Discussion on Finance Act 2025-III: An Overview
In a significant move to curb illicit financial activities, the Finance Act 2025 has set specific conditions for individuals to undertake certain economic transactions, excluding public companies and non-residents. Here's what you need to know about these conditions:
To be eligible to undertake transactions as specified in the Finance Act 2025, an individual must:
1. Have filed an income tax return for the tax year immediately preceding the current year. 2. Declare sufficient financial resources, meaning assets worth at least 130% of the transaction amount, either in the relevant return or in a "Sources of Investment and Expenditure Statement".
The status of an 'Eligible Person' includes the individual's immediate family members, such as parents, spouse, and dependent children.
Individuals who do not meet these criteria are classified as 'Ineligible Persons' and face restrictions on booking, purchasing, or registering motor vehicles, registering or transferring immovable property exceeding a government-notified value, trading in securities or mutual funds through authorized dealers, and opening or maintaining bank accounts (except certain limited accounts like Asaan or Pensioner Accounts), with restrictions on large cash withdrawals.
However, there are exclusions to these restrictions: - Transactions involving non-residents and public companies (except for large cash withdrawals). - Purchases of certain vehicles like rickshaws, motorcycles, tractors, pickup vehicles up to 800CC, trucks, buses, or other government-notified vehicles. - Small-scale investments in securities within notified limits.
The obligation to stop a transaction has been placed on the person through which such transactions are undertaken, such as registration authorities, banks, etc. The event of registering, recording, or attesting transfer of any immovable property is covered, and the fair value will be the value as determined by the FBR, if not the market value.
When the total cash withdrawal from a bank account exceeds Rs 100 million, the bank will stop the withdrawal unless the account holder provides the sources of funds in that account. Banks are required to provide the final results where the banking data is at variance with the algorithm.
A new subsection has been included in Section 159 for the issue of exemption certificates with respect to capital gains on the sale of residential immovable property. The conditions for the exemption certificate are: the property has been in personal use for the last fifteen years, declared in the wealth statement for the last fifteen years, and appears as a residence for personal use in the tax record of the person. The exemption certificate can be issued once in fifteen years.
All information received under these provisions will be used only for tax and related purposes and kept confidential. The Board has been empowered to share tax declaration information with scheduled banks for cross-matching with bank data through data-based algorithms. The law prohibits cash withdrawal from any bank account when the annual cash withdrawal limit exceeds Rs 100 million.
In summary, an eligible person must have a compliant tax filing record from the preceding year and sufficient declared assets (130% of the transaction value) to undertake specified economic transactions under the Finance Act 2025. Each transaction in a bank account is considered for the cash withdrawal limit, and it is suggested that these restrictions be extended to all persons other than a public company.
- Under the Finance Act 2025, an individual must file an income tax return for the previous tax year to be eligible for certain economic transactions.
- To prove sufficient financial resources, individuals must declare assets worth at least 130% of the transaction amount in their income tax return or a "Sources of Investment and Expenditure Statement."
- As an Eligible Person, an individual's immediate family members also have the same Transaction privileges.
- Ineligible Persons, who do not meet the criteria, face restrictions on several financial activities, such as motor vehicle bookings and property registrations, trading in securities or mutual funds, and bank account opening.
- Exceptions to these restrictions include transactions involving non-residents, public companies, and certain vehicle purchases.
- Banks are expected to prevent large cash withdrawals (over Rs 100 million) from non-compliant accounts, requiring the account holder to provide sources of funds.
- For capital gains exemption on the sale of residential immovable property, the property must have been used personally for 15 years, declared in the wealth statement for the same period, and appear as a residence in the tax record.
- The law aims to keep information confidential while empowering the Board to share tax declaration information with scheduled banks for cross-matching with bank data, and it prohibits cash withdrawal from any bank account when the annual cash withdrawal limit exceeds Rs 100 million.
