Capital Gain Tax on Property in Pakistan
Like other policy papers, tax policy has always been a complicated document in Pakistan. It has always been way more difficult to comprehend any new tax law in the land of pure. The Capital Gain Tax on Property in Pakistan is also one of them.
In this informative blog, we will dissect this law in detail to make it easy for a common taxpayer to understand.
What is the meaning of Capital Gain in real estate?
In the realm of real estate, capital gain means the profit margins earned after the sale of any real estate product such as a plot, plot file, constructed property, or a flat. It is the calculation of the difference amount between the price at the time of sale and purchase. This profit in reality is earned when the selling price surpasses the purchasing price.
What is the meaning of Capital Gain Tax on Property in Pakistan?
The tax applicable on the profit earned from the sale of a real estate product such as a plot, plot file, or constructed property after holding for a specific period is called Capital Gain Tax on Property. According to the Finance Act of 2017, the Capital Gain Tax is evaluated only when a real estate product is put for sale within three years of the purchase date.
The further application of this tax varies with the extended rules of the Capital Gain Tax gazette. The complete details can be checked in the Capital Gain Tax table by the Federal Board of Revenue (FBR) given below.
Applicability Conditions of Capital Gain Tax on Property in Pakistan
The following are the conditions that must be considered before calculations of Capital Gain tax.
For example, if a seller has bought a plot worth 20,00,000/0 rupees and sold it at 25,00,000/-. Thereby, he made PKR 5,00,000/- profit out of it. So, the Capital Gain Tax will only be applicable on the 5,00,000/- rupees instead of 25,00,000 /- rupees.
Ways to assess Capital Gain Tax on Property in Pakistan?
As a taxpayer, you can calculate the Capital Gain tax (CGT) through the following three ways.
Calculating through quoting the actual value of property
Under this method, you have to quote the actual selling and buying value of the property and the profit earned. Ultimately, the CGT will also based on this actual value of the profit.
Assessment using a combination of the old DC rate and the New FBR Rate
Under this formula, you have to put in the Deputy Commissioner (DC) rate of the property while making a purchase. While at the time of sale, FBR’s New rate policy will be applicable.
Finally, the CGT will be calculated using the given tax calculation formula:
DC rate at the time of purchase – FBR value at the time of sale = Total Profit (5% CGT on profit )
Calculating through the latest FBR Value
Under this approach, you have to apply property value under the FBR new rate policy both at selling and buying. You can calculate under this formula:
FBR Value at the time of purchase – FBR value at the time of sale = Total Profit (CGT = 10%,7.5%,5% respectively for 1st , 2nd and 3rd year on profit )
The detailed calculations under this formula can be seen in the below table.
More than one year and less than two years
Falling between three to four years
Falling between five to six years
Where the holding period exceeds seven years
Exemption of Capital Gain Tax on Property in Pakistan?
Properties mentioned under the following list are exempted from the Capital Gain Tax (CGT) as per the Finance Act 2017.