Islamabad – The Federal Board of Revenue (FBR) has granted individuals the ability to carry forward capital losses under Sections 59 and 59A of the Income Tax Ordinance, 2001.
The Income Tax Ordinance has been updated up to June 30, 2021, incorporating changes introduced by the Finance Act, 2021.
Key Provisions of Section 59:
1. Carry Forward of Capital Losses:
• According to Section 59(1), if an individual sustains a loss for a tax year under the head “Capital Gains,” referred to as a “capital loss,” the loss cannot be set off against income under any other head for the year. Instead, it is carried forward to the next tax year and set off against capital gains, if any, chargeable under the head “Capital Gains.”
2. Limitation on Carry Forward:
• Section 59(2) specifies that if a capital loss is not wholly set off in the following tax year, the remaining amount can be carried forward to subsequent tax years, but no loss shall be carried forward for more than six tax years immediately succeeding the year for which the loss was first computed.
3. Priority in Setting Off Losses:
• Section 59(3) dictates that if a person has a loss carried forward for more than one tax year, the loss of the earliest tax year shall be set off first.
Introduction of Section 59A:
1. Associations of Persons (AOPs):
• Section 59A(3) states that in the case of associations of persons, any loss shall be set off or carried forward and set off only against the income of the association.
2. Limitations on Set Off and Carry Forward:
• Section 59A(4) clarifies that no member of an association of persons can set off any loss sustained by the association against their income. Similarly, any person succeeding another in carrying on a business or profession cannot carry forward and set off losses against their income unless inherited.
3. Set Off against Business Income:
• Section 59A(5) allows for the set off of losses relating to deductions under specified sections against fifty percent of the person’s income chargeable under the head “income from business” for the following year. If there is no income from business for that year, the set off is against fifty percent of the person’s income chargeable under the same head for the next following year and so on for succeeding years.
4. Order of Application:
• Section 59A(6) outlines that where deduction is to be carried forward, the provisions of Section 56 and Sub-section (2) of Section 58 must be given effect first.
5. Limitations on Losses:
• Section 59A(7) specifies that no loss that has not been assessed or determined in pursuance of specified sections of the repealed Ordinance or orders made under the current Ordinance shall be carried forward and set off.
Disclaimer: The text provided is for informational purposes only. While efforts are made to provide accurate information, the team at PkRevenue.com is not responsible for any errors or omissions.
These provisions offer individuals and associations flexibility in managing capital losses, promoting a more balanced and equitable tax system. The move supports taxpayers in navigating the complexities of capital gains and losses, contributing to a fair and transparent tax environment.
