The Federal Budget 19-20 discloses the government's plans about the regulation of the real estate sector as a vehicle for money laundering. PTI government has described real estate as "one of the biggest sources of money laundering and a platform used to park untaxed as well as ill-gotten money.
By keeping these views in mind, and restructuring of the real estate sector, a wide range of steps have been taken by the government. The steps taken to regulate the real estate sector are as under:
New tax amendments and steps taken by the government have proved it that genuine buyers are the true winners of this budget. This budget has some new difficulties for Non-filers.
Now non-filer is allowed to buy a property worth 5o lac PKR or more, but he will have to file returns within 45 days of the purchase of the property.
If not, after the gap of 45 days period, a non-filer will receive automatic taxation that will ask him to disclose the source of his income.
In addition to these conditions, a non-filer will also have to pay 5% amount of property price as a penalty as per FBR Rate.
New Capital Gain Tax for Plots (CGT)
• If a buyer sold his plot within the first year of purchase, his 100% gain would be taxed.
• If a buyer sold his plot after the first year of purchase but within ten years, his75% gain would be taxed.
• If a buyer sold his property after ten years of purchase, the government would charge no tax on his gain.
New Capital Gain Tax for Constructed Property (CGT)
The same rule will be applied for the constructed property.
• If the property is sold within the first year of purchase, 100% gains will be taxed.
• The property that get sold after one year, but before the end of the fifth year, the government will tax you on 75% of the gains.
• There will be no tax on gains of the property that is sold after five years of ownership.
Formula to Calculate Capital Gain Tax (CGT)
Profit or Capital Gain will be treated as income, and it will be subject to normal income tax.
Lowered Withholding Tax (WHT)
In this current budget, Withholding Tax is decreased from 2% to 1% for filers. It will be collected as per the FBR Property Valuation Rate.
If we look back before this budget, there was no WHT on purchase of the property if the price of the property was less than 40 lacs PKR. But after the implementation of these new taxes, WHT will be collected on all transactions.
Earlier, there was no Withholding Tax on the property that was sold after three years of purchase. Now WHT will be collected up to 5 years. But if you are selling the property after five years of its purchase, then no WHT will be charged to you.
Raised FBR Property Valuation Rates
FBR Property Valuation Rates will be raised up to 85% market value.
Purchased Through Banking Channels
A buyer purchasing any property, plots, houses, etc. on a price greater than PKR 50 lacs and PKR 10 lacs or more will now be required to make his payment through a banks, i.e. account transfer, cheque, drafts etc. so that transaction can be clearly recognized from one bank account to another.