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Thursday, 6 February 2014

Define the term Capital gains and capital assets or What is the procedure of computing the capital gains also explain the deductions and exemptions



Capital Gains :-
It is the fourth important source of income. Such income is chargeable under the head capital gains.

Meaning : Any profits or gains arising from the transfer of capital asset is called capital gains.
Such income is also chargeable to tax.

Capital Asset :-
Any kind of property held by the person is called capital asset. Such property may be connected with his business or not.

Example :
(i). Shares of companies.
(ii). Modarba certificates.
(iii). Musharika certificates.
(iv). Leasehold rights.
(v). Patent and copy rights.
(vi). Term finance certificate.
(vii). PTC vouchers.


Procedure Of Computing The Capital Gains :-
When the capital assets is disposed off by the person, then capital gain is computed according the following procedure.
Capital asset is disposed off with in 12 months of its acquisition.

Formula : Consideration received on the disposed of the asset the cost of asset.

Balance = Gain/Loss

Explanation :
(i). The assets fair market value on the date of its transfer is treated cost of the assets.
(ii). Expenditure on the disposal of assets is included in the cost.

Note : Following assets are not included in the cost of asset.
(i). Expenses of a person which are allowed as deduction under any other provision of the ordinance.
(ii). Expenses which are not spent for the disposal of assets.


Disposal After 12 Month :-
When the capital asset is disposed off after 12 month of the acquisition then 75% of the actual gain is taken for income.

Deduction Of Capital Losses :-
Under the head capital gains when we compute the income chargeable to the tax the losses on disposable of capital asset shall be treated as under.

(1). Capital loss shall be deducted from the capital gain received on the disposal of any other asset.

(2). If capital gain is not chargeable to tax then no loss should be deducted on the disposal of the capital asset.

(3). On the disposal of the following capital asset no loss should be recognized.
(i). Jewelry.
(ii). An Antique.
(iii). A coin.
(iv) A painting.
(v). A work of art.
(vi). A postage stamp.

(4). On the disposal the disposal of any.

Exemptions :-
In the following cases capital gain is not included in taxable income.
(i). Income from the sale of Modarba certificates.
(ii). Shares of public company.
(iii). PTC vouchers derived by any ending.
(iv). If any foreign investor derives capital gain by selling the shares of public company which are approved by the Federal govt. is exempt from tax.
(v). Industrial undertaking set up in a special industrial zone declared by the federal govt. is exempt from tax 5 years.
(vi). Capital gain derived from an industrial under taking set up in export processing zone is exempt from tax.

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