Paying tax has now become more complex than before. The reason behind it is that there are different taxes and we are often not well aware about tax types, calculations and implementations. If you are a citizen of Pakistan and you own or intend to own a property, you must know about Capital gain tax on property in Pakistan . There is more risk of being betrayed if you dont know about tax calculation particularly. So, read the article carefully and get yourself aware about updated information to void inconmvenience while filing tax.
What Is Capital Gain Tax?
Profits from the sale or exchange of capital assets are known as capital gains. A capital asset, with few limitations, is often any property you own, like; Investment property or Property held for personal use.
The vendor is responsible for paying this tax. The profit, which is taxed when the seller gains money off of the sale of real estate, gives the term its name. The Finance Act of 2017 states that CGT is only assessed when a property is sold within three years of the original purchase. The tax rate varies depending on when the property is sold: 10% in the first year, 7.5% in the second year, and 5% in the third year. Based on the valuation table provided by FBR, these gains are to be determined in accordance with fair market value. The seller will not be responsible for paying CGT on any property kept for more than three years.
Distinctions Of Capital Gain Tax
There are few things one must understand about capital gain tax :
- The seller is the only party subject to capital gains tax. The buyer does not pay capital gains tax.
- It is to be deposited at the time of your annual tax returns.
- This is only payable on the profits you made; it is not payable on the full amount of the good you sold. The difference between your purchase price and sale price is subject to capital gains tax when selling real estate.
How To Calculate Capital Gain Tax?
Capital gain tax is calculated with the help of three different methods. You can use any of the methods to calculate tax.
Method 1: Using actual values
Method 2: Using old DC rates and new FBR value
Method 3: Using new FBR value
- Using New FBR Value
When buying and selling real estate, you must declare the actual price and deposit the capital gains tax due based on the profits you actually realised.
- Using Old DC Rates And New FBR Value
Dc rate at the time of purchase – FBR value at the time of sale = Total Profit (5% CGT on profit )
- Using New FBR Value
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 )
However, if you sell it another financial year and the FBR value has changed than you will pay CGT as follows.
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 )
Properties Exempted From Property Gain Tax
Any immovable property that is allotted to- a shaheed or dependents of a shaheed belonging to Pakistan Armed Forces
- a person or dependents of the person who dies while in the service of Pakistan armed forces or Federal or provincial government
- a war wounded person while in service of Pakistan armed forces or Federal or provincial government;
- an ex-serviceman and serving personnel of armed forces or ex-employees or serving personnel of Federal and provincial governments, being original allottees of the capital asset duly certified by the allotment authority;
One fixed asset that belongs to the resident.Self-owned business space from which individuals listed on the active taxpayers' registry at any moment during the year conduct their company.Farmhouse (defined in a certain way) and property annexed thereto are not included in self-owned agricultural land where agriculture activity is performed by a person.Any real estate that is mobile and from which income is already subject to income tax.Immovable property that is owned by a local or provincial government.This is all about Capital gain tax on property. If you re going to file your tax make sure you know everything about it and you have the idea about calculation of tax as well.
Related Blogs
FAQs
Capital Gain Tax on Properties Slabs in Pakistan 2023-2024
Where the holding period exceeds one year but does not exceed two years, the tax rates are 12.5% for Open Plots, 10% for Constructed Property, and 7.5% for Flats.
How is property tax calculated in Pakistan? ›
Capital Gain tax on property in Pakistan in 2021-22 is 5% for gains up to 5 million PKR, while it gets double, i.e., 10% when the amount exceeds 5 million and stays under 10 million pkr. Likewise, the gain tax on property up to 15 million is 15 million and 20 % on gain exceeding 15 million pkr.
How do you calculate the correct capital gains calculation? ›
The correct capital gain calculation is: Sales Price - Basis - Selling Costs = Gain/Loss. Transcribed image text: Identify the correct capital gain calculation.
How do you calculate capital gains on real property? ›
Capital Gains Taxes on Property
Your basis in your home is what you paid for it, plus closing costs and non-decorative investments you made in the property, like a new roof. You can also add sales expenses like real estate agent fees to your basis. Subtract that from the sale price and you get the capital gains.
How much tax on capital gain on immovable property in Pakistan? ›
Tax on value of capital assets in Pakistan
A resident person owning immovable property in Pakistan will be taxed on deemed income for tax year 2022 and onwards. Such deemed income shall be computed as 5% of the fair market value of the immovable property. The rate of tax on such income is prescribed as 20%.
Is there capital gains tax on an inherited property? ›
If you inherit property or assets, as opposed to cash, you generally don't owe taxes until you sell those assets. These capital gains taxes are then calculated using what's known as a stepped-up cost basis. This means that you pay taxes only on appreciation that occurs after you inherit the property.
Is capital value tax refundable in Pakistan? ›
Payment of refund. - (
person not liable to pay the same or in excess of the amount actually payable, an application may be made to the officer of Inland Revenue for the refund of tax, or the amount recovered in excess, as the case may be in the manner provided in Iris.
Who is exempted from property tax in Pakistan? ›
The buildings owned by widows, minor orphan, and/or disabled persons, the tax liability of which is up to Rs12,150 per annum, are exempted. One residential house up to 1 kanal owned and occupied by a federal or provincial retired government servant is exempted.
How to calculate property tax in Punjab, Pakistan? ›
Property tax in Pakistan is determined based on the market rate and can vary across provinces. In Punjab, Pakistan, the property registration tax rate is 3% of the property's market value. The property buyer pays the tax, and it is a mandatory requirement for property registration.
What are the three methods of calculating a capital gain? ›
To calculate capital gains tax, there are three primary methods for calculating capital gains tax:
- CGT discount method.
- Indexation method.
- The “other method.”
A taxable gain is a profit earned on the sale of an asset. To calculate the taxable gain on the sale of an asset, an individual takes the difference between the original purchase price and the sale price of the investment.
How do I calculate capital gains on sale of inherited property? ›
Follow these steps:
- Calculate your capital gain (or loss) by subtracting your stepped up tax basis (fair market value of the home) from the purchase price.
- Report the sale on IRS Schedule D. ...
- Copy the gain or loss over to Form 1040. ...
- Attach Schedule D to your return when you submit to the IRS.
You can avoid capital gains tax when you sell your primary residence by buying another house and using the 121 home sale exclusion. In addition, the 1031 like-kind exchange allows investors to defer taxes when they reinvest the proceeds from the sale of an investment property into another investment property.
How to avoid paying capital gains tax on inherited property? ›
Here are five ways to avoid paying capital gains tax on inherited property.
- Sell the inherited property quickly. ...
- Make the inherited property your primary residence. ...
- Rent the inherited property. ...
- Disclaim the inherited property. ...
- Deduct selling expenses from capital gains.
Capital gain on securities
The rate shall be 12.5%, irrespective of the holding period, for securities purchased on or before 30 June 2022. The rate shall be 0% for securities acquired before 1 July 2013.
What is current capital gain tax rate in Pakistan? ›
Capital Gain Tax (CGT)
| Market | Period | Year 2022-23 CGT Rates |
|---|
| Investors appearing in ATL |
|---|
| PSX | Where the holding period does not exceed one year | 15.0% |
| Where the holding period exceeds one year but does not exceed two years | 12.5% |
| Where the holding period exceeds two years but does not exceed three years | 10.0% |
15 more rowsAccording to Zaidi, Capital Value Tax 2022 (CVT 2022) has been levied by way of Section 8(7) of the Finance Act, 2022. This is not a tax on “income” under the Constitution. This is a separate tax levied under Entry 50 of the Legislative List under the Fourth Schedule to the Constitution.
Who pays capital value tax in Pakistan? ›
Who Pays Capital Value Tax? The buyer of the property is responsible for paying the capital value tax. The tax must be paid at the time of sale and can be paid at any designated bank or through the government's online payment portal. In some cases, the seller may be responsible for paying the tax.
