The tax authority has identified three types of transactions in which investors cannot claim capital losses to offset taxable gains under Section 37A of the Income Tax Ordinance, 2001.

ISLAMABAD: The Federal Board of Revenue (FBR) has disallowed capital loss adjustments in certain transactions involving 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 13F, capital loss adjustments allowed under Rules 13D and 13E will not be admissible in cases involving wash sales, cross trades and tax swap sales.

1. Wash Sales

The FBR has disallowed losses arising from wash sales, where an investor sells a security at a loss and repurchases the same security within one month before or after the sale.

The restriction also covers transactions between the same parties or their related parties, where buyers and sellers effectively exchange positions to maintain their investment portfolios while artificially realising losses.

2. Cross Trades

Capital loss adjustments will also be rejected in cross trades involving coordinated transfers of securities between related accounts of the same investor or related investors.

The restriction covers transactions between two membership cards of the same broker or related brokerage houses.

Such arrangements involve transferring securities carrying unrealised losses to related accounts to artificially generate capital losses without genuinely selling the investments to an outside buyer. The resulting losses may then be used to reduce capital gains tax liabilities.

3. Tax Swap Sales

The FBR has also disallowed losses arising from tax swap sales.

These transactions occur when an investor sells a security at a loss but purchases a different, similar security within the same sector instead of repurchasing the original investment.

The practice allows investors to realise losses for tax purposes while broadly maintaining their portfolio’s risk and return profile.

Under Rule 13F, losses arising from these specified arrangements cannot be used to offset taxable capital gains under the relevant rules.

The provisions form part of the FBR’s framework for computing capital gains on the disposal of securities for Tax Year 2027.