When is Tax Implemented on Property Files?
There are currently hundreds of housing schemes operating in Pakistan and the plots are sold to customers via files. A question often arises in the minds of investors and end-users, whether they have to pay any tax for the files they purchase. This article will answer this question for you.
What is a File?
In real estate terminology, a file is a document promising the delivery of a piece of land/plot of a fixed size in an upcoming or already existing housing society. Files do not have any physical existence and they are not authorized by any administrative authority.
However, files are made and distributed in a specific range that is decided by society. Files are issued against the number of plots the society intends to provide to the customers. Generally, files are available for down payment or booking charges, which is a small percentage of the total price of the plot.
Read Also: What Is The Difference Between Plot And File.
Installment plans are introduced and customers can pay them to get ownership, meanwhile, society works on development. Later on, files are converted into actual plots and issued to the buyers after a series of events like balloting and possession. People who are unable to pay the complete cost of plots can purchase files at low prices and pay installments to become the owners.
So without any further ado, let’s get into it!
Tax on Property Files
Generally, there are different stages and types of files, and tax is applied after a certain stage during the journey of file conversion to plots. We will explain this process step-by-step so that you can understand it easily.
Open and Closed Files
At the starting stages, open and closed files are provided by society. Open files are not registered in any name whereas closed files are registered in the client’s name. Generally, open files are considered by short-term investors whereas closed files are preferred by end-users who want to pay installments, get ownership and construct homes. Tax is not implemented on both of these file types as they are just proof of ownership of a piece of land in any housing project, Federal Board of Revenue (FBR) does not consider these files are immovable properties, therefore, it does not demand any tax at this stage.
Balloted Files
The second stage of the journey of files is balloting; basically, it is a sort of “luck draw” where the society picks out the members and ballots the files. From here, the files move on to the next stage which is possession. A balloted file means that your ownership of a certain piece of land/plot is now confirmed it will be issued in your name. Mostly, plot numbers are also implemented after balloting. At this stage, a file becomes eligible for tax implementation. Most of the time, FBR implements tax after the file is balloted and a number is assigned to the plot.
Possession Files
After the file is balloted, it moves on to the next stage which is possession. The society declares the file that is converted into a file at this stage on the customer name. This means that the file owner becomes the rightful owner of the numbered plot. Now, a tax will be implemented on your plot as it becomes an immovable property.
Generally, the tax is implemented on the file between the balloting and possession stage, when the plot number is issued to the customers. Tax is generally implemented on the housing project, and then it is implemented on customers by the management. Tax is calculated by FBR and added to the ledgers of customers by society.
Amount of Tax
The amount of tax is calculated as per the diaphragm created by the Federal Board of Revenue (FBR). Generally, FBR classifies taxpayers into 2 categories, filers and non-filers, filers are registered with FBR through an NTN number whereas non-filers are not registered with FBR. Moreover, filers have to pay a low amount in tax as compared to non-filers.
For immovable property, tax for both filers and non-filers is given below:
Tax for Filer
- A filer has to pay 2% (of market value) as tax to FBR
Tax Non-Filers
- A non-filer has to pay 7% (of market value) as tax to FBR
Bottom Line
We hope this article has answered your question of whether tax is implemented on a file or not. Whether you are a filer or non-filer, you should stay prepared as you have to pay government-implemented tax sooner or later against your plot. Tax is applied on the file between the balloting and possession stage when the plot number is allotted. So, file owners should become filers to enjoy tax benefits and gather knowledge of FBR tax policies.
Keep visiting Manahil Estate for more useful blogs, news, and updates on different housing societies!
