How to Determine the Valuation of Immovable Property

Islamabad: Federal Board of Revenue (FBR) has updated the valuation of immovable property in Pakistan. In Pakistan, the taxpayer has various questions about the determination of the valuation of immovable property in Pakistan. Here we have arranged such valuable question and their answers given by FBR in determining the valuation of immovable property.

Find the answer relevant to your question and

Questions Regarding Valuation of Immovable Property

Question 1: I am a filer and I purchased a plot in May 2014 for Rs.5,000,000. Now I
want to sell the said plot in August 2016 at the value determined by FBR at
Rs.7,500,000/-. What is the implication of taxes?

Answer: In your case, the advance income tax under Section 236C at the time of sale shall
be collected from you @1% on the value determined by FBR at Rs.7,500,000/ which works out to Rs.75,000/. This tax is adjustable against tax payable on income earned in the financial year 2016-17. The capital gain on sales of plot shall be Rs.7,500,000 – Rs.5,000,000 = Rs.2,500,000.

That shall be declared in the return for the tax year 2017 relevant to the financial year 2016-17. Capital gain tax shall be payable @ 5% on capital gain of Rs.2,500,000 i.e. Rs.125,000/-.
The above withholding tax of Rs.75,000/- is adjustable against the tax liability on all types of income including capital gain.

Question 2: My brother is a nonfiler. He purchased a plot in February 2015 for
Rs.6,000,000/-. Now he intends to sell the plot in September 2016. FBR notified
rate at Rs.12,000,000/-. What will be the tax implication?

Answer: The advance income tax under section 236C shall be collected @ 2% i.e. Rs.240,000/- from your brother being nonfiler on sale consideration of Rs.12,000,000/- The said advance tax is adjustable against his tax liability once he files a tax return.

The capital gain on sale of property shall be Rs.12,000,000 – Rs.6,000,000 = Rs.6,000,000 and tax thereon shall be @ 5% as property was purchased before June, 2016.

Question 3: I am a filer and I want to purchase a property in October 2016, the notified District Collector’s rate before June 2016 was Rs.4,500,000, however, FBR has notified a rate of Rs. 9,000,000/-. Whether all Federal and Provincial taxes shall be paid on the FBR rate?

Answer: No. FBR-notified rates are for the purpose of Federal taxes only. In your case, advance income tax on the purchase of property under Section 236K shall be collected at the rate of 2% of sales consideration of Rs.9,000,000/- which comes to Rs.180,000/-. However, FBR rates are not applicable for the levy payable under stamp duty and other provincial taxes.

Question 4: I intend to purchase a property worth Rs.50,000,000/- at FBR-notified rates in November 2016 and advance tax under section 236K as per FBR notified rate of advance tax would be payable. Whether the Commissioner of Inland Revenue shall still be empowered to re-determine the value of the property.

Answer: No, He has not been empowered to re-determine the value of the property purchased on
the valuation as determined by FBR for which advance tax under Section 236K has been paid on such valuation.

Question 5: I am a nonfiler and intend to purchase property at Rs.30,000,000/- at FBR
notified rates and am required to pay advance tax under section 236K at the time of purchase as per advance tax rates applicable on non-filer. Can the Commissioner ask the question of the source of investment in the above property?

Answer: Yes. The Commissioner of Inland Revenue can ask you to explain the source of funds in the investment made in immovable property and apply the provision of unexplained income under section 111 by providing the opportunity of being heard by you.

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Question 6: I am a dependent of a ‘Shaheed’,. I was allotted one plot and I have a certified
official copy of the allotment order. Whether any tax is payable on the sale of such a plot.

Answer: No advance tax under Section 236C shall apply, at the time of registration of the property. Besides no capital gain tax under section 37(1A) of the Income Tax Ordinance shall be payable.

Question 7: I am a filer and if I purchase property worth Rs.5,000,000 in October 2016. How much tax I will have to pay while filing the return of income if the property is sold for Rs.10,000,000/- in July 2018?

Answer: The tax liability on capital gain for the tax year 2019 shall be calculated on Rs.10,000,000 – Rs.5,000,000 = Rs.5,000,000 @ 7.5% i.e. Rs.375,000/- for the reason that you have held the property for less than two years but more than one year.

Question 8: There is confusion in the market and different persons are giving different
advice regarding the payment of capital gain tax at the time of registration of property. What is the legal position?

Answer: Capital gain tax under section 37(1A) is levied on the difference between the sale price and the purchase price of the property. The registration authorities are not authorized to collect such capital gain tax on immovable property.

The registration authorities are authorized to collect advance tax under Section 236C from the seller of the property and advance tax under section 236K from the buyer of the property. Hence capital gain tax on the sale of immovable property is to be paid by the taxpayer himself while filing the income tax return.

For example, if any sale of immovable property is made in the financial year from July 2016 to June 2017, the taxpayer while filing the income tax return for the tax year 2017 shall pay the capital gain tax after adjusting the advance tax paid under section 236C.

Question 9: My property is located in the area for which FBR has not notified the value of the immovable property. I intend to sell my property immediately but due to nonissuance of notification by FBR, the registration authority is reluctant to transfer my property with the advice to wait till FBR notify the valuation of immovable property. What is the FBR position as to whether I shall wait till FBR notifies the valuation table?

Answer: FBR notification shall apply to the areas which are notified in such notifications. The area which is not yet notified shall be subjected to value fixed by District Officer Revenue or provincial or any other authority authorized for the purpose of stamp duty.

Question 10: I received 90% of the sales considerations of my property before June 2016 and the balance amount of 10% is due in August 2016 from the buyer as my property will be registered in August 2016. Shall I pay taxes on my property as per FBR valuation in August 2016?

Answer: FBR valuation shall apply on all the transfers of immovable properties from 31st July 2016 at the time of registration, irrespective of receipt of the payment on the sale of the property.

In your case the FBR valuation shall apply for payment of advance tax under section 236C, being a seller of the property and capital gain tax under section 37(1A) shall also be applicable on the valuation determined by FBR. Income from capital gain shall be declared in the return of income for the tax year 2017.

Question 11: I have been allotted land in a Society and I now intend to transfer my property to
a buyer. Shall I be liable to pay taxes under section 236C and whether capital gain tax shall also apply in my case?

Answer: The provision of advance income tax under section 236C in the case of the seller of
immovable property and provision of section 236K in the case of the buyer of immovable property shall apply on registration of immovable property.

Both advance taxes shall also be applicable on attesting the transfer of immovable property. In your case there is an attestation of transfer of immovable property in the Society, therefore, the Society being a withholding agent is authorized to collect advance tax from the seller under section 236C and from the buyer under section 236K.

So, these are the most important and repeatedly asked question about the determination of the valuation of immovable property in Pakistan.

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