People are often confused about types and rates of taxes on properties. In this blog, we will try to elaborate on the types and rate of tax. It is, however, important to mention here that the rate of taxes is different and varies from commercial property to residential property to agricultural property. Moreover, the rate of taxes on sale and purchase of property is also different for filers and non-filers. However, there are generally five types of taxes on property in Pakistan. The taxes are as follow:
- Property Tax
- Stamp Duty
- Capital Gains Tax
- Capital Value Tax
- Withholding Tax
Withholding tax is always collected from the seller of immovable property. Moreover, withholding tax is mentioned in Section 236C of Income Tax Ordinance, 2001 that if a person, or any other authority, housing society, or registrar of properties, are willing to register, record, or attest the transfer, it is necessary for them to collect their withholding tax from the seller of immovable property at the time of registration, recording or attesting the transfer.
Moreover, in a situation where an income tax return filer is the seller, he/she will only be required to pay one percent as the withholding tax. However, the withholding tax will be lowest if a property is acquired or rejected in the same year otherwise it will be adjustable.
Advance tax is payable at the rate of 4% by the Purchaser on immovable property. On the other hand, every purchaser has to pay an advance tax worth 4 percent of the total value of the immovable property is priced above PKR 4,000,000/-.
According to section 236K of Income Tax Ordinance, 2001, every person, authority, housing society, or registrar of properties is registering, recording or attesting the transfer, has to collect an advance tax from the purchaser at the same time they are registering, recording or attesting the transfer.
However, if the purchaser is filer of income tax return then he will pay 2 percent of advance tax. If immovable property is worth PKR 4,000,000/- or below then no advance tax will be charged.
Capital Value Tax:
Capital Value Tax is payable by the buyer at the time of acquisition of property and is a provincial tax. It is, however, payable on the total capital value of an acquired asset. In the case of property, it is levied at 2% of the value recorded in the sale deed. However, the capital value tax has to be paid in any case even if the property is acquired by the means other than purchase such as gift, transfer, or exchange.
However, in the case of inheritance or a gift from blood relations i.e. spouse, parents, grandparents or siblings, Capital Value Tax will not be levied. In cases where it is a gift or exchange, or where property value is not mentioned in the transaction, the value of the property is going to be calculated according to DC Rates. Furthermore, previously the CVT was levied only in urban areas, according to news reports, it will now also be levied on rural areas that have been developed enough.
Stamp Duty is also a provincial tax that is levied by the provincial government. Stamp Duty is charged under an umbrella of Stamp Duty, 1899. Moreover, it is paid by the buyer at the time of acquisition of property. It is basically a tax required on most legal documents under the Stamp Act 1899. Stamp duty is levied at 3% of the DC rates of the property.
According to a notice issued by the FBR, Withholding Tax is a federal tax payable by both buyers and sellers if the value of the property is great than PKR 4 million. Moreover, Withholding Tax is paid by the seller only in case he is selling the property within three years of buying it.
It basically acts as an advance on other taxes and, hence, is also adjustable into the tax liabilities of the buyer and against the Capital Gains Tax of the seller. It is paid at the time of registration of the sales deed. Following are the rates of Withholding Tax:
For non-filers, 4% of the FBR rates
For filers, 1% of the FBR rates and no tax if sold within five years of the purchase of property
For filers, 2% of the FBR rates
For non-filers, 2% of the FBR rates
Capital Gains Tax:
The Capital Gains Tax is also a federal tax, which is payable by the seller. When the profit is made out of the property sold, it is the profit which is taxed. According to the Finance Act 2017, CGT is levied only when the property is sold within three years of its purchase. The rate of taxation is:
- 10% for the first year,
- 7.5% if sold during the second year and
- 5% if sold during the third year.
However, these gains are to be calculated according to the fair market value, based on FBR’s valuation table. The seller shall not be liable to pay capital gains tax if the property is held for than three years.
The information that Zameenforyou is sharing will be very useful. Especially for those who didn’t know about taxes. If you want to find more information related to Real estate, keep visiting our site Zameenforyou.com.