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Taxation Managment

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Taxation Management ­ FIN 623
VU
MODULE 9
LESSON 9.38
CAPITAL GAINS
Capital gain 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 under the
head "Capital gains".
Computation of Capital Gain
Capital gain shall be computed in accordance with following formula:
A-B
o A is the consideration received by the person on disposal of the capital asset
o B is the cost of the asset.
If capital asset has been held by a person for more than one year, the gain shall be considered as 3/4th of
total capital gain derived on disposal of capital asset.
Example:
Say capital gain is Rs 100,000, if the capital asset is disposed of after retaining for more than one year, then
gain chargeable to tax would be as under:
100,000 x = Rs 75,000
No amount shall be included in the cost of the capital asset (B as outlined in the formula) for any
expenditure incurred by a person where, a capital asset becomes the property of the person as outlined
below:
a)  Under a gift 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.
Deductions of losses in computing the amount chargeable under the head "Capital Gains" sec 38
Deductions shall be allowed under sec 38 for any loss on the disposal of a capital asset by the person in the
year.
No loss shall be recognized under this ordinance on the disposal of the following capital assets:
A painting, sculpture, drawing or other work of art
Jewelry
A rare manuscript, folio or book
A postage stamp
A coin or medallion or
An antique
`Capital Asset' means property of any kind held by a tax payer, whether or not connected with business
but does not include the following:
Assets Excluded From the Definition of "Capital Asset"
Any stock-in-trade (not being stocks and shares), consumable stores or raw materials held for the
purpose of business.
Any property with respect to which the person is entitled to a depreciation deduction under section 22
or amortization deduction under section 24;
Any immovable property; or
Any movable property (excluding capital assets specified in sub section (5) of section 38) held for
personal use by the person or any member of the person's family dependent on the person.
"Capital Assets" Include among others the following:
Movable assets.
Immovable Assets (excluding Immoveable Property)
Tangible Assets
Intangible Assets etc
Share of partner/member in a firm or AOP (in this ordinance even firms are treated as AOP)
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Taxation Management ­ FIN 623
VU
Mining rights
Industrial licenses & import/export licenses acquired for consideration
Tenancy right or leasehold rights
Foreign currency
Right to subscribe for shares
The contractual right of a purchaser to obtain title to an immovable property
A license to manufacture certain product or render any services (know as franchise)
Goodwill for which payment has been made. Self-created goodwill does not come into the ambit of
chargeability under this head.
All precious metals, gems, stones, antique pieces and Jewelry which are not held by the assessee for his
family members dependent on him. This includes gold and silver coins, art collections etc
Term Disposal ­ Defined:
(Section 2(8) read with section 75)
Some Examples of Disposal:
i)   Transfer of capital asset by a subsidiary company to a parent company or vice versa
ii)   Any transfer, in a scheme of amalgamation, or a capital asset by the amalgamating company to the
amalgamated company.
iii)   Transfer of share by a share holder in a scheme of amalgamation of companies.
iv)   Any transfer of a capital asset by a wholly-owned subsidiary company to its Pakistani holding company.
v)   Any transfer of capital asset being any work of art, archaeological, scientific nature or art collection,
book, manuscript, drawing, painting, photograph or paint, to the Government or a University or the
National Museums, National Art Gallery, National Archives or any other such public museum or
institution.
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Table of Contents:
  1. AN OVERVIEW OF TAXATION
  2. What is Fiscal Policy, Canons of Taxation
  3. Type of Taxes, Taxation Management
  4. BASIC FEATURES OF INCOME TAX
  5. STATUTORY DEFINITIONS
  6. IMPORTANT DEFINITIONS
  7. DETERMINATION OF LEGAL STATUS OF A PERSON
  8. HEADS OF INCOME
  9. Rules to Prevent Double Derivation of Income and Double Deductions
  10. Agricultural Income
  11. Computation of Income, partly Agricultural,
  12. Foreign Government Officials
  13. Exemptions and Tax Concessions
  14. RESIDENTIAL STATUS & TAXATION 1
  15. RESIDENTIAL STATUS & TAXATION 2
  16. Important Points Regarding Income
  17. Geographical Source of Income
  18. Taxation of Foreign-Source Income of Residents
  19. Exercises on Determination of Income 1
  20. Exercises on Determination of Income 2
  21. SALARY AND ITS COMPUTATION
  22. Definition of Salary
  23. Significant points regarding Salary
  24. Tax credits on Charitable Donations
  25. Investment in Shares
  26. SALARY AND ITS COMPUTATION EXERCISES 1
  27. SALARY AND ITS COMPUTATION EXERCISES 2
  28. SALARY AND ITS COMPUTATION EXERCISES 3
  29. Tax treatment of Gratuity
  30. Gratuity Exercise
  31. PROVIDENT FUND
  32. Exemptions on Business income, Treatment of Speculation Business
  33. Deductions Allowed & Not Allowed
  34. Deductions: Special Provisions, Depreciation
  35. Methods of Accounting
  36. Taxation of Resident Company
  37. Taxation of Companies: Exercises
  38. Computation of Capital Gain
  39. Disposals Not Chargeable To Tax
  40. TAX RETURNS & ASSESSMENT OF INCOME UNIVERSAL SELF ASSESSMENT SCHEME
  41. Normal Assessment, USAS, Provisional Assessment, Best Judgment Assessment
  42. ADVANCE TAX COLLECTION & RECOVERY OF TAX PENALTIES & PROSECUTION
  43. What is Value Added Tax (VAT)?
  44. SALES TAX
  45. SALES TAX RETURNS