The FBR has clarified FIFO accounting, adjustment and carry-forward of capital losses, and calculation methods for futures, options, borrowed shares and leveraged securities.
ISLAMABAD: The Federal Board of Revenue (FBR) has explained the computation of capital gains and losses on the disposal of securities for Tax Year 2027 under Section 37A of the Income Tax Ordinance, 2001.
The FBR issued the Income Tax Rules, 2002, updated up to September 15, 2026, covering the tax year from July 1, 2026, to June 30, 2027.
Under Rule 13D, capital gains or losses arising from the disposal of securities will be calculated using the First In First Out (FIFO) inventory accounting method.
Capital losses incurred during a tax year can be adjusted against capital gains from the disposal of securities in the same year to determine taxable capital gains.
The rules also allow capital losses on listed securities arising from Tax Year 2019 onwards to be carried forward if they cannot be fully adjusted against taxable gains in the same year. Such losses can only be offset against taxable gains from listed securities and cannot be carried forward beyond three immediately succeeding tax years.
Capital gains on derivatives
Under Rule 13E, the FBR has prescribed separate methods for calculating capital gains and losses on derivatives.
For long positions in deliverable futures contracts, gains or losses will be determined by the difference between the acquisition cost of underlying securities and their disposal consideration.
For short positions, the calculation will involve the difference between short-sale proceeds and the cost of purchasing securities to close the position.
In cash-settled futures contracts, the gain or loss will equal the cash payment received from or made to the other party upon settlement.
For options, the difference between the exercise price and consideration from disposal of underlying securities will determine the capital gain or loss. Contracts of right will be calculated using the acquisition cost of right shares and their disposal consideration.
Borrowed and leveraged shares
The FBR has also clarified the treatment of borrowed shares. Profits from their sale will be treated as capital gains when the shares are acquired for return to an authorised intermediary under an SECP-approved Securities Lending and Borrowing Scheme.
The Specific Identification Method will determine acquisition costs and disposal consideration. Borrowing costs will be deducted when calculating the resulting gain or loss.
Similarly, profits from disposing of shares acquired under the Margin Finance Scheme, Margin Trading Scheme or other SECP-approved financing and leverage schemes will be treated as capital gains.
In these cases, the difference between acquisition cost, including borrowing costs, and disposal consideration will determine the capital gain or loss.