Islamabad: The Federal Board of Revenue (FBR) has issued a circular detailing the changes introduced to the Capital Gains Tax (CGT) on immovable properties through the Finance Act 2020 — a news source reported on September 4. The act made a number of changes to the Income Tax Ordinance 2001 in order to change the mechanism for the collection of CGT.
According to the details available, the Income Tax Circular 3 of 2020 notes that the holding period and tax rate on CGT has been reduced on the disposal of immovable property. Particularly, amendments have been made in Section 37 of the ordinance.
The difference between plots and constructed property has been eliminated.
The holding period for application of CGT has been reduced to 4 years
The rate of taxation on capital gains in relation to the holding period has also been changed. This can be broken down as follows:
100% of capital gains to be taxed when the holding period is less than 1 year
75% of the capital gains when the holding period exceeds 1 year but is less than 2 years
50% of the capital gains when the holding period exceeds 2 years but not 3 years
25% of the capital gains when the holding period exceeds 3 years but not 4 years
No CGT after 4 years of holding period
The rate of CGT on amount of annual gains through disposal of immovable property has also been reduced by half and can be broken down as follows:
