The Federal Board of Revenue outlines how capital gains are taxed, calculated and disclosed under Section 37 of the Income Tax Ordinance, 2001.
ISLAMABAD: The Federal Board of Revenue (FBR) has explained the provisions relating to capital gains tax for Tax Year 2027 under Section 37 of the Income Tax Ordinance, 2001.
The FBR has issued an updated version of the Income Tax Ordinance, 2001, incorporating amendments up to June 30, 2026, and outlined the rules governing gains arising from the disposal of capital assets.
Tax on capital gains
Under Section 37(1), a gain arising from the disposal of a capital asset by a person in a tax year is chargeable to tax under the head “Capital Gains”, unless the gain is exempt from tax under the Income Tax Ordinance, 2001.
The law separately provides that a gain arising from the disposal of immovable property situated in Pakistan to a person in a tax year is chargeable under the head Capital Gains at the rates specified in Division VIII of Part I of the First Schedule.
How capital gain is calculated
Under Section 37(2), the gain arising from the disposal of a capital asset is generally calculated using the following formula:
Capital gain = A – B
Here, A represents the consideration received by the person on disposal of the asset, while B represents the cost of the asset.
For determining the cost of a capital asset, Section 37(4) states that expenditure cannot be included in the cost where the expenditure is, or may be, deductible under another provision of the relevant chapter or is referred to in Section 21.
Definition of capital asset
Section 37(5) defines a “capital asset” as property of any kind held by a person, whether or not it is connected with a business.
However, the definition excludes certain categories of property.
These include stock-in-trade, consumable stores and raw materials held for business purposes.
It also excludes property in respect of which a person is entitled to a depreciation deduction under Section 22 or an amortisation deduction under Section 24.
Movable property held for personal use by a person or a dependent member of the person’s family is also excluded, subject to the capital assets specified under Section 38(5).
Advance tax on acquisition of company shares
Section 37 also contains specific provisions concerning the acquisition and disposal of company shares.
Under Section 37(6), a person acquiring shares of a company is required to deduct advance adjustable tax at 10% of the fair market value of the shares from the gross amount paid or payable as consideration.
The deduction is to be made at the time of payment or at the time of registration of the shares by the Securities and Exchange Commission of Pakistan (SECP) or the State Bank of Pakistan (SBP), whichever is earlier.
The deducted amount must be paid to the Commissioner for credit to the Federal Government within 15 days of the payment.
Under Section 37(7), the value of shares for this purpose is their fair market value as prescribed for Section 101A(4), without reduction of liabilities.
Commissioner may allow reduced or no deduction
Under Section 37(8), the Commissioner may, on an application by the person acquiring the shares and after conducting any inquiry considered appropriate, allow the payment to be made without deduction of tax or with deduction at a reduced rate.
The section also provides for the application of certain provisions relating to tax deduction, recovery and penalties to tax deductible and payable under these provisions.
Disclosure requirement for disposal of shares
A person disposing of capital assets in the form of company shares is required under Section 37(10) to furnish the prescribed information or documents to the Commissioner within 30 days of the disposal transaction.
However, the Commissioner may issue a written notice requiring the person to provide the information, documents and statement within a period shorter than 30 days, as specified in the notice.
The provisions form part of the FBR’s updated Income Tax Ordinance, 2001 for Tax Year 2027, incorporating amendments made up to June 30, 2026.