Finance Act 2019: Capital gain tax on immovable properties exempted on holding period above 8 years

KARACHI: The government has exempted the capital gain tax on immovable property where holding period is above eight years. The amendment has been brought through Finance Act, 2019 as it was proposed 10 years through Finance Bill 2019.

According to commentary on Finance Act, 2019 by PwC A F Ferguson Chartered Accountants, prior to finance bill 2019, capital gains on disposal of immovable properties were taxable as a separate block of income at the rates specified in the First Schedule, determined on the basis of holding period of immovable property.

The bill proposed to completely revamp the taxation of capital gains on disposal of immovable properties. It was proposed to tax gain on disposal of open plots as well as constructed properties at normal rates, subject to reduction in the amount of gain on the basis of holding period exceeding the specified thresholds.

Through amended finance bill, the taxability of gain arising on disposal of immovable properties as separate block of income has been restored.

However, the slab rates specified for such taxation are now based on the amount of gain, which are specified as under:

1. Where the gain does not exceed Rs 5 million: 5 percent

2. Where the gain exceeds Rs 5 million but does not exceed Rs 10 million: 10 percent

3. Where the gain exceeds Rs 10 million but does not exceed Rs 15 million: 15 percent

4. Where the gain exceeds Rs 15 million: 20 percent

Further, the holding period of property for ascertaining capital gain has been reduced vis-à-vis that proposed in the finance bill as under:

(a) For open plot of land, the gain chargeable to tax will be reduced by 25 percent if the holding period exceeds one year but does not exceed 8 years (as against 10 years proposed in the FB). Further, where the holding period exceeds 8 years (as against 10 years proposed in the FB), gain will be taken as zero.

(b) For constructed properties, the gain chargeable to tax will be reduced by 25 percent if the holding period exceeds one year but does not exceed 4 years (as against 5 years proposed in the FB). Further, where the holding period exceeds 4 years (as against 5 years proposed in the FB), gain will be taken as zero.

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