ISLAMABAD: Federal Board of Revenue (FBR) has explained holding period and tax rates for the computation of capital gains on disposal of immovable properties, which were amended through Finance Act, 2020.
The FBR issued Income Tax Circular No. 03 to explain the changes made to Income Tax Ordinance, 2001 through Finance Act, 2020.
The FBR said that following significant changes have been made in Section 37 of Income Tax Ordinance, 2001 by Finance Act, 2020 in respect of taxation of capital gains on disposal of immovable property:
Bifurcation of immovable property into plots and constructed property has been done away with.
Maximum holding period attracting taxation of capital gains on disposal of immovable property has been restricted to 4 years and percentages of taxable capital gain have been rationalized with reference to holding period.
Tax rates for capital gains on disposal of immoveable property have been reduced.
Corresponding changes in section 236C have been made in respect of holding period and tax rates.
The FBR explained the holding period as:
In case holding period not exceeding one year: prior to Finance Act, 2020 the 75 percent of the capital gain was taxable but after the Act 100 percent of the capital gain is taxable.
In case holding period exceeds one year but does not exceed two years: prior to Finance Act, 2020 the 75 percent of the capital gain was taxable but after the Act 75 percent of the capital gain is taxable.
In case holding period exceeds two years but does not exceed three years: prior to Finance Act, 2020 the 75 percent of the capital gain was taxable but after the Act 50 percent of the capital gain is taxable.
In case holding period exceeds three years but does not exceed four years: prior to Finance Act, 2020 the 75 percent of the capital gain was taxable but after the Act 25 percent of the capital gain is taxable.
In case holding period exceeds four years (constructed property only): prior to Finance Act, 2020 the zero percent of the capital gain was taxable and after the Act zero percent of the capital gain is taxable.
In case holding period exceeds four years but does not exceed eight years (open plots only): prior to Finance Act, 2020 the 75 percent of the capital gain was taxable but after the Act zero percent of the capital gain is taxable.
The FBR also explained the tax rates for capital gain tax on disposal of immovable properties:
Where the gains does not exceed Rs5 million the tax rate has been reduced to 2.5 percent from previous 5 percent.
Where the gain exceeds Rs5 million but does not exceed Rs10 million the tax rate has been reduced to five percent from 10 percent.
Where the gain exceed Rs10 million but does not exceed Rs15 million the tax rate has been reduced to 7.5 percent from 15 percent.
Where the gain exceeds Rs15 million the tax rate has been reduced to 10 percent from 20 percent.
