In Pakistan, property income is subject to taxation under the Income Tax Ordinance, 2001. Property income includes rent received from letting out a property, income from sale of property, and any other income derived from property. Individuals who earn property income are required to report it to the tax authorities and pay taxes on it. However, the law allows certain deductions from property income, which can reduce the tax liability of an individual. In this article, we will discuss the deductions that are allowed from property income in Pakistan for an individual.
Municipal taxes are levied by local authorities on property owners for the provision of local services such as waste management, water supply, and street cleaning. The amount of municipal taxes paid can be deducted from the rental income received from the property.
Repairs and Maintenance:
Expenses incurred on repairs and maintenance of a property can be deducted from the rental income. These expenses include the cost of painting, plumbing, electrical work, and any other repairs required to keep the property in good condition.
Depreciation is a non-cash expense that reflects the reduction in the value of a property over time due to wear and tear. The amount of depreciation allowed as a deduction from rental income is calculated based on the cost of the property, the expected useful life, and the residual value.
Interest on Borrowed Funds:
Interest paid on loans taken to acquire or improve a rental property is allowed as a deduction from rental income. This deduction is only available if the property is rented out and not used for personal purposes.
Insurance premiums paid on a rental property can be deducted from rental income. These include premiums paid for fire insurance, liability insurance, and any other insurance related to the property.
Expenses incurred on professional services related to the rental property can be deducted from rental income. These include legal fees, accounting fees, and property management fees.
Property taxes paid to the government can be deducted from rental income. These taxes are levied by the government on the assessed value of the property.
It is important to note that these deductions are subject to certain conditions and limitations. For example, the deduction for repairs and maintenance is only allowed for expenses that are necessary to keep the property in good condition and do not include any improvements or additions. Similarly, the deduction for interest on borrowed funds is only allowed for the period during which the property is rented out.
In conclusion, property income is subject to taxation in Pakistan, but the law allows certain deductions that can reduce the tax liability of an individual. These deductions include municipal taxes, repairs and maintenance, depreciation, interest on borrowed funds, insurance premiums, professional services, and property taxes. It is important for individuals to keep proper records of their expenses and seek professional advice to ensure that they are claiming all the deductions that they are entitled to.