Disposal and acquisition of assets under tax law have been explained under Section 75 of Income Tax Ordinance, 2001.
The Federal Board of Revenue (FBR) issued the Income Tax Ordinance, 2001 updated up to June 30, 2021. The Ordinance incorporated amendments brought through Finance Act, 2021.
The Income Tax Ordinance, 2001 is a fundamental piece of legislation governing the taxation of income and assets in Pakistan. Among its provisions, Section 75 addresses the treatment of taxes when assets change hands, whether through disposal or acquisition. This section plays a pivotal role in determining the tax consequences related to these transactions. Let’s delve into the intricacies of Section 75 and its significance in the context of taxation.
Section 75: Disposal and Acquisition of Assets
Section 75 of the Income Tax Ordinance, 2001 provides a framework for the taxation of assets when they change ownership, are acquired, or undergo a transformation in their use. The section encompasses various scenarios and is essential for calculating the tax obligations associated with asset transactions. Here are the key provisions of Section 75:
1. Disposal of Assets
Subsection (1) of Section 75 stipulates that an individual or entity who holds an asset is considered to have made a disposal of that asset when they part with ownership. This includes situations such as selling, exchanging, transferring, distributing, or other circumstances like asset cancellation, redemption, relinquishment, destruction, loss, expiration, or surrender.
2. Transmission by Succession
Subsection (2) outlines that when an asset is transmitted through succession, inheritance, or under a will, it is treated as a disposal of the asset by the deceased at the time the asset is transmitted.
3. Application of Business Asset to Personal Use
Subsection (3) addresses the situation where a business asset is applied to personal use. In such cases, the owner of the asset is treated as having disposed of the asset at the time it is utilized for personal purposes.
4. Disposal of Part of an Asset
Subsection (4) clarifies that a disposal may also include the disposal of only a portion of an asset, not necessarily the entire asset.
5. Acquisition of Assets
Subsection (5) defines the acquisition of assets. It specifies that an individual or entity is treated as having acquired an asset at the time they begin to own the asset or are granted any rights to the asset.
6. Application of Personal Asset to Business Use
Similar to the situation described in Subsection (3), Subsection (6) states that if a personal asset is applied to business use, it is treated as an acquisition of the asset by the owner at the time of the transformation.
7. Definitions
The section provides definitions for “business asset” and “personal asset.” A “business asset” refers to an asset held wholly or partly for use in a business, encompassing stock-in-trade and depreciable assets. In contrast, a “personal asset” is an asset held entirely for personal use.
In summary, Section 75 of the Income Tax Ordinance, 2001 serves as a critical tool for determining when individuals or entities are subject to taxation in cases involving the disposal or acquisition of assets. The section offers clear guidelines for taxation based on the nature of the asset, its use, and the specific circumstances of the transaction.
Comprehending and adhering to these provisions is of paramount importance for taxpayers, ensuring compliance with tax regulations and facilitating accurate reporting and tax payment. However, it is essential to acknowledge that tax laws and regulations can evolve over time, and it is advisable to seek guidance from tax professionals and refer to the latest updates from the Federal Board of Revenue (FBR) for the most current and precise information regarding asset taxation.
Disclaimer: The text of Section 75 is provided for informational purposes, and individuals and entities are encouraged to refer to the official documents and guidelines from the Federal Board of Revenue (FBR) for the most up-to-date and comprehensive information.
