FBR issues formula for calculation of capital gain tax on sale of immovable property

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ISLAMABAD: Federal Board of Revenue (FBR) issued formula for calculation of capital gain tax (CGT) on sale of immovable property. This amended through Finance Act, 2020 presented in June 2020.

The National Assembly approved the Finance Act 2020. In the amended act, sub-section 3A of Section 37 of the Income Tax Ordinance, 2001 was revised.

FBR explained that any capital gain tax (CGT) on the sale of an immovable property will be calculated according to the formula as per below:

S. No. Holding Period Gain
1 Where the holding period of an Immovable property does not exceed one year A
2 Where the holding period of an immovable property exceeds one year but does not exceed two years AX3/4
3 Where the holding period of an immovable property exceeds two years but does not exceed three years AX1/2
4 Where the holding period of an immovable property exceeds three years but does not exceed four years AX1/4
5 Where the holding period of an immovable property exceeds four years 0

Taxation of capital gains on the sale of capital assets is given in the Section 37 of the Ordinance, 2001.

Calculation of capital gain on sale of (i) open plot, and (ii) constructed property introduced through the Finance Act, 2019.

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Reduction of 25 percent was allowed on the capital gains based on holding period exceeding one year and up to eight years for open plots. From one year up to four years for constructed property.

Furthermore, the gain arising after holding period of eight years in case of open plot and four years in case of constructed property was taken as zero.

In order to give incentive for economic activity in the real estate sector, the finance act aims to remove the separate mechanism for taxation of capital gains on immovable property as under:

(a) No Difference between open plots and constructed property.

(b) Reduction of holding period for 100 percent reduction in gain to four years.

(c) Progressive reduction in the amount of gain based on each year of the holding period.

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