Based on the provided sources, here's how you should approach declaring your plot in your tax return:
Valuation in Wealth Statement and Reconciliation of Net Assets
When mentioning the plot in your Wealth Statement of the Income Tax Return, you should account for its value, even if you received it free of cost:
- Mention its cost as the fair market value on the date of its transfer or acquisition. This is because for capital assets acquired through a gift, the fair market value on the date of acquisition is treated as the cost of the asset.
- Reconciliation of Net Assets: Since you did not spend money from your income to acquire this plot, the increase in your assets (due to the fair market value of the plot) would need to be reconciled. While the sources do not explicitly detail the "reconciliation of net assets" for free allotments, generally in tax accounting, the fair market value of the plot would be treated as an increase in your wealth/assets with a corresponding source identified as "gift received" or "benefit from employer" (if applicable).
- If the plot is considered a perquisite from your employer/department, its fair market value at the time of transfer would be included in your "Salary" income for that year. In this scenario, the "income" would balance the increase in assets in your wealth reconciliation.
Declaring Capital Assets Under Section 7E (Tax on Deemed Income)
- Yes, you should mention its fair market value when declaring capital assets for the purpose of Section 7E, which imposes tax on "deemed income".
- Under Section 7E, a resident person is treated as having derived income equal to five percent of the fair market value of capital assets situated in Pakistan held on the last day of the tax year.
- Important Exclusion: However, Section 7E provides several exclusions. Notably, it does not apply to "one capital asset owned by the resident person" [342(a)].
- Therefore, if this plot is the only capital asset you own (that doesn't fall under other specified exclusions like self-owned business premises or agricultural land), then the deemed income under Section 7E may not apply to this specific plot [342(a)]. You should assess if you meet the conditions for this exclusion.
Capital Gain Tax Calculation Upon Future Sale
If you sell the plot in the future, the Capital Gain Tax (CGT) will be calculated as follows:
- The gain arising on the disposal of immovable property situated in Pakistan is chargeable to tax under the head "Capital Gains".
- The gain is computed by subtracting the cost of the asset from the consideration received on its disposal.
- Cost of Acquisition: For a capital asset acquired free of cost (e.g., as a gift or perquisite, as discussed above), the cost of the asset for capital gains purposes shall be the fair market value of the asset on the date it was transferred or acquired by you. If the fair market value was previously included in your "Salary" income as a perquisite, that amount would establish the cost basis for capital gains.
- Tax Rates and Holding Period: The applicable tax rate for capital gains on immovable property varies based on the holding period (the duration you owned the property) and the amount of the gain.
- For properties acquired on or before June 30, 2024, the tax rates depend on the holding period for "Open Plots" and "Constructed Property". For example, for "Open Plots":
- Holding period does not exceed one year: 15%.
- Holding period exceeds one year but not two years: 12.5%.
- Holding period exceeds two years but not three years: 10%.
- Holding period exceeds three years but not four years: 7.5%.
- Holding period exceeds four years but not five years: 5%.
- Holding period exceeds five years but not six years: 2.5%.
- Holding period exceeds six years: 0%.
- For properties acquired on or after July 1, 2024, there are specific rates for "Open Plots," "Constructed Property," and "Flats".
- The tax rates can also be progressive based on the amount of gain, for instance, ranging from 5% for gains not exceeding Rs. 5 million to 20% for gains exceeding Rs. 15 million.
