Advanced taxation (cfap5) by fawad hassan [lecture 7]
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Transcript of Advanced taxation (cfap5) by fawad hassan [lecture 7]
Deciding a Capital Gains CaseHeads of Income
1
6. Eighth ScheduleCapital Gains
Computation of Capital Gains on Listed Securities:• Capital gain from listed securities, shall be computed in accordance with 8th Sched• Tax shall be collected from Tax Payer by NCCPL• CDC, PMEX, PSX and any other person shall furnish information required by NCCPL to discharge its tax collection responsibility.• In case of non provision of information FBR shall enforce provision of such information• For this purpose NCCPL shall:
o develop an automated systemo issue certificate to Tax Payer specifying capital gains computed and tax collected therefrom. This certificate shall be
for a financial year or a shorter period requested by Tax Payer or Commissioner conclusive evidence of capital gains under 8th Sched and tax collected filed by Tax Payer alongwith return of income
• NCCPL shall furnish quarterly statement to FBR in respect of capital gains and taxes computed thereon• Tax collected by NCCPL shall be deposited in separate bank account with NBP• Tax collected + interest accrued on above account shall be paid to FBR annually on or before following 31st July after end of each year
Deciding a Capital Gains CaseHeads of Income
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6. Eighth ScheduleCapital Gains
Source of Investment not to be enquired:• Where investment in listed securities is made prior to introduction of 8th Sched, no enquiry as to nature and source of investment shall be made if following conditions are fulfilled:
o Return of income, wealth statement & statement of investment for year 2012 is filed with Commissioner within due dateo Amount remained invested for atleast 45 days upto 30.06.2012
• Where Investment in Shares of Public Co. is made after introduction of 8th Sched and before 30.06.2014, no enquiry as to nature and source of investment shall be made if following conditions are fulfilled:o Return of income, wealth statement & statement of investment for relevant tax year is filed with Commissioner within due dateo Amount remained invested for atleast 120 days upto 30.06.2014o Tax on Capital Gains has been paid in accordance with 8th Schedule
• Amount of investment shall not include market value of open sale position in futures and derivativesOption to Tax Payer:• After obtaining permission from Commissioner, Tax Payer can give irrevocable option to NCCPL for not to be taxed under 8th Sched• In case of availing such option, above relief from enquiry as to source of investment shall not remain available
Deciding a Capital Gains CaseHeads of Income
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6. Eighth ScheduleCapital Gains
Obligations of NCCPL:• Quarterly system and procedural audit of NCCPL shall be conducted, to verify implementation of 8th Schedule.• Audit shall be conducted by any of following:
o Pakistan Revenue Automation (Pvt) Ltd [PRAL]o Any other company/firm appointed by FBRo Any authority appointed under S-209, not below rank of Additional Commissioner of Inland Revenue
• NCCPL shall implement recommendations made in audit report & also make adjustment for short or excess deduction of tax• No penalty shall be imposed on NCCPL on account of any mistake/error/omission• In case NCCPL is unable to recover any tax, it can refer the case to FBR for recovery
Deciding a Capital Gains CaseHeads of Income
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7. Rule 13A to 13PCapital Gains
Basic Determinants for Capital Gains
Date of Disposal / ExitDate of Acquisition / Entry
Holding Period[R-13C & 13L]Disposal & Consideration
[R-13B & 13L]Acquisition & Cost
[R-13A & 13L]
Gain/Loss[R-13D, 13E & 13N]Others:
• Loss not to be recognized [R-13F]• Exemption on Capital Gains [R-13G]• Payment of Tax [R-13H]• Records [R-13I]• Exchange of Information [R-13J]• Violation & Penalties [R-13K]• Quarterly Statements [R-13M]• Statements & Forms [R-13O]• Clarifications & Explanations [R-13P]
Deciding a Capital Gains CaseHeads of Income
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Acquisition & CostCapital Gains
Acquisition [R-13A]Form
Platform
Mode
Evidence
Electronic Book EntryPhysical CertificatesStock MarketOff Market TransactionPurchase, Exchange, Gift, Bequest, Inheritance, Bonus Issue, Right Issue, Leverage SchemeOpen Ended Mutual Fund >>Certificate of AccountOthers >>Broker’s Bill of Purchase, CDC Statement of Account, Payment of Cost fo Acquisition through cheque, Broker Generated Computerized Ledger of invetor’s brokerage account
Cost [R-13L(1)(d)]
IPO Bonus Right Bequest/Inheritance Others
Actual price paid to issuer
Tax paid u/s 236M & 236N
Discounted price at which shares issuedFMV at time of transaction
Price paid ORWould have paid
Tax not paid Ex-Bonus price as determined u/s 236M & 236NZERO
Rule 13A to 13P
Deciding a Capital Gains CaseHeads of Income
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Disposal & ConsiderationCapital Gains
Disposal [R-13B]Form
Platform
Mode
Evidence
Electronic Book EntryPhysical CertificatesStock MarketOff Market TransactionSale, Exchange, Gift, Transfer
Open Ended Mutual Fund >>Certificate of AccountOthers >>Broker’s Bill of Purchase, CDC Statement of Account, Payment of Cost fo Acquisition through cheque, Broker Generated Computerized Ledger of invetor’s brokerage account
Consideration [R-13L(1)(e)]
Market Price received orwould have received on disposal
Rule 13A to 13P
Deciding a Capital Gains CaseHeads of Income
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Capital Gains
Capital Gain / LossRule 13A to 13P
Derivatives[R-13E] General
FutureOption
RightsDeliverable Future Cash Settled Future
Long Position Short Position
[R-13D] [R-13N]
• FIFO not applicable in case of same day purchases, instead Average Method to be used [R-13N(5)]• NCCPL shall add following to transaction cost and consideration• 0.5% of trade as incidental expenses [R-13N(8)]• NCCPL shall deduct financing cost from consideration if financing obtained from NCCPL Leverage Market Scheme [R-13N(9)]• NCCPL shall collect amount on monthly basis in a manner that every month end it has amount equal to estimated tax liability on Capital Gains [R-13N(10)]
• Gain/loss computation shall be made on basis of FIFO inventory accounting method• Capital loss shall be adjusted only against capital gain of security• Capital loss cannot be carried forward
Consideration X- Cost XGain/Loss XConsideration from disposal of security X- Exercise Price XGain/Loss X
Cash receipt/payment to close X
Consideration on disposal X- Cost of Acquisition XGain/Loss X
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Capital Gains Rule 13A to 13P
Holding PeriodFrom ToFuturesOthers
Short PositionDate of Entry [R-13L(1)(i)] Date of Exit [R-13L(1)(j)]When sold short [R-13C(2)] Purchase to cover short position [R-13C(2)]
Date of Disposal [R-13L(1)(h)]Date of Acquisition [R-13L(1)(g)]
Deciding a Capital Gains CaseHeads of Income
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Capital Gains
Liability in respect of certain security transactions [S-112]If• owner of security disposes of and re-acquires a security AND• the result of the transaction is that income in respect of the security is receivable by any other personThen• the income shall be treated as the income of the owner and not of the other person
For purpose of this section security includes bonds, certificates, debentures, stocks and shares.
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Capital Gains
Advance Tax [S-147(5B), 236C, 236K & 236W] Securities [S-147(5B)]
Purchase/Transfer of Immovable Property [S-236K] Purchase/Transfer of Immovable Property [S-236W]
From Purchaser
Sale/Transfer of Immovable Property [S-236C]
From SellerIf holding period > 3 yearsthen not to be collected
Immovable Property
Holding period 0-6 months, tax @ 2% of Capital Gain during QuarterHolding period 6-12 months tax @ 1.5% of Capital Gain during Quarter
Advance Tax not applicable on individual investor 1st Sched, P-IV, Div-X 1st Sched, P-IV, Div-XVIII @ 3%
Adjustable Not Adjustable