The Federal Board of Revenue (FBR) has issued income tax rules, specifying procedures for the valuation of immoveable assets. The board has made it clear that the fair market value of property will be the value notified by the FBR through its valuation tables. It has clarified the matter to ensure that there is no ambiguity in the investigation process, through which cases of unexplained assets and investments made into the property sector will be probed under Section 111 of the Income Tax Ordinance 2001. To define the procedure for asset valuation, FBR has issued Income Tax Rules 2002 through S.R.O 978 (I) 2016.
With these rules, FBR gives legal cover to investigate property transactions and probe the sources of investment. Currently, three different kinds of values are used to register properties: DC rate of the property, FBR’s fair market value as listed in the valuation tables, and the value mentioned on the sale agreement, which is the actual price at which the property transaction takes place. If the tax authority is able to identify the actual value of the property through the agreement or bank transaction receipt, it will form the actual basis to probe the source of investment under section 111 of the Income Tax Ordinance.
According to a notification issued by FBR, the value of property determined for the purposes of Section 111 of the Income Tax Ordinance 2001 shall be:
- The value notified by the board
- The rate fixed by the District Officer (Revenue) or any other provincial authority empowered to determine property rates for the purpose of calculating stamp duty if a property falls in an area where the fair market value is yet to be identified by the FBR.
- The average sale price recorded in the revenue record of the area in which the land is located if the land in question is agricultural.
- Higher of: i) Sale price recorded in the instrument of sale ii) DC Rate or the fair value determined by the FBR
The following clause is applicable if the sale price of property recorded in the instrument of sale is greater than the value determined under clauses 1, 2 and 3.
Higher of: i) Sale price of an auctioned property ii) Fair market value determined under clauses 1, 2 and 3.
With these advancements, it appears to me that the FBR and the authorities entitled to collect taxes are determined to implement the new tax regime and also track sources of investment invested in the real estate sector. Let’s see how real estate agents and brokers deal with this situation that has created a major standstill in the realty sector, causing a drop of about 80% in property transaction volume.
Do you have something to say about it? Let me know through your comments.
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Assalam Aleekum
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Absolutely a good move by the government. People SHOULD declare the TRUE value of their properties and should not be able to hide behind artificially low DC or FBR rates. As far as real estate sector goes, it is a good thing that prices slow down, since previously they were rising artificially fast and becoming out of reach for most of the population. As far as real estate agents go, it is no harm for the country if most of these businesses go bankrupt as they add no value to an economy. Their protest cannot be taken seriously as they are firstly not a valuable asset to the economy, they are simply middlemen in transactions involving black money and secondly they are opposing a fair move by the government to expose sources of income and increase capital gains taxes.
DEAR ASAD BHAI
INDEED A GREAT MOVE BY THE GOVT WHICH SHOULD BE APPLAUDED AS NOW ARTIFICIALLY INFLATED MARKET WILL CRASH AND COME TO A LEVEL WHERE GENUINE BUYERS COME IN THE MARKET AND PURCHASE HOMES FOR THEMSELVES AND NOT FOR SATTA
I have been waiting for this SATA to end for 30 years. Good luck waiting guys. This is Pakistan. Nothing will happen and sata will continue.
This is an excellent, well researched article by Samra Zulfiqar. Section 111 belongs in Chapter 8, which is about Anti Tax Avoidance, is not quite about under reporting of real estate value, but about the source of funds. My advice to all would be to always remain above board, and keep all documents ready. Once again, thank you Samra for this great article.
Dear Samra,
I along with my brother and sisters inherited a house from our beloved deceased mother. We are in the process of getting the house to our names. If we sell this house in near future, would we be liable to pay any tax or CGT on it?
No CGT if the property is sold 5 years after its purchase. You will only pay Advance Tax, which is 1% (of property’s FBR value) for filers and 2% (of property’s FBR value) for non-filers. Advance Tax is adjusted against Capital Gains Tax in annual returns for filers. For further clarification, check the following blog: http://www.zameen.com/blog/understanding-pakistans-new-real-estate-taxes.html
Dear Samra,
Many thanks for prompt and meaningful response. Well I have just gone through the link mentioned by you and found very useful information.
Now I am a filer while rest of my brother and sisters are non-filer. If we sell the house within one year, would I be eligible to claim the 10% CGT in my annual tax return? I understand this is a bit tax related question and may be beyond the scope of your blog but would appreciate if you kindly guide me on this.
Kashan sell in first year of purchase, pay 10% of the property’s FBR value as CGT, sell in the second and pay 7.5%, sell in third year 5% CGT. Sell after 3 years, no CGT. Same for filers and non-filers and no return offered in annual tax return.
You can claim return of the Advance Tax only. Ask you siblings to become filers.
Thank you for clarification and advice.
Excellent blog. Freshening in fact amid all marketing type write-ups. Was discussing this with friends and we were confused about the treatment of property in tax returns. Your blog provided some clarity. Thank you!
My son purchased a plot 10 years earlier in DHA, which he has declared in the IT Returns. If he sells his plot now, is he required to pay Advance Income Tax?
If he declares the total amount of sale more than the Fair Market price ( notified by the FBR) , is the Advance Tax to be paid on the actual price of the plot ? He wishes to declare the actual price so that he may be able to proceed for next investment. The procedure for refund is very cumbersome. I have’nt been able to get the refund of Tax paid for the new car that I purchased three years ago.
السلام علیکم و رحمة الله
My question is regarding transfer of plots from non fillers parents and brother
as a gift towards me. These been withheld for more than 5yrs. These are Valued greater than 40lac each. What will be tax implications.
Secondly is it wise to invest for non filler in Bahria commercial shops in Lahore at this time?
Or is there better time or place for investment in Pakistan?
i want to buy 20 acre agriculture land in Vehari of ruppes 10 lakh/acre please tell me about tax details
I want to purchase 20 acre agriculture land in Vehari near Multan, which is
10 lakh/acre ,Please guide me registry tax details about it ,thanks
@Samra Zulfiqar – after LHC decision, for properties in Punjab 7E will be calculated based on the purchase value of the property and not the fair market value set by FBR, is this correct ?