blog

What is CGT and how much do you have to pay on sale of property?

Laws & Taxes
3 min read | Muhammad Farhad  | September 6, 2018

Capital Gains Tax (CGT) is a tax levied by the federal government. It is basically the profit you make by selling your property. So basically, it is only the seller who pays CGT. In Finance Act 2017, CGT was divided into three slabs for calculation of taxes, so the later you sell it, the less tax you have to pay. The primary purpose was to tax businesses dealing in property, but not the normal sale and purchase of property by genuine buyers, since for them selling or buying property basically amounts to a necessity.

Definitions and slabs of CGT

When the seller makes profits on selling property (capital asset), it is the profit (capital gain) which is taxed, hence the name. 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.

Previously, these gains were to be calculated according to the fair market value, based on FBR’s valuation table. However, since now the in the Finance Act 2018, under Budget 2018-19, the government has abolished the FBR rates and the valuation tables, now FBR is to be calculated on the declared value.  Any property held for more than three years will not make the seller liable for payment of CGT. Plots allotted to army officers and families of martyrs of defence forces are exempted from the CGT.

How to calculate the CGT you have to pay?

If you noted the actual value of property in the sale deed when you bought it, things still remain pretty straightforward for you. You will still declare the actual value of property in your sale deed and the CGT you will have to pay will be dependent on the difference of the two values, and the amount you have gained, as shown below:

  Buying Price Selling Price Profit (Capital Gains) CGT
1st Year (10%) 2,000,000 3,000,000 1,000,000 100,000
2nd Year (7.5%) 2,000,000 3,000,000 1,000,000 75,000
3rd Year (5%) 2,000,000 3,000,000 1,000,000 50,000
4th Year onward 2,000,000 3,000,000 1,000,000 0

It should be noted that if you have no profit, or you are selling it at a loss, you are not liable to pay CGT in any case. For example, you bought a property for PKR 3 million, but had to sell it at PKR 2.7 million. You actually lost PKR 300,000, so you don’t have to pay any tax.

According to Naeem and Company’s Zargham Lukeser, if you used DC rates or even FBR rates as the valuation of your property when buying it, however, the case will be different since the actual value of property is different from DC or FBR rates usually. For example, when you bought it, the DC rate of the property when you bought it was PKR 2 million, while the actual value was PKR 3 million. Now when you are selling it eight months later, the actual value stands at PKR 3.5 million. Your actual Capital Gains stand at PKR 500,000 but your purported profit stands at PKR 1.5 million. You will have to pay taxes on the capital gains of PKR 1.5 million. That is 10% of 1.5 million, equalling PKR 150,000.

This difference may be even more pronounced in some cases, where the difference between actual value and DC rates or FBR rates is larger. This may result in you effectively giving away almost the entirety of your profits as CGT.

However, Lukeser explained, you can no longer afford to disregard not declaring the proper value or at least half that value. Since, after the FBR’s Directorate of Immovable Property is established, under-valuation of property may result in government being able to buy your property off you.

The new tax regime was just launched after the Budget 2018-19, and that’s when the FBR rates were abolished as well. Moreover, the government has yet to announce the formation of Directorate of Immovable Property, which will set a number of new tax measures in motion, a considerable amount of confusion exists in the property market and situation will become clearer over time.  You can be sure that we will keep you updated as they do!

Do you have any questions about CGT? You can talk to us in the comments section. You can also head to the Zameen Forum for a detailed conversation.

Share
Muhammad Farhad
Muhammad Farhad is a Content Developer at Zameen.com.

  2. Whether CGT is applicable when selling inherited property? As you have stated that its paid over the amount of profit only. in case of selling inherited property, when the predecessor is owner of property for more than ten years but after his death if the legal heirs want to sell whether CGT will be applicable? And what the relevant section of FINANCE ACT 2018 (Regarding CGT)

  3. AOA . Couple of questions ?? …. 1) CGT is introduced in 2017 , ( I think so ) and for example I mever sold any of my property & if I wanted to sell my house , in which I lived for forty years … Is CGT on me as well ? 2) And how the fair market value is decided ? How the FBR’s valuation table is calculated ? You said above FBR’s rates are abolished , in the meantime how the CGT will be calculated ? And what are the nee taxes in motion will be ? You said if one is selling his property in loss , then there wont be CGT on him , but how to satisfy the authorties that , the property sold is in loss . And finally what is the future of property business . Thanks alot . Take care .

    1. 1. No.
      2. Fair market value was calculated on the basis of FBR’s rates, which were announced by FBR. Once the directorate of immovable property has been established, the fair market value will be what you declare.
      3. The values you declare will show authorities that you are selling at a loss. However, if anyone declares fake values to show loss or avoid taxes, the government through the directorate of immovable property will be able to buy off your property by pay double the price, provided it is done within six months of purchase.

  4. السلام علیکم
    آپکا آرٹیکل بہت مفید ہے ۔۔۔۔۔۔آپکے ڑرٹیکل کے مطابق تیسرے سال کیلئے گین ٹیکس 5٪ ہے لیکن رجسٹری تیار کرنے والے تمام لوگ سیل ویلیو کا 2٪ گین ٹیکس جمع کروا رہے ہیں۔

  5. Dear Farhad, I want to buy a file of DHA Bahawalpur i.e about 30-31 Lac and its expected to be 40 Lac near its balloting which is expecting in 3 months. I want to know, after 3 months when i will sell this file at 40 Lac. How much CGT I have to pay? I know its 10% but on which amount? I don’t know what is the DC rate of that file? can you please help me and suggest me it is good to invest on files for short period? thanks in advance.

    1. Rehan sab, a considerable amount of confusion exists on these things, I would suggest you contact FBR helpline to get complete details on the matter, I have always found them helpful.

      As for investment options, I suggest you check out our other blogs, we keep writing on current investment options.

  6. کچہری میں تمام ہی رجسٹری تیار کرنے والے سیل ویلیو کا 2٪ گین ٹیکس جمع کروا رہے ہیں اور کوئی بھی آپکے طریقہ کا ر کو نہیں جانتا ۔۔۔۔اس صورت حال میں کس سے رابطہ کیا جائے۔

    1. Sir, ap CVT ko CGT k sath confuse to nahi kar rahay? Sale deed pay likhi value ka 2% CVT k taur pay buyer pay karta hai.

      CGT to sirf profit k upar 5% (third year) seller pay karta hai.

      1. ایسا نہیں ہے سر ۔۔۔۔۔میں نے سال 2016 ایک پلاٹ خریدا تھا اب فروخت کیا ہے تو یہ صورت حال پیش آرہی ہے ۔ رجسٹرہوں کا کام کرنے والے سب ہی سیلر پر گین ٹکیس 2٪ بتا رہے ہیں۔

  7. Presently what rates and taxes are levied on property transfer…i purchased a farmhouse 4 yrs back but didnt get it transferred

  8. After this CGT News what factor appear of property, Is this good news or bad news for property
    Before 4 to 5 years Property business is very well established and growing very high, now what is scenario of coming up Tabdelee effects on Property.

  9. I want to know people who bought and sold property in 2015-2016 in DHA Islamabad before the new Tax rates were introduced what were the rates for both buyers and sellers.

Comments are closed.

Get the Zameen App

Buy and Rent Property faster and better
using our app.
Scan the QR code to
get the app

Sliding Sidebar