Capital gain on Immovable Properties
Capital gain on immovable properties [Section 37, Division VIII of Part I of the First Schedule]
Prior to the Finance Act, 2019, capital gain on immovable property was separately taxed on the basis of holding period of property, The gain was taxed @ of 10% if the holding period is up to one year, 7.5% if the holding period was more than or equal to one year but less than two years and @ 5% if the holding period was equal to or more than two years but less than three years.
The rate of tax was zero where the holding period was more than three years. The gain was calculated by deducting the cost of the asset from the consideration received by the person on disposal of the asset.
Through the Finance Act, 2019, the holding period for taxation of capital gain of open plots has been increased to eight years and for constructed properties it has been increased to four years. Where the holding period does not exceed one year, the total amount of gain will be taxed. The gain will be calculated by deducting the cost from the consideration received.
If the holding period is more than one year but does not exceed eight years in the case of open plot or four years in the case of constructed property, 75% of the gain will be taxed. It is further clarified that form of immoveable property, whether open plot or constructed, will be determined at the time of sale of immoveable property.
The aforesaid is elaborated in the following manner:-
Open plots
| Sr. # | Holding period | Gain |
| 1 | Holding period of open plot is up to one year | 100% gain will be taxed |
| 2 | Holding period of open plot is more than one year but not more than eight years | 75% of the gain will be taxed |
| 3 | Holding period of open plot is more than eight years | No gain will be taxed |
Constructed properties
| Sr. # | Holding period | Gain |
| 1 | Holding period of constructed property is up to one year | 100% gain will be taxed |
| 2 | Holding period of constructed property is more than one year but not more than four years | 75% of the gain will be taxed |
| 3 | Holding period of constructed property is more than four years | No gain will be taxed |
The tax rates will be applicable on the gain in the following manner:-
| Sr. # | Amount of gain | Rate of tax |
| 1 | Where the gain is up to Rs.5 million | 5% |
| 2 | Where the gain is more than Rs.5 million but not more than Rs.10 million | 10% |
| 3 | Where the gain is more than Rs.10 million but not more than Rs.15 million | 15% |
| 4 | Where the gain is more than Rs.15 million | 20% |
This is illustrated through the following examples:-
Example 1
Mr. Y purchased an open plot on 22.05.2018 at a cost of Rs.4,000,000. The plot is sold on 25.06.2020 at Rs.7,000,000. Another constructed property is acquired on 08.09.2018 at Rs.9,000,000 and sold at Rs. 14,000,000 on 25.06.2020. Assuming that both properties were acquired and sold as per value notified by the Board, the capital gain and tax thereon is calculated as under:-
Gain on sale of plot = 7,000,000 – 4,000,000 = Rs.3,000,000
As the holding period of plot is more than one year, the net gain will be Rs.3,000,000 x 3/4 = Rs.2,250,000
Gain on sale of constructed property = 14,000,000 – 9,000,000 = Rs.5,000,000
As the holding period of the constructed property is more than one year, the net gain will be Rs.5, 000,000 x 3/4 = Rs.3,750,000
Total capital gain = Rs.2,250,000 Rs.3,750,000 = Rs.6,000,000
As the total capital gain is more than Rs.5 million but less than Rs. 10 million, it will be taxed at 10% and tax payable will be Rs.600,000.
Example 2
Mr. B purchased an open plot on 22.09.2019 which cost him Rs.2,000,000. The plot was sold on 25.03.2020 at Rs.8,000,000. Another constructed property was acquired on 05.09.2019 at Rs.8,000,000 and sold at Rs. 12,000,000 on 23.05.2020.Assuming that both properties were acquired and sold as per value notified by the Board, the capital gain and tax thereon is calculated as under:-
As the holding period of plot is up to one year, gain on sale of plot = 8,000,000 –
2,000,000 = Rs.6, 000,000
As the holding period of constructed property is up to one year, gain on sale of constructed property = 8,000,000 – 2,000,000 = Rs.6,000,000
Total capital gain Rs.6,000,000 + Rs.6,000,000 = 12,000,000
As the total capital gain is more than Rs.10 million but less than Rs 15 million, it will be taxed at 15% and tax payable will be Rs.1,800,000.
These explanations have been issued by FBR after the Finance Act 2019 approved / passed from the parliament of Pakistan.
