Islamabad: According to the Federal Board of Revenue (FBR), Agricultural properties, with the exception of farmhouses, are exempt from taxation under Section 7E of the Income Tax Ordinance 2001.

Circular No. 3 of 2023 has been released by the Federal Board of Revenue (FBR) to provide clarity on the application of Section 7E in relation to farmhouses.

Pursuant to this circular, agricultural properties that are owned by individuals engaged in agriculture activities are exempted from the provision of Section 7E of the Ordinance, with the exception of farmhouses and attached land that have been constructed on agricultural land. It is pertinent to note that this circular serves to provide further guidance and understanding on the matter, and should be taken into consideration when dealing with issues related to Section 7E and agricultural properties.

In situations where a property is being transferred or sold, it is essential to consider the property classification as agricultural (excluding farmhouses) and the availability of proper property documentation. Doing so will enable the transfer authority to execute the transfer without the requirement of presenting evidence of tax payment under section 7E or Form-A, as outlined in Circular No. 01 of 2023-24. It is important to note that if there are any farmhouses constructed on the agricultural land, the conditions stated in Circular No. 1 of 2023-24 will apply to those farmhouses after necessary adjustments have been made.

FBR defined farmhouses as “a house constructed on a total minimum area of 2,000 square yards with a minimum covered area of 5,000 square feet used as a single dwelling unit with or without an annex: Provided that where there are more than one dwelling units in a compound and the average area of the compound is more than 2,000 square yards for a dwelling unit, each one of such dwelling units shall be treated as a separate farmhouse”.

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