Chap 10: IFCG Flashcards
Sec 37
Define Capital Assets
Capital asset means property of every kind held by a person, whether or not connected with a
business, but does not include:
any stock-in-trade, consumable stores or raw materials held for the purpose of business;
any property for which a depreciation or amortization deduction is allowed under the head IFB ; or
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 dependants shall be considered as capital assets:
* 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.
Tax treatment of disposal of Capital assets under NTR
Category 1 ( Pvt Co. shares)
-Gain is income
-Loss is allowed as deduction
Category 2 (jewellery,painting,…)
-Gain is income
-Loss is not allowed as deduction
Exempt Asset
-Gain is not an income
-Loss is not allowed as deduction
The gain is taxable in the year in which it is earned and not the year i
It means if we sell shares in Ty 2016 and receive cash in Ty 2017, income will be taxed in Ty 2016.
Sec 37
How Cost of Capital Asset is determined ?
Gain= A - B
Cost (B) shall not include any expenditure–
* which is deducted under another head of income; or
* which is not allowed as deduction under the head IFB
Business k chapter mein ‘not allowed’ ki list di gai ha, es jaisa kharch
Rule 13H
Payment of advance tax on capital gain (securities)
Every investor other than individual(AOP, Co.) shall e-file statement of advance tax on capital gain on the
prescribed format within 7 days after the end of each quarter and will pay the tax.
If the sole business of a company is to manage its investment in different subsidiaries then income of company would be:
* dividend income and
* capital gain
Such income of the company would be chargeable to tax under the head IFB.
Jis AOP, Co. ka kaam hi shares khareed k bechna ha (investment companies
Sec 37A
‘SECURITY’ means?
Security means
* share of a public company,
* voucher of Pakistan Telecommunication Corporation,
* Modaraba Certificate,
* an instrument of redeemable capital,
* unit of exchange traded fund,
* debt securities and
* derivative products.
“Derivative products” means a financial product which derives its value
“bonus shares” includes bonus units in a unit trust.
Sec 37A
Capital gain on disposal of SECURITIES
1A. The gain arising on the disposal of a security shall be calculated as follows: Gain = A – B
Where A is the consideration received by the person on disposal of the security; and
B is the cost of acquisition of the security.
1. The capital gain from disposal of securities (other than gain exempt from tax) shall be chargeable to tax at prescribed rates.
Provisions of sec37A shall not apply to (a banking co. and an insurance co.)
2. The holding period of a security shall be counted from date of acquisition to the date of disposal
3. Security definitio
3B. “Shares of public co.” shall be considered a s security if such company is a public co. at the time of disposal of such shares.
4. Gain on securities shall be treated as a seperate block of income.
5. Loss on disposal of securities…
6. Gain on security shall be computed on the basis of FIFO method.[If shares are sold on same day, average method will apply]
Holding period of security shall be counted from the date of acquisition to the date of disposal.
Sec 37A
Tax treatment of Capital loss on disposal of securities
Loss on disposal of securities in current year shall be set off only against the gain that has not been setoff in current year can only be carried forward to subsequent 3 years from the Ty in which loss was first computed. However loss can be adjusted only against the gain from disposal of securities.
Rule 13F
Capital loss adjustment shall be disallowed in which cases?
Capital loss adjustment shall not be admissible in the following cases, namely
1. Wash Sale
2. Cross Trade
3. Tax Swap Sale
Capital loss adjustment disallowed
Wash Sale
If an invester 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
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.
Capital loss adjustment disallowed
Tax Swap Sale
In this case invester who realized loss does not repurchase the same
security. In this case he chooses another similar security in the same sector. Through this he has
eliminated tax and has also maintained the portfolio
at the same risk/return profile.
Sec 38
Deduction of losses in computing the amount chargeable under the head ‘ Capital gains’
