Withholding tax on property gift pakistan
withholding tax on property gift pakistan
Exemption Withholding Tax on Property Transfers via Gift Among Family Property transfers within families are a common practice in Pakistan. Parents often transfer property to their children, spouses exchange ownership, or siblings distribute inherited assets among themselves. In many such cases, these transfers are made through gift deeds rather than sale transactions.
for the removel of confusion regarding taxation on such transfers, the Federal Board of Revenue (FBR) issued FBR Circular No. 10 of 2015, clarifying that genuine property gifts among close family members are exempt from withholding tax under Section 236K of the Income Tax Ordinance, 2001.
This clarification provides significant relief to taxpayers transferring property within their immediate family.
Understanding Withholding Tax on Property Transfers
The government introduced withholding tax on property transactions through the Finance Act 2014 by inserting Section 236K into the Income Tax Ordinance.
Under this provision, advance tax is collected at the time of registration of immovable property transfers. The tax is usually collected by the registrar or the authority responsible for recording the property transfer.
However, the law mainly targets sale transactions, where a property is sold for consideration.
The issue arose when gift transfers (Hiba) were treated in the same way as sales for tax collection purposes.
The Problem with Gift Transactions
Initially, authorities collected withholding tax even on property transferred through gift deeds because it was difficult to determine whether the gift was genuine at the registration stage.
This created practical challenges because:
- Gifts among family members are common in Pakistan
- Such transfers involve no payment or consideration
- Tax collection created an unnecessary financial burden on families
Most importantly, it conflicted with the tax principle contained in Section 79 of the Income Tax Ordinance, 2001, which states that no gain or loss is recognized when an asset is transferred as a gift.
FBR Clarification: Exemption for Family Gifts
To resolve this confusion, the Federal Board of Revenue issued Circular No. 10 of 2015.
The circular clearly states that immovable property transferred as a gift among certain close family members will not be subject to withholding tax under Section 236K.
The exemption applies when property is gifted between the following relatives:
- Husband and wife
- Parents and children
- Brothers and sisters
These transfers are automatically treated as bona fide family gifts, meaning no withholding tax is collected during property registration.
When Withholding Tax May Still Apply
It is important to note that this exemption is limited to immediate family members.
If property is gifted to other individuals outside this defined relationship, authorities may still apply withholding tax because the authenticity of the gift may require verification.
For example, withholding tax may still apply if the gift is made to:
- Cousins
- Friends
- Business partners
- Distant relatives
In such cases, taxpayers may need to provide additional documentation or claim adjustment later.
Practical Advice for Taxpayers
If you plan to transfer property within your family, consider the following steps:
✔ Prepare a properly drafted gift deed (Hiba Nama)
✔ Ensure the relationship between donor and recipient is clearly mentioned
✔ Record the transaction in your income tax return and wealth statement
✔ Maintain documentation for future tax compliance
Proper documentation ensures that the transaction qualifies for the exemption and avoids unnecessary disputes with tax authorities.
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