The Federal Board of Revenue has granted a withholding tax exemption under Section 236C of the Income Tax Ordinance, 2001, for builders and developers who have already paid their taxes under the special regime defined in Section 7F.
The clarification was issued through Circular No. 07 of 2025–26 to address concerns regarding the applicability of advance tax on property transactions for developers operating under the special tax framework.
Under Section 7F, certain builders and developers are taxed based on a fixed percentage of their gross receipts, rather than conventional profit-based taxation. However, industry stakeholders had raised concerns that applying withholding tax under Section 236C created an additional financial burden, as this tax is typically adjustable against capital gains, which may not apply in their case.
The FBR acknowledged that for developers taxed under Section 7F, income is categorized as “Income from Business,” meaning the withholding tax under Section 236C may not be adjustable. This results in unnecessary liquidity pressure, especially for those without other taxable income streams.
To address this issue, the FBR has allowed eligible builders and developers to apply for exemption from advance tax collection under Section 236C.
Applicants can submit requests to their respective Commissioner Inland Revenue under Section 159 of the ordinance to obtain an exemption certificate. Once approved, this certificate will authorize the non-collection of withholding tax on transactions involving the sale of immovable property.
The FBR has directed Commissioners to review applications on a case-by-case basis, ensuring all legal requirements are met before granting exemptions. The standard timelines for processing such applications will remain applicable.
The move is expected to provide relief to builders and developers operating under the special tax regime by easing cash flow pressures and simplifying compliance.
