The Federal Government of Pakistan has proposed several changes for the property tax relief in the budget 2025-26. In a nutshell, the cost of purchasing a property has decreased, while property purchasing costs have increased after these tax reforms.
In this budget, the Government has removed the Federal Excise Duty on property purchases and reduced stamp duty from 4% to 1%. Similarly, the withholding tax for buyers and sellers is revised. The capital gain tax has remained unchanged.
I have discussed the budget 2025-26 property taxes in depth. Read the blog for more details.
Details of Property Tax Relief Changes in Budget 2025-26
The government has announced several changes in the withholding tax, FED, and stamp duty.I have explained these changes in detail here:
1. Change in Withholding Tax Ratio
Whenever a property transaction occurs, both the buyer and the seller are required to pay a tax known as withholding tax. You have to pay this tax at the time of property ownership transfer. Two sections of the income tax law justify this tax, which are:
- Section 236 C for Sellers
- Section 236 K for Buyers
Withholding Tax Rates Before Budget 2025-26
Before budget 2025-26, you need to pay this tax in the following ratio for a property worth up to 50 million.
For Buyers (236K):
- Filer: 3%
- Late Filer: 6%
- Non-Filer: 12%
For Sellers (236C):
- Filer: 3%
- Late Filer: 6%
- Non-Filer: 10%
After Passing Budget 2025-26, Withholding Tax Ratio
Passing the budget 2025-26 will make you pay withholding tax for the properties up to 50 million in the following ratio:
For Buyers (236K):
- Filer: 1.5%
- Late Filer: 4.5%
- Non-Filer 10.5%
For Sellers (236C):
- Filer: 4.5%
- Late Filer: 7.5%
- Non-Filer:11.5%
Following this tax reform, the cost of property is expected to decrease, which will ultimately lead to increased demand. On the other hand, higher taxes on sellers will slow down the reselling of property. In this way, the investors will hold properties for longer periods and earn big capital gains.
2. Capital Gains Tax
According to the Federal Government budget 2025-26, there will be no change in the Capital Gain Tax. The existing tax rate of 15% will remain in effect for property sales among tax filers.
What is Capital Gains Tax?
It is a tax amount that is deducted from the actual gain from the property. You can calculate the tax with this formula:
Capital Gain = Sale Price – Purchase Price
You have to pay this tax to the Federal Board of Revenue (FBR) at the time of property transfer. Moreover, you need to declare your source of funding.
4. Federal Excise Duty (FED)
In the Budget 2025-26, the Federal Government has removed the Federal Excise Duty (FED) on property transactions. The FED is only applicable to movable assets, while property is an immovable asset. As a result of this decision, there will be an increase in property transactions and property sales.
5. Stamp Duty
Stamp duty is a provisional tax that is charged in addition to the withholding tax. The Federal Government has reduced the Stamp Duty from 4% to 1% at the DC value of property. The government has announced this decision in the Federal Budget 2025-26.
This decision will reduce transaction costs for property buyers and will definitely boost property sales.
6. Tax Credit
In Budget 2025-26, the Federal Government has announced a 30% tax credit for people who buy a house up to 10 Marla or a flat up to 2000 square feet. Ft through bank financing. You can avail of this tax benefit only when you purchase property through a bank loan, not a cash payment.
It means that if you receive a home loan from the bank, and pay interest on it. The Government will reduce your income by 30 % of the total interest you have paid to the bank. This step will encourage more people to take home financing from banks. It will ultimately increase property sales.
Conclusion
The Federal Government of Pakistan has supported the real estate industry through Property tax relief in Budget 2025-26. The government has transferred the tax burden from property buyers to sellers.
The government has removed the FED, reduced stamp duty, and withholding tax. Additionally, it offered tax credits to support home financing. These tax reforms will increase property transactions and help to revive the real estate sector.
