CAPITAL GAIN

Section 11 of the Income Tax Ordinance, 2001, provides that capital gain is the fourth source of income for a person and is chargeable to tax under this head, other than a gain which is exempt from tax.

Explanation

Capital Gain It means any gain arising from the disposal of capital asset. Such as income shall be chargeable under the head “capital gain” and shall be deemed to be the income of that year in which disposal took place.

COMPUTATION OF CAPITAL GAIN

The gain arising from disposal of a capital asset other than securities held by a person shall be computed according to the following procedure:

Gain on Disposal of Immovable Property

If a person disposes of immovable property, he has to pay tax on the capital gains on such disposal. If the immovable property is held upto one year the rate of tax applicable will be 10% and if the property is held for more than one year but not more than two years the rate of tax charged will be 5% of capital gain.

Disposal of 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 their acquisition in the hands of the persons, then apply the following formula:

A-B C

A is the consideration received by the person on disposal of asset,

B is the cost of the asset, and

C is the capital gain.

Explanation

Where the capital asset becomes the property of the person:

(a) under gift, bequest or will;

(b) by succession, inheritance or devolution;

(e) a distribution of assets on dissolution of an association of persons; or

(d) on distribution of asset 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.

Note: The following expenses shall not be included in the cost of the asset [section 38(4)]:

(a) Any expenditure incurred by a person that is allowed as deduction under any other provision of the Income Tax Ordinance.

(b) Any expenditure incurred by a person that is not wholly and exclusively in connection with the disposal of asset.

Disposal of Capital Asset after Twelve Months

Where the capital gain has arisen as a Dfa Ho result of disposal of capital asset after twelve months from the date of their acquisition apply the following

C is the amount of the gain determined as above.