Income from property or property income is the amount received against renting of a property. It includes the rent received or is receivable by the owner of the land or building. It includes any security deposits which are non refundable or any amount that is forfeited for sale of the property.
For tax purposes, not only the rental income but also any right/license for sale/use of the property is considered as property income. The discounts given on rent or rent received in kind are calculated at the fair market price. For example, if the market rate for sector A rent is 20k but Mr. X is charging Mr. Y 15k, this difference is not acceptable by tax authorities. Mr. X’s rental income will be calculated at 20k, and tax applicable is accordingly.
Now, let’s look at the tax deductions allowed in Pakistan for property income:
- Insurance premium paid for building
- 1/5th of the repairs on buildings
- Any other local taxes paid in that tax year
- Any profit paid on loan for the renovation of building
- Any legal expense paid to defend the title of property
- Any unpaid rent
It is important to keep track of these expenses and include them in your tax filing to reduce your taxable income.
Here are the tax slab rates as per Income Tax Ordinance 2001 for Individuals and AOPs:
“(1)Where the gross amount of rent does not exceed Rs.400,000. 5 per cent of the gross amount of rent.
(2)Where the gross amount of rent exceeds Rs.400,000 but does not exceed Rs.1,000,000. Rs.20,000 plus 7.5 per cent of the gross amount of rent exceeding Rs.400,000.
(3)Where the gross amount of rent exceeds Rs.1,000,000. Rs.65,000 plus 10 per cent of the gross amount of rent exceeding Rs.1,000,000.”
It is important to note that these rates are subject to change, and it is recommended to consult a tax expert for accurate information.
In conclusion, as a property owner in Pakistan, it is crucial to understand the taxation laws and allowed deductions to maximize your earnings and avoid any legal issues. Keeping track of your expenses and maintaining proper documentation can go a long way in reducing your taxable income.