Tax Book 2023

Assets and Depreciation Chapter- 10

f. The cost and consideration received in respect of a depreciable asset received as already discussed
shall be determined u/s 75 to 79 of the Income Tax Ordinance, 2001 [U/s 22(11)].

g. In case of disposal of immovable property, where consideration received exceeds the cost of asset
then consideration received shall be treated as the cost of asset [U/s 22(13)]. (See example 6)

h. Where a person exports an asset after using in Pakistan, then consideration received shall be
treated as equal to the cost of asset [U/s 22(14)]. (See example 7)

Example - 4: Consider the situation of example 1. What would be the treatment if asset is sold in year 4 for
Rs. 500,000.

Solution: Rs.

Consideration received

500,0 00

Less: WDV

WDV at the beginning of year 4 230 , 296

Depreciation not allowed in year 2 23,906

254 , 203

Income chargeable to tax 245 , 797

Important Note: It is worthwhile to mention here that although section 22(8)(a) states that the profit on
disposal of depreciable asset is equal to the difference between sale price and written down value of
depreciable asset, however the same shall be read with the limitations imposed under this section by sub
section 13(d) and 14 on various assets disposal.

Example - 5: A person acquired a passenger transport vehicle for Rs. 10 ,000,000 for business purpose.
This vehicle was then sold for Rs. 8 ,800,000 in year 2. Calculate gain on sale of vehicle in year 2.

Solution: Calculation of WDV at the end of year 1: Rs.

Cost for tax purpose 7 ,500,000
Depreciation @ 15% 1,125,000
WDV at the end of year 1 6 , 375 ,000

Calculation of allowed portion in disposal consideration: Allowed portion
( 8 ,800,000 x 7 ,500,000 / 10 ,000,000) 6 , 6 00,000
Calculation of profit / (loss) on disposal:

Consideration received – WDV as above (Rs. 6 , 6 00,000 – 6 , 37 5,000)= 225,000

Example - 6: From the following information compute gain on sale of immovable property (including
building that is for personal use or otherwise non depreciable):

Cost 400,000
Consideration received on disposal 500,000

Solution: As consideration received is more than cost of the immovable property, hence consideration
received shall be treated as cost of the property.

Consideration received 500,000
Cost of asset (treated as equal to consideration received) 500,000
Difference Nil

Example 7: From following information compute gain on sale of asset which has been exported after using
in Pakistan:

Cost Rs.100,000, WDV Rs.40,000, Consideration received Rs.160,000.

Solution: In this case cost shall be equal to the consideration received:
Rs.
Consideration received (equal to cost of asset for tax) 100,000