A significant measure aimed at promoting affordable homeownership is the insertion of a new tax credit under Section 63A of the Income Tax Ordinance, titled “Tax credit for interest paid on Low-cost Housing Loan.”
This new provision is designed to provide financial relief to individuals seeking to acquire or construct their first home.
Eligibility and Scope of the Tax Credit
Under Section 63A (1), an individual is entitled to a tax credit for a tax year if they have paid:
- Profit on debt
- Share in rent
- Share in appreciation for the value of the house
This payment must be made on a loan obtained from:
- A scheduled bank
- Any other financial institution regulated by the Securities and Exchange Commission of Pakistan (SECP)
- Advanced by the Government or Local Government
- A statutory body
- A public company listed on a registered stock exchange in Pakistan
The loan must be utilized for the construction (including land) or acquisition of one personal house that meets specific size criteria:
- Land area up to 2,500 square feet for a house
- Total area up to 2,000 square feet for a flat
How the Tax Credit is Computed
The amount of tax credit for a person under subsection (1) for a tax year is computed using the following formula, as per Section 63A (2):
Where:
- A is the amount of tax assessed to the person for the tax year before the allowance of any tax credit under this Part.
- B is the person’s taxable income for the tax year.
- C is the lesser of —
- The total profit on debt (or share in rent/appreciation) paid by the person in the year.
- Thirty percent (30%) of the person’s taxable income for the year.
Important Conditions and Exclusions
Section 63A also outlines specific conditions and exclusions:
- Non-entitlement if Profit Deductible: As per subsection (3), a person shall not be entitled to this tax credit for any profit that is already deductible under Section 15A of the Income Tax Ordinance. This prevents double-dipping on tax benefits for the same interest payment.
- Single Claim Over Time: Subsection (4) stipulates that where an individual has claimed this tax credit, they shall not be entitled to claim a tax credit for another house or flat under this section during the subsequent fifteen tax years. This ensures the benefit is primarily for first-time or long-term homeowners.
The introduction of Section 63A reflects the government’s commitment to facilitating affordable housing and providing a tangible incentive for individuals to invest in their own homes, aligning with broader socio-economic development goals. The overall budget package aims to stabilize the economy, enhance revenue, and foster sustainable growth in the coming fiscal year.
