1. Taxation Institute of Chartered Accountants Bangladesh Md. Shakhawat Hossain Articled Student Howladar Yunus & Co.

2. Reference Basics of Capital gains Some statutory definitions Computation of capital gains Tax exempted capital gains No exemption on certain assets if investment allowance is received Tax rates in respect of capital gains Special Tax Rates on income earned from selling shares and stocks Apportionment of sale proceeds between original cost and subsequent improvements Illustrations for practice Income from Capital gain Topic List

3. Definition: 2(15), 2(66) Main Section: 31, 32 read with rule-42 2 nd schedule 6 th schedule Part A Para 18, 43 read with SRO 59- dt 28 Feb 2012 SRO No- 269 dated 01.07.2010 Income from Capital gain Reference

4. Tax shall be payable by an assessee under the head "Capital gains" in respect of any profits and gains arising from the transfer of a “capital asset” ( s-2(15) ) and such profits and gains shall be deemed to be the income of the income year in which the transfer took place. (S-31) Income from Capital gain Basics of Capital gains

5. Capital Assets S-2(15) – Not include Stock in trade Personal effects Agricultural land (excluding some area) Fair Market Value S-2(30) Transfer s-2(66) Income from Capital gain Some statutory definitions

6. The income under the head “Capital gains” shall be computed after making the following deduction from the full value of the consideration received or accruing from the transfer of the capital asset or the fair market value thereof, whichever is higher, namely: – Any expenditure incurred solely in connection with the transfer of the capital asset; and – The cost of acquisition of the capital asset and any capital expenditure incurred for any improvements thereto but excluding any expenditure in respect of which any allowance is admissible under any provisions of sections 23(deductions from interest on securities), 29 (deductions from income from business or profession) and 34 (deductions from income from other sources). Income from Capital gain Computation of capital gains

7. For the purpose of section 32, “cost of acquisition of the capital asset” means- – Where it was acquired by the assessee by purchase, the actual cost of acquisition; and – Where it becomes the property of the assessee- Under a deed of gift, bequest or will; or Under a transfer on a revocable or irrevocable trust; or On any distribution of capital assets on the liquidation of a company; or On any distribution of capital assets on the dissolution of a firm or other association of persons or the partition of a Hindu undivided family. Income from Capital gain Computation of capital gains

8. The actual cost of acquisition to the previous owner of the capital asset as reduced by the amount of depreciation, if any, allowed to the previous owner; and where the actual cost of acquisition to the previous owner cannot be ascertained, the fair market value at the date on which the capital asset became the property of the previous owner. However, where the capital asset is an asset in respect of which the assessee has obtained depreciation allowance in any year, the cost of acquisition of the capital asset to the assessee shall be its written down value increased or diminished, as the case may be, by any adjustment made under section 19(16) or (17) or section 27(1) (i) or section 29(1) (xi): Where the capital asset became the property of the assessee by succession, inheritance or devolution, the actual cost of acquisition of the capital asset to the assessee shall be the fair market value of the property prevailing at the time the assessee became the owner of such property. Income from Capital gain Computation of capital gains

9. Income from Capital gain Computation of capital gains If DCT opines different fair value than the value stated by transferor Fair value is higher than the consideration by at least 15% Fair value is higher than the consideration by at least 25% DCT will determine the value Government may offer to buy the capital asset

10. Transfer of capital asset used in the business: Sec 32(5) A capital gain arising from transfer of a capital asset being buildings or lands which immediately before the date on which transfer took place was being used by the assessee for the purposes of his business or profession shall be exempted from payment of the income tax up to the extent and upon fulfillment of the conditions as mentioned below:- – A new capital asset for the purposes of his business or profession has to be purchased within a period of one year before or after the date of transfer. – The declaration shall have to be filed for exemption before the assessment is made. – When the capital gain is greater than the cost of the new asset, the capital gain up to the extent of cost of acquisition of the new asset shall be exempted and the balance shall be charged to tax. In determining the depreciation on such asset, cost shall be taken to be nil. – When the capital gain is equal or less than the cost of the new asset, no tax shall be charged on the capital gain. – The time-limit for purchase of the new asset can be extended by the Deputy Commissioner of Taxes with prior approval of the Inspecting Joint Commissioner of Taxes. Income from Capital gain Computation of capital gains

11. Transfer of capital assets used for the purpose of business: Sec 32(5) Transfer of Government securities and shares of public-listed companies: Sec 32(7) Transfer of capital being buildings and lands to a new company: Sec 32(10) Transfer of capital asset of a firm to a new company: Sec 32(11) Income from Capital gain Tax exempted capital gains

12. No exemption is allowable on Capital gains which arises from transfer of the following capital assets as is attributable to the cost of acquisition of such capital asset in respect of which any investment allowance referred to in paragraphs 1, 2, 3, 4, 5, 6, 8, 9, 10 and 11 of Part ‘B’ of the Sixth Schedule was at any time allowed, notwithstanding the exemptions available under sections 32(5), (7), (10) and (11):- – Insurance sum or deferred annuity (Paragraphs (1), (2) and (3) of Part ‘B’ of the Sixth Schedule) – Provident fund under the Provident Fund Act 1925 (Paragraph (4) of Part ‘B’ of the Sixth Schedule) – Recognized Provident Fund (Paragraph (5) of Part ‘B’ of the Sixth Schedule – Approved Superannuation Fund (Paragraph (6) of Part ‘B’ of the Sixth Schedule). – Primary Stocks and Shares of a public company listed with a Stock Exchange in Bangladesh (Paragraph (8) of Part ‘B’ of the Sixth Schedule). – Primary Shares or Stock (Paragraph (9) of Part ‘B’ of the Sixth Schedule) – Primary Debenture or Debenture Stock (Paragraph (9) of Part ‘B’ of the Sixth Schedule) – Savings Certificate, Unit Certificate, Mutual Fund Certificate, Government securities and shares of investment companies (Paragraph (10) of Part ‘B’ of the Sixth Schedule). – Balance in Deposit Pension Scheme (Paragraph (11) of Part ‘B’ of the Sixth Schedule) Income from Capital gain No exemption on certain assets if investment allowance is received

13. Capital gain arises to SituationsPercentage Company@ 15% Person other than company due to disposal within 5 years At regular rate due to disposal after 5 years At regular rate or @ 15%, whichever is lower Income from Capital gain Tax rates in respect of capital gains

14. As per SRO 269-AIN/IT/2010 circulated on July 01, 2010, special tax rate is proposed for income from sale of stocks and shares by specified persons: Income from Capital gain Special Tax Rates on income earned from selling shares and stocks Sl.Nature of Taxpayer’s incomeTax rate (a)Any income earned from trading of shares/securities by a company defined as per section 2(20) and by a firm defined as per Section 2(32)10% (b)Any income earned from trading of shares/securities by any Sponsor Shareholder / Director of a Bank, Financial Institution, Merchant Bank, Insurance Company, Leasing Company, Portfolio Management Company, Stock Dealer or Stock Broker Company 5% (c)Any income earned from trading of shares/securities by any Shareholder [excluding the Sponsor Shareholders/Directors mentioned in above Sl. (b)] having 10% or more shares of the total paid up capital of a company / companies listed at any time during the income year 5% Note: to know more details please see the SRO

15. Income from Capital gain Mr. Jarin bought a building within the jurisdiction of Dhaka Municipality 8 years back for Tk. 65 million on which he also incurred another Tk. 35 million as improvements 4 years ago. He has sold the property in mid June, 2011 for Tk. 180 million. Now, sale proceeds of Tk. 180 millions should be apportioned between original cost and improvements due to different capital gain tax rate applicable for transfer made within 5 years and after five years. Such apportionment is made below proportionately: On original cost: Tk. 180 millions × 65/100 = Tk. 117 millions On improvement: Tk. 180 millions × 35/100= Tk. 63 millions Apportionment of sale proceeds between original cost and subsequent improvements

16. Income from Capital gain Illustrations for practice Study Manual_Taxation-I (ICAB)- Page: 105-106 Study Manual_Taxation-II (ICAB)- Page: 176-183 Bangladesh Income Tax_ Nikhil Chandra Shil- Chapter -11_Page: 306-319 Previous Questions of ICAB_ Professional Stage KL

17. Thanks Md. Shakhawat Hossain Articled Student Howladar Yunus & Co. Taxation & Legal Compliance Department