The Federal Board of Revenue has granted withholding tax exemption under Section 236C of the Income Tax Ordinance, 2001 to builders and developers who have discharged their tax liability under the special tax regime for the sector.
The FBR issued Circular No. 07 of 2025–26 (IR-Policy – Income Tax) to clarify the applicability of withholding tax under Section 236C in respect of persons covered under Section 7F of the Income Tax Ordinance, 2001.
According to the circular, concerns had been raised regarding the applicability of withholding tax under Section 236C to persons engaged in construction and development activities who are subject to tax under the special regime introduced through Section 7F of the ordinance.
Under Section 7F, a special tax regime has been prescribed for certain categories of builders and developers, whereby their income is determined as a fixed percentage of gross receipts.
It was represented that tax collected under Section 236C is generally adjustable against capital gains arising from such sales. However, in the case of such builders and developers, profits and gains are chargeable under the head “Income from Business” through the special procedure described in Section 7F. Consequently, any deduction under Section 236C creates an additional liquidity burden on such taxpayers, particularly where they do not have any other taxable income during the tax year.
The FBR clarified that persons who have discharged their tax liability under Section 7F of the ordinance, and who do not have any other income chargeable to tax against which such tax collection can be adjusted, may seek exemption from the collection of advance tax under Section 236C.
Such persons may apply to the concerned Commissioner of Inland Revenue under Section 159 of the ordinance for the issuance of an exemption certificate authorizing the non-collection of tax under Section 236C on transactions involving the sale of immovable property.
Commissioners Inland Revenue have been directed to examine such applications on a case-to-case basis, ensuring that applicants fulfill all conditions precedent to the exemption, and to decide the matter in accordance with the law.
