 million (1 crore)
- The transaction is not conducted through banking channels (e.g., cheque, bank draft, pay order, RTGS, etc.)
If a person purchases such property in cash or through informal channels without banking documentation, they will be liable to pay an additional 5% penalty on the declared value of the property.
Key Legal Provisions
The enforcement is based on:
- Section 75A of the Income Tax Ordinance, 2001, which was introduced to discourage non-banking transactions in high-value property deals.
- Entry No. 21 of Chapter X, which prescribes the penalty mechanism.
- Rules under the Board of Revenue Punjab, ensuring compliance through property registration offices.
The directive is particularly stringent in light of a Pre-Public Accounts Committee (Pre-PAC) meeting held on 2nd December 2024, where it was noted that many sub-registrars and land officers were failing to collect this penalty, leading to revenue loss. Following this, strict instructions were issued to all field officers to ensure compliance.
Implications for Buyers and Sellers
1. Mandatory Banking Transactions
If you are purchasing a property worth more than Rs. 50 lakhs, you must ensure that:
- The transaction is made via banking channels.
- Payments are recorded through official banking instruments.
- Documentary proof is available for registration purposes.
2. Penalty for Non-Compliance
Failure to adhere to banking transaction requirements means:
- A 5% penalty will be levied on the total property value.
- The penalty must be paid before the registration of the transaction.
- If the penalty is not paid, the property transfer will not be processed.
3. Responsibility of Government Officials
- Sub-registrars, Assistant Directors Land Records, and Transferring Officers are now responsible for ensuring the collection of this penalty.
- If they fail to collect the penalty, they will be held accountable under disciplinary action.
Why is the Government Enforcing This Rule?
This measure is part of the government’s broader crackdown on undocumented transactions, ensuring that:
- Property transactions are properly taxed.
- Money laundering and black money circulation are reduced.
- The real estate sector operates with greater financial transparency.
In addition, by ensuring that transactions occur through official banking channels, the government can track high-value property deals more efficiently, leading to better tax collection and economic regulation.
What Should Property Buyers and Investors Do?
If you are planning to buy property in Punjab, it is crucial to:
- Use Banking Channels: Ensure that all payments are made through official banking instruments.
- Maintain Proper Documentation: Keep a record of payment proofs, including bank receipts and transaction slips.
- Check with the Land Registry: Before finalising the transaction, confirm with the registrar’s office that all legal requirements are met.
Final Thoughts
The 5% penalty on non-banking property transactions is a strict yet necessary step towards enhancing financial transparency and reducing tax evasion in Pakistan’s real estate sector. Buyers and sellers must adapt to this new regulatory environment to avoid unnecessary financial burdens and legal complications.
For professional legal guidance on property transactions, tax implications, and compliance with real estate laws in Pakistan, you may contact Josh and Mak International for expert assistance.
At Josh and Mak International, we approach the law with the gravitas it deserves, understanding that every legal matter carries profound personal and ethical weight. Guided by principles of justice, fairness, and unwavering integrity, we see our role as more than advocates—we are stewards of our clients’ rights and aspirations. Our work is shaped by a commitment to excellence, meticulous attention to detail, and a deep respect for the dignity inherent in every legal challenge. With a steadfast focus on achieving equitable outcomes, we bring clarity to complexity and champion your cause with the insight and care it merits. Let us stand as your devoted partners in the pursuit of justice and peace.
Contact us at [email protected] for Legal Consultation.
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