Gain on disposal of a capital asset in a

tax year is chargeable under the head

capital gains on accrual basis.

There are two categories of capital assets which have different tax
treatments. The two categories are as under:
1. Section 37:
Capital assets (other than specified in section 37A) which may
include shares of a private company, membership card of a stock
exchange, share in a partnership firm and certain personal assets
specifically categorized as capital assets.
2. Section 37A:
Shares of a public company;
Vouchers of PTCL;
Modaraba certificates;
An instrument of redeemable capital as defined in the
Companies Ordinance 1984; and
Derivative products

1. Section 37: Capital Assets other than specified in S 37A

1.1 Capital asset has been defined as property of any kind,
connected with business or not, but does not include:
i) Stock in trade, consumable or raw materials held for business
ii) Depreciable asset or amortizable asset
(i.e. fixed assets and intangibles for business use)
iii) Movable property held for personal use of the person or any
dependent family member excluding capital assets mentioned in
section 38(5)
Note for students: Immovable property has been excluded from
the above negative list and therefore, immovable property is now
a capital asset subject to capital gain where the holding period is
up to two years.

1.2 Capital gains shall be computed as

consideration received less cost of the capital asset
+ incidental expenses for acquiring and disposing
the capital asset.

1.3 Consideration received shall be the total

amount received or FMV whichever is
higher.
Where an asset is lost or destroyed,
consideration received shall be the scrap
value along with any compensation,
indemnity or damages received under an
insurance policy, agreement, settlement or
judicial decision.

1.4 Capital Gain - Exemption

Capital gain on disposal of the shares of

a company in EPZ (Export processing
Zone) is exempt (Clause 114 P-I 2nd
Schedule)

1.5 Capital gain on immovable property shall be taxable as

a separate block of income at the following rates:
i. 10% of capital gain where the holding period is up to one year
ii. 7.5% of capital gain where the holding period is more than one
year but not more than two years.
iii. No tax where the holding period is more than two years
A provision [section 236C] has also been introduced for advance
collection of tax in respect of sale or transfer of immovable property
as under:
Registration authorities of immovable property shall collect advance
tax @ 0.5% (1% in case of non filer) of the gross consideration from
the transferor which is adjustable from the normal tax liability of the
transferor. This advance tax shall not be collected where the
transferor is the government.
FBR circular 2 of 2012 para 2:
Since capital gain is taxable on disposal of properties held for a
period up to two years therefore, advance tax is also to be collected
from the transferor who held the immovable property for a period up
to two years.

1.6 Where a taxable capital asset (other than immovable property

and capital assets u/s 37A) is held for more than one year then
25% of the capital gain is exempt and 75% is taxable
However, capital loss if any shall not be restricted to 75% and
therefore the full amount of loss shall be set-off or carried forward

1.7 On disposal of the following capital assets, loss if

any shall not be recognized but gain if any is taxable
subject to the holding period of capital asset section
38(5):

i. A painting, sculpture, drawing or other work of art

ii. Jewellery
iii. A rare manuscript, folio or book
iv. A postage stamp or first day cover
v. A coin or medallion
vi. An antique

1.8 Non-recognition Rules

In the following modes of transfer of a capital
asset, no capital gain or loss shall arise where the
recipient is a resident in Pakistan in the relevant
tax year:
i.

ii.
iii.

iv.

Transfer of assets between spouses under an

agreement to live apart
Under a gift, bequest (inheritance) or will
By succession, inheritance or devolution (power of
attorney)
A distribution of assets on dissolution of an AOP or
on liquidation of a company

Non-recognition Rule
The recipient of the capital asset shall be treated
to have acquired the capital asset at the FMV at
the time of such transfer Section 37(4A)

2.2 Public company means [section 2(47)]:

(a) A company listed in Pakistan at the year end
(b) A company in which 50% or more shares are held by:
the Federal or Provincial Government; or
a foreign government; or
a foreign company wholly owned by a foreign government
(c) A unit trust including mutual funds

2.3 Definition of redeemable capital as per section 2(30A) of the

Companies Ordinance 1984 is as under:
"redeemable capital" includes finance obtained on the basis of
participation term certificate (PTC), musharika certificate, term
finance certificate (TFC), or any other security or obligation not
based on interest, other than an ordinary share of a company,
representing an instrument or a certificate of specified
denomination, called the face value or nominal value, evidencing
investment of the holder in the capital of the company on terms
and conditions of the agreement for the issue of such instrument
or certificate or such other certificate or instrument as the Federal
Government may, by notification in the official Gazette, specify for
the purpose.
In short, redeemable capital is any non interest based or profit
based certificates issued by a company other than ordinary
shares.

2.6 Capital gains shall be computed as

consideration received less cost of the capital asset
+ including incidental expenses for acquiring and
disposing the capital asset.

2.7 Consideration received shall be the total

amount received or FMV whichever is higher.
Where an asset is lost or destroyed, consideration
received shall be the scrap value along with any
compensation, indemnity or damages received
under an insurance policy, agreement, settlement
or judicial decision.
2.8 Non-recognition rules shall also apply in

the case of transfer of securities specified in

section 37A.

2.8 Loss adjustment:

Loss on disposal of securities under section 37A
shall be set off only against the gain from any
other securities under section 37A and any
unadjusted loss shall not be carried forward to
the subsequent tax year.