When it comes to owning a property in Pakistan, it is essential to understand the different types of taxes that are applicable. From Capital Gain Tax to Deemed Rental Income Tax, each tax has its own set of rules and regulations. In this article, we will provide a comprehensive guide to property taxes in Pakistan, including their types, rates, and other important information.
Capital Gain Tax
Capital Gain Tax (CGT) is a tax levied on the profit earned from the sale of a property. According to the proposed finance bill 2022, CGT is applicable if the property is sold within six years of ownership. If the property is sold after a holding period of six years, no tax will be imposed on the gain from the sale of the property. The rate of CGT is 15% for the first year of sale and is reduced by 2.5% for each subsequent year of the holding period.
Capital Value Tax
Capital Value Tax (CVT) is a tax levied on the fair market value of the property. The Federal Board of Revenue (FBR) sets official rates of properties through the District Commissioner offices across the country. The rate of CVT is 2% for filers and 5% for non-filers.
Withholding Tax is a tax paid by the person earning rental income on a property. The slab rates for Withholding Tax are set in the Income Tax Ordinance 2001. The tax is calculated based on the rental income earned from the property.
Deemed Rental Income Tax
Deemed Rental Income Tax is applicable when the property is not rented out but is deemed to have a rental value. According to Section 7E of the Income Tax Ordinance 2001, the rental income of the eligible property should be deemed to be 5% of its value, and income tax will be charged at 1%. This means that the effective tax rate on the market value of the property will be 1%.
In conclusion, property taxes in Pakistan are an essential aspect of property ownership, and it is crucial to understand the different types of taxes and their rates. Capital Gain Tax, Capital Value Tax, Withholding Tax, and Deemed Rental Income Tax are the main types of property taxes in Pakistan. By familiarizing yourself with these taxes, you can make informed decisions and avoid any legal or financial issues.