Family assets · Gifts and inheritance
Pakistan does not levy an inheritance tax, and gifts between close relatives are exempt. Both statements are true, and both mislead people every year, because the exemption depends on how the money moved.
Under Section 39(1)(ia) of the Income Tax Ordinance, any amount or the fair market value of any property received without consideration, or received as a gift, is treated as income chargeable under the head Income from Other Sources. The exception is a gift received from a relative as defined in Section 85(5).
That single carve-out is what most families rely on without knowing it exists. It is also narrower in operation than it appears, because the exemption carries a condition that has nothing to do with who gave you the money.
The banking channel rule
For a monetary gift from a relative to be exempt, the funds must be transferred through a banking channel. A cross cheque, an online transfer or a comparable traceable instrument satisfies this. Cash does not.
A cash gift received from a grandparent, parent, spouse, sibling, son or daughter, where the money did not pass through a bank, is added to income chargeable under Income from Other Sources despite the donor plainly being a relative. The relationship is necessary but not sufficient.
The law does not doubt that your father gave you the money. It declines to take your word for it.
This is the single most expensive misunderstanding in this area. Families routinely move substantial sums in cash on the reasonable assumption that a gift within the family cannot be taxable, and discover otherwise when the recipient’s wealth statement is examined and the increase has no traceable origin.
What to do instead
Transfer the money by cross cheque or bank transfer, from the donor’s own account to the recipient’s, and execute a gift deed recording the transaction. The deed should identify the parties, the relationship, the amount or the property, and state that the transfer is made without consideration.
Keep both the deed and the bank record permanently. The gift will surface in a wealth statement as an increase in assets, and the question of where it came from can arise years later.
Capital gains on gifted assets
Section 79 provides that no gain or loss arises on the disposal of an asset by reason of a gift of that asset to a relative as defined in Section 85(5). Transferring a property or shares to a close family member does not therefore trigger a capital gains charge on the transferor.
Withholding on immovable property follows the same logic. Under Section 236K the withholding that normally applies on transfer does not apply to gifts, and genuine gifts between immediate family members are exempt from that deduction.
What survives the transfer is the tax history of the asset. The recipient takes it on, and the acquisition date and cost carried forward will govern the position when they eventually sell, which is why the rules in our guide to capital gains tax on property and securities matter to the recipient of a gift as much as to a purchaser.
Inheritance is different, and simpler
Inheritance is not taxed in Pakistan and does not depend on the banking channel condition, because it is not a gift. It passes by operation of succession law rather than by an act of transfer between living parties.
The documentation differs accordingly. Inheritance is evidenced through succession certificates and the relevant probate or revenue records, not through a gift deed. Attempting to document an inheritance as a gift creates confusion at best, and at worst converts a straightforward exempt receipt into a transaction that has to be justified.
Where the exemption is tested
The scrutiny does not usually arrive when the gift is made. It arrives when the recipient’s declared wealth increases and FBR asks about the source, or when the asset is later sold and the cost of acquisition has to be established.
Both moments are years downstream, and both are won or lost on paperwork created at the time of the transfer. Property transfers additionally interact with fair market valuation tables, which have been revised repeatedly, including substantial cuts to Islamabad valuations and revisions across six cities.
One further point of context. The Supreme Court has been active in this area, and the wider legal position on family property has shifted in recent years, so families relying on arrangements settled long ago should not assume the position is unchanged.
Common questions
Is inheritance taxable in Pakistan?
No. Inheritance is exempt and passes under succession law rather than as a gift. It is evidenced through succession certificates and revenue records rather than a gift deed.
Are gifts from family members taxable?
A gift from a relative as defined in Section 85(5) is exempt, but a monetary gift must be transferred through a banking channel. A cash gift outside the banking system is taxable as Income from Other Sources even when it comes from a parent.
What counts as a banking channel?
A cross cheque, an online bank transfer or a comparable traceable instrument moving funds from the donor’s account to the recipient’s.
Do I need a gift deed?
Yes, you should execute one. It should identify the parties, the relationship, the amount or property, and confirm that the transfer is without consideration. Keep it with the bank record permanently.
Is capital gains tax charged when I gift property to a relative?
No. Section 79 provides that no gain or loss arises on the disposal of an asset by way of gift to a relative as defined in Section 85(5).
Is withholding tax deducted on a gifted property transfer?
Under Section 236K the withholding that applies on transfer does not apply to gifts, and genuine gifts between immediate family members are exempt from that deduction.
When is a gift usually questioned?
Rarely at the time. Typically when the recipient’s wealth statement shows an increase and the source is examined, or when the asset is later sold and the cost of acquisition must be proved.
