Quiz 3

Chapter 8: Income from Property 50 marks

Name: Section:

1. The rent received or receivable by a person in a tax year shall be chargeable to tax in that
year under the head:
a) Income from Property
b) Income from Business
c) Income from other sources
d) None of the above

2. Rent chargeable to Tax (RCT) means any amount received or receivable as consideration
for:
a) The use or occupation of land or building
b) Any obligation of the owner paid
c) Non adjustable advance
d) All of the above

3. Any rent in respect of the lease of a building together with plant and machinery, shall be
chargeable to tax under the head:
a) Income from Property
b) Income from other sources
c) Income from Business
d) All of the above

4. Any amount included in rent for the provision of utilities or other service connected with
the renting of the building, shall be chargeable to tax under the head:
a) Income from Property
b) Income from Business
c) Both a and b
d) Income from other sources

Mention whether the following are True or False

5. Income from other sources means any amount received or receivable by the owner of
land or a building:
a) True
b) False
6. If rent received or receivable is less than Fair Market Rent (FMR) for the property, the
person shall be treated as having received the FMR for the period the property is let on
rent in the tax year.
a) True
b) False
 7. Rent chargeable to Tax (RCT) means any amount received or receivable as
consideration, however its exceptions include, any agricultural building and any
property sublet by the tenant.
a) True
b) False

8. Any amount received from the tenant by the owner of a building which is not
adjustable against the rent payable, shall be chargeable to tax in the tax year in which
it is received and the following nine tax years in unequal proportion.
a) True
b) False

9. Admissible deductions companies include Property Tax, Municipal Tax, Ground

Rent and Interest on Loan.
a) True
b) False

10. If rent received or receivable is less than Fair Market Rent (FMR) for the property,
the person shall be treated as having received the FMR for the period the property is
let on rent in the tax year
a) True
b) False
Question
Q1. A person has rented out his house @ Rs. 30,000 per month. As per rent deed, he has
received an amount of Rs. 350,000 as advance, which is not adjustable against rent. Further,
the tenant has agreed to pay the property tax of Rs. 10,000 per annum. Compute the gross
rental income and tax liability under the following cases: (5)
a) Where the FMR is Rs. 300,000
FMR
Rent 360,000 360000 300000
Advance which is not adjustable against rent 35,000
Property Tax 10,000
RCT 405,000
Tax Liability 20,250.00
b) Where the FMR is Rs. 400,000
 FMR
Rent 400,000 360000 400000
Advance which is not adjustable against rent 35,000
Property Tax 10,000
RCT 445,000
Tax Liability 22,250.00

Q2. Mr. Ahmed rented an office to a multinational company @ Rs. 120,000 per month for
three years from August 01, 2019. As per rent deed, Mr. Ahmed also received an amount of
Rs.
600,000 as advance, which is not adjustable against rent. Calculate the tax liability
of Mr. Ahmed for tax year 2020. (5)

Rent @11 months 1,320,000

Advance which is not adjustable against rent 60,000
RCT 1,380,000
Tax Liability 69,000

Q3. Alpha (PVT) LTD has rented out a house at a monthly rent of Rs. 60,000. During the
year the company incurred the following expenses in respect of the house:
1. Repair of house Rs. 45,000
2. Insurance premium 40,000
3. Property Tax 12,000

4. Muncipal Tax 8,000

5. Interest on loan from HBFC 35,000
6. Salary to Mr. Ali whose sole duty is to collect rent. 30,000
7. Legal expenses 5, 000
In previous year, the tenant has vacated the property without paying the rent of 3 months (Rs.
35,000/ month) which could not be recovered. Compute the amount which is chageable to tax
under the head “Income from Property”. (5 mrks)
RCT 720,000
Repair of House (1/5th of RCT) (144,000)
Insurance Premium (40,000)
Property Tax (12,000)
Municipal Tax (8,000)
Interest on Loan (35,000)
Rent Collection (4% of RCT) (28,800) 28,800 30,000
Legal Expense (5,000)
Irrecoverable Rent (105,000)
New RCT 342,200
Tax Liability 17,110

Q4. Mr. Raza acquired a shop on rent and paid Rs. 200,000 as pugree. After 8 years he vacated
the shop and received 340,000 as a consideration for vacating the shop. Compute the amount to
be included in his income on account of the amount received by him. (5 marks)
Amount Received 340,000
Pugree (200,000)
Excess Amount 140,000
1/10th of Excess Amount 14,000
Rs.14,000 added to income to other sources for ten years.

Q5. Mr Safi owns a property at Eme Lahore. The said property was rented out to Mr Ali at a rent
of Rs.42,500 per month. Mr Ali left the premises on 31st Oct 2018. Mr. Asad paid a sum of
Rs.400,000 as un-adjustable advance in July 2011. Mr. Safi returned the said advance on his
departure. The said property remained vacant for three months. Thereafter Mr Raheem has taken
the possession of the said property at a monthly rent of Rs.50,000. New tenant has paid a sum of
Rs.600,000 as un-adjustable advance. COMPUTE THE TAXABLE INCOME AND TAX
LIABILITY OF Mr Safi for the tax year 2019. 10 marks

Rent from Mr. Ali @4 months 170,000

Rent from Mr. Raheem @5 months 250,000
Unadjustable Advance 32,000
RCT 452,000
Tax Liability @5% 22,600