INCOME FROM PROPERTY
Heads of income has been given in Income Tax Ordinance. I want to discuss one head of income in this article that is given in title.
Income from property is a passive income. Property is an asset and it gives earnings without working actively.
Income and rent received from property is taxable according to Income Tax laws of Pakistan.
What is rent?
Rent means any amount received or receivable by the owner of land or a building as consideration for the use or occupation of, or the right to use or occupy, the land or building, and includes any forfeited deposit paid under a contract for the sale of land or a building.
Rent that is not charged under head of income from property:
- Any rent received or receivable by any person in respect of the lease of a building together with plant and machinery and such rent shall be chargeable to tax under the head “Income from Other Sources.
- Where any amount is included in rent received or receivable by any person for the provision of amenities, utilities or any other service connected with the renting of the building, such amount shall be chargeable to tax under the head “Income from Other Sources”
How we value the rent:
The fair value of rent shall be determined according to adjoining properties in the area. Local Governments have power to determine the rental value of the property for the purpose of enforcing the property tax.
Deductions:
That some repairing, administration and legal expenses are deductable from rental income to calculate income tax. In computing the income of a person chargeable to tax under the head “Income from Property” for a tax year, a deduction shall be allowed for the following expenditures or allowances, namely:-
Repairs to building: In respect of repairs to a building, an allowance equal to one-fifth of the rent chargeable to tax in respect of the building for the year, computed before any deduction allowed under this section.
Insurance premium: Any premium paid or payable by the company in the year to insure the building against the risk of damage or destruction.
Local Tax: Any local rate, tax, charge or cases in respect of the property or the rent from the property paid or payable by the company to any local authority or government in the year, not being any tax payable under this Ordinance.
Ground Rent paid by the company: Any ground rent paid or payable by the company in the year in respect of the property.
Profit paid on borrowed money: Any profit paid or payable by the company in the year on any money borrowed including by mortgage, to acquire, construct, renovate, extend or reconstruct the property.
Rent collection Charges: Any expenditure, not exceeding four per cent of the rent chargeable to tax in respect of the property for the year computed before any deduction allowed under this section, paid or payable by the company in the year wholly and exclusively for the purpose of deriving rent chargeable to tax under the head, “Income from Property” including administration and collection charges.
Legal Charges: Any expenditure paid or payable by the company in the tax year for legal services acquired to defend the company’s title to the property or any suit connected with the property in a court.
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