The Federal Board of Revenue (FBR) has retained the tax credit on qualifying low-cost housing loans for Tax Year 2027 under Section 63A of the Income Tax Ordinance, 2001.
The provision allows eligible individuals in Pakistan to claim a tax credit on certain housing-loan payments used for the construction or acquisition of a qualifying personal residence.
Who Can Claim the Housing Loan Tax Credit?
An individual may qualify where the housing loan is obtained from:
- A scheduled bank
- A financial institution regulated by the Securities and Exchange Commission of Pakistan (SECP)
- The Federal or Local Government
- A statutory body
- A public company listed on a registered stock exchange in Pakistan
The loan must be used to construct or acquire one personal house or flat meeting the prescribed size limits.
Property Size Limits
For Tax Year 2027, the qualifying property must meet these limits:
- House: Land area of up to 2,500 square feet
- Flat: Total area of up to 2,000 square feet
How Is the Tax Credit Calculated?
The tax credit is calculated using the formula:
(A ÷ B) × C
Where:
- A = Tax assessed before allowing the applicable tax credit
- B = Taxable income for the tax year
- C = The lesser of the qualifying profit on debt paid during the year or 30% of taxable income
This formula determines the tax credit available to an eligible individual within the limits prescribed by Section 63A.
Important Restrictions
The housing loan tax credit is subject to certain conditions. An individual cannot claim the credit for profit that is already deductible under Section 15A of the Income Tax Ordinance, 2001.
In addition, after claiming the Section 63A tax credit, an individual cannot claim another tax credit under the same section for another house or flat during the following 15 tax years.
Key Takeaway
The continuation of the Section 63A housing loan tax credit for Tax Year 2027 provides an important tax provision for individuals financing a qualifying personal residence.
Taxpayers should carefully review their loan documentation, property size, qualifying payments and tax position before claiming the credit.
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Disclaimer
This article is provided for general informational purposes only and does not constitute legal, tax, financial or professional advice. Tax laws, rules and FBR policies may change from time to time. Readers should consult a qualified tax or legal professional regarding their specific circumstances before taking any action. Xact Legal does not accept liability for any action taken solely on the basis of this information.