Tax Book 2023

Capital Gains Chapter- 12

Non-resident individual Not taxable [Section 11(6)]

6. Capital Gains Exempt from tax:

The following capital gains are exempt from tax under Part-I of 2nd schedule:

1. Any distribution received by a taxpayer from a collective investment scheme registered by the
   Securities and Exchange of Commission of Pakistan including NIT or a Mutual Fund out of the
   capital gains of the said Schemes. Provided that this exemption shall only e available to only
   such mutual funds, collective investment schemes that are debt or money market funds and
   these do not invest in shares U/c (103) omitted by Finance Act, 2021.


2. Any gain on transfer of a capital asset, being a membership right held by a member of an
   existing stock exchange, for acquisition of shares and trading or clearing rights acquired by
   such member in new computerized stock exchange in the course of corporatization of an
   existing stock exchange. U/c (110B) omitted by Finance Act, 2021.


3. Exemption on capital gains from units in Special Industrial Zones U/c 113 has been omitted
   from tax year 2016.


4. Any income from sale of shares of an industrial undertaking set up within the meaning of the
   Export Processing Zone Authority Ordinance. U/c (114) omitted by Finance Act, 2021.


5. Treatment of bonus shares

Under the Companies Act, 2017 a company may issue the following three ways to issue the share:

1. Shares issued for cash


2. Shares issued for other than cash


3. Issue of shares without any consideration (Bonus shares)
   From tax year 2019 bonus shares are no more taxable and accordingly excluded from the definition
   of income until its disposal by its holder.


4. Disposal

The legislature intentionally used the word of disposal and it had not used the words of “gain on sale”.

The reason to use the term is that the term disposition is wider connotation than sale. It includes

exchange, relinquishment and extinguishments in addition to sale. This is evident from the

explanation of disposal given in u/s 75 of the Ordinance.

Sales Ordinary sale involving transfer of assets in lieu of any consideration.

Disposition In relation to a property means disposition made by deed or will and

also made by or under a decree or under orders of court Tribunal or

Authority.

Exchange Where transferee does not bring cash but something else in exchange.

Relinquishment of an

asset

Firm purchases right to manufacture a certain brand and of goods, on

dissolution one partner relinquishes the right to that license for a

consideration.

Extinguishments of a

right

Say three partners of a firm hold right in goodwill. Two partners on

dissolution surrendered their right in favor of third Partner