ByWhen buying or selling property in Pakistan, several taxes and duties are applicable. These taxes can be divided into adjustable taxes, which can later be claimed or adjusted against other income, and non-adjustable taxes, which become a direct cost. Let’s break them down in detail:
1. Withholding Tax (Section 236K – Buyer)
- Applicable to: The buyer of the property.
- Rate:
- Filer: 3% of the property’s declared value.
- Non-filer: 6% of the declared value.
- Adjustability: This is an adjustable tax. It can be claimed while filing your income tax return, offsetting other tax liabilities like salary tax, rental income tax, or business income tax.
- Example: If your total annual tax liability is Rs. 50,000 and you have paid Rs. 20,000 under 236K during property purchase, you can reduce your liability to Rs. 30,000 by adjusting this amount.
2. Withholding Tax (Section 236C – Seller)
- Applicable to: The seller of the property.
- Rate:
- Filer: 3% of the property’s declared value.
- Non-filer: 6% of the declared value.
- Adjustability: This tax is also adjustable. Sellers can offset this tax against other tax liabilities by claiming it in their income tax return.
3. Capital Gains Tax (CGT)
- Applicable to: Sellers who sell the property within six years of purchase if bought before June 2024. All the sellers irrespective of the holding period if property is bought after July 2024
- Rate:
- A slab-based system applies, depending on the holding period of the property.
- Flat 15% for sellers who bought after July 2024.
- No CGT is charged if the property is sold after six years.
- Basis: Calculated on the profit (difference between sale price and purchase price).
- Adjustability: CGT is not adjustable; it is an expense.
4. Section 7E Tax
- Applicable to: The owner of the property.
- Rate: 1% of the property’s market value.
- Key Conditions:
- If the property is empty and a tax exemption certificate is provided, this tax does not apply.
- The rate is the same for both filers and non-filers.
- Adjustability: Non-adjustable; this tax is an expense.
5. Stamp Duty
- Applicable to: The buyer.
- Rate: 1-2% of the property’s declared value (varies by province).
- Adjustability: Non-adjustable; this is an expense.
6. Property Registration Fee
- Applicable to: The buyer.
- Rate: 1% of the property’s declared value.
- Adjustability: Non-adjustable; this is an expense.
7. Professional Tax
- Applicable to: Property owners or businesses.
- Rate: Varies depending on local government policies.
- Adjustability: Non-adjustable; this is an expense.
8. Cantonment Board or Local Government Taxes
- Applicable to: The property buyer or owner.
- Rate: Varies based on the property’s location and size.
- Adjustability: Non-adjustable; this is an expense.
Also Read:
A Guide to Property Taxes in Pakistan
New Duty Taxes Imposed on Property Transactions
The Fate of the 7E Property Tax – Relief on the Cards?
Withholding Tax Rates for Financial Year 2025 in Pakistan
Key Points on Adjustability
- Adjustable Taxes: Section 236K and Section 236C. These can be claimed while filing tax returns by offsetting other tax liabilities.
- Non-Adjustable Taxes: Capital gains tax, stamp duty, professional tax, cantonment board taxes, and registration fees. These are considered direct expenses.
How to Claim or Adjust Taxes
- File your income tax return and include all taxes paid under Sections 236K and 236C.
- Use the IT-3 form for adjustment against income sources like salary, rent, or business income.
- Retain all receipts and certificates of tax payments for submission with your tax return.
Practical Example
Let’s assume:
- Your annual income tax liability: Rs. 100,000.
- Tax paid under Section 236K during purchase: Rs. 30,000.
- Tax paid under Section 236C during sale: Rs. 20,000.
You can claim these amounts, reducing your net liability to Rs. 50,000 (100,000 – 30,000 – 20,000).
Understanding the breakdown of taxes when buying or selling property helps you identify which ones are refundable and which are direct costs, enabling better financial planning.
