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Capital Gain Tax in Pakistan (2019): Explained!

Capital Gain Tax in Pakistan

One of the most important concerns of people involved in the real estate sector in Pakistan is Capital Gain Tax. In the Finance Act 2019, many new taxation measures have been introduced and most importantly the capital gain tax has also been revamped. Hence, we decided to explain the capital gain tax ( CGT) in Pakistan so as to clear your confusion.

Q: What is Capital Gain Tax?

Ans: Government charges capital gain tax on the profit earned by the sale of assets. Although, there are many kinds of assets that can be taxed for capital gain but the most common ones are real estate properties, bonds, stocks, and even jewelry. Moreover, in some countries capital gain is charged on precious metals. But, in this article, we will discuss CGT on real estate or immovable property only.

Q: What is the rate of Capital Gain Tax?

Ans: Like income tax, the rate of CGT depends on the amount of income. Here are the exact rates:

S.
No.
Amount of Gain Rate of
Tax
1 Gain is less than or equal to 5 Million 5%
2 Gain is less than or equal to  10 Million (but > than 5 million) 10%
3 Gain is less than or equal to  15 Million (but > than 10 million) 15%
4 Gain is greater than 15 million 20%

Q: What is Gain? How is it calculated?

Gain is the positive difference between the cost and selling price of the property. Therefore, it is calculated by subtracting the cost price from selling price.

Q: Does the holding period affects the amount of tax?

Yes, it does. In fact, if your holding* period of an open plot is more than eight years than you won’t have to pay any capital gain tax. Similarly, for a constructed property, if the holding period is more than four years than you would not be liable to pay CGT.

*Holding Period means the time period you owned the property. For instance, you bought a plot on 1/1/19 and sold it on 1/6/20 then your holding period is more than one but less than two years.

In addition, the holding period also determines the amount of gain that is to be taxed, In other words, the more your holding period is, the less tax you have to pay. The table below tells the amount of gain to be taxed depending upon the holding period.

For Constructed Property:

S. No. Holding Period Gain
1 Holding Period is less than one year. 100% gain will be taxed.
2 Holding Period is more than one year but less than four years. 75% gain will be taxed.
3 Holding Period is more than four years. No gain will be
taxed.

For Open Plots:

S. No. Holding Period Gain
1 Holding Period is less than one year. 100% gain will be taxed.
2 Holding Period is more than one year but less than eight years. 75% of gain will be taxed.
3 Holding Period is more than eight years. No gain will be taxed.

For example, if Mr. Ahmed purchased an open plot for Rs 5,000,000 on 1st July 2019 and sells it for Rs 8,000,000 on 10th April 2021, so the tax will be calculated as under:

Gain on sale of plot = 8,000,000 – 5,000,000 = Rs 3,000,000

As the holding period is more than 1 but less than 8 years so net gain will be: 3,000,000 / 100 x 75 = Rs 2,250,000

As the total gain is more than 5 million but less than 10 million, so it will be taxed at 5%. Thus the payable tax will be:

2,250,000/100×5 = Rs 112,500

I hope you have understood CGT and if not, then feel free to ask your questions in the comments section.

Read the FBR’s explanatory circular here

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