Capital Gains on Immovable Property

Podcast Beta

Play an AI-generated podcast conversation about this lesson

Questions and Answers

How is the gain on disposal of immovable property calculated?

Gain = Cost of Acquisition - Consideration Received

Gain = Consideration Received + Cost of Acquisition

Gain = Fair Market Value - Incidental Expenses

Gain = Consideration Received - (Cost of Acquisition + Incidental Expenses) (correct)

Which of the following constitutes the 'consideration received' for the purpose of calculating capital gain?

The total cost of acquisition of the property

The cumulative expenditures made on the property over time

Only the actual sales proceeds

The highest value between actual sales proceeds, fair market value notified by FBR, or the value fixed by the District Officer (correct)

What percentage reduction is applicable on capital gains tax for the first sale of immovable property for ex-servicemen?

50% (correct)

75%

100%

25%

Under which circumstance is the gain on disposal of a depreciable asset taxed?

It is not taxed under capital gains but under business income. Signup and view all the answers

In which scenario would a gain on immovable property not be categorized as a capital gain?

The property is a depreciable asset used for business. Signup and view all the answers

When should the advance adjustable tax on shares be paid?

Within 15 days of payment Signup and view all the answers

What is the advance tax rate for the sale of immovable property for individuals not on the ATL?

10% Signup and view all the answers

Which category of sellers is exempt from capital gains taxation on immovable properties?

Builders and land developers Signup and view all the answers

What happens to the advance tax if immovable property is acquired and disposed of within the same tax year?

It becomes a minimum tax liability. Signup and view all the answers

What is the withholding tax rate on purchase of immovable property for persons not on ATL where the fair market value exceeds Rs. 100 million?

20% Signup and view all the answers

What will be the implications if an immovable property having fair market value of more than Rs. 5 million is not purchased through banking channel?

The cost of acquisition is treated as zero. Signup and view all the answers

What is required for a transaction of shares of listed company to be taxed under section 37A?

The transaction must be reported and recorded in the system of NCCPL. Signup and view all the answers

How long can unadjusted losses on the disposal of securities be carried forward to offset gains?

Three tax years. Signup and view all the answers

What happens if a sale of shares of listed company is not recorded in the NCCPL system?

The gain will be treated as a sale of shares of a private limited company. Signup and view all the answers

What is the maximum time frame to carry forward unadjusted losses from capital assets other than specified personal assets and securities?

Six tax years. Signup and view all the answers

Which instrument is included under redeemable capital?

Term finance certificates (TFC). Signup and view all the answers

Are capital losses recognized for specified personal assets?

No, they are not recognized. Signup and view all the answers

When are capital losses not allowed to be adjusted?

When the gain from the asset is not chargeable to tax. Signup and view all the answers

What is the outcome of the Sindh High court judgement in Anwar Yahya case regarding capital gains tax on securities where the holding period had already exceeded the exemption period of one year as on June 30, 2014?

Taxpayers were exempt from capital gains tax on specific shares due to vested rights. Signup and view all the answers

What type of securities does section 37A specifically mention as inapplicable if not settled through NCCPL?

Equity shares of listed companies. Signup and view all the answers

What is the penalty for purchasing immovable property over Rs. 5 million in cash or bearer cheque?

5% of the notified value. Signup and view all the answers

How is the taxable capital gain on disposal of Other Capital Assets calculated?

Consideration received minus cost of acquisition and incidental expenses. Signup and view all the answers

As per non recognition rule, no capital gain or loss arise in which cases?

Transfer of assets as a gift from a relative Signup and view all the answers

What happens if a person does not comply with the requirement to purchase Other Capital Assets valued over Rs. 1 million through a banking channel?

The asset is considered as having zero cost of acquisition. Signup and view all the answers

What is the role of fair market value in the calculation of capital gain?

It is used if it is greater than actual sales proceeds. Signup and view all the answers

Study Notes

Capital Gain on Immovable Property

Capital gains on the disposal of immovable property are taxed as a separate income block.
Gain formula: Gain = Consideration Received - (Cost of Acquisition + Incidental Expenses).
Consideration for calculating capital gain and withholding tax is determined by the higher value among actual sales proceeds, Fair Market Value (FBR notified), and value fixed for stamp duty by authorized authorities.

Tax Reductions and Exemptions

First sale of immovable property allotted to ex-servicemen or government employees has a 50% tax reduction on capital gains.
Capital gains tax reduces to 75% if arising from property sold more than three years after acquisition.

Non-Capital Gain Situations

Depreciable assets under Section 22(8) are taxed under business income, not capital gains.
Immovable properties sold by builders/developers, classified as business income, are exempt from capital gains tax.

Advance Tax on Immovable Property

Properties valued over Rs. 5 million must be purchased through banking channels; non-compliance results in zero acquisition cost for gain computation.
Penalty of 5% of the notified value applies if property with a value over Rs. 5 million is purchased via cash or bearer cheque.

Other Capital Assets Overview

Includes personal assets, unlisted shares, and listed shares not traded on registered exchanges.
Gain on disposal formula remains the same as for immovable property.

Taxation of Other Capital Assets

Taxable capital gains on Other Capital Assets are charged at normal income tax rates.
Fair market value over Rs. 1 million demands banking channel transactions; otherwise, zero cost of acquisition applies for gain computation.

Income Tax Withholding for Shares and Immovable Property

On sale of shares, buyers deduct 10% adjustable tax on fair market value, payable within 15 days.
For immovable property sales, a 3% advance tax is collected from the transferor, adjustable against tax liability.
Advance tax rate increases to 10% for individuals not on the Active Taxpayer List (ATL).

Reverse Tax Application for Non-compliance

Transactions of shares not reported in the NCCPL system are treated as private company share sales, thus taxable at normal rates.

Revenue Collection Mechanisms

3% advance tax is also applicable on purchases of immovable property, with higher rates based on fair market value.

Redeemable Capital Definition

Includes Sukuk, PTC, and similar instruments, which are not based on interest.

Tax Case Law Insights

In Anwar Yahya v. Pakistan, a vested right on capital gains for shares held over a year as of June 30, 2014, was upheld, exempting them from taxes.

Handling Capital Losses

Losses from securities can offset gains from other securities, with carry forward allowed for three years.
Capital losses on immovable property and capital assets can offset gains in the same year; unadjusted losses can carry forward for six years.
Losses from specified personal assets are not recognized, and capital losses are not allowed for non-taxable gain situations.

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Description

This quiz covers the taxation of capital gains from immovable property, including the calculation formula and tax reductions available for certain sales. Understand the various exemptions and rules related to advance tax and different classifications of property sales. Test your knowledge on this important financial topic.