synopsis of Taxes

Income Tax - Capital Gains [12- 251]

CHAPTER-12
CAPITAL GAINS
ft and gain · ·
~:~s,. (37 { 1)] arising from the 'disposal' of 'capital assets ' is taxable under the head Capital

The term 'Capital Asset' has been defined as follows

CAPITAL ASSET [2(11) & 37(5)]
LCapital asset means property of any kind held by a person excluding the following assets :
1. Any stock-in-trade, consumable stores or raw materials;
2. Any depreciable assets· I

3. Any intangible asset on which amortization is allowed u/s 24 ; and

4. Any movable property held for personal use by the person or his fam ily member dependent
upon him. However, the following assets shall be treated as capital assets :
i) A painting, sculpture, drawing or other work of art;
ii) Jewelry;
iii) A rare manuscriµt, folio or book;
iv) A postage stamp or first day cover;
v) A coin or medallion; or
vi) An antique. · /
Note : The property may or may not be held for thefpurpose of business.
Examples of Capital Assets L-
1. Modaraba Certificates.
2. Participation Term Certificates.
3. Term Finance Certificates.
4. Musharika Certificates.
5. Shares of companies.
6. PTC vouc h ers •i ssued by Government of Pakistan .
7. Leasehold rights.
8. Partner's share in an AOP .
9. Immovable property.
COMPUTATION OF CAPITAL GAIN (37(2), (3) & (4)]
•ncome under this head there shou ld be a gain on 'disposal ' of the
In order to charge _an _i mputed as below:
'capital assets', which 15 co .
. t· received on disposal of asset XXX
Cons1dera ion xxx
Less· Cost of the asset --
Gain./ (Loss) on disposal of asset 2QQ(
 [1 2- 252]
Income Ta.x Capital Gains
Synupsis of Taxes

"'otes: .d ntal expend·ture ·ncurred

I T Ordinance the inc e
~ 2
As per sect on 76 , o f t h e ncorri e ax h asset Thus any experises on
or d sposal of asset a so forms a oart of the cost oft e oss
d,sposal sha also be deducted I"' order to compute the g~n or amounts shall not be
'Nhile detenn ining the cost of cap,ta asset the folio 9
2
incl uded. [38 (4)] O
ther head of income-
iJ Any expenditure trat s or rPay be deducted under any '

and 21 of th e Incom e
Any expend:ture tnat Is rendered inadmissible under section

L e 12.1
Tax Ordinance

~/Ir. Raza purchased 10 000 shares of ABC Limited (a non-listed company) @ Rs ._

share rle Incurrea Rs 1 000 on acquisition/transfer of shares During the year he
15
per
disposed
of all the shares @ Rs. 20 per share and paid Rs. 1 500 as commIss1on to the broker.

Required. Compute the amount of capital gain of Mr Raza

Answer:
Rs 200,000
Consideration received (10,000 x Rs 20)
Less Cost of Shares
Paid on purcl--iase of shares (10,000 x Rs. 15) 150,000
Expenses on purchase 1,000
1 .500 152,500
Expenses or disposa
~ n on disposal of shares 47 500

✓ "'!.!! ON CAPITAL GAINS [Clause (5B) of Part-II of Second Schedu le)

Tax @ 10% of t ca ital ain shall be charged if the gain is from the sale of shares or
assets by a private limited compan o Private Equity and Venture Capital Fund.

~ A R K E T VALUE AS COST OF CAPITAL ASSET (37(4A)]

The fair market value on the date on which an asset is transferred or acquired by a person
shall be treated as its cost 1f the capital asset becomes the property of a person under any of
the following cases:
1 Gift from a relat1ve , 2. Bequest ,
3. Will, 4. Succession ,
5 Inheritance , 6. Devolution ,
7. Distribution of asset on dissolution of an AOP , or
8. Distribution of asset on liquidation of a company.
'Relative'. in relation to an ir:tdividual, means·
1. ~n. a_ncestor, a descendant of any of the grandparents , or an adopted child, of the
md1v1dual, or of a spouse of the individual; or
2 A spouse of the individual or of any person specified above . [S 5 (S)]
-
.!',~ynopsis of Taxes
Incom e Tax Capita l Gains (12- ..,') ,]
GAJN ON DISP OSAL
. AFTE R ONE YEAR [37(3) ]
Wher e a capita l asset ( h " -
. ·t·ton then
acquI s1 the gainwf ICh IS t axa bl e under NTR) is dispo sed of after
• one year of its
actua I gain on dispo sal R or incom
. . e t
ax purpo ses shall be taken as 314 th (i.e. 75%) of the
Exam ple • emain in 1;4 th ('
_ g ,
i.e., 25%) of the gain shall be treate d as
12 2 exem pt.
C onsid ering the facts of the .
after one year of the pur h earlie r exam ple ( 12.1 ), assum
e that Mr. Raza sold the share s
·t c ase. The amou nt of capita l gain shall be as below ·
A c ua I Capt aI gain
t (Rs 200 ·
C a pital gain fort · ' 0 OO - Rs. 152,500) = 47 500
ax purpo ses (47,500 x 75%) = 35 625
Note : The abov e treatm e t h .
n s a 11 not be applic . .
able to the follow ing capita l assets :
1- Share s of public comp anies;
2. V ou chers of Pakist an T elecom munic ation Corpo ration ;
3. Moda ra ba certifi cates ; and
4. Any instru ment of redee mable capita l.
Secti on 37 A of the Incom e Tax Ordin ance , 200 1 provi
des a separ ate tax treatm ent for
abov e-refe rred asset s . The releva nt provisions are discus
sed below.
CAPI TAL GAIN ON IMMOVAB LE PROPERTY [37 (1A), (3A)
& Div ision-V III , Part-I of First
Sche dule]
Gain on dispo sal of immo vable prope rty is taxab le as a
separ ate block of incom e. For the
purpo se of charg ing tax on thi s incom e immo vable prope
rties are divide d into the foll owing
two categ ories :
1. Open plots; and
2. C on st ru cted prope rties.
apital gain is based on the holding period of the immov able
Am ount of t axa bl e c prope rty
shall be deter mined as below :
·
Immo vable Prope rty [ 37 ( 3A)]
Holding Period T axab le Gain
S. No.
Upto one ( 1) year A
1.
More than one year and upto two (2) years A x 3/4
2.
More than 2 year and upto 3 years A X 1/2
3.
More than 3 year and upto 4 years A X 1/4
4. .
Excee ding eight (8) years 0
5.
• ain on disposal of immovable property computed as below :
'A' is the capita 1 g
Note: Here
 Synopsis of Taxes Income Tax Capital Gains (1 2- ?54]

Disposal consideration XXX

Less : Cost of acquisition XXX
Gain/ (Loss) on disposal XXX

Tax on Capital Gain

Tax on gain on disposal of immovable property (as determined above) shall be charged to
tax at the following rates:

S. No. Amount of Gain Tax Rate I

1. Uptc Rs. 5,000 ,000 2.5% I
2. Rs. 5,000 ,001 to Rs. 10,000 ,000 5%
3. Rs. 10,000,001 to Rs. 15,000,000 7.5%
4. Exceeding Rs . 15,000,000 10%

Note: Amount of tax payable on capital gain on disposal of immovable property shal l be
reduced by fifty percent (50%) on the first sale of immovable property acquired or
allotted to ex-servicemen and serving personnel of Armed Forces or ex-employees or
serving personnel of Federal and Provincial Governments, being original allottees of
the immovable property, duly certified by the allotment authority.
Amount of tax payable shall be reduced by seventy-five percent (75%) for capital
gains arising after completion of three years from the date of acquisition of immovable
property. [Clause (9A), Part-Ill of Second Schedule]
Property Allotted to Dependents of Shaheed, etc. [236C(4 )]
Gain on disposc=tl of immovable property shall not be taxable under the following cases :
1. The seller is dependent of:
i) A shaheed belonging to Pakistan Armed Forces;
ii) A person who dies while in service of the Pakistan Armed Forces or the Federal
and Provincial Governments; or
2. First sale of immovable property which has acquired or allotted as an original allottee,
duly certified by t-he official allotment authority.

CAPITAL GAIN ON DISPOSAL OF SECURITIES [37A]

'Securities' is a category of 'capital assets' introduced through the Finance Act, 201 o.
'Security' means the following capital assets:
1. Share of a public company;
2. Voucher of Pakistan Telecommunication Corporation;
3. Modaraba certificate;
4. An instrument of redeemable capital;
5. Debt securities; and
6. Derivative products (e.g., treasury bonds).
_S-'----y_n~op_s_is----'of=--Tax_e_s _ _ _ _ _ _ J.ncome Tax - Capital Gains
[12- 254]

Disposal consider ation XXX

Less: C o st of acquisition XXX
Gain/ (Loss ) on disposal XXX

Tax on Capita l Gain

to
Tax on gain on disposal o'f imm ovable property (as determin ed above) shall be charged
tax at the foll owing rates :

S. No. Amount of Gain Tax Rate

1. Uptc Rs. 5, 000 ,000 2.5%

2. Rs. 5,000,001 to Rs. 10,000,00 0 5%

3. Rs. 10,000,001 to Rs. 15,000,00 0 7.5%

4. Exceedin g Rs . 15,000,000 10%

Note: Amount of tax payable on capital gain on disposal of immovab le property shall be
reduced by fifty percent (50%) on the first sale of immovab le property acquired or
allotted to ex-servic emen and serving personnel of Armed Forces or ex-emplo yees or
serving personne l of Federal and Provincial Governments, being original allottees of
the immovab le property, duly certified by the allotment authority.
Amount of tax payable shall be reduced by seventy-five percent (75%) for capital
gains arising after completion of three years from the date of acquisition of immovab le
property. [Clause (9A), Part-Ill of Second Schedule]
Property Allotted to Dependents of Shaheed, etc. [236C(4)]
Gain on disposc=tl of immovab le property shall not be taxable under the following cases :
1. The seller is depende nt of:
i) A shaheed belonging to Pakistan Armed Forces;
ii) A person who dies while in service of the Pakistan Armed Forces or the Federal
and Provincia l Governments; or
2. First sale of immovab le property which has acquired or allotted as an original allottee,
duly certified by tfle official allotment authority.

CAPITAL GAIN ON DISPOSAL OF SECURITIES [37A]

'Securities' is a category of 'capital assets' introduced through the Finance Act, 201 0.
'Security' means the following capital assets:
1. Share of a public company;
2. Voucher of Pakistan Telecommunication Corporation;
3. Modarab a certificate;
4. An instrume nt of redeemable capital;
5. Debt securities; and
6. Derivative products (e .g., treasury bonds).
 ,opsis of Tax~ ..,.
S
~ -- - III com, • '/ in ( 'aflt/{1/ <,'{Ii,, .,

te: ·s1w res of a public co 171 Pd tJy , slii 1II bt' c.011•,1do1od rn, •,u, ,oily 11 •,t,c
.. 1 t, , rnnp.tri y ,., · 1
r,O
pu
blic co
m pany at the lime of d1spo!-i,ll ul ~.w I, ~.1 u ~.. i;"
•oeb t Securities' mea11s - [37 A(3A) I

~Co ~por~ te De bt Sec urities) such as I unn r ,n, 111 c:1J

Cor 1111( ,;JI( •', ( 11 <,. •,), -; iJkul<
1

1.
Allrllr1u,c ,1nl I >nput•, ,
1.., ert!fi.cates (Shar iah C~mp l1ant Bonds), Hogl•~ lurod Hotid•,
(
1

r1util n 1:,~,1Jod by ;irty

Pa,i .ic,pa~ion Term Cert1f1ca tes W res) and <111 kind~. of doh!
111•,lrrn
Paki stani or foreig n com pa ·storod 111 I >; 1k1 ,l;u1 , :tr ,(
• ny or corpo wt,011 ruu1 J 1

'Gov ernm ent Debt Secur ities ' such c:1s 1 roHsu ry Hil l:, (
I Bi ll~,), I odorn l lnvo:: lrnon l
2.
80nd s (FIBs ) , Pakistan Investm ent Bonds (P IB s), f-orol qn Curro ncy Bon ds,
and cill kinds of deb t
Gove rnmen t Papers, Munic ipal Bonds Infras tructure Bonds
1
nm on l, I ocal Autho rities
instru ment issued by Feder al Governm ent, Prov incial Gover
and other statut ory bodie s.
contracts entere d into by the
Note : The 'deriv ative produ cts' 'include futu re comm odity
ed by physi ca l delive ry .
memb ers of Pakis tan Merca ntile Exchange wh ether or not settl
''deriv ed '' from other finan cial
'Deriv atives ' is a general term for financial assets that are
e option (one fin ancia l asset ) 1s
assets . For exam ple, an option to buy a treasury bond , th
of th e option depe nd s on the
derive d from the bond (anoth er financial asset) . The valu e
r. For exampl e, th e value of an
performance of the bond. This can be taken a stage furthe
the future s contra ct, wh ich, in
option on a future s contra ct depends on the performance of
ty. Derivatives exist fo r asset s
turn , will vary with the value of the underlying contract of securi
cy excha nge rates and stock
(like equ ities or bonds) as wel l as for interest rates, curren
give invest ors levera ge in the
market indice s. The main advantage of derivatives is that they
their returns or help to hedge
market in whi ch they are trading . This can either enhance
risks.
Comp utatio n of Capital Gain [37A(1A)] .
as below :
Capital gain / (Loss ) on dispos al of a securi ty shall be computed
Dispo sal consideration XXX
Less: Cost of acquisition XXX
Capital gain / (Loss) XXX
Schedule)
Taxation of Gain on secur ities [Division - VII of Part - I of First
. • g from disposal of .'secur ities ' shall
be treated as a separ ate block of
Cap,·t a 1 gain
•
ansrn
income and charged to tax at the following rates:
Tax Years 2018 to 2020 & Onwa rds
Holdin g Period of Security Secur ities acqu ired
S.# before 01 .07.20 16 after 01 .0?. 2016
15%
Less than 12 months
1. 12 .5%
th or more but less than 24 months 15%
2. 12 mon s
but securit y was acquired on or 7.5%
3. 24 month ~ or mo~~e r 01-07- 2013

Where security was acquired before

~

0% 0%

~
4. 01-07~2013
-
Synopsis of Taxes Income Tax - Capital Gains

Future commodity contracts by the members of

5. 5% 5%
Pakistan Mercantile Exchange

Tax Rates for Cash Settled Derivatives

The rate of tax on cash settled derivatives traded on the stock exchange shall be 5% for the _
tax years 2018 to 2020.

Notes:
1. Any gain on disposal of 'securities' by a banking company or an insurance company-·
shall not be taxable under section 37 A.
2. Holding period of a security shall be reckoned from the date of its acquisitio n to the_
date of its disposal.

Loss on Disposal of Security [37 A(5)]

Any loss sustained by a person on disposal of 'securities' shall be treated separatel y from.
any other loss sustained by him. ·f•.
•.
Any loss sustained on disposal of a 'security' in a tax year shall be set-off only against an>J
gain of the person from any other 'security' disposed off during that tax year.
Carry Forvvard of Loss
Loss for Tax Years Up to 2018: Loss on disposal of a 'security' shall not be carried forwarci,·
to the subseque nt tax years. '-\'

Loss for Tax Years 2019 and Onwards: Unadjuste d loss shall be carried forward fo'r
adjustment against gain on disposal of securities . Loss may be adjusted during three (3) taf
years immediat ely succeeding the tax year for which the loss was first com puted. -f
CAPITAL GAIN TAX [1008 & Eighth Schedule]
Cap!tal gai~ on listed securities cover~~ u/s 37 A is taxed under separate tax regime (STR).:
Capital gain and tax on such securities shall be computed , determined , coll ected and·
deposited according to the rules specified in the Eighth Schedule . :
The above provisions are not applicable to the following persons:
1. A mutual fund;
2. A banking company;
3. A non-banking finance company;
4. An insurance company subject to tax under the Fourth Schedule ·
5. A modaraba; '
6. Any other person or class of persons notified by the FBR; and
7. A person who intends not to opt for det~rmination any payment of tax under Eighth
S~hedule. Such a person ~h~II file an irrevocable option to NCCPL after obtaining-
prior ~pproval from_ Comm1ss1oner. Under such a case exemption from enquiries .
regarding source of investment shall not apply. [R-5] ·
 syno psis of Ta_Yes [12- 257]
Incom e Ta.x - Capital Gains

ON LISTED SECURITIES [8 th Schedule]

RUL ES FOR COMPUTATION OF CAPITAL GAIN
rv,anner and Basis of c •
omputat,on of Capital Gain and Tax Ther eon [R-1]
per Eighth Schedule and tax on
1· .~a~it~/ ~ain on listed securities shall be computed as
n earning the income by
~ ~- a e col~ected and deposited on behalf of the perso
PL) in the manner prescribed in
tha \anal Cleanng Company of Pakistan Limited (NCC
L shall develop an automated
e ncome Tax Rules, 2002. For this purpose the NCCP
system .
(CDC) shall furnish the required
2. _Central _Depository Company of Pakistan Limited
If the said information is not
,nfo':11at,on to NCCPL for discharging it obligations.
shall exercise the powers to
provided , NCCPL shall forward the details to CIR who
enfo rce furnishing the information, etc.
antile Exchange and any othe r
3. The Asset Management Companies, Pakistan Merc
by NCCPL for discharging its
person shall furnish the information when required
obligations.
funds and gain or loss on trading
4. Capita/ gain on disposal of units of open end mutual
Exchange shall be determined
of future commodities contracts on Pakistan Mercantile
ted and deposited on behalf of
as per Eighth Schedule and tax thereon be collec
taxp ayer by NCCPL.
yer of taxable capital gain for the
5. NCC PL shall issue an annual certificate to the taxpa
may be issued by NCCPL is so
financial year. A certificate for a shorter period
oner. This certificate shall be
requested by the taxpayer or required by the Commissi
income and shall be filed by the
cons idere d as conclusive evidence in respect of such
taxp ayer along with his return of income.
ter the NCCPL shall furnish to the
6_ With in forty-five (45) days of the e~d of ~a~h qhuar
1 n in t at quarter and tax computed on such
FBR a prescribed statement of capita ga,_
sp~cified in Division-VII, Part-I
incom e. Tax shall be computed by applying the rates
of First Schedule.
yer subject to tax under Eighth
Th 'S per Tax' u/s 48 shall also apply to the taxpa
7 specified in Division-llA of Part-I of
· Sc~e d~ e. Supe r Tax shall be charged at the rates
the First Schedul e.
2
Sources of Investment [R- 1
.
. d t w th e provisions of this rule are not being discussed
Bein g redun an no ,
·i·ty f Cert ain Provision s of Jnco me Tax Ordi
nance, 2001 [R-3]
.
Non-appl1cab1 1 ° and deduction of tax at
. . s for coll ecti on and recovery of tax, advance tax
Ordinance, 2001 shall not apply on
Respecti~e provis,~n 137 through 1·sa of the Income Tax
exception, i.e., the
source ~aid d~~ 5~~·e ct to tax under ~ighth Schedule. There is only one
1 for recovery of tax where it is unable to
the capita/ gain f t th e FBR a partic ul ar case
relating to recovery of tax shall
NCCPL may re ert of tax Under such a case the provisions
reco ver the amoun ° ·
appl y.
Synopsis of Ta.xes Income Tax Capital Gains

Payment of Tax Collected by NCCPL [R-4]

The amount collected by NCCPL under the Eighth.Sche dule shall be deposited in .a s~parate
bank account maintained in National Bank of Pakistan. This amount (al ong wi th interest
st
accrued thereon) shall be paid to the FBR on yearly basis by 31 day of July next following
the financial year in which collection was made.
Responsibi lity and Obligation of NCCPL [R-6]
1 An authorized authority shall conduct regular system and procedural audits of NCCPL - ~
on quarterly basis to verify the implementat ion of applicable rules. The authorities.~
entitled to conduct such audit may be: J
i) Pakistan Revenue Automation limited (PRAL);
ii) A company incorporated under the Companies Act, 2017;
iii) Any other co_m pany or firm approved by the FBR; and
iv) Any authority appointed u/s 209 of the Income Tax Ordinance, 2001, not below J
the level of an Additional Commission er Inland Revenue. °1;"

2. The recommend ations of audit report as approved by the Commission er shall be/
implemente d by NCCPL, who shall also make necessary adjustments for short or:1t
excessive deductions of tax. Under this case no penal action shall be taken against;;
NCCPL on account of any error, omission or mistake that .has occurred from ·~·
application of the system. Ji
-t1'!
3. NCCPL shall refer a particular case to the FBR for recovery of tax if it is unable to":
recover the amount of tax.

Note: For detailed rules in this regard the reader is advised to refer to Rules 13A through{
13P of the Income Tax Rules, 2002. :..
.,
·1~:'·.
TREATMEN T OF CAPITAL LOSSES [38] "'
,u,

While computing the income chargeable to tax under the head "Capital Gains", any losses·i·
on disposal of capital asset (taxable under NTR) shall be dealt with as below: ,~
"'
1. Any capital loss shall be deducted from capital gain on disposal of any other capita( :
asset. [38( 1)] -:r:'
2. Where a gain on disposal of a capital a~set is not ~ha~geable to tax, the loss in respec~(
of such asset cannot be deducted while computing income under the head "Capitat\~
Gain". (38(2)] - -::if
'
3. Loss on disposal of capital asset is computed by deducting the consideration receivecr./
on disposal out of the cost of the asset. [38(3)] - f
; T~

4. Any loss on disposal of the following assets is not recognized under the Income Ta>t~\
Ordinance, 2001: [38(5)] ;,;
'-~

i) A painting, sculpture, drawing or other work of art;

ii) Jewelry;
 ,nsis of Ta..-.,;,es
S,f ffOr_ Income T,
· G ·
llX -CaPita/
ains
[ 12- 259)
iii) A rare manus cript f 1. -
' o io or book·
iv) A postage stamp or fi day c '
irst
A coin- over;
v) '
vi) A Medallion; and
vii) An antique.

Notes:
Non-recog niti on of a loss mea th
against other incomes. ns at such a loss cannot be set-off or carri ed forward

Section 38(5) prohibits the reco T . .

2. of certain capital losses. However, it is silent
about the ga ins in respect of bgni ion
recogn ized and chargeable to t:x~ve-referred assets. It means any such gain will be

3. Los~ on disposal of a 'security '. shall not be covered under this section (i. e., section
38), rather, shall be treated as discussed under section 37A.

COST OF ACQUISITION [Rule-13K(d)]

r
Cost of Acquis ition ' of any security means the market price of the security which the investo
g
pays or would have pa'id to purchase such security. Besides this general rule , the followin
principles shall apply ·while the cost of securities acquired:
I Cost of Acquisition
5.# Transaction
The market price of the security paid by the investor
1. Purchase of shares
Discounted price at which the right shares are issued
2. Right shares
Market price of the security at which the d~ceased
through
3. Acquisition person paid or would have paid to purchase such
bequest or inheritance
security
- rket rice of bonus shares immediately followin~ the
4. Bonus shares Ma P ue which the investor would have paid to
bonus Iss
urchase such shares .
p
-- 5. Initial public offering
Actual price paid to the issuer

EXEMPTION OF CAPITA~ GAIN;concessions"

Refer to Chapter "ExemptJOns an