Blog

Capital Gains Tax on Property

Capital Gains Tax On Property |Implementation & Calculations

 

Capital Gains Tax On Property |Implementation & Calculations

One of the major issue investors are facing are not taxes on real estate but the confusion around it. In this article we will try to understand how capital gains tax on property (CGT) is calculated. This will clear a lot of misunderstandings and rumors spread in the market. For the sake of ease we will be dividing this article in three sections .

  1. What is Capital gains tax on property .
  2. How Capital gains Tax on property is calculated with examples.
  3. How to avoid Capital gains tax on property investment.

Section 1 : What is Capital gains tax on property

Capital gain tax on property is the tax payable to the Federal Government Of Pakistan on the profits you make . Some of the things you need to understand about this tax are :capital-gains2

  1. This is not payable on the complete price of the commodity you have sold but only on the profits you have made. Capital gains tax on property (CGT) is paid on the difference between your buying price and your selling price.
  2. Capital gains tax is only applicable on the seller . Purchaser do not pay any Capital gains tax.
  3. Capital gains tax on property (CGT) was also levied in the previous year at 10 % .
  4. Capital gains tax is to be deposited at the time of your annual tax returns.
  5. CGT is incurred only on the profits you make . Misc costs such as taxes and commissions are excluded from the taxable profit.
  6. As per the new law , it will be levied at following rates on property investments in Pakistan .
    1. 10% of profit you have made if you sell it in first year of your purchase.
    2. 7.5% of  profit you have made if you sell it in second year of your purchase.
    3. 5% of  profit you have made if you sell it in third year of your purchase.
    4. 0% of  profit you have made if you sell it in fourth year of your purchase.
    5. 5% flat rate on profit for all properties purchased before 1st July 2016 if they are sold within 3 years of there purchase.
    6. For army officers benefit plot and plots for dependents of Shahuda the CGT is 0%.
    7. CGT on Government welfare plots will be levied at 50% of the normal percentage. 5% in first year , 3.7% in the 2nd year and 2.5% in the 3rd year.

Section 2 : How Capital gains Tax on property is calculated with examples.

Capital gains tax can be calculated using 2 methods .

Method No 1 : Using actual values

You declare the actual price of purchase and sale and deposit the Capital gains tax on property on actual profits you have made.

Example :

Capital Gain Tax On Actual Values

wdt_IDSold InPurchase PriceSale PriceTotal ProfitTotal CGT
11st Year20 Million25 Million5 Million0.5 Million (10%)
22nd Year20 Million25 Million5 Million0.375 Million (7.5%)
33rd Year20 Million25 Million5 Million0.25 Million (5%)


Note: The 3rd year “sold in” row is applicable to all sellers who have purchased the plot before 1st July 2016.

Advantages

  1. You are paying the taxes as a responsible citizen and helping to rebuild your country.
  2. All your money is white and declared.

Method No 2 : Using old DC rates and new FBR value

Let us suppose that you have purchased a plot in DHA Phase 8 and declared its old DC value . Now if you sell it , you can declare that you have sold it as per the FBR value. You will pay CGT at 5% flat rate if you sell it within 3 years. However for this calculation you must have purchased the plot before 1st July 2016.

Formula

Regardless of actual price you have purchased for or sold for the CGT will be as under.

Dc rate at the time of purchase  – FBR value at the time of sale = Total Profit (5% CGT on profit )

DC Rate of 1 Kanal Plot in DHA Phase 8 Lahore in 2015-16 = 3300000

FBR Value of 1 Kanal Plot in DHA Phase 8 Lahore  in 2016-17 = 6300000

Net profit = 3000000

Total CGT Payable = 5% of 3000000 = 150000 PKR

Advantages

  1. You pay much less tax.

Disadvantages

  1. Economy of Pakistan  suffers because you have not paid the taxes due.
  2. You only have 6300000 as white money. The remaining money you have is considered Black and you can be charged legally by FBR.

Method No 3 : Using new FBR value

In case you have purchased a plot in DHA Phase 8 after 1st July 2016 and declared its new FBR value . Now if you sell it , you can declare that you have sold it as per the latest FBR value applicable in that year. You will pay CGT at 10% , 7.5% and 5% respectively for selling it in 1st , 2nd and 3rd years. The catch here is that there is no change in FBR Value in the same financial year . If you sell it in the same financial year technically you do not have to pay any Capital gains tax.

Formula

Regardless of actual price you have purchased for or sold for the CGT will be as under.

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 )

FBR Value of 1 Kanal Plot in DHA Phase 8 Lahore in 2015-16 = 6300000

Net profit = 0

Total CGT Payable = 10% of 0 = 0 PKR

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 )

Advantages

  1. You pay very minimal tax.

Disadvantages

  1. Economy of Pakistan suffers because you have not paid the taxes due.
  2. You only have 6300000 as white money. The remaining money you have is considered Black and you can be charged legally by FBR.

Section 3 : How to avoid Capital gains tax on property investment

There are only two ways you can decrease or avoid Capital gains tax .

  1. By not showing any profits as explained in method no 2 and method no 3. This will certainly save you from giving huge amount in Capital gains tax. However you are cheating and liable to punishment as per the law of Pakistan. Moreover the extra money you are left with is illegally acquired black money.
  2. Simply sell your property after 3 years and you do not have to pay any CGT. This way you can declare your entire sale price as white money without paying any CGT.

Hurrah 🙂 i hope we have finally broken the myth of the Capital gains tax . One of the evil genie which is bothering so many real estate investors in Pakistan. Stay tuned because soon we will be breaking myth about the scary withholding tax.

 

Contributed by

Captain (Retd) Shahnawaz Yaqub Bhatti

CEO & Investment Consultant at Imlaak

Mob & whatsapp : +923331717170

Skype : Shahnawaz.yaqub

 

Interested to know more about Capital Gains Tax

If you still want to know more about Capital Gains Tax and need opinion by other experts join us on our discussion forum.

Leave a Reply

68 Comments on "Capital Gains Tax On Property |Implementation & Calculations"

avatar
  Subscribe  
newest oldest most voted
Notify of
Sahir Khan
Guest

I bought a 4-marla residential plot in (rural) Rawalpindi. The price i actually paid for it is around 1.6 million, but the price mentioned on the registry is around 1 lac, as this is the government rate.

I am an income tax return filer. Guide me as when filing this year’s return, what price should i mention in the return? The price i paid (1.6 million) or The price mentioned on Registry (1 lac)?

MAF
Guest

Mention documented value in your return.
Documented value is 1lac(Registered value).
Assets are recorded in books on documented value and not on market anticipated value.

irfan khaliq
Guest

I would like have one clarity if I buy a property for 10 lac & sell in 11 lac, profit is 1 lac & paid 10 thousand as cgt with in one year. So the one lac would also be included or not in taxable income for income tax calculation purpose if my income tax slab is 5 % so the 5 thousand would have to pay as income tax or not.

kamran
Guest

Salam,
i have purchase a plot in Gulshan e roomi (Malir Cant, Karachi) for price 1,260,000 on 2010 i have now sale it for 6,200,000. Is there any CGT i have to pay ?? as this purchase before 2016 but not sold within 3 years of purchase as per your coaching on below. Lastly is this still applicable or there is some now law for it
https://imlaak.com/capital-gains-tax-property-calculation/
JazakAllah

naseer
Guest

what is capital gain tax on agricultural land at kpk plz

Syed Zafar Abbas
Guest

AOA Dear Sir ,
i have purchased a house worth Rs.6Million where 4 Million from some inheritance share and 2 million form some bank loans and other save money or company loan where i am doing job but unfortunately the area where i bought this house is not well and is not as per my living status so i wish to sale the house in some little better amount as 70 or under 70 lac . Will i be fall in CGT tax category as i will but new one in the same amount with out any profit.

please guide

Ahmad saleem
Guest

I ve perchsed a old flat measuring area 66yard how much i ve to pay wealth tax as it poor area of hyd sind g ward categaries so kindly informed me actual detail i think it sud not b apply lower class area it curelity man ve 100acre land no tax on sale n perchaes n a poor man buy 33sqy smallest flat he ve to pay wealth tax wat a curs

nasir liaqat
Guest

aslam o alaikum,sir ham ne nov 2017 me 13 marlay ka plote sale kia ha yeh jaga hamaray father k name per thi jin k 8 year pehlay death ho gae thi .kia is warsati deal per gain tax lagay ga?yeh hamaray father ne 32 year pehlay purchase ki thi.

zafar
Guest

Nhi shaid 3 sal k baad nahi hota CGT

Waqas
Guest
Dear Sir, Thank you for the valuable information. I want to ask a question if you have a moment, kindly answer. I am going to buy a 6 Marla 2bl story house in Bahria Town, Lahore (Sector C). The management at Bahria is telling me that the 5% tax (CVT+Stamp Duty) is to be calculated on DC value of Land and Construction both. Now I need to ask what is the procedure to calculate the 5% tax on Construction cost? They said the formula to calculate 5% on Construction is: Rs. 500 x Area Rs. 500 x 2200 SqrFeet =… Read more »
Imran
Guest

i purchased a plot in sector I-12 ISLAMABAD IN july 2016 in 15 lac and shown as per FBR value
Sold the same in Feb 2017 in 35 lac (Within same financial year where FBR value doesnt change)
Total gain/ profit is 20 lac which was again declared as same while selling
Also paid 1% as seller of filer according to 236C
Now its time to file return of the year and Gain within same financial year (20 Lac)is subject to CGT or NOT in view of above referred method No 3?
If No then OK
If YES then how..?
Kindly Brief.
Regards

Taimur
Guest

We have one inherited property which was transfered on 7 legal heirs name in 2007, it was than tranfered from 7 legal hiers to 1 legal hier name in oct 2016 and than was sold to purchaser in dec 2016 is capital gain tax applicable or not ? If yea how it will be calculated because as it was gifted property and no value is considered at the time of transfer from all legal hiers to 1 legal name
So how to evaluate the gain

Muhammad Rafique
Guest

I am Government Servant , I was allotted a plot in Karachi 10 years back worth Rs.300000/- in sector 33 Federal Government Housing Foundation now i disposing off the plot at a total cost of Rs.2000000/- , I am exempted from tax ? if yes how much tax i have to pay please guide.

Mahmood KHAN
Guest

Brother, I’m selling my flat after 1 year of possession from builder in 7.8 milliin there be any tax on me ?

ali
Guest

aslam o alaikum sir mera jawab mail kr dein
sir agar main ny ak plot lia hai 1july 2016 sy pehly aur ab pory 3 sal bad sale karta hun kya mujhy gaintax pary ga ka nhn

rana mehmood
Guest

I hav sold my property 14 marla in temple road data gunj buksh town lahore in 8/2016 the buyer was late to pay the amount . now he wants to pay the amount pass his registry. what rate amount was applicable as capital gain tax in 8/2016 and what is difference in 2017-18 . i,m filler by the way. pl. advice me

Adeel bajwa
Guest

aoa …..i thank to you for such a really good artical. I m student of BBA banking and finance…this artical help me in my presentation

Salahuddin
Guest

I inherited property from my father in January 2016. I am residing and working abroad and do not file taxes in Pakistan. If I sell this property now do I as seller have to pay CGT? If yes, who do I have to pay KDA or FBR and how will CGT be calculated in this case for 500 square yard house. Note house market value has not changed since I inherited so basically no gain in reality. Thanks

Aamir
Guest

How much gain tax for a property of 438.25 sq yards

Aamir
Guest

what about the property if you inherit from parents . If I inherit a house from my mother and want to sell it as I am abroad . do I still need to pay gain tax .

Zohaib
Guest
I purchased a plot at Rs.5,000 (Date: 01-07-16) taxes, duties and commission at purchase stage costed Rs.500 construction cost Rs.3,000. sold the bungalow at Rs. 10,000 (Date: 01-08-17) FBR valuation of property is e.g. 8,000 For computing gain when declaring in Income Tax Return, what shall I consider as the cost of asset, the actual cost or with expenses incurred or FBR valued price or by DC rate? And what shall I consider as the sale price of asset, the actual selling price or FBR valued price or by DC rate? What I have understood is that capital gain tax… Read more »
Panama case
Guest

Hi,
I would like some help to clear up few taxation questions. I bought 10 Marla plot in 2004 with the funds sent to me by my brother from overseas. I then started building a house on it which completed few years and this was done using funds from overseas.
Total price 40 lac
Current offer 60 lac.

Could you please tell me if there are any sortof taxes due if i were to sell it for 60 lac?

Thanks

Babar
Guest

Suppose that I have purchase a property in Karachi of Pkr value 5,000,000 and selling of after February 2017 means within a years without making any property its no tax would be charge on me?as per law.
And this rule will applicable all over Pakistan or applicable at sindh and Punjab.
And what about the category list provided by FBR for Karachi where mention area and per square yards value. Like Korangi came at category V and charge amount 4000 per square yards, what does it means? Plz provide ur answer in detail . vary Thanks.

Zohaib
Guest

My dad being a retired army officer was alloted a flat in dha phase 8 in 2010 which he transfered to my moms name in 2014, now we wish to sell the flat in 2016… Will there be any capital gain tax imposed on us for this transaction?

YOUSUF LODHI
Guest

IS CAPITAL GAIN TAX APPLICABLE ON ALL PROPERTIES REGARDLESS OF SIZE ????? for example…. on a property of 50 square yard to upward (2 marla to upward)………….OR…………there is an expemption on smaller proprty ?????

Hassan
Guest

This is robbing simple people. Why should a person pay this tax if he is going to buy or sell a plot with the savings of his whole life?

Bhatti
Guest

i bought a plot worth 12 million, built a house on it & selling it for 30 million. What CGT i will be paying ?

Bhatti
Guest

Awaiting answer.

Asif Zaidi
Guest

Sir, please tell me that, if I sell my land in 10 million and the rates fixed by govt are 2 million. So how the remain 8 millions are show in my assets. Is these 8 million are black?

ShahzadMughal
Member

How CGT will be calculated if I buy 5 maral plot in DHA phase 6 and sale it after constructing a house. Plz guide. for example.
Plot Cost RS= 8,000,000
Transfer/Misc charges= 300,000
Construction Cost= 5,000,000
Sale price = 15,000,000

Zeeshan Tariq
Guest
It’s ok to understand cgt. Tell us if we purchased in Dha phase 6 in August 2016 at dc rate of 8100,000/- we pay almost 8% of taxes at the time of purchase which include transfer fees membership fees agent commission. So plot priced will be around 8800,000/- at the time of buying. Now I sell it after 6 months I have to pay another 2% fbr tax 1% agent fees and dues of 0.5% which sum up of 3.5% in total. Total taxes will be around 11.5% that’s means my property will actually gain to 91,50,000/- at dc rate.… Read more »