lecture 6 - capital gain 66666

8/12/2019 Lecture 6 - Capital Gain 66666

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TAX MANAGEMENT

HEAD OF INCOME :

CAPITAL GAINS

byCAPTAIN (R) ARSAM AFTAB


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SEQUENCE

Section 37. Capital Gains

What is a Capital Asset

What is Not a Capital Asset

Computation of Capital Gain

Value of Asset

S.38.Deduction of Capital Loss

Computation of Capital Loss S.59. Carry forward of capital losses

S.37A.Capital gain on disposal of Securities

Q & A


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S 37. Capital gains

(1) Subject to this Ordinance, a gain arising

on the disposal of a capital asset

by a person in a tax year,

other than a gain that is exempt from tax

under this Ordinance,

shall be chargeable to tax in that year underthe head Capital Gains.

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What is a Capital Asset?

Sec 2(10) capital asset means a capitalasset as defined in section 37;

Sec 37(5) In this section, capital asset

means property of any kind held by a

person, whether or not connected with a

business, but does not include

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What is NOT Capital Asset?(a) any stock-in-trade, consumable stores or

raw materials held for the purpose ofbusiness;

(b) any property which is entitled to a

depreciation deduction u/s 22 or amortisationdeduction u/s 24;

(c) any immovable property;

(d) any movable property excluding capitalassets specified in section 38(5) held for

personal use by the person or any member of

the persons family dependent on the person6


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Capital Assets as per Sec 38(5)

(a) A painting, sculpture, drawing or other

work of art;

(b)jewellery;

(c) a rare manuscript, folio or book;

(d) a postage stamp or first day cover;

(e) a coinor medallion; or(f) an antique.

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Computation of Capital Gain

(2) Subject to sub-sections (3) and (4), thegain arising on the disposal of a capital asset

by a person shall be computed in accordance

with the following formula, namely:

A B

where

A is the consideration received by theperson on disposal of the asset; and

B is the costof the asset.

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Value of the Asset(4A) Where the capital asset becomes the

property of the person

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(a)under a gift, bequest or will;

(b) by succession, inheritance or devolution;

(c) a distribution of assets on dissolution of an

association of persons; or

(d) on distribution of assets on liquidation of a

company,the fair market value of the asset, on the date

of its transfer or acquisition by the person shall

be treated to be the cost of the asset. 9


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Determination of component B

(4) For the purposes of determiningcomponent B of the formula in sub-section (2),

no amount shall be included in the cost of a

capital asset for any expenditure incurredby a person

(a) that is or may be deductedunder another

provision of this Chapter; or(b) that is referred to in section 21.

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Asset held for more than 1 year

(3) Where a capital asset has been held bya person for more than one year, other than

shares of public companies u/s 37A, the

amount of any gain arising on disposal of

the asset shall be computed in accordance

with the following formula, namely:

A x

where A is the amount of the gain

determined under sub-section (2).

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Sec 38.Deduction of losses

(1) Subject to this Ordinance, in computingthe amount of a person chargeable to tax

under the head Capital Gains for a tax

year, a deduction shall be allowed for any

loss on the disposal of a capital asset by

the person in the year.

(2) No lossshall be deducted under this

section on the disposal of a capital asset

where a gain on the disposal of such asset

would not be chargeable to tax.12


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Sec 38.Deduction of losses

(5) No loss shall be recognized under thisOrdinance on the disposal of the

following capital assets, namely:

(a) A painting, sculpture, drawing or other workof art;

(b) jewellery;

(c) a rare manuscript, folio or book;

(d) a postage stamp or first day cover;

(e) a coin or medallion; or

(f) an antique.

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Computation of Capital Loss(3) The loss arising on the disposal of a

capital asset by a person shall be computed

in accordance with the following formula,

namely: A B; where

A is the cost of the asset; and

B is the consideration received by the

person on disposal of the asset.

(4) The provisions of section 37(4) shall

apply in determining component A of the

formula in section 38 (3).14


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Sec 59. Carry forward of

capital losses(1) Where a person sustains a loss for a tax year

under the head Capital Gains (hereinafter

referred to as a capital loss), the loss shall

not be set off against the persons income, ifany, chargeable under any other head of

income for the year,

but shall be carried forward to the next taxyear and set off against the capital gain, if any,

chargeable under the head Capital Gains for

that year.15


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Sec 59. Carry forward of

capital losses(2) If a capital loss sustained by a person for a tax

year under the head Capital Gains is not wholly

set offthen the amount of the loss not set off shall

be carried forward to the following tax year, and soon, but no loss shall be carried forward to more

than six tax years immediately succeeding the tax

year for which the loss was first computed.

(3) Where a person has a loss carried forwardunder this section for more than one tax year, the

loss of the earliest tax year shall be set off first.

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What is a security?

Sec 37A(3) For the purposes of this sectionsecurity means

share of a public company,

voucherof Pakistan TelecommunicationCorporation,

Modaraba Certificate,

an instrument of redeemable capital; and

derivative products.

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S 37A C it l i


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S 37A. Capital gain on

disposal of securities

(1) The capital gain arising on or after the first dayof July 2010, from disposal of securities held for a

period of less than a year, shall be chargeableto

tax at the rates specified in Division VII of Part I of

the First Schedule: Provided that this section shall not apply if the

securities are held for a period of more than a

year

Provided further that this section shall not apply to

a banking company andan insurance

company.

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Computation of capital gain

on disposal of securities(2) The holding period of a security, for the

purposes of this section, shall be reckoned

from the date of acquisition (whether

before, on or after the thirtieth day of June,2010) to the date of disposal of such

security falling after the thirtieth day of June,

2010. (4) Gain under this section shall be treated

as a separate block of income.

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Computation of capital loss

on disposal of securities(5) Notwithstanding anything contained in

this Ordinance, where a person sustains a

loss on disposal of securities in a tax

year,

the loss shall be set off only against the

gain of the person from any other securities

chargeable to tax under this section and

no loss shall be carried forward to the

subsequent tax year.20


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TABLE

PERIOD

1. Where holding period of a

security is less than six months.


security is six months or more

but less than twelve months.


security is one year or more.

TAX YEAR RATE

2011 10%

2012 10%

2013 12.5%

2014 15%

2015 17.5%

2011 10% 2012 10%

2013 12.5%

2014 15%

2015 17.5%

-------- 0%

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lecture 6 - capital gain 66666

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