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FBR changes taxation of capital gains on disposal of immovable property

FBR changes taxation of capital gains on disposal of immovable property

ISLAMABAD: Federal Board of Revenue (FBR) has made significant changes in the taxation of capital gains on disposal of immovable property.

The changes have been made through an amendment in the Income Tax Ordinance 2002, through the Finance Act 2020.

Capital gains are profits made from the sale of an asset with respect to the costs associated with it and are generally taxable throughout the world. In Pakistan, the aggregate tax applicable to capital gains on the disposal of immovable property is dependent upon the holding period and the tax rates.

The tax rate applicable to capital gains on the disposal of immovable property depends on the amount of capital gain earned.

A longer holding period indicates that a property was not bought for the purpose of making a profit on its resale, and hence, leads to lower taxes. On the other hand, a higher amount of capital gains earned is subjected to a higher tax rate by the authorities, leading to higher taxes.

According to a Circular No. 3 issued on September 3, 2020 by the FBR, holding period and tax rates on different amounts for computation of capital gains on disposal of immovable property (Section 37, Section 236C and Division VIII of Part I of the First Schedule) have both been reduced.

According to section 11 of the circular, the bifurcation of immovable property into plots and constructed property has been completely disallowed.

The maximum holding period attracting taxation of capital gains on disposal of immovable property has been restricted to four years and percentages of taxable capital gain have been rationalized with reference to holding period, FBR added.

Section 11 also dictates that tax rates for capital gains on the disposal of immovable property have been reduced and corresponding changes in section 236C have been made in respect of holding period and tax rates.