Ch#10 Income from capital gain Flashcards
Normal tax regime (Quick Revision)
Main category; Disposal of capital assets Assets covered; -Shares of private company -A, painting , sculpture, drawing or other work of art -Jewellery -a rare manuscript,folio or book -a postage stamp or first day cover -a coin or medallion; -or an antique held for personal use by the person or his family dependent. Factors for gain; Gain will be multiplied by 75 %0if holding period exceeds more than one year.
Separate block (Quick Revision) Securities
Main category; Disposal of securities Assets covered; -Shares of a public company -voucher of Pakistan telecommunication corporation -Modaraba certificates -an instrument of redeemable capital - Debt securities -Units of exchange traded funds and -Derivative products Factor for gain; No concept
Define security?
“Security” means
- Shares of a public company
- voucher of Pakistan telecommunication corporation
- Modaraba certificates
- an instrument of redeemable capital
- Debt securities
- Units of exchange traded funds and
- Derivative products
Separate block Quick Revision (immovable property)
Main category; Disposal of immovable property Assets covered; Disposal of -House -Plot -Land used in business and -Shop not used in business Factor for gain; Gain will be multiplied by relevant factor depending upon holding period
Capital assets[Sec.70]
Capital assets 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 store or raw materials held for the purpose of business.
b) any property for which a depreciation or amortisation deduction is allowed under the head IFB; or
d) any moveable 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 sa capital asset:
- A, painting , sculpture, drawing or other work of art
- Jewellery
- a rare manuscript,folio or book
- a postage stamp or first day cover
- a coin or medallion;
- or an antique
What is not included in cost of capital assets?
Cost ,shall not include any expenditure-
a) which is deducted under another head of income;or
b) which is not allowed as deduction under the head IFB (u/s 21)
FMV of capital assets treated as cost?
Where the capital assets become the property of the person-
a)under a gift from a relative , bequest or will;
b)by succession, inheritance or devolution;
c)on distribution of assets on dissolution of an AOP; or
d)on distribution of assets on liquidation of a company,
The fair market value of the asset ,on the date of it’s transfer or acquisition shall be treated to be the cost of the asset.
Holding period of a security?
The holding period of a security shall be counted from the date of acquisition to the date of disposal.
Define derivative products?
Derivative product means a financial product which derives it’s value from underlying security,may be traded on stock exchange and includes deliverable future contracts.
What is the Criteria for shares of public company to be considered as security?
For the purpose of this section(Capital Gain on disposal of Securities)”shares of public compan”shall be considered as security if such company is a public company at the time of disposal of such shares .
Gain on disposal of Securities?
Gain on disposal of Securities shall be treated as a separate block of income.
Loss on disposal of Securities?
Loss on disposal of Securities in current year shall be setoff only against the gain from any other security.
Loss that has not been set off in current year can be carried forward to the subsequent 3 tax year from the tax year in which loss was firstcomputed.However,loss can be adjusted only against the gain from disposal of Securities.
What is meant by wash sale?
Capital loss adjustment shall not be admissible in this case:-
Wash sale;
If an investor sustains a 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.
What is meant by Cross trade ?
Capital loss adjustment shall not be admissible in this case:-
Cross Trade;
Where coordinated reshuffle of Securities between two related accounts of the same investor (or between two related brokerage houses) is undertaken to artificially realize capital losses without selling the Securities to an outsider.
What is meant by tax swap sale ?
Capital loss adjustment shall not be admissible in this case:-
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 investor. Through this he has eliminated tax liability and has also maintained the portfolio at the same risk return profile.
