In the Philippine jurisdiction, the sale of real property is governed strictly by the National Internal Revenue Code (NIRC), as amended by the TRAIN Law (Republic Act No. 10963). One of the most critical tax implications of such a transaction is the Capital Gains Tax (CGT).

This guide outlines the legal framework, the step-by-step computation process, and the procedural requirements for the settlement of CGT.

I. Legal Definition and Scope

Capital Gains Tax is a tax imposed on the gains presumed to have been realized by the seller from the sale, exchange, or other disposition of capital assets located in the Philippines.

Distinction of Assets:

Capital Assets: Properties not used in trade or business (e.g., a residential home, a vacant lot for investment). These are subject to the 6% CGT.
Ordinary Assets: Properties used in business, such as inventory, depreciable property used in trade, or real property held primarily for sale to customers (e.g., units sold by a real estate developer). These are subject to Income Tax and Creditable Withholding Tax, not CGT.

II. The Tax Base: The "Whichever is Higher" Rule

Under Section 24(D)(1) of the NIRC, the 6% tax rate is not necessarily applied to the actual purchase price. Instead, it is applied to the Gross Selling Price or the Current Fair Market Value (FMV), whichever is higher.

The Fair Market Value is determined by two standards:

Zonal Value: The value established by the Commissioner of Internal Revenue (BIR).
Assessed Value: The value appearing in the Tax Declaration issued by the Provincial, City, or Municipal Assessor.

III. Step-by-Step Computation Guide

To compute the CGT, follow this three-step mathematical verification:

Step 1: Determine the Three Values

Gather the following documents to identify the potential tax bases:

Deed of Absolute Sale: To find the Gross Selling Price (GSP).
Latest Tax Declaration: To find the Assessed Value.
BIR Zonal Values: Accessible via the BIR website for the specific barangay and street where the property is located.

Step 2: Identify the Highest Value

Compare the GSP, the Zonal Value, and the Assessed Value.

Example:

Gross Selling Price: ₱5,000,000

BIR Zonal Value: ₱5,500,000

Assessed Value: ₱4,000,000

In this case, the Tax Base is ₱5,500,000.

Step 3: Apply the 6% Tax Rate

Multiply the highest value by the statutory rate of six percent (6%).

$$\text{Capital Gains Tax} = \text{Tax Base} \times 0.06$$

Using the example above: $$\text{₱5,500,000} \times 0.06 = \text{₱330,000}$$

IV. Filing and Payment Procedures

The responsibility for filing and payment generally falls on the Seller, though the parties may agree otherwise in their contract. However, the BIR holds the seller primarily liable for the tax.

Tax Form: Use BIR Form 1706 (Return for Onerous Transfer of Real Property Classified as Capital Asset).
Deadline: The return must be filed and the tax paid within thirty (30) days following the date of the sale or disposition (the date of notarization of the Deed of Absolute Sale).
Venue: Filing must occur at the Authorized Agent Bank (AAB) under the jurisdiction of the Revenue District Office (RDO) where the property is located.

V. Mandatory Requirements for Title Transfer

Payment of CGT is a condition precedent for the issuance of a Certificate Authorizing Registration (CAR). Without the CAR, the Register of Deeds cannot cancel the old Transfer Certificate of Title (TCT) and issue a new one in favor of the buyer.

Key Documentary Requirements:

Original and photocopy of the Deed of Absolute Sale.
Certified True Copy of the TCT/CCT.
Certified True Copy of the latest Tax Declaration.
Proof of payment of Documentary Stamp Tax (DST).

VI. The Principal Residence Exemption

Under Section 24(D)(2), a natural person may be exempt from CGT if the following conditions are met:

The property sold is the seller's principal residence.
The proceeds are fully utilized in acquiring or constructing a new principal residence within eighteen (18) calendar months from the date of sale.
The BIR is notified within 30 days of the sale through a Notice of Intention.
This exemption can only be availed of once every ten (10) years.
If the full proceeds are not used, the unused portion is subject to a proportional CGT.

VII. Summary Table for Quick Reference

Feature	Details
Tax Rate	6%
Tax Base	Highest of: GSP, Zonal Value, or Assessed Value
Form	BIR Form 1706
Deadline	30 Days from Notarization
Classification	Applicable only to Capital Assets
Primary Liability	Seller (unless otherwise stipulated)