As a Pakistani resident, it is important to have a clear understanding of the different sources of income and how they are classified in the Income Tax Ordinance. One such source of income is rental income, which falls under the head of “Income From Other Sources.” In this article, we will discuss the different types of rental incomes that fall under this head and how they are taxed.
The Income Tax Ordinance divides income sources into different heads, and income from property is one of them. According to Section 39 of the Income Tax Ordinance, any income that is not chargeable to tax under any other head of income shall be deemed to be income from other sources. This includes income from dividend, royalty, profit on debt, any annuity or pension, and prize bond, winnings, raffle, and lottery income.
When it comes to rental income, the Income Tax Ordinance defines it as the amount received against property by the owner of the immovable property. In simpler terms, any income generated by renting out a property falls under the head of “Income From Other Sources.”
Let’s take a look at the different types of rental incomes that fall under this head:
- Sub lease of a space or building: If you have leased out your property to someone, and that person further sub-leases the property to a third party, the income generated from the sub-lease will be treated as income from other sources.
- Lease of building along with the machinery: If you have leased out a building along with any machinery or equipment, the income generated from that lease will be considered as income from other sources.
- Ground rent: This refers to a lease that is for more than 99 years. The income generated from such a lease falls under the head of “Income From Other Sources.”
- Other services, utilities, or amenities connected with renting of building: If you are providing any additional services, utilities, or amenities along with the rental property, the income generated from those services will be treated as income from other sources.
It is important to note that the income generated from these rental sources is taxable under the Income Tax Ordinance. The tax rate for income from other sources is 20% for non-filers and 15% for filers. If the rental income is less than Rs. 1,200,000 per annum, then it is exempt from tax.
In addition to the tax on rental income, it is also important to keep in mind the deductions that are allowed under the Income Tax Ordinance. These deductions can be claimed against the rental income and can significantly reduce the tax liability.
Some of the deductions that can be claimed against rental income include repair and maintenance expenses, municipal taxes, and insurance premiums. It is important to maintain proper records of all expenses related to the rental property to claim these deductions.
In conclusion, as a Pakistani resident, it is important to have a clear understanding of the different types of rental incomes that fall under the head of “Income From Other Sources” and how they are taxed. Proper record-keeping and understanding of deductions can help reduce the tax liability on rental income.
