In a bid to streamline taxation procedures and ensure clarity for taxpayers, the Federal Board of Revenue (FBR) has released details regarding the tax rates on immovable property for the tax year 2022. The information is part of the Income Tax Ordinance, 2001, updated up to June 30, 2021, incorporating amendments introduced through the Finance Act, 2021.
Tax Rates on Disposal of Securities:
The tax rates on the disposal of securities are specified under Section 37 of the Income Tax Ordinance, 2001. The rates are applicable to gains arising on the disposal of capital assets, and they vary based on the amount of gain. The rates are as follows:
Where the gain does not exceed Rs. 5 million, the rate of tax is 3.5%.
For gains exceeding Rs. 5 million but not exceeding Rs. 10 million, the rate of tax is 7.5%.
Gains ranging from Rs. 10 million to Rs. 15 million are taxed at a rate of 10%.
For gains surpassing Rs. 15 million, the tax rate is 15%.
Calculation of Capital Gains:
Section 37 outlines the calculation of capital gains arising from the disposal of a capital asset. The formula involves subtracting the cost of the asset (B) from the consideration received on disposal (A). For assets held for more than one year, a different formula is applied, where the gain is multiplied by 3/4.
Immovable Property Tax Rates:
Specific provisions are made for the computation of gains on the disposal of immovable property. The holding period determines the applicable rate, as outlined in the table provided in Section 37(3A) of the Income Tax Ordinance, 2001:
Holding period not exceeding one year: Tax rate is A.
Holding period exceeding one year but not exceeding two years: Tax rate is A x 3/4.
Holding period exceeding two years but not exceeding three years: Tax rate is A x 1/2.
Holding period exceeding three years but not exceeding four years: Tax rate is A x 1/4.
Holding period exceeding four years: Tax rate is 0.
Expenditure Deductions and Cost Determination:
The ordinance also specifies that no amount shall be included in the cost of a capital asset for any expenditure incurred by a person that is or may be deducted under another provision of the chapter or is referred to in Section 21.
Acquisition of Capital Assets:
In cases where the capital asset becomes the property of the person through a gift, bequest, will, succession, inheritance, devolution, or other means, the fair market value of the asset on the date of transfer or acquisition is treated as the cost of the asset.
Definition of Capital Asset:
The term “capital asset” is defined as property of any kind held by a person, whether or not connected with a business, excluding stock-in-trade, consumable stores, raw materials for business, and movable property held for personal use.
It is important to note that the provided information is for reference purposes, and individuals should consult with tax professionals for accurate and up-to-date advice. Team PkRevenue.com, while making efforts to provide correct information, disclaims responsibility for any errors or omissions.
