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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.
2. Where holding period of a
security is six months or more
but less than twelve months.
3. Where holding period of a
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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