This blog is written by Mr. Abdul Hafeez, Senior Manager, Taxation Advisory Services. Kindly read this blog and provide your valued comments.

Up to tax year 2019 capital gain on sale of property was separately taxed on the basis of holding period of property as per following rates:.

For immovable property acquired on or after July 1, 2016
1 Where holding period of immovable property is up to one year. 10%
2 Where holding period of immovable property is more than or equal to one year but less than two years. 7.5%
3 Where holding period of immovable property is more than or equal to two years but less than three years. 5%

 
4 Where holding period of immovable property is more than three years. 0%
For immovable property acquired before July 1, 2016, other than those mentioned against S. No. 1
6 Where holding period of immovable property is up to three years. 5%
7 Where holding period of immovable property is more than three years: 0%

Through Finance Act, 2019, taxation of capital gain on immovable properties has been revamped and now capital gains are to be taxed at normal tax rates. However computation of taxable gain on disposal of open plot and constructed property have been provided as under:

S. No. Holding period of open plot Holding period of constructed property Taxable Gain
1 Not exceeding one year Not exceeding one year 100%
2 Exceeds one year but does not exceed eight years Exceeds one year but does not exceed four years 75%
3 Exceeds eight years Exceeds four years 0

To summarize, the gain on sale of immovable property is fully taxable if holding period is up to one year however if holding period is more than one year but up to 08 years or 04 years for open plot and constructed property respectively then 25% of such gain is exempt while in case holding period exceeds 08 years or 04 years for open plot and constructed property respectively then 100% of such gain is exempt from tax.

The taxable gain from sale of immovable property is to be added to taxable income under normal tax regime and tax rates provided for normal tax regime income under first schedule will be applicable. Determination of capital gain arising on disposal of immovable properties for tax year 2020 is explained with the help of following illustrations:

Illustration 1: An open plot was purchased on August 20, 2019. The cost of the plot amounts to Rs. 2,100,000. Said plot was sold on March 20, 2020 for a consideration of Rs. 2,900,000. Assuming that the plot was acquired and sold as per rates notified by the board.

Gain on sale of plot amounts to Rs. 800,000 (Rs. 2,900,000 – Rs. 2,100,000). Since the holding period of the plot is less than one year therefore taxable gain to be included in taxable income for the year would be Rs. 800,000 (100% of gain).

Illustration 2:

An open plot was purchased on May 30, 2019. The cost of the plot amounts to Rs. 3,000,000. Said plot was sold on June 15, 2020 for a consideration of Rs. 3,750,000. Assuming that the plot was acquired and sold as per rates notified by the board.

Gain on sale of plot amounts to Rs. 750,000 (Rs. 3,750,000 – Rs. 3,000,000). Since the holding period of the plot is more than one year but less than eight years therefore taxable gain to be included in taxable income for the year would be Rs. 562,500 (75% of gain).

Illustration 3:

A constructed property was purchased on April 15, 2016. The cost of the property amounts to Rs. 6,500,000. The property was sold on May 15, 2020 for a consideration of Rs. 8,500,000.

Gain on sale of property amounts to Rs. 2,000,000 (Rs. 8,500,000 – Rs. 6,500,000). Since the holding period of the property is more than one year but less than four years therefore taxable gain to be included in taxable income for the year would be Rs. 1,500,000 (75% of gain).

Illustration 4:

A constructed property was purchased on March 15, 2015. The cost of the property amounts to Rs. 5,500,000. The property was sold on March 20, 2020 for a consideration of Rs. 7,000,000.

Gain on sale of property amounts to Rs. 1,500,000 (Rs. 7,000,000 – Rs. 5,500,000). Since the holding period of the property exceeds four years therefore taxable gain to be included in taxable income for the year would be Nil (0% of gain).

ABDUL HAFEEZ