Pakistan’s real estate sector has faced significant setbacks over the past few years, primarily due to the imposition of heavy and often unjustified taxes on property transactions — including Withholding Tax, Federal Excise Duty, Stamp Duty, and substantial Capital Gains Tax (CGT). This high cost of property transactions has discouraged investors from actively participating in buying and selling activities, resulting in a dismal situation for what was once one of the largest and most flourishing sectors of Pakistan’s economy.
Despite repeated appeals and demonstrations by stakeholders in the real estate sector, the government has, until now, been unable to provide substantial relief due to various economic and policy-related challenges. However, the property tax amendments introduced in the Fiscal Budget 2025–26 signal a potentially positive shift for the real estate market in Pakistan.
In this article, we will analyze the latest property tax reforms and evaluate how these changes may contribute to revitalizing property transactions and restoring investor confidence in the real estate sector.
Summary of Property-Related Tax Changes – Budget 2025-26
Below is the summary of policy changes proposed in fiscal budget 2025-26 & the potential benefit/impact of these policies on the real estate sector:
| Measure | Change | Impact/Benefit |
|---|---|---|
| Capital Gains Tax (CGT) | No change: 15% | Keeps CGT predictable for investors |
| Withholding Tax 236K– Buyers | Reduced: 4% → 2.5%, 3.5% → 2%, 3% → 1.5% | Lowers acquisition cost and promotes property buying activity |
| Withholding Tax 236C – Sellers | Increased: 3% → 4.5%, 3.5% → 5%, 4% → 5.5% | Raises transaction cost on sale; encourages documentation & discourages flipping |
| Federal Excise Duty (FED) | Abolished (previously 7%) on transfer of immovable property | Reduces cost and simplifies property transfers |
| Stamp Duty (Islamabad) | Reduced: 4% → 1% | Major saving on registration cost in Islamabad |
| Mortgage Tax Relief | Tax credit allowed on mortgage interest for homes up to 10 marla/2,000 sq ft | Encourages home ownership through mortgage financing |
Withholding Tax (WHT) Rates on Property Transactions
Below are the revised withholding tax rates for property buyers and sellers, based on property value slabs:
| Property Value | Old WHT Rate (Both) | New WHT – Buyer | New WHT – Seller |
|---|---|---|---|
| Up to PKR 50 million | 3% | 1.5% | 4.5% |
| PKR 50 – 100 million | 3.5% | 2% | 5% |
| Over PKR 100 million | 4% | 2.5% | 5.5% |
Please note that the above tax rates are applicable to Active Tax Filers only. Late Filers & Non-Filers will have to pay higher withholding taxes.
Property Tax Changes in Budget 2025–26 – Detailed Breakdown
As mentioned above, several important tax changes have been proposed in the Fiscal Budget 2025–26, aimed at reviving and regulating the real estate sector. If we evaluate the overall impact of these changes, the cost of purchasing property is expected to decrease, whereas the cost of selling property will rise.
Previously, buyers bore the major share of property transaction costs, including heavy Withholding Tax, Stamp Duty, and Federal Excise Duty (FED), while sellers were responsible for paying Withholding Tax and Capital Gains Tax. Under the new tax policy, the Government has effectively reversed this structure: buyers will now pay lower taxes, while sellers will face higher tax obligations.
Withholding Tax
Each property transaction involves payment of withholding tax by both the seller and the purchaser. This tax is applied under two different sections of the income tax law — Section 236K for buyers and Section 236C for sellers. It is important to mention here that the withholding tax is payable at the time of transfer of a property.
Previously, the tax rates were as follows (for properties up to PKR 50 million):
Buyers (236K):
- Filer: 3%
- Late Filer: 6%
- Non-Filer: 12%
Sellers (236C):
- Filer: 3%
- Late Filer: 6%
- Non-Filer: 10%
As per the revised tax policy in Fiscal Budget 2025–26:
Buyer under 236K will now pay: (for properties worth up to PKR 50 million)
- Filer: 1.5%
- Late Filer: 4.5%
- Non‑Filer 10.5%
Seller under 236C will now pay: (for properties worth up to PKR 50 million)
- Filer: 4.5%
- Late Filer: 7.5%
- Non‑Filer:11.5%
This change will reduce the cost of purchasing property, which means demand is expected to rise and more transactions will likely take place. On the flip side, the higher tax on sellers will make people think twice before selling, especially those who flip properties for short-term gains. As a result, investors are more likely to hold their properties longer and aim for better long-term returns, which will bring stability to the market.
Capital Gains Tax
The Capital Gains Tax (CGT) has remained unchanged in the Fiscal Budget 2025–26, although an increase was widely anticipated. The existing rate of 15% continues to apply on the sale of property for tax filers.
It is important to note that CGT is levied on the actual gain from the property transaction, calculated as:
Capital Gain = Sale Price – Purchase Price
This tax is payable to the Federal Board of Revenue (FBR) at the time of filing your annual income tax return, where you are required to declare the transaction along with the source of funds and the actual gain earned.
Federal Excise Duty (FED)
The imposition of Federal Excise Duty (FED) on property transactions was widely considered unjustified and unfair, as FED is typically applicable to movable assets, whereas real estate is an immovable asset. Despite repeated appeals over the past several months, the Government had been unable to withdraw this tax due to various constraints.
However, its abolishment in the Fiscal Budget 2025–26 will significantly reduce the financial burden on property buyers and help lower overall transaction costs.
Previously, FED was imposed on property buyers as follows:
- Filer: 3%
- Late Filer: 5%
- Non-Filer: 7%
This move has been widely welcomed by real estate stakeholders and is expected to encourage more transparent and affordable property transactions across the country.
Stamp Duty
In another important move, the Government has reduced the Stamp Duty on registry/intiqal of properties in Islamabad from 4% to just 1% of the DC value. This decision was taken in response to the sharp decline in property transfers in recent years, mainly due to unreasonably high tax rates. This is a major tax cut that will substantially reduce transaction costs for property buyers in Islamabad and is expected to boost real estate activity in the capital.
Stamp Duty is a provincial tax, charged alongside the withholding tax, and such additional taxes unnecessarily inflate the cost of property transactions, ultimately leading to a slowdown in business activity. Hopefully, this positive step will be adopted in other regions of Pakistan as well, so that property transfers become more affordable across the board, and transaction volume can increase nationwide.
Tax Credit
The Government has announced 30% tax credit for people who buy a house (up to 10 marla) or a flat (up to 2000 sq.ft) through bank financing. However, this benefit is only for properties purchased through bank loans, not cash deals.
This means if you get a home loan from a bank and pay interest on it, the Government will reduce your income tax by 30% of the total interest you’ve paid to the bank. The idea is to encourage more people to use mortgage financing to buy property, while also helping banks grow their housing loan business. It’s a much-needed step that supports genuine homebuyers and promotes documented transactions in real estate.
Final Thoughts on Real Estate Tax Reforms – Budget 2025–26
The Fiscal Budget 2025–26 brings a clear message: the Government is finally paying attention to the long-standing demands of real estate stakeholders. By shifting the tax burden slightly from buyers to sellers, abolishing unjustified duties like FED, reducing Stamp Duty, and introducing meaningful mortgage incentives, this tax policy seems to aim at reviving genuine real estate activity rather than encouraging speculation.
Lower transaction costs for buyers will help restore confidence in the market and attract more end-users and investors. Meanwhile, higher taxes on sellers, especially short-term flippers, will likely reduce unnecessary market volatility and promote long-term holding, which can lead to a more stable and healthy property market.
These reforms, if implemented and followed through properly, could mark a turning point for Pakistan’s real estate sector. Whether you’re a genuine buyer, investor, or developer, this may be the right time to revisit your property plans with renewed confidence.
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