Pakistan’s tax system can seem complicated. But when it comes to property taxes, it’s not as tricky as it looks. This article will break it down for you. We’ll explain what taxes apply to property owners in Pakistan. We’ll also clear up a common myth about non-filers. Everything here covers the 2025 tax year — from July 2024 to June 2025.
Understanding Property Taxes
If you own property in Pakistan—whether it’s your home, a rental, or an investment—it’s important to understand the different taxes that come with it. These taxes play a big role in supporting the government and can impact your finances.
Taxes on Property Owners
Property owners in Pakistan are subject to a couple of taxes including:
Capital Value Tax (CVT)
Capital Value Tax (CVT) is a yearly tax on the fair market value of your property, based on rates set by the Federal Board of Revenue (FBR). The tax rate is 2% of what your property is worth.
Deemed Rental Income Tax (Section 7E)
The 7E tax was introduced under the Finance Act, of 2022. It assumes that every resident earns income equal to 5% of their property’s fair market value, even if they do not receive that income. This is called deemed income, and it’s taxed at 20%.
This is a yearly tax on property that is worth more than PKR 25 million, though there are some exceptions. It has raised a lot of questions, especially about how it’s calculated whether it should be based on the current market value or the original cost, and whether it’s fair to tax income that hasn’t actually been earned.
Rental Income Tax
If you earn rental income in Pakistan, you’ll have to pay two types of taxes. The amount of tax depends on how much rent you earn—the more you earn, the higher the tax rate.
There’s also a withholding tax on rental income. This can range from 0% to 50%, depending on your income and whether you’re an active taxpayer.
In addition, there’s a final income tax on rental income, which can range from 0% to 45%.
Urban Immovable Property Tax
Property tax is a fee charged by local governments on owning real estate. The money collected from this tax usually helps pay for local services like roads, schools, and waste management.
In Pakistan, this tax is known as the Urban Immovable Property Tax (UIPT), and it’s managed at the provincial level.
Taxes on Agricultural Income
Although agricultural income is exempt from federal tax, it is taxable at the provincial level in Pakistan. Each province has the authority to set its own rules for taxing agricultural income, so your tax liability depends on where your land is located.
- Punjab: Agricultural income up to Rs. 400,000 is exempt. Income above this is taxed according to Punjab’s agricultural tax rates.
- Sindh: Income up to Rs. 600,000 is exempt. The tax applies if income exceeds Rs. 600,000, based on Sindh’s agricultural tax slabs.
- Khyber Pakhtunkhwa: Similar to Sindh, in KPK income up to Rs. 600,000 is tax-free. Income over Rs. 600,000 is taxed as per KPK’s agricultural tax rates.
Taxes on the Sale of Property
If you’re selling property in Pakistan, you may be subjected to some taxes based on the value of the property, filer status, and hold of the property. Tax and rates on selling properties are:
Capital Gain Tax (CGT)
This tax is levied on the profit derived from the sale of property within six years of its acquisition.
- Properties Bought Before June 30, 2024: The CGT rate starts at 15% in the first year of ownership and decreases by 2.5% annually until it reaches 0% after six years.
- Properties Bought After July 1, 2024: A flat CGT rate of 15% is applicable regardless of the holding period.
Advance Tax (236C)
This advance tax is collected at the time of property transfer. The rates of 236C in Pakistan are applicable from July 1, 2024, till June 30, 2025, depending on filer status:
| Property Value (Rs) | Filer Tax Rates | Late Filer Tax Rates | Non-Filer Tax Rates |
|---|---|---|---|
| Up to 50 Million | 3% | 6% | 10% |
| 50 Million – 100 Million | 3.5% | 7% | 10% |
| Over 100 Million | 4% | 8% | 10% |
Tax on Buying Property
When buying property in Pakistan, you’ll need to pay advance tax and other fees, depending on the type and value of the property.
Also, under the new Section 75A, any payment over PKR 5 million for a property must be made through a bank—cash transactions are not allowed for these deals anymore.
Advance Tax (236K)
When buying property, the buyer is required to pay advance income tax. The amount of tax depends on the transaction value of the property and whether the buyer is a filer or not.
Below are the 236K tax rates in Pakistan, which will apply from July 1, 2024 to June 30, 2025:
| Value (Rs) | Filer | Late Filer | Non-Filer |
|---|---|---|---|
| Up to 50 Million | 3% | 6% | 12% |
| 50 Million – 100 Million | 3.5% | 7% | 16% |
| Over 100 Million | 4% | 8% | 20% |
Adjustable & Non-Adjustable Property Taxes
It’s important to understand the difference between adjustable and non-adjustable taxes.
- Adjustable taxes, like WHT (Withholding Tax) and CGT (Capital Gains Tax), are paid in advance but can be claimed back or adjusted against your final income tax when you file your return.
- Non-adjustable taxes, such as stamp duty and registration fees, are one-time costs that you can’t reclaim or adjust later.
Adjustable Property Taxes
To claim adjustable taxes, you’ll need to file your income tax return and provide proof of the advance taxes you’ve paid. It’s important to remember that advance withholding taxes (such as Section 236C and 236K) paid during the buying or selling of property can be adjusted against your final tax liability.
Additionally, the advance tax on property can also be adjusted when calculating capital gains tax.
Let’s look at a simple example:
Mr. Munir purchased a property in 2023 for PKR 10 million and sold it in 2025 for PKR 12 million.
- Capital Gain: PKR 12 million – PKR 10 million = PKR 2 million
- CGT Rate (for a property held for 2 years and purchased before June 30, 2024): 12.5%
- CGT Liability: 12.5% of PKR 2 million = PKR 250,000
- Advance WHT paid by Mr. Ali (assuming property value was above PKR 100 million and he was a filer): 3% of PKR 12 million = PKR 360,000
In this case, Mr. Munir has paid more in advance WHT (PKR 360,000) than his actual CGT liability (PKR 250,000). He can claim a refund of the excess amount (PKR 360,000 – PKR 250,000 = PKR 110,000) when filing his income tax return.
Advance tax (236C) can become the minimum tax liability if the property is sold and a new one is bought within the same tax year.
Non-Adjustable Property Taxes
These are fees rather than other taxes on the purchase of property. Costs associated with the transaction of property purchases are not adjustable in taxes. They usually include;
- Stamp Duty: A tax levied on legal documents, including property transfer documents. The rate varies by province.
- Property Registration Fee: A fee charged by the government for registering the transfer of property ownership.
- Cantonment Board or Local Government Taxes: Various charges and taxes may be levied by local authorities.
Pro Tips for Saving Property Taxes
Understanding these taxes is important for both investors and homebuyers. The taxes you pay can have a big impact on the total cost of owning property and the potential profits from your investments. Here are a few key factors that can help you minimize your tax burden and stay compliant:
- Tax Implications: Whether buying, selling, or renting a property in Pakistan, each transaction triggers specific tax obligations which are almost covered in this article.
- Accurate Valuation: Knowing the fair market value of your property is essential for calculating property tax. Property transactions are often recorded at DC rates or FBR property valuation rates, it’s essential to be aware of the potential tax implications if the actual transaction value is significantly higher.
- Proper Documentation: Keeping detailed records of property transactions and valuations is vital for accurate tax reporting. Maintaining all relevant documents, including sale agreements, purchase deeds, payment receipts, and valuation reports, is crucial for accurate tax reporting and potential audits.
- Bank Transactions: Opting for bank transfers for property transactions provides a clear and auditable record, which is beneficial for tax purposes, especially concerning Section 75A.
- Taxation on Accrual Basis: In Pakistan, income from property is generally taxed on an accrual basis. This means that income is taxed when it is earned, regardless of when it is received. For instance, rental income is taxable even if the tenant has not yet paid the rent.
- Professional Tax: A nominal tax levied by some provincial governments on professionals involved in property transactions (e.g., real estate agents).
- Staying Updated: Property tax regulations can change, so staying informed about the latest amendments is crucial. This article is based on property tax rates applicable for Financial Year 2024-25.
Conclusion
Navigating property taxes in Pakistan requires a good understanding of the different taxes, how they apply, and the rules around them. While it can seem complicated, knowing your tax responsibilities as a property owner or investor is crucial for staying compliant and planning your finances well. Keep yourself updated on the latest tax laws and always maintain proper records.
Also read:
- Income Tax Return Course in Pakistan
- Income Tax Filing Service in Pakistan
- Property Gain Tax Exemptions for Overseas Pakistanis (Explained)
- Tax Rates on Cash Withdrawal from Bank in 2025
Good information