Written by Hamza Shahnawaz in Taxation The Federal Board of Revenue outlines how capital gains are taxed, calculated and disclosed under Section 37 of the Income Tax Ordinance, 2001. ISLAMABAD: The Federal Board of Revenue (FBR) has explained the provisions relating to capital gains tax for Tax Year 2027 under Section 37 of the Income Tax Ordinance, 2001. The FBR has issued an updated version of the Income Tax Ordinance, 2001, incorporating amendments up to June 30, 2026, and outlined the rules governing gains arising from the disposal of capital assets. Tax on capital gains Under Section 37(1), a gain arising from the disposal of a capital asset by a person in a tax year is chargeable to tax under the head “Capital Gains”, unless the gain is exempt from tax under the Income Tax Ordinance, 2001. The law separately provides that a gain arising from the disposal of immovable property situated in Pakistan to a person in a tax year is chargeable under the head Capital Gains at the rates specified in Division VIII of Part I of the First Schedule. How capital gain is calculated Under Section 37(2), the gain arising from the disposal of a capital asset is generally calculated using the following formula: Capital gain = A – B Here, A represents the consideration received by the person on disposal of the asset, while B represents the cost of the asset. For determining the cost of a capital asset, Section 37(4) states that expenditure cannot be included in the cost where the expenditure is, or may be, deductible under another provision of the relevant chapter or is referred to in Section 21. Definition of capital asset Section 37(5) defines a “capital asset” as property of any kind held by a person, whether or not it is connected with a business. However, the definition excludes certain categories of property. These include stock-in-trade, consumable stores and raw materials held for business purposes. It also excludes property in respect of which a person is entitled to a depreciation deduction under Section 22 or an amortisation deduction under Section 24. Movable property held for personal use by a person or a dependent member of the person’s family is…