This blog is written by Mr. Ikram Ul Haq, Manager Taxation Advisory Services. Please read this pertinent blog and provide your valued comments.
INCOME FROM PROPERTY
- The rent received or receivable by a person for a tax year, other than rent exempt from tax under this Ordinance, shall be chargeable to tax in that year under the head “Income from Property”.
- “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.
- 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”.
- Where the rent received or receivable by a person is less than the fair market rent for the property, the person shall be treated as having derived the fair market rent for the period the property is let on rent in the tax year.
- The point (1), shall not apply in respect of a taxpayer who;
- is an individual or association of persons;
- derives income chargeable to tax under this section not exceeding Rs. 150,000 in a tax year; and
- does not derive taxable income under any other head.
NON-ADJUSTABLE AMOUNTS RECEIVED IN RELATION TO BUILDINGS:
- Where the owner of a building receives from a tenant an amount which is not adjustable against the rent payable by the tenant, the amount shall be treated as rent chargeable to tax under the head “Income from Property” in the tax year in which it was received and the following nine tax years in equal proportion.
- Where an amount (hereinafter referred to as the “earlier amount”) is refunded by the owner to the tenant on termination of the tenancy before the expiry of ten years, no portion of the amount shall be allocated to the tax year in which it is refunded or to any subsequent tax year.
- Where the circumstances specified in Point (2) occur and the owner lets out the building or part thereof to another person (hereinafter referred to as the “succeeding tenant”) and receives from the succeeding tenant any amount (hereinafter referred to as the “succeeding amount”) which is not adjustable against the rent payable by the succeeding tenant, the succeeding amount as reduced by such portion of the earlier amount as was charged to tax shall be treated as rent chargeable to tax under the head “Income from Property” as specified in Point (1).
INCOME OF JOINT OWNERS:
- Where any property is owned by two or more persons and their respective shares are definite and ascertainable;
- The persons shall not be assessed as an association of persons in respect of the property; and
- The share of each person in the income from the property for a tax year shall be taken into account in the computation of the person’s taxable income for that year.
- These provisions shall not apply in computing income chargeable under the head “Income from Business”.
TRANSFER OF ASSETS:
- Where there has been a transfer of an asset but the asset remains the property of the transferor, any income arising from the asset shall be treated as the income of the transferor.
GEOGRAPHICAL SOURCE OF INCOME:
- Rental income shall be Pakistan-source income if it is derived from the 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.
- Any gain from the alienation of any property or right referred to in sub-section (1) or from the alienation of any share in a company the assets of which consist wholly or principally, directly or indirectly, of property or rights referred to in sub-section (1) shall be Pakistan-source income.
ASSESSMENT IN RELATION TO DISPUTED PROPERTY:
- Where the ownership of any property the income from which is chargeable to tax under this Ordinance is in dispute in any Civil Court in Pakistan, an assessment order or amended assessment order in respect of such income may be issued at any time within one year after the end of the financial year in which the decision of the Court is made.
TAX DEDUCTION INCOME FROM PROPERTY:
- Every prescribed person making a payment in full or part (including a payment by way of advance) to any person on account of rent of immovable property (including rent of furniture and fixtures, and amounts for services relating to such property) shall deduct tax from the gross amount of rent paid at the rate specified in Division V of Part III of the First Schedule.
- The tax deducted under point (1) shall be a final tax on the income from property.
- In this section, “prescribed person” means;
- the Federal Government;
- a Provincial Government;
- local authority;
- a company;
- a non-profit organization;
- a diplomatic mission of a foreign state; or
- any other person notified by the Central Board of Revenue for the purpose of this section.
BREAKING DOWN OF PROPERTY INCOME:
- An income property can be a good investment for a variety of reasons. It offers an alternative to standard market investments in stock equity and company bonds. Additionally, it offers an investor the security of real property with many investment diversification benefits.
- Investing in real estate for income requires a broad range of considerations. Interest rates and the housing market environment are top considerations for real estate investors. Location, rent levels and the potential for return are usually also leading concerns for a investor seeking to buy and rent a property for income.
ECONOMICAL VIEW ABOUT INCOME FROM PROPERTY:
- Property income is nominal revenues minus expenses for variable inputs (labor, purchased materials and services). Property income represents the return for the supply of both physical capital and financial capital.
- Capitalist economic systems are usually defined as those systems where the means of production are privately owned through equity, stock, bonds or privately held by a group of owners so that the income generated by property (Capital goods, land, and financial assets) accrues to a small subset of the population while the majority of the population subsists primarily through wages, salaries or commissions.
- In Marxian economics and related schools, property income is a portion of the surplus value produced by an economy, where “surplus value” refers to value beyond what is needed for subsistence. As such, income derived through property ownership constitutes a type of “unearned income” on the basis of economic exploitation for the capitalist class that receives and lives off of property income, because its recipients receive property income by virtue of owning property regardless of their contribution to the social product. As such, the existence of property income based on private property forms the basis for the class division in capitalist economies.
- One economic perspective is to bring productive property under public ownership so that each citizen would receive a share of the property income in addition to their normal wage or salary. This would eliminate class distinctions, reduce economic inequality, and enable greater economic stability.
TAX ON INCOME FROM PROPERTY:
- Unfortunately, we have to pay tax on property income. Property income profits are taxable, unless they fall within one of the specific reliefs or allowances.
- If the reliefs or allowances do not apply to our income, then we will need to pay income tax on any profits (broadly, property income less allowable expenses).
- ‘Income’ is normally the rent due from the tenants, but also taxable are payments in kind, for example, gardening or cleaning the property instead of paying rent.
RATES ON INCOME FROM PROPERTY FOR TAX YEAR 2019:
The following rates are for Individuals and AOPs;
Where Annual Rent is less than or equal to 200,000 0.00%
Where Annual Rent is more than 200,000 but less than 600,000 5% of the amount above 200,000
Where Annual Rent is more than 600,000 but less than 1,000,000 20,000 + 15% of the amount above 600,000
Where Annual Rent is more than 1,000,000 but less than 2,000,000 60,000 + 15% of the amount above 1,000,000
Where Annual Rent is more than 2,000,000 210,000 + 20% of the amount above 2,000,000
Ikram Ul Haq