Guide

How much CGT Capital Gain Tax do you pay as a property Seller – Contact 0321-4199383.

CAPITAL GAINS TAX red Rubber Stamp over a white background.

Capital Gains Tax (CGT) on real estate falls under the jurisdiction of the federal government. It is applied on the net profit you make on the property you sell. Please note that this tax is applicable on property sellers alone. Under the new tax regime, three slabs have been defined for calculating this tax – under these slabs, the percentage of CGT gradually drops with proceeding years.

CGT slabs

If a property is sold within the first year of its purchase, the seller pays 10% of the profit he makes. For the property sold in the second year, the CGT percentage drops to 7.5% of the net profit. If sold in the third year, the seller pays only 5% of the profit. For properties sold after three years, no CGT is applicable on sellers.

In addition to the above slabs, the CGT is also applicable on properties purchased before July 1, 2016. In this situation, the seller pays 5% of the profit as CGT if he sells his property within three years. Plots allotted to the army officers and families of shuhada (martyrs) of defence forces are exempted from the CGT.

The CGT is paid at the time of filing of annual income tax returns.

Calculating CGT

There exists confusion about determining profit on real estate commodities because people were not accustomed to registering the correct value of the transaction deed. Many people have also illegally tried to avoid paying taxes. The Federal Board of Revenue (FBR) has found effective ways to deal with any such situation.

Following are some of the ways to calculate CGT:

On real value

Ideally, the property transaction deed should have correct values for property i.e. the actual buying and selling price. Assuming this is the case, you can calculate the CGT using the example below:

Slabs DC Rate FBR Rate Net Profit CGT
First Year (10%) PKR 3,000,000 PKR 4,500,000 PKR 1,500,000 PKR 150,000
Second Year (7.5%) PKR 3,000,000 PKR 4,500,000 PKR 1,500,000 PKR 112,500
Third Year (5%) PKR 3,000,000 PKR 4,500,000 PKR 1,500,000 PKR 75,000

Please note that the rates mentioned above should not be taken as final rates. This is just an example.

On DC rate and FBR rates

If you mention the DC rate of your property on the agreement, you cannot end up paying any lesser amount because in this situation, your selling price will be the rate mentioned in the FBR valuation tables.

Here is an example in which we have taken DC rates and FBR rates of DHA Lahore Prism IX 1-kanal residential plot. The following is based on actual rates.

Slabs DC Rate FBR Rate Net Profit CGT
First Year (10%) PKR 3,000,000 PKR 4,500,000 PKR 1,500,000 PKR 150,000
Second Year (7.5%) PKR 3,000,000 PKR 4,500,000 PKR 1,500,000 PKR 112,500
Third Year (5%) PKR 3,000,000

Why not to mention DC rate on the transaction deed?

If at the time of purchase, you mention DC rates of a property on documents, the difference of DC rate and FBR rates may be higher than the net profit you make at the time of sale. In such a situation, you will be left with no choice but to calculate the net profit on the difference of DC rate and FBR rate. So we recommend you mention correct details of your property.

What if there is no profit?

People sometimes end up selling their property out of need and in this situation, they may not make any profit. The situation can benefit them only if they mention the correct value of their property in the transaction deed, for both buying and selling it. According to Lukser, no CGT is applied in such a situation, or in cases incurring loss. However, if you choose to forge your documents to trick the tax authorities, you will certainly get caught and will end up paying a heavy penalty, he added.

We hope that the article helped you get a clearer understanding of how CGT is calculated. If you have any questions for me, leave a comment below. To talk to Ishtiyaque Aziz of Ghani Estates, please give him a call at +92-321-4199383

 

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