Income Tax Ordinance, 2001 — Section 37: Capital gains

37. Capital gains.— (1) 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 in that year under the head “Capital Gains”. 1[ ] 2[(1A) Notwithstanding anything contained in sub-section (1), gain arising on disposal of immovable property situated in Pakistan, to a person in a tax year shall be chargeable to tax under the head capital gains at the rates specified in Division VIII of Part I of the First Schedule.]

(2)Subject to 3[sub-section (4)], the gain arising on the disposal of a capital asset by a person shall be computed in accordance with the following formula, namely:– A–B where A is the consideration received by the person on disposal of the asset; and B is the cost of the asset. Chapter III – Tax on Taxable Income 1[ ] 2[ ] 3[ ] 1 The sub-section (3A) substituted through Finance Act, 2020 dated 30th June, 2020 the substituted sub-section read as follows: (3A) Notwithstanding anything contained in sub-section (3), the amount of any gain arising on disposal of immovable property being an open plot shall be computed in accordance with the formula specified in the Table below, namely: TABLE S.No. Holding Period Gain

(1)(2) (3) 1. Where the holding period of open plot does not exceed one year A 2. Where the holding period of open plot exceeds one year but does not A x 3/4 exceed eight years 3. Where the holding period of open plot exceeds eight years 0 where A is the amount of the gain determined under sub-section (2). Chapter III – Tax on Taxable Income

(4)For the purposes of determining component B of the formula in sub section (2), no amount shall be included in the cost of a capital asset for any expenditure incurred by a person –

(a)that is or may be deducted under another provision of this Chapter; or

(b)that is referred to in section 21. 1[ ] 2[ ]

(5)In this section, “capital asset” means property of any kind held by a person, whether or not connected with a business, but does not include 3[(a) any stock-in-trade 4[ ], consumable stores or raw materials held for the purpose of business;]

(b)any property with respect to which the person is entitled to a depreciation deduction under section 22 or amortisation deduction under section 24; 5[or] Chapter III – Tax on Taxable Income person or any member of the person’s family dependent on the person1[.] 2[ ] 3[(6) The person acquiring a capital asset, being shares of a company, shall deduct advance adjustable tax from the gross amount paid 4[or payable] as consideration for the shares 5[at the time of payment or at the time of registration of shares by the Securities and Exchange Commission of Pakistan or by the State Bank of Pakistan, whichever is earlier] at the rate of ten percent of the fair market value of the shares which shall be paid to the Commissioner by way of credit to the Federal Government, within fifteen days of the payment.

(7)Notwithstanding the provisions of section 68, the value of shares, for the purpose of sub-section (6), shall be the fair market value, as prescribed for sub section (4) of section 101A, without reduction of liabilities.

(8)The Commissioner may, on application made by the person acquiring of the shares, and after making such inquiry as the Commissioner thinks fit, allow to make the payment, without deduction of tax or deduction of tax at a reduced rate.

(9)The provisions of sections 161, 162, entry No. 15 of the Table in section 182, clause (c) of sub-section (1) of section 191 and section 205 shall mutatis mutandis apply to the tax deductible and payable under this section.

(10)The person disposing of the capital asset, being shares of a company, shall furnish to the Commissioner within thirty days of the transaction of disposal, the prescribed information or documents, in a statement as may be prescribed: Provided that the Commissioner may, by notice in writing, require the said person, to furnish information, documents and statement within a period of less than thirty days as specified in the notice.] 1 The comma and word “; or” substituted by the Finance Act, 2002 2 Clause (e) omitted by the Finance Act, 2001. The omitted clause (e) read as follows: “(e) any modaraba certificate or any instrument of redeemable capital listed on any stock exchange or shares of a public company.” 3 Sub-sections (6) to (10) added by the Finance (Supplementary) Act, 2023 (X of 2023) dated 23.02.2023. 4 Words inserted by the Finance Act, 2024. 5 Expression inserted by the Finance Act, 2024. 91 Chapter III – Tax on Taxable Income 1 [37A. Capital gain on disposal of securities. — (1) The capital gain arising on or after the first day of July 2010, from disposal of securities 2[ ]3[, other than a gain that is exempt from tax under this Ordinance], shall be chargeable to tax at the rates specified in Division VII of Part I of the First Schedule: 4[ ] Provided 5[ ] that this section shall not apply to a banking company and an insurance company 6[: 7[Provided further that this section shall not apply to the disposal of shares –

(i)of a listed company made otherwise than through registered stock exchange and which are not settled through NCCPL;

(ii)through initial public offer during listing process except where the detail of such disposal is furnished to NCCPL for computation of capital gains and tax thereon under this section, and the provisions of section 37 shall apply on such disposal of shares of a listed company or disposal of shares through initial public offer, accordingly.]] Chapter III – Tax on Taxable Income

(ii)‘B’ is the cost of acquisition of the security.]

(2)The holding period of a security, for the purposes of this section, shall be reckoned from the date of acquisition (whether before, on or after the thirtieth day of June, 2010) to the date of disposal of such security falling after the thirtieth day of June, 2010.

(3)For the purposes of this section “security” means share of a public company, voucher of Pakistan Telecommunication Corporation, Modaraba Certificate, an instrument of redeemable capital1[,debt Securities] 2[, unit of exchange traded fund] and derivative products. 3[(3A) For the purpose of this section, “debt securities” means

(a)Corporate Debt Securities such as Term Finance Certificates (TFCs), Sukuk Certificates (Sharia Compliant Bonds), Registered Bonds, Commercial Papers, Participation Term Certificates (PTCs) and all kinds of debt instruments issued by any Pakistani or foreign company or corporation registered in Pakistan; and

(b)Government Debt Securities such as Treasury Bills (T-bills), Federal Investment Bonds (FIBs), Pakistan Investment Bonds (PIBs), Foreign Currency Bonds, Government Papers, Municipal Bonds, Infrastructure Bonds and all kinds of debt instruments issued by Federal Government, Provincial Governments, Local Authorities and other statutory bodies.] 4[“Explanation: For removal of doubt it is clarified that derivative products include future commodity contracts entered into by the members of Pakistan Mercantile Exchange whether or not settled by physical delivery.”] 5[(3B) For the purpose of this section, “shares of a public company” shall be considered as security if such company is a public company at the time of disposal of such shares.]

(4)Gain under this section shall be treated as a separate block of income.

(5)Notwithstanding anything contained in this Ordinance, where a person sustains a loss on disposal of securities in a tax year, the loss shall be set off only 1 Inserted by the Finance Act, 2014. 2 Inserted by the Finance Act, 2021. 3 The sub-section (3A) inserted by the Finance Act, 2014. 4 Inserted by the Finance Act, 2016. 5 New sub-section (3B) inserted through Finance Act, 2020 dated 30th June, 2020 93 Chapter III – Tax on Taxable Income against the gain of the person from any other securities chargeable to tax under this section and no loss shall be carried forward to the subsequent tax year 1[:] 2 [Provided that so much of the loss sustained on disposal of securities in tax year 20l9 and onwards that has not been set off against the gain of the person from disposal of securities chargeable to tax under this section shall be carried forward to the following tax year and set off only against the gain of the person from disposal of securities chargeable to tax under this section, but no such loss shall be carried forward to more than three tax years immediately succeeding the tax year for which the loss was first computed.] Chapter III – Tax on Taxable Income PART VI HEAD OF INCOME: INCOME FROM OTHER SOURCES