Investors earning profits from debt-related investments have been advised to stay alert to their tax responsibilities, as the Federal Board of Revenue (FBR) has confirmed that withholding tax on capital gains will continue to apply in tax year 2026. The rule, enforced under Section 151A of the Income Tax Ordinance, 2001, is mandatory and non-compliance can lead to penalties.
This provision covers capital gains arising from the sale of certain debt securities, including government-issued instruments, corporate bonds, and other eligible securities held through Investor Portfolio Securities (IPS) accounts. Unlike some other taxes, the obligation to deduct tax does not fall on the investor. Instead, it is the responsibility of the custodian or banking institution that manages the IPS account.
Whenever these securities are sold or disposed of, the custodian must deduct tax at the applicable rate specified in the law and transfer the deducted amount directly to the national exchequer. This ensures that tax is collected at the source before the proceeds reach the investor.
It is important for investors to note that not all transactions are covered under this rule. Trades executed through a registered stock exchange and settled by the National Clearing Company of Pakistan Limited (NCCPL) are excluded from the scope of Section 151A. Investors should therefore confirm the settlement mechanism of their transactions to determine whether withholding tax applies.
The amount of capital gain subject to tax is calculated using the method provided under Section 37A(1A) of the Ordinance. Accurate calculation depends on proper documentation, making record-keeping a key part of tax compliance.
Tax advisors recommend that investors regularly review their transaction history, understand how gains are being calculated, and confirm whether tax has been correctly deducted. Staying informed about these requirements can help investors avoid unexpected tax issues and ensure smooth compliance with the law.