Karachi, November 27, 2023 – Rules have been notified for computing capital gain or loss in Pakistan during tax year 2024. The Federal Board of Revenue (FBR) has announced the updated Income Tax Rule, 2002 for the tax year 2024, specifying the methodology for computing capital gains or losses in Pakistan.
The rules encompass various aspects, including the disposal of securities and the treatment of derivatives.
Disposal of Securities:
The FBR has mandated the use of the First In First Out (FIFO) inventory accounting method for computing capital gain or loss arising from the disposal of any security. Capital losses incurred on the disposal of securities in a tax year can be set off against capital gains from the same year to determine the taxable capital gain. Furthermore, any capital loss from the disposal of listed securities in tax year 2019 onwards, not set off against gains within the same year, can be carried forward for up to three tax years.
Computation of Capital Gain or Loss on Derivatives:
Long Position in Deliverable Futures Contracts:
For long positions in deliverable futures contracts, capital gain or loss is calculated as the difference between the cost of acquiring securities underlying the contract and the consideration received upon closing the position before or at the contract’s maturity.
Short Position in Deliverable Futures Contracts:
In the case of short positions in deliverable futures contracts, capital gain or loss is computed as the difference between the consideration received from the short sale of securities and the cost of acquiring those securities to close the short position before or at the contract’s maturity.
Cash Settled Futures Contracts:
For cash-settled futures contracts, capital gain or loss is equal to the cash payment received or made to settle the contract before or at its maturity.
Options:
The computation of capital gain or loss for options involves the difference between the exercise price of the options and the consideration received from the disposal of the underlying securities.
Contracts of Right:
For contracts of right, capital gain or loss is determined by the difference between the cost of acquiring the right shares and the consideration from the disposal of those shares.
Sale of Borrowed Shares:
Profit from the sale of borrowed shares is treated as capital gain when the shares are acquired for return to the Authorized Intermediary. The period between acquisition and disposal defines the holding period. The Specific Identification Method is used to determine acquisition cost and consideration for disposal, considering the net of all borrowing costs.
Disposal of Shares under Financing Schemes:
Profit from the disposal of shares acquired under Margin Finance Scheme, Margin Trading Scheme, or other Financing or Leverage schemes approved by the Securities and Exchange Commission of Pakistan shall be treated as capital gain. The difference between the acquisition cost (inclusive of borrowing cost) and consideration received determines the quantum of capital gain or loss.
These rules aim to bring clarity and consistency to the computation of capital gain or loss, providing a comprehensive framework for taxpayers during the tax year 2024.
