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Budget 2023: Tax Relief and Incentives for Construction and Property Sector

The Budget for the fiscal year 2023-24 has introduced several tax relief measures and incentives to promote growth in the construction and property sector, thereby stimulating overall economic development. Here are the key highlights regarding the tax relief and incentives outlined in the budget:

  1. Tax Relief for Builders: Builders will be eligible for a tax relief of either 10 percent of their business income or up to Rs. 5 million, whichever amount is lower. This tax relief will be applicable for the next three years and will only apply to construction projects that commence after July 1, 2023.
  2. Tax Relief for Individuals: Individuals engaged in the construction of new houses and buildings will also benefit from a tax exemption. They will receive a tax exemption of 10 percent of their income or up to Rs. 1 million, whichever is lower, for the next three years.
  3. Concessional Tax Rate for Banks: Banks offering loans to the construction industry, agriculture sector, and small and medium-sized enterprises (SMEs) will continue to enjoy a concessional tax rate. This special tax rate, initially introduced in 2020, will be extended for an additional two years until 2025. Under this scheme, banks will be taxed at a reduced rate of 20 percent on the income earned through loans provided to these sectors, instead of the standard rate of 39 percent.
  4. Extension of Tax Concessions for REIT Schemes: The tax concessions previously granted to Real Estate Investment Trust (REIT) schemes will be extended until June 30, 2024. This extension will allow investors to continue investing in real estate properties that generate income while enjoying the associated tax benefits.
  5. Special Tax Regime for Land Developers: Land developers, including banks and insurance businesses, will be subject to a distinct tax regime. They will be treated as separate businesses and taxed based on a special schedule on a project basis. The proposed minimum tax rate for land developers under section 113 (Turnover Tax) is 5 percent of their turnover, whereas the standard tax rate for individuals, Association of Persons (AOPs), and companies is 1.25 percent. Additionally, upon the first approval of the Layout Plan (LoP), the Approving Authority will collect an Advance Income Tax equivalent to 7.5 percent of the fair market value of the land at FBR Table value. This amount will be adjusted over a period of three years against the yearly income tax liability of the project.

These tax relief and incentives for construction and property sector in Budget 2023 measures and aim to encourage construction activities, support the real estate sector, and provide financial relief to builders and individuals involved in construction projects.

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