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Tricky Taxes: What are CVT and CGT?

Laws & Taxes
3 min read | Shakeel Ahmed  | August 19, 2014

You as a property owner or an investor in real estate are likely to have heard the words ‘capital gains tax’ and ‘capital value tax’. You may also have heard the acronyms for these terms, CGT and CVT, which are often thrown around whenever there’s a real estate deal going down.

Despite a lot of effort, many people can’t really figure out what CVT is and how much CVT they are supposed to pay. More importantly, they might also have wondered why the government is charging them this tax. Let us look at the reasons.

Your property has two direct financial benefits for you. It earns rent for you when you rent it out, and it gains in value over time to give you more money when you sell it than the money you spent to purchase it.

You get the first benefit, or rent, from your property continuously over time, probably every month in the form of monthly rent. For example, when you buy a house for Rs 4,000,000 and rent it out for Rs 35,000 per month, you start earning monthly rent. For you, Rs 35,000 per month is rent, or rental income. It is the first type of financial benefit from your property or for the money you invested in the property. The government knows you are making money from your property in the shape of rent and it levies taxes on your rental income. One such tax levied on your rental income is income tax.

You do not get the second benefit of your property automatically with the passage of time. This benefit is increase in capital value of your property. This benefit keeps accumulating with the passage of time, but you do not have access to it right away. You can only get it when you sell your property. In the above example, your house purchased for Rs 4,000,000 gives you rent; it does not give you cash for the increase in its value. After five years, the value of this house may be Rs 6,000,000 but you will not get the extra Rs 2,000,000 (Rs 6,000,000 minus Rs 4,000,000) unless you sell your house. Upon selling your property, this extra 2,000,000 is your capital gain – the second financial benefit of your property.

The government knows you are earning capital gains because your property is increasing in value over time, but it does not force you to pay tax on the increased value until you sell your property. However, it does not wait even a single moment, and levies tax on the extra sum you get the second you sell your property. It is justified to tax the extra sum because the extra sum is your gain – you had paid Rs 4,000,000 but you are getting Rs 6,000,000. Three sums are involved in the capital gains tax calculations:

  1. The sum you pay when buying the house, i.e. Rs 4,000,000
  2. The sum your property gains while in your ownership, i.e. Rs 2,000,000
  3. The sum you get upon selling your property, i.e. Rs 6,000,000

If the rate of tax is 5%, you will pay 5% of 2,000,000, i.e. Rs 10,000. Your tax liability is NOT Rs 30,000 or 20,000 (which would be 5% of Rs 6,000,000 or Rs 4,000,000). The government uses the difference between 6,000,000 and 4,000,000 to calculate the tax.

Rates of Capital Gains Tax are as under:

Sr. No. Description Rate
1. Sale within one year of acquisition 5% of the capital gain or 2% of the recorded value at the time of sale, whichever is higher
2. Sale between more than one but within two years of acquisition 4% of capital gain
3. Sale between more than two but within three years of acquisition 3% of capital gain
4. Sale between more than three but within four years of acquisition 2% of capital gain
5. Sale between more than four but within five years of acquisition 1% of capital gain
6. Sale after five years of acquisition No tax.

I hope this explanation will help you when you’re out to sell your property next time. If you have any further questions, please feel free to let me know in the comments.

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Shakeel Ahmed
Shakeel Ahmad is a property tax expert. He enlightens Zameen.com's readers with his professional opinion on matters related to property tax. You can follow him Google+

  1. i have seen your writings on another website as well ,very nice ,your efforts for public education regarding property taxation are really PRAISE WORTHY,
    i ask 2 simple question ,=i am an oversea Pakistani ,and i send money via legal banking system
    1=if i buy a plot worth 50 lack rps ,then how much i pay as tax?
    2=if i sell a plot worth 50 lacks ,then how much i pay as tax?

    1. When we Sell or Purchase a Plot from anybody, we have to Pay Some Taxes which are as Follows.

      (1) Stamp Duty Amount (Value of Ishtam on the Total DC Value of Land)
      (2) Capital Value Tax
      (3) Comparison Fee
      (4) Registration Fee
      (5) Withholding Tax
      All these taxes are deposited in the Government Treasury via National Bank.

  4. Thanks for enlightenment. Would you please guide how purchase price will be decided. I purchased a file / plot for 70 lakhs from a soceity, and I do not have a record of the total payment made. When I sell this file, how can I claim that I bought it for 70 lakh, and tax be calculated accordingly.

  5. Thank you for your efforts in respect of clearing the cobwebs in our minds.I am an ardent follower of zameen.com and am indeed surprised to know how little we know about such laws and subsequent confusing calculations.
    You have done a remarkable job of simplifying the entire process. Sincere thanks.
    Kind regards.

    Masood Qureshi.
    Dhahran-Saudi Arabia
    0966 13 8930822.
    P.S. Please reply to the question asked by dk as it involves thousands of Overseas Pakistanis…including me.

  6. Deal All,
    When you made a sale / Purchase in different societies like Bahria Town you have to pay taxes only in shape of stamp duties.

    05 Marla PKR 31000
    10 Marla PKR 62000
    01 Kanal PKR 121000

    These payment are for plots and only paid once when you are purchasing a plot. At selling time you don’t have to pay anything.
    Bahria Town dont have registry system. Those areas with registry may have several methods.
    For Sale Purchase of Property in Bahria Town Lahore.
    Feel Free to Contact
    Moazzam Khan
    +923008446790

    1. Asslam-O-Alekum,
      I want to purchase a 5 marla house in DD block Bahria Town.
      What will be transfer charges and fees/taxes.
      Thanks

      1. Aoa there is very little cutting of 5 marla in dd block, think you wanted to write sector d which includes AA block, BB block, and CC block. The rates of the houses are from 75 lac to 85 lac.
        Thanks
        Ali Siddiqui
        A&A consultant
        0321-4064905
        0321-4564673

  9. What about rupee depreciation and increasing inflation? i think before taxing capital gains govt should first consider rupee depreciation and inflation rates over the time and if capital gains are actually capital losses govt should pay from it’s own pocket to make up for the losses. To this day has govt. made up for anyone’s business losses because of their own inefficiencies and corrupt officialdom?

  11. Wanted to know that if these taxes are applicable on the property purchased by foreign remittance, i.e. through income abroad.

  13. Assuming that house will be sold @ 6,000,000 is not fair, Specially the slab one where the Government charged 5% of capital gain or 2% of the recorded value which ever is HIGHER. The problem is with higher rate?
    Why Bahria Town does not pay these taxes ?
    Thank you for sharing the wonder full information.

    Zee
    03405193856
    contact to buy the quality houses in PWD, National Police Foundation and Bahria Town

  14. Thanks Mr. Shakeel but address & reply to the questions raised by:
    Prof. Owais 20/8: CVT missed.
    Mr. Shah 24/08: 35k is nowhere rent for 40 lcs house.
    Mr. Amir: 26/8: 5% Tax on gain of 20 lcs is one lac not just 20k.
    Tahir
    USA

  15. AoA Shakeel,

    I wanted to ask about Loss on Sale of Property.
    If anyone buys a plot/file and sold for loss on it. e.g. A person buys a plot in an underdeveloped area for Rs. 1,000,000- and sold the plot for Rs.850,000-. There is a loss of Rs.150,000- Is there any tax benefit or rebate for the loss on sale of property.
    Waiting for your reply.

    Thanks.
    Raja

  16. Hi I wanted to sell my plot in bahria town sector c for 35lakh how much tax i need to pay? any one can reply

  18. Dear shakeel
    I am in th process of purchasing a house worth 80 million. How much tax I have to pay to. Transfer it now and after June as the budget is already announce.
    I need your quick support direct on my mail
    Regards

  20. Sir, I want to ask a simple question. I have purchase house for Rs 2995,000 . actually owner purchased land for Rs 1M and then build house and sell it to me. At the time of registry..sub registrar calculated Gain tax on seller profit income of 2M with 10%. I want to know, how we justify the sub registrar that as per fard owner purchased plot and then he surely spent money to built the house and his actual profit is not 2M. Please guide us

  21. Dear Sir,

    I want to confirm that, what is the rate of capital value tax per sft?

  22. Hi sir,
    I have a residential plot and 2.5 crore and commercial plot 7 crore in DHA Karachi Phase IV, cantonment board, which was transferred from my parent, just like to know how much taxes I need to pay upon sale of those plot for me and for purchaser, is my cost would we when it was transferred to me or when my parents purchase the plots? please reply, Thank you

  23. Hi sir,
    I have a residential plot and Rs 2.5 crore 120Sq yards and commercial plot Rs 7 crore 200 sq yards in DHA Karachi Phase IV, cantonment board, which was transferred from my parent, just like to know how much taxes I need to pay upon sale of those plot for me and for purchaser, is my cost would we when it was transferred to me or when my parents purchase the plots? please reply, Thank you

  24. I booked a ONE kanal plot in Lake City and finally paid up on 23rd October 2014 when the administration of the Lake City granted me a No Objection Certificate.The total payment for the same plot was 5,159,000.00 over a period of FIVE years. Now I want to gift this plot to (only) son. I will appreciate if you kindly advise me as to what taxes/amount I shall have to pay for transfer of the said plot into my son’s name.
    An early reply shall be highly appreciated.

  25. AoA, nice post about CGT. i guess the CGT is paid on DC Value and not on actual amount of gain. Kindly correct me if i am wrong. regards, usman

  27. What about underconstraction properties….
    Upon completion is it possible the contractor/builder increase the total price to be paid?? to cover the tax amount….

  28. Assalamualaikum. I want to know whether CVT and stamp duty tax is adjustable in e-filing? like withholding tax income tax etc. Thanks

  30. I want to know whether CVT and stamp duty tax is adjustable in e-filing? like withholding tax income tax etc. Thanks

  31. Please can anybody confirm whether CVT and stamp duty tax is adjustable in e-filing? like withholding tax income tax etc. Thanks

  32. Please can someone confirm whether CVT and stamp duty tax is adjustable in e-filing? like withholding tax income tax etc. Thanks

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