Understanding Tax on Gift Deed in Pakistan: A Comprehensive Guide

Gift deeds are a common way to transfer property, assets, or money between individuals in Pakistan. However, many people are unaware of the tax implications associated with gift deeds. Whether you’re giving or receiving a gift, understanding the tax laws can help you avoid legal complications and unexpected financial burdens.

In this article, we’ll explore:

• What a gift deed is

• Types of gifts under Pakistani law

• Tax implications on gift deeds

• Exemptions and taxable scenarios

• How to properly document a gift deed

• Common mistakes to avoid

By the end, you’ll have a clear understanding of how gift deeds are taxed in Pakistan and how to handle them efficiently.

What is a Gift Deed in Pakistan?

A gift deed (or Hibah in Islamic law) is a legal document that transfers ownership of an asset (property, cash, jewelry, etc.) from one person (the donor) to another (the donee) without any monetary exchange. For a gift to be legally valid, it must meet the following conditions:

1. Offer and Acceptance – The donor must clearly offer the gift, and the donee must accept it.

2. Immediate Transfer – The ownership must be transferred immediately, not in the future.

3. No Consideration – A genuine gift should not involve any payment in return.

Gift deeds are commonly used for:

• Transferring property within the family

• Gifting cash or assets to children or relatives

• Avoiding inheritance disputes

Types of Gifts Under Pakistani Law

Gifts in Pakistan can be categorized into two types for tax purposes:

1. Exempt Gifts

Certain gifts are tax-exempt under the Income Tax Ordinance, 2001. These include:

• Gifts from parents to children (and vice versa)

• Gifts between spouses

• Gifts from siblings (brothers and sisters)

• Gifts up to PKR 50,000 per year from any person (if exceeding, the amount above PKR 50,000 is taxable)

2. Taxable Gifts

Gifts that do not fall under exempt categories may be subject to tax. Examples include:

• Gifts from unrelated persons (friends, business associates) exceeding PKR 50,000

• Property or assets gifted by employers to employees (considered a benefit and taxable)

• Gifts that appear to be a way to evade taxes (e.g., disguising income as a gift)

Tax on Gift Deed in Pakistan: Key Considerations

1. Income Tax Implications

Under Section 13 of the Income Tax Ordinance, gifts received by an individual may be treated as income if:

• The gift exceeds PKR 50,000 in a tax year (from non-relatives)

• The gift is from an employer (considered a perquisite)

• The gift is part of a business transaction (disguised income)

Tax Rate:

• If taxable, the gift is added to the recipient’s income and taxed at their applicable income tax slab rate (ranging from 0% to 35%).

2. Capital Gains Tax (If Applicable)

If the gifted asset (e.g., property, stocks) is later sold, Capital Gains Tax (CGT) may apply based on:

• Holding period (short-term vs. long-term)

• The fair market value at the time of gifting

3. Withholding Tax on Property Gifts

If immovable property (land, house) is gifted, the donee may need to pay withholding tax (under Section 236K) at the time of registration. The rate is typically 3% of the property’s fair market value.

How to Properly Document a Gift Deed

To ensure a gift deed is legally valid and tax-compliant, follow these steps:

1. Draft a Gift Deed Agreement

The deed should include:

• Names and CNIC numbers of donor and donee

• Description of the gifted asset

• Statement that it is a voluntary gift (no coercion)

• Signatures of both parties and witnesses

2. Register the Gift Deed (For Immovable Property)

• For property gifts, registration with the local registrar is mandatory (under the Registration Act, 1908).

• Pay the applicable registration fee (usually 1-2% of property value).

3. Obtain a Valuation Certificate

• The FBR-approved valuation determines the fair market value for tax purposes.

4. File Tax Returns (If Required)

• If the gift is taxable, the recipient must declare it in their annual income tax return.

Common Mistakes to Avoid

1. Not Registering Property Gifts – Unregistered gift deeds can be challenged in court.

2. Misclassifying Taxable Gifts – Disguising income as a gift can lead to penalties.

3. Ignoring Withholding Tax – Failure to pay withholding tax on property gifts can result in fines.

4. Overlooking Exemptions – Many people pay unnecessary taxes by not claiming exempt gift categories.

Conclusion

Understanding the tax on gift deeds in Pakistan is crucial to avoid legal and financial issues. While gifts between close family members are usually tax-exempt, gifts from unrelated parties or high-value assets may attract taxes. Proper documentation and compliance with FBR regulations ensure a smooth transfer without unexpected liabilities.

If you need assistance with tax filing, NTN registration, or accounting services, Scouts offers expert tax and accounting solutions tailored for individuals and small businesses. Contact us today for hassle-free financial compliance!