ASSALAM-O-ALIAKUM

Capital gain
Section 37
 What is Capital gain
• A profit from the sale of property or an
investment
• A gain arising on the disposal of a capital asset
by a person in a tax year, (except exempt gain)
shall be chargeable to tax under the head capital
gains.
• Section 11 of income tax ordinance 2001,
provides that capital gain is fourth source of
income for a person
• A capital gains tax (CGT) is a tax on capital
gains, the profit realized on the sale of a non-
inventory asset that was greater than the
amount realized on the sale. The most
common capital gains are realized from the
sale of stocks, bonds, precious metals, and
property.
 Capital gain on disposal of
immoveable property
• If a person disposes of an immovable property
he has to pay tax on capital gains on such
disposal according to following procedure during
tax year 2017 onwards
 Rates of tax under section
37(IA)
S PERIOD RATES OF TAX
NO.
I. For immovable property acquired before 01.07.2016
Where the holding period is up to 3 year 5%
Where the holding period is more than 3 year 0%
II. If the property was acquired on or after 01.07.2016
Where the holding period of immovable property is up to one 10%
year
Where the holding period is one year or more but less than 2 7.5%
years
Where the holding period is two year or more but less than 3 5%
years

Where the holding period is more than 3 years 0%

Disposal of any other capital asset
within twelve months
• Where the capital gain has arisen as a result of
disposal of capital asset within twelve months
from the date of acquisition in the had of person.
following formula apply

Sale Price - Purchase Price = Capital Gain

.
 Example

Let's assume you purchase 100 share of XYZ

Company for RS1 per share. After three months,
the share price increases to RS5. This means
the value of the investment has increased from
RS100 to RS500, for a capital gain of RS400.
• Where the capital asset becomes the property of
the person-

(a) under a gift, bequest or will;

(b) by succession , inheritance or devolution;
(c) distribution of assets on dissolution of an
association of persons; or
 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.
Disposal of any other capital asset
after twelve months
• Where the capital gain has arisen as a result of
disposal of capital asset after twelve months
from the date of their acquisition
• Apply the following formula:
Cx3/4
• No tax will be payable if the immoveable
property is held for more the two year
 Deduction of capital losses
(section 38)
1. A capital loss: is a decrease in the value of
an investment. It is the difference between
the sale price and the purchase price
(the basis) of an asset.
formula for capital loss
Purchase Price - Sale Price = Capital Loss

Note: that this formula assumes the purchase price is higher than the sale
price. If an investor sells an asset for more than he or she paid, this is called
a capital gain.
 Example

Let's assume you purchase 100 shares of XYZ

Company for RS5 per share. After three
months, the share price decreases to RS1. This
means the value of the investment has
decreased from RS500 to $100, for a capital
loss of RS400.
 continue

2. Any loss on disposal of a capital asset by the

person during the year shall be deducted from
the capital gain.
3. No loss shall be deducted on disposal of the
capital asset where a gain on the disposal of
asset is not chargeable to tax.
4. No loss shall be recognized under the Income Tax
Ordinance, 2001 on the disposal of following capital
assets,
(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 gain on disposal of
securities
The gain arising on the disposal of a
security by a person shall be computed in
accordance with the following formula:
• Gain = (Consideration received by the person on
disposal of the security) – (Cost of acquisition of
the security)
• Gain from capital assets under this section shall
not apply on gain on disposal of securities by a
banking company or an insurance company.
S.NO PERIOD TAX YEAR RATE OF TAX

(1) (2) (3) (4)

FILLER NON
FILLER
Where holding period of a security is less than 12 2016 15% 18%
months.

Where holding period of a security is equal or 2016 12.5% 16%

more than 12 months but less than 24 months.

Where holding period of a security is equal or 2016 7.5 % 11%

more than 24 months but less than four years.

Where holding period of a security is equal or 2016 0%

more than four years.
• Capital gain arising on the disposal of any security
shall be computed on the basis of First in First out
(FIFO) inventory accounting method. However, FIFO
method shall not apply in respect of sale of shares
purchased on the same trading day. In that case gain
or loss shall be computed by applying the average
method.
 Exempted capital gain

Any income chargeable under the head "capital

gains" derived by a person from an industrial
undertaking set up in an area declared by the
Federal Government to be a "Zone" within the
meaning of the Export Processing Zones
Authority Ordinance, 1980 (IV of 1980).