Is capital gains tax charged when I sell agricultural land?

Many landowners assume that because agricultural income is exempt from federal income tax, selling the farm is exempt too. The Income Tax Ordinance, 2001 draws a line between income from using farmland and the gain on selling it. This page uses the Ordinance as amended to 30 June 2026, which applies to sales in tax year 2027 (1 July 2026 to 30 June 2027).

What does the law say?

Section 41(1) exempts “agricultural income” from tax under the Ordinance. Section 41(2) defines it as:

• (a) rent or revenue from land in Pakistan used for agricultural purposes;
• (b) income from land in Pakistan from agriculture, from a cultivator’s or rent-in-kind receiver’s processing of the produce to make it fit for market, or from their sale of that produce;
• (c) income from certain buildings owned and occupied by the receiver of that rent or revenue, or needed by the cultivator as a dwelling, store or out-building on or near the land.

None of these clauses mentions a gain on disposing of the land itself.

Section 37(1) charges a gain on disposal of a capital asset under the head “Capital Gains”, other than a gain exempt under the Ordinance. Section 37(1A) then provides that the gain on disposal of immovable property situated in Pakistan is chargeable at the rates in Division VIII of Part I of the First Schedule. Section 37(1A) does not carve out agricultural land.

A footnote to section 37(5) records that clause (c), “any immovable property”, was omitted from the list of exclusions from “capital asset” by the Finance Act, 2012. Since then immovable property has not been excluded from the definition.

What rate applies?

Division VIII of Part I of the First Schedule has two sets of rates, depending on when the property was acquired:

Acquired	Rate under Division VIII
On or after 1 July 2024	15% for persons on the Active Taxpayers’ List. For individuals and AOPs not on the list, the Division I rate, but not less than 15% of the gain
On or before 30 June 2024	By holding period, in separate columns for open plots, constructed property and flats, falling to 0% for an open plot held more than six years

The older table does not have a column named agricultural land. The Ordinance does not say which of the three columns applies to farmland acquired on or before 30 June 2024. That is a gap in the text, and this page does not resolve it.

How is the tax collected at sale?

Section 236C(1) requires whoever registers, records or attests the transfer of any immovable property to collect advance tax from the seller at the Division X rate. Division X of Part IV, as substituted by the Finance Act, 2026, sets 2.75% of the gross amount of the consideration received. Section 236C(2) makes it adjustable against the seller’s tax for the year.

Section 68(6) says the consideration used for computing the gain under section 37 and for Division X cannot be less than the fair market value notified by the Board under section 68(4) or, where no value is notified, the stamp duty value under section 68(5).

Worked example (illustrative figures)

Ghulam Rasool, who appears on the Active Taxpayers’ List, bought 10 acres near Sahiwal in September 2024 for Rs. 20,000,000 and sells in March 2027 for Rs. 26,000,000, which is not below the stamp duty value. The amounts are invented; the rates are Division VIII and Division X.

1. Gain under section 37(2), A - B: Rs. 26,000,000 - Rs. 20,000,000 = Rs. 6,000,000.
2. Capital gains tax at 15%: Rs. 6,000,000 x 15% = Rs. 900,000.
3. Advance tax collected at registration under section 236C: Rs. 26,000,000 x 2.75% = Rs. 715,000.
4. Adjusted against the capital gains tax: Rs. 900,000 - Rs. 715,000 = Rs. 185,000 still payable with the return.

The wheat he sold from that land before the sale remains agricultural income under section 41(2)(b).

What if the land was inherited or received as a gift?

The cost and holding rules for inherited and gifted property are covered on the inherited property and gifting pages. Nothing in section 41 changes those rules because the property is farmland.

Common mistakes

• Reading section 41 as covering the land. It covers income from the land, not the proceeds of selling it.
• Using the old open-plot table for land bought after July 2024. Only the 15% column applies to property acquired on or after 1 July 2024.
• Declaring a sale price below the stamp duty value. Section 68(6) sets a floor for both the gain and the section 236C base.
• Assuming provincial agricultural income tax is covered here. It is provincial law and outside this corpus.

What to check in the official text

Read section 41, section 37(1) and (1A), Division VIII of Part I and Division X of Part IV of the First Schedule, section 236C and section 68(4) to (6). Check whether the Board has notified values for the relevant rural area under section 68(4), since otherwise the stamp duty value under section 68(5) applies.