MAVEN MINDS
Income Tax Ordinance, 2001
[Applicable in Pakistan]
Assurance | Tax | Advisory | Outsourcing
INCOME FROM PROPERTY
AMOUNT CHARGEABLE UNDER THE HEAD “INCOME FROM PROPERTY”
RENT
Rent taxable would higher of;
Actual Rent; or
Fair Market Rent or
Means
Any amount received or receivable
by the owner of land or a building
as consideration for
- use or occupation of, or
- right to use or occupy, the land or
building
Includes
1. Any forfeited deposit paid under a contract
for the sale of land or a building
2. An amount treated as rent u/s 16 (i.e. nonadjustable amount received in relation to
building)
However, this principle shall not apply where fair
market rent is already included in the income of the
lessee, chargeable to tax under the head “Salary”.
Exclusion from Income from Property
Following income would be taxable under the head
Income from other sources
Rent of building together with plant and machinery.
Amount included in rent for amenities, utilities and
any other service connected with renting of the
building.
Rent from sub-lease of land or a building.
Consideration for vacating the possession of a
building or part thereof, reduced by any amount
paid by the person to acquire possession of such
building or part thereof.
Lump sum amount received in relation to rent agreement of land or building
In relation to “building”
Not adjustable against
future rent
Non-refundable
Refundable
Chargeable to tax
in the year of receipt
& following 9 years
in equal proportion
Chargeable to tax
in the year of
receipt & following
9 years in
equal proportion
unless refunded
earlier
In relation to “Land”
Adjustable against
future rent
Not adjustable against
future rent
No separate tax
implications, as rent
is chargeable to
tax on accrual
basis
No taxability, as capital
receipt of this nature in
relation to “Land” is not
specifically made
taxable
Refunded after
expiry of 10 years
No further taxation
after 10 years
Refunded before
expiry of 10 years
No taxation in the year
of refund & thereafter
Receipt of similar amount from subsequent tenant
(Succeeding amount – portion of earlier amount already charged to tax) will be
chargeable to tax in the year of receipt and following 9 tax years in equal proportion.
For further info, please contact:
m.quaid@mavenminds.com.pk
MAVEN MINDS
Income Tax Ordinance, 2001
[Applicable in Pakistan]
Assurance | Tax | Advisory | Outsourcing
INCOME FROM PROPERTY
BASIS OF TAXABILITY UNDER THE HEAD “INCOME FROM PROPERTY”
Rent is chargeable to tax on accrual basis i.e.
when rent is received or receivable for a tax year.
Deduction for an expenditure is allowed on accrual basis
i.e. when expenditure is paid or payable for a tax year.
ALLOWABLE DEDUCTION UNDER THE HEAD “INCOME FROM PROPERTY”
In computing income chargeable to tax under the head “Income from Property” for a tax year, a deduction shall be
allowed for following expenditures or allowances to
Repair Allowance
In respect of repairs to a building, an allowance equal to 1/5th of the rent
Insurance Premium
Any premium to insure the building against the risk of damage or destruction
Government Dues & Taxes
TAX
Any local rate, tax, charge or cess in respect of property or rent to any local authority or government in the year,
not being income tax.
Ground Rent
T
EN
RR
FO
In respect of repairs to a building, an allowance equal to 1/5th of the rent
INTEREST
Profit or Markup on Money Borrowed
Any profit or mark-up on any money borrowed, (including mortgage) to acquire, construct, renovate, extend or
reconstruct the property.
Share in Rent & Share in Appreciation in Value of Property
Any share in rent & share in appreciation in the value of property (excluding return of capital), where property has
been acquired, constructed, renovated, extended, or reconstructed with capital contributed by HBFC or scheduled
bank under a scheme of investment in property
Profit or Interest on Mortgage or Charge
Where the property is subject to a mortgage or other capital charge, any profit or interest paid on such mortgage
or charge.
Administration & Rent Collection Charges
Any expenditure, wholly & exclusively for deriving rent (including administration & collection charges) not
exceeding 4% of the rent
Legal Services
Any expenditures for legal services acquired to defend the person’s title to the property or any suit connected with
the property in a court.
Unrecoverable Rent
Unrecoverable rent subject to following conditions:
Tenancy was bonafide
Defaulting tenant has vacated the property or steps have been taken to compel the tenant to vacate the property;
Defaulting tenant is not in occupation of any other property of the person;
The person has taken all reasonable steps to institute legal proceedings for recovery of unpaid rent or has
reasonable grounds to believe that legal proceedings would be useless; and
Unpaid rent was previously charged to tax & tax has been duly paid on such income.
If the unpaid rent allowed as deduction, is wholly or partly recovered, the amount recovered shall be chargeable to
tax in the tax year in which it is recovered.
For further info, please contact:
m.quaid@mavenminds.com.pk
MAVEN MINDS
Income Tax Ordinance, 2001
[Applicable in Pakistan]
Assurance | Tax | Advisory | Outsourcing
INCOME FROM PROPERTY
ALLOWABLE DEDUCTION
TREATMENT OF LOSS UNDER THE “IFP”
General points relating to deductions under
“Income from property”
Payment for an expenditure deductions shall be
made within 3 years from the end of the tax year in
which the deduction was allowed.
If the expenditure is not paid as above, the unpaid
expenditure shall be chargeable to tax in the 4th year.
However, if the said expenditure is subsequently
paid, it shall be allowed as deduction in the tax
year in which it is paid.
Loss under the head IFP can be setoff against
income of other heads except salary
Loss under the head IFP cannot be carried forward
IFP can adjust losses of other heads of income
GEOGRAPHICAL SOURCE
Rental income shall be PSI if it is derived
from lease of immovable property in Pakistan
whether improved or not, or
from any other interest in or over immovable
property, including a right to explore for, or exploit,
natural resources in Pakistan.
Section 21 (Deductions not allowed) shall also apply
in determining the deductions allowed under
“Income from property”, in the same manner as
they apply to “Income from business”
Any rent or revenue derived from agricultural land
situated in Pakistan; or
Any expenditure allowed as deduction under
“Income from property” shall not be allowed as
deduction under any other head of income.
Any rent or revenue of building which is on or in the
immediate vicinity of the agricultural land and which
is used as dwelling-house, a store-house, or other
out-building.
EXEMPTIONS OF HEAD
WITHHOLDING TAX IMPLICATIONS
Section 155
Prescribed Person i.e. Withholding Agent
Every prescribed person making a payment in full or in
part (including advance) on account of rent of immovable
property (including rent of furniture & fixtures or amounts
for services relating to such property) shall deduct tax
from the gross amount of rent paid
Above provision shall apply when a payment is made on
account of rent of immoveable property irrespective of
head of income
Gross rent includes treated rent u/s 16.
Taxpayer
Withholding Tax Rates
If recipient of rent is
individual / AOP
Division V of Part III of
1st Schedule
If recipient of rent is
company
15% of the gross amount
of rent
01. Federal Government;
02. Provincial Government;
03. Local Government;
04. Company;
05. Non-profit organization or a charitable institution;
06. Diplomatic mission of a foreign state;
07. Private educational institution:
08. Boutique;
09. Beauty parlor;
10. Hospital, clinic or a maternity home;
11. Individuals or AOP paying gross rent of Rs. 1.5M
and above in a year; or
12. Any other person notified by the FBR.
INCOME OF JOINT OWNERS
Joint ownership of property
Respective share of owners are definite & ascertainable
Respective share of owners are not definite & ascertainable
Share of income from such property will be taxed in the
hands of owners separately and not as AO
SIncome from such property will be taxed in the hands of
owners as an AOP
This provision shall not apply in case of “Income from Business”
For further info, please contact:
m.quaid@mavenminds.com.pk