Income from Capital Gain Flashcards
Capital gains (S.37) (SS 5a,b)
(Capital asset)
5- Capital asset means property of any kind held by a person , whether or not connected with a business , but does not include
a- any stock-in-trade , consumable stores or raw materials held for the purpose of business;
b- any property for which a depreciation or amortisation deduction is allowed under the head income from Business.
Capital gains (S.37) (SS 5d)
(Capital asset)
d- any movable property held for personal use by the person or his family dependent. However following assets held for personal use by the person or his family dependent shall be considered as capital asset:
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 coin or medallion; or
f- an antique
Capital gains (S.37) (SS.1)
1- A gain arising on the disposal of a capital asset (other than a gain that is exempt from tax) shall be chargeable under the head “Capital Gain”.
Capital gains (S.37) (SS.2)
The gain on the disposal of a capital asset shall be computed as follows;
A-B
Where
A is the consideration received on disposal of the asset; and
B is the cost of the asset
Deduction of losses in computing the amounting chargeable under the head Capital Gain (S.38) (SS.1 , 2)
1- For calculating Capital Gain for a tax year , a deduction shall be allowed for any loss on the disposal of a capital asset.
2- Loss will not be allowed as deduction where gain on the disposal of asset is not chargeable to tax
Deduction of losses in computing the amounting chargeable under the head Capital Gain (S.38) (SS.5)
5- No loss shall be recognized on the disposal of the following capital assets , namely:
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 coin or medallion; or
f- an antique
Deduction of losses in computing the amounting chargeable under the head Capital Gain (S.38) (SS.3)
The loss on the disposal shall be calculated as per following formula:
A - B
Where
A is the cost of the asset; and
B is the consideration received on disposal of the asset
Security (S.37A) (SS.3)
Security means
- share of a public company
- voucher of Pakistan Telecommunication Corporation
- Modaraba Certificate
- an instrument of redeemable capital
- debt securities
- units of exchange traded fund
- derivative profucts
Derivative Products (S.37A) (SS.3)
Derivative products means a financial product which derives its value from underlying security , may be traded on stock exchange and includes deliverable future contracts.
Debt securities (S.37A) (SS.3A)
Debt securities means
a- Corporate debt securities such as term finance certificates (TFCs) , sukuk certificated (sharia compliant bonds) , registered bonds , commercial papers , participation term certificated (PTCs) and all kinds of debt instruments issued by any Pakistani or foreign company registered in Pakistan; and
b- Government debt securities such as treasury bills (T-bills) , federal investment bonds (PIBs) , foreign currency bonds , government papers , municipal bonds , infrastructure bonds and all kinds of debt instruments issued by Federal Government , Provincial Governments.
Capital loss adjustment disallowed (Rule 13 F)
(Wash sale)
Capital loss adjustment shall not be admissible in the following cases, namely
1- Wash Sale
If an investor sustains loss on disposal of a security and in one month’s period he or his related party purchases the same security , thus maintaining his portfolio.
Capital loss adjustment disallowed (Rule 13 F)
(Cross Trade)
Capital loss adjustment shall not be admissible in the following cases, namely
2- Cross Trade
Where coordinate reshuffle of securities between two related accounts of the same investor (or between two related brokerage houses) is undertaken to artificially realize capita losses without selling the securities to an outsider.
Capital loss adjustment disallowed (Rule 13 F)
(Tax Swap Sale)
Capital loss adjustment shall not be admissible in the following cases, namely
3- Tax Swap Sale
In this case investor who realized loss does not repurchase the same security. In this case he chooses another similar security in same sector. Through this he has eliminated tax liability and has also maintained the portfolio at the same risk/return profile.
