Karachi, October 2, 2023 – The Federal Board of Revenue (FBR) has granted taxpayers the ability to offset losses against capital gains, providing relief and flexibility in income tax matters. Official sources confirmed this change on Monday, shedding light on the new provisions.
According to the FBR sources, if an individual sustains a loss for a tax year under the head of capital gains, this loss can now be set off against the individual’s income chargeable under the same head in the following tax year. This allows taxpayers to mitigate the impact of capital losses on their tax liability.
Furthermore, the sources elaborated on the process:
If a capital loss is not fully set off in the following year, the remaining amount of the loss can be carried forward to subsequent tax years.
However, there is a limitation imposed on this carry-forward provision: no loss can be carried forward for more than six tax years immediately succeeding the year in which the loss was first computed.
In the case of an association of persons, any losses will be set off or carried forward and set off only against the income of that association.
While these provisions offer relief to taxpayers, certain restrictions and exceptions apply:
Members of an association of persons cannot set off losses sustained by the association against their individual incomes.
Individuals who succeed others in carrying on a business or profession (other than through inheritance) cannot carry forward and set off losses sustained by the previous business owner against their income.
Additionally, if there is an inability to fully utilize losses relating to deductions under specific sections (22, 23, 24, or 25) due to insufficient profits or gains in a tax year, these losses can be set off against fifty percent of the individual’s income chargeable under the head “income from business” in the subsequent year. If there is no “income from business” in that year, the offset can occur in the next following year, and so on for succeeding years.
It’s important to note that certain procedural conditions must be met, and the provisions of section 56, 57, 58, or 59 of the Income Tax Ordinance, 2001, must be adhered to.
Lastly, the FBR clarified that losses that have not been assessed or determined in accordance with specific sections of the repealed ordinance, or an order under sections 120, 121, or 122, cannot be carried forward and set off under these new provisions.
These changes aim to provide taxpayers with greater flexibility in managing their tax liabilities and addressing capital losses, potentially offering significant tax relief to those affected.