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The formula for calculation of capital gain tax on the sale of immovable property
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The formula for calculation of capital gain tax on the sale of immovable property

The formula for calculation of capital gain tax on the sale of immovable property

The formula for calculation of capital gain tax on the sale of immovable property. Federal Board of Revenue (FBR) issued a formula for the calculation of capital gain tax (CGT) on the sale of immovable property. This was 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.

The formula for calculation of CGT

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

S. No.Holding PeriodGain
1Where the holding period of an Immovable property does not exceed one yearA
2Where the holding period of an immovable property exceeds one year but does not exceed two yearsAX3/4
3Where the holding period of an immovable property exceeds two years but does not exceed three yearsAX1/2
4Where the holding period of an immovable property exceeds three years but does not exceed four yearsAX1/4
5Where the holding period of an immovable property exceeds four years0

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

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

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

Furthermore, the gain arising after a holding period of eight years in the case of open plots and four years in the case of the constructed property will take as zero.

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

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

(b) Reduction of the holding period for a 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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