Income from Other Sources is a term used to describe any income that is not taxable under any other head of income. These incomes are taxed separately under the Income Tax Ordinance 2001, in Pakistan. In this article, we will discuss what constitutes Income from Other Sources and how it is taxed in Pakistan.
Types of Income under Income from Other Sources
Income from Other Sources includes a wide range of incomes, such as:
- Dividend Income: Any income earned from investments in shares or mutual funds, in the form of dividends.
- Income from lease of building along with plant and machinery or sub-lease of building: Income earned by leasing a building along with the plant and machinery or sub-leasing of building.
- Royalty: Any income earned from the use of a patent, copyright, or other intellectual property.
- Profit on Debt: Any income earned from interest on loans given to someone.
- Ground Rent: Any income earned from renting out land or property.
- Pension/Annuity: Any income received as a pension or annuity from a pension fund or an insurance company.
- One-time winning from prize bond, lottery, etc.: Any income earned from a one-time win from prize bonds, lotteries, or similar games.
- Any property received as a gift other than through a relative.
Taxation of Income from Other Sources
Income from Other Sources is taxed separately from other heads of income, and the tax rate varies depending on the type of income earned. The tax rate for dividend income is 12.5% for individuals and 15% for companies. Rental income is taxed at a flat rate of 10% for individuals and 15% for companies. The tax rate for royalty income is 20% for non-residents and 15% for residents.
Income from Other Sources is taxed on a gross basis, meaning that no deductions are allowed except for expenses that are directly incurred to earn this income. For example, if you earn rental income, you can deduct expenses such as repairs and maintenance, property taxes, and insurance premiums, but not the cost of the property itself.
It is essential to declare all Income from Other Sources while filing your tax returns. Failure to disclose such income can result in penalties, interest, and even imprisonment. Therefore, it is important to keep track of all sources of income and report them accurately.
Income from Other Sources is a crucial part of the taxation system in Pakistan. It is important to understand the types of income that fall under this category and the tax rates applicable to them. It is also important to keep track of all sources of income and report them accurately while filing your tax returns. By doing so, you can avoid any legal penalties and ensure compliance with the tax laws of Pakistan.