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Examples and Practice Questions for Income from Property

Ex.1
Mr. Ahsan rented out his own house to Mr. Baqar against a rent of Rs.55,000/month. As per
the terms R s . 5 , 0 0 0 /month is charged against rendering of utility & sweeper services. This
Rs. 5,000 is included in Rs.55,000. The actual expenditures incurred by Mr. Ahsan are:
Rs.
Repair of house 7,000/month
Property tax of house 2,100/month
Utility bills 1,800/month
Sweeper wages 1,000/month
His income from business in current year is Rs.900,000.
Required:
Calculate his tax liability?
Ex.2
Mr. Ahm ad has rented o u t his house t o Mr. Hassan on 1 September, 2009 for a monthly
rental of Rs.35,000 due to his friendship. Fair market rental o f house is Rs.40,000/month.
He al s o received Rs.300,000 as Non-adjustable amount on 1 September, 2009. Further the
house was given on rent by Mr. Ahmad to Mr. Sattar on 1 June, 2012 at a monthly rental of
Rs.45,000/month. Mr. Sattar gave Rs.500,000 as non-adjustable amount which was partly used
to make payment of Rs.300,000 to Mr. Hassan who vacated house on 31 May, 2012.
Required:
Calculate Income from Property for Tax Year 2010, 2011 and 2012?
Ex.3
Mr. Anwar has two houses. House No. 1 is given on rent to an individual and House No. 2 is
given on rent to a company.
House Rent/month of house Amount Actual expenses of
charged/month for utilities/month
utilities
House No. 1 40,000 15,000 10,000
House No. 2 70,000 18,000 3,000
Mr. Anwar also earned income from business of Rs.700,000.
Required:
Calculate his taxable income and tax liability?
Ex. 4
Mr. A and Mr. B are joint owners of a house and they have provided the following data:
Profit sharing ratio amongst A and B 60:40
Rental income earned from house for Tax Year 2013 Rs.3,000,000
Required:
Calculate tax liability for A and B?
Ex. 5
Mr. Samaad owns a property in TECH society. He handed it over to Mr. Asim a t a monthly
rental of Rs. 135,000 per month. Non-adjustable amount received amounted to Rs.800,000.
Period of tenancy starts from 1st July 2013. Following information is disclosed by Mr. Samaad
for the Tax Year 2014.
Expenses Notes Amounts (Rs.)
Repair Expenses 145,000
Insurance premium 1 500,000
Taxes 2 55,000
Ground Rent 3 60,000
Share in rent 4 144,000
Rent collection charges 5 2,500
Legal Charges 6 40,000

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Notes
1. Insurance premium paid to Ihtisham & Co. Insurers for two years ending on 30 t h June
2015.
2. It includes Property tax as well as income tax. Income tax amounts to Rs.10,000.
3. Property lent on rent includes a piece of land for which Mr. Samaad pays a ground rent
of Rs.5,000/month.
4. Since the capital for renovation was taken from HBFC, therefore Mr. Samaad pays
12,000/month as share in rent to HBFC.
5. Mr. Samaad was out of the country therefore he incurred charges for collection of rent
via MCB.
6. Mr. Usman, lawyer of Mr. Samaad drew his professional fees for defending the title of
the House in respect of a suit filed against Mr. Samaad.
Required:
Calculate the taxable Income of Mr. Samaad for tax year 2014.
Ex. 6
For the purpose of this question, you should assume that today’s date is 15 July 2014.
Mr. Hassan, aged 65, has been resident in Pakistan for many years and offers his income for tax
on the accrual basis. He has provided the following information about his immovable properties
rented out to different persons during the year ended on 30 June 2014:
House in Multan
Hassan rented out his house in Multan to Kamal on 1 July 2011, at a monthly rent of Rs.100,000.
He had also received a non-adjustable deposit of Rs.1,000,000 from Kamal at the
commencement of the rental. On 1 July 2013, Kamal vacated the house and the non-adjustable
deposit was returned to him in full.
On 1 July 2013, Hassan let the house to Waqar at a monthly rent of Rs.120,000 which included
Rs.20,000 for the services of a security guard. Hassan also received a new non-adjustable deposit
of Rs.1,500,000 from Waqar.
In the accounting year ended 30 June 2014, Hassan incurred the following expenditure on the
house:
Rs.
Repair of the house 120,000
Collection charges 70,000
Property tax paid to the Excise and Taxation Department 350,000
Expenditure for the preparation of the tenancy agreement with Waqar 25,000
Legal fee paid for defending the title to the house in a court of law 100,000
Annual salary paid to the security guard 200,000
Profit paid to a bank on a loan utilized for renovating the house 50,000
Insurance premium paid to cover the risk of damage by fire 30,000
Building with plant and machinery
On 1 August 2013, Hassan purchased a new building in which new biscuit manufacturing plant
and machinery had been installed. The consideration paid as specified in the purchase deed was
Rs.8,000,000 for the building and Rs.4,000,000 for the plant and machinery installed in the
building. On 1 October 2013, the building together with the plant and machinery was rented out
to Tasty Biscuits (Pvt.) Limited for a composite rent of Rs.800,000 per month. Hassan also
received a non-adjustable advance of Rs.1,000,000 from the company.
In the accounting year ended 30 June 2014, Hassan incurred the following expenditure on the
building:

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Rs.
Distempering the building 90,000
Interest-free refundable security deposited with the electricity providing company 400,000
Property tax on the building paid to the local government for nine months 300,000
Legal fee for preparing the rental agreement 35,000
Salary paid to a technician for maintaining the machinery 400,000
Hassan has also provided the following additional information relevant to the accounting year
ended 30 June 2014:
i. Unless stated otherwise, all expenditure has been paid via a mode admissible under the
law and tax deducted wherever applicable.
ii. During the year, Hassan received a pension of Rs.10,000 per month from his ex-
employer, the Government of Pakistan.
iii. Hassan had incurred Rs.35,000 on his medical treatment. He has kept complete evidence
of the expenditure, as required under the law.
iv. Tax withheld from/paid by Hassan was:
– Rs.3,000 on his prepaid mobile phone cards.
– Rs.20,000 on the purchase of domestic air tickets by Hassan.
– Rs.350,000 paid as advance tax in four equal quarterly installments.
– Rs.10,000 withheld by a club where he had arranged a birthday party for his wife.
Required:
a) Explain whether or not Mr. Hassan is entitled to claim a deduction for a repair allowance
equal to one-fifth of the rent chargeable to tax on account of the building rented out to
Tasty Biscuits (Pvt.) Limited.
b) Compute Mr. Hassan’s taxable income for the tax year 2014, giving clear explanations
for the treatment of any items excluded from taxable income or for which no
expense/deduction is allowed.
c) State, giving reasons, whether or not Mr. Hassan will be entitled to a reduction in his tax
liability for the tax year 2014 due to his age and calculate the total tax payable by him on
the basis of the taxable income computed in part (b).
Ex. 7
Mr. Rizwan, resident in Pakistan, has provided the following information in respect of his tax
affairs for the year ended 30 June 2013.
From employment with Highgrowth Ltd as technical officer
Mr. Rizwan worked with Highgrowth Ltd (‘Highgrowth’) throughout the year ended 30 June
2013. On reaching the age of 55 years, he opted for early retirement with effect from 20 July
2013. He has provided the following information relating to his employment with Highgrowth:
i. Emoluments received in cash:
– Annual basic salary of Rs. 1,200,000;
– Technical allowance at 5% of his basic salary;
– Rs.50,000 in lieu of availing of his annual recreational leave;
– Utility allowance at 6% of his basic salary; and
– Rs.100,000 as consideration for consenting to a restrictive covenant refraining
him from entering into employment with any other competitive company for a
period of one year.
ii. Highgrowth provided Rizwan with fully furnished accommodation for his family in
Lahore. The fair rent of the accommodation was estimated to be Rs.50,000 per month.

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Had the company not provided him with this accommodation, he would have been
entitled to a house rent allowance at 60% of his basic salary.
iii. A new car was taken on a finance lease on 1 January 2013 by Highgrowth exclusively for
Rizwan’s private use. The fair market value of the leased car at the commencement of the
lease was Rs.2,000,000. The total payments to be made over the lease term of three years
were Rs.2,500,000. The company deducted Rs.72,000 from Rizwan’s salary for his
personal use of the car for the six months to 30 June 2013.
iv. Another car was provided for the business use of Rizwan. On 25 June 2013, in
accordance with the terms of his employment, Rizwan purchased this car from
Highgrowth for Rs.400,000. The fair market value of the car on 25 June 2013 was
Rs.500,000.
v. Highgrowth gave Rizwan a loan of Rs.400,000 at a 2% mark-up on 1 October 2012 for
the education of his children. On 30 June 2013, Rizwan returned the principal amount of
Rs. 350,000 along with the mark-up payable on the total loan. The balance amount of
Rs.50,000 was, however, waived by Highgrowth on that day.
vi. Rizwan was provided with the services of a domestic servant for the full year. The
monthly cost to Highgrowth for the provision of this service was Rs.7,000.
vii. Rizwan was issued 1,000 shares in Highgrowth on 25 June 2013 under the company’s
employee share scheme. There is a restriction on Rizwan not to sell or transfer the shares
before 25 June 2014. On 25 June 2013, the breakup value of each share of Highgrowth
was Rs.15 per share against a face value of Rs.10 per share. Rizwan did not sell any of
the shares during the year ended 30 June 2013.
viii. Highgrowth deducted Rs.125,000 as tax from Rizwan’s salary and this was deposited
with the Commissioner Inland Revenue as required under the law.
ix. Rizwan incurred expenses of Rs.150,000 relating to self-education which was directly
connected with his employment at Highgrowth. The expenses included fees, books and
travel, etc.
Share of income from property
Rizwan and his brother, Saeed, jointly own a freehold house in Islamabad which is let out. Each
brother has a 50% share in the house. The house was let throughout the tax year 2013 to Mr.
Waseem, at a monthly rent of US$ 1,500. The total rent amount was paid in advance on 1 July
2012, on which date the exchange rates were:
 State Bank of Pakistan rate 1 US$ = Rs.88·5
 Open market rate 1 US$ = Rs.90·0
Required:
Compute Mr. Rizwan’s taxable income and his total tax payable for the tax year 2013. Give
reasons for the treatment of any items excluded from the taxable income or for which no
expense/deduction is allowed.
Ex. 8
Ms. Fauzia, a resident in Lahore, Pakistan, has worked as an internal auditor for Star Products
(Pvt.) Ltd (SPPL) for many years. For the year ended 30 June 2012, her income/receipts are as
detailed below:
i. Her basic salary during the year was Rs.100,000 per month. Other perquisites given in
cash or kind were as below:

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ii. A medical allowance at 15% of her basic salary. The terms of her employment do not
provide for free medical treatment or hospitalization or any reimbursement of such
expenses.
iii. SPPL provided her with a car for official and personal use. SPPL had obtained the car by
way of a finance lease and its fair market value at the time of the lease was Rs.1,600,000.
The lease rentals paid during the year were Rs.200,000.
iv. She had received 50,000 shares in SPPL on 1 January 2008 under an employee share
scheme at Rs.10 per share against a fair value of Rs. 30 per share. She had the option to
transfer the shares on or after 1 January 2009 on which date the fair value was Rs.40 per
share. However, she sold all of the shares on 1 April 2012 at Rs.50 per share.
v. SPPL reimbursed her Rs.20,000 per month, being the school fees of her child.
vi. SPPL gave her a loan of Rs.500,000 on 1 July 2011 at 5% mark-up. Ms. Fauzia, however,
waives the interest on her account with SPPL.
vii. SPPL paid her Rs.100,000 in lieu of her un-availed recreational leaves.
viii. She won the best employee award of SPPL in the form of a laptop having a fair market
value of Rs.140,000.
ix. SPPL contributed Rs.10,000 per month to the account of Ms. Fauzia in the recognized
provident fund of the company.
x. Due to the escalation of food prices, a lump sum amount of Rs.50,000 was paid to her in
June 2012.
Additional information about employment
a) Apart from the above emoluments, a bonus of Rs.300,000 for the year ended 30 June
2012 was approved on 15 June 2012, but was not paid to her until 2 July 2012.
b) Ms. Fauzia paid Rs.50,000 for attending a training workshop to equip her with the latest
audit techniques. SPPL did not reimburse this amount.
c) SPPL deducted tax of Rs.200,000 from her salary paid during the year.
Other information
1. Travel agents collected tax of Rs.10,000 at the time of selling air tickets to Ms. Fauzia on
her multiple personal visits to Karachi.
2. Zakat of Rs.340,000 was paid under the Zakat and Ushr Ordinance, 1980.
3. Ms. Fauzia acquired 70,000 new shares in a listed company for Rs.700,000 on their initial
public offer on 20 June 2012.
Required:
Compute Ms. Fauzia’s taxable income and her total tax payable for the tax year 2012. Give brief
reasons for the treatment of any items excluded from taxable income or for which no
expense/deduction is allowed.
Q1 (Dec-13)
Mr. Iqbal, aged 45 years, is working as a Chief Engineer in a listed company Tameer Limited
(TL). The company is engaged in the manufacture of chipboards for the local market. He derived
following emoluments during the tax year ended 30 June 20X4:
Rupees
Basic salary ( per month) 300,000
Cost of living allowance (per month) 50,000
Milk allowance (per month) 10,000

In addition to the above emoluments, Mr. Iqbal was also provided the following:

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1. Special bonus equal to one month’s basic salary paid on 5 June 20X4.
2. A new company maintained car for his personal use. The car was purchased on 1 March
20X4 at a cost of Rs.1,800,000. However, the cost of the car would have been
Rs.3,000,000 had the company obtained it on finance lease. Mr. Iqbal, in accordance with
the terms of his employment, purchased his previous car from TL for Rs. 250,000. This
car was provided to him solely for business purposes. The fair market value of the car at
the time of sale to Mr. Iqbal was Rs. 600,000.
3. A reimbursement of Rs. 36,000 in respect of driver’s salary. Mr. Iqbal paid Rs. 60,000 to
the driver for four months.
4. A fully furnished accommodation in DHA, Karachi. The fair market value of the rent was
estimated to be Rs. 85,000 per month.
5. An option to acquire 4,000 shares in TL’s parent company, Tameer Inc. which is listed on
New York Stock Exchange was granted to him in May 20X3. Mr. Iqbal exercised the
option on 5 January 20X4 at a price of USD 1.5 per share. The market value of the shares
at the close of business on 5 January 20X4 was USD 2.5 per share. He sold 3,000 shares
on 30 June 20X4 at a price of USD 3 per share. The dollar rupee parity on both the above
dates was USD 1 = Rs.100.
6. On 15 May 20X4 Mr. Iqbal was provided 800 shares in TL as a reward for his excellent
performance. However, he was restricted from selling or transferring these shares before
16 November 20X4. The market value of these shares at the close of business on 15 May
20X4 was Rs.12.5 per share.
Mr. Iqbal received additional income as follows, for the tax year 20X4:
 Annual rent of Rs.800,000 from letting out a building to KK Enterprise. Following
expenses were incurred by Mr. Iqbal in relation to the building: Repairs Rs.200,000, Fire
insurance premium Rs.30,000, Ground rent Rs.10,000, Watchman’s salary Rs.8,000 and
Interest of Rs.15,000 on a loan obtained for building renovation by creating first charge
on the building in favour of a scheduled bank.
Other related information is as under:
a) TL deducted withholding tax of Rs.1,200,000 from Mr. Iqbal’s salary during tax year
20X4.
b) On 1 July 20X3, Mr. Iqbal acquired a life insurance policy and paid a premium of
Rs.500,000. He also contributed Rs.1,600,000 to an approved pension fund.
c) On 1 August 20X3, he purchased 50,000 shares in a listed company AB Limited at a
price of Rs.20 each. On 1 January 20X4, AB Limited announced 20% right shares to
existing shareholders at a price of Rs.18 per share. On 25 January 20X4, Mr. Iqbal
subscribed the right issue in full.
Required:
Under the Income Tax Ordinance, 2001 and Rules made thereunder, compute the taxable income
and income tax payable by or refundable to Mr. Iqbal for the tax year ended 30 June 20X4.
Q2 (Jun-11)
Mr. Khan has been working for a listed company Turtle Limited (TL) for the last many years.
The details of his emoluments during the tax year ended June 30, 20X4 are as under:
Rupees
Basic salary (per month) 350,000
Conveyance allowance (per month) 50,000

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In addition to the above cash emoluments, Mr. Khan was also provided with the following:
a. A rent free furnished accommodation with a fair market rent of Rs. 100,000 per month.
b. An 1800cc company maintained car, both for business and private use. The car was
purchased by TL on July 1, 20X1 at a fair market value of Rs. 2,000,000.
c. On July 1, 20X3 he was provided with an interest free loan of Rs. 2,500,000 which is
repayable in lump sum in December 20X4. The prescribed benchmark rate is 13% per
annum. The prescribed benchmark rate is 13% per annum. On December 1, 20X3 Mr.
Khan utilized 60% of the amount of loan for purchasing a double storey bungalow. The
total cost of the bungalow was Rs. 25,000,000. The bungalow, on its ground floor, also
had a suitable space for opening a departmental store.
In order to increase its operational efficiency, TL announced a redundancy scheme to its
employees. Mr. Khan opting for the scheme resigned from TL with effect from January 1, 20X4.
Upon resignation, 25% of his outstanding loan balance was waived by TL and the remaining
loan amount was adjusted from his final settlement. He received the following payments from
TL:
Rupees
Compensation under the redundancy scheme 4,000,000
Gratuity under unapproved scheme 2,000,000
Following further information is also available:
i. Tax of Rs. 1,837,000 was withheld by TL from the above payments.
ii. Mr. Khan was allowed to purchase the 1800cc car at an accounting book value of Rs.
1,000,000 which he sold in the open market at a price of Rs. 1,500,000.
iii. On March 1, 20X4 Mr. Khan rented out the ground floor of his bungalow to Mr. Riaz, for
establishing a departmental store, at a monthly rent of Rs. 137,500. Due to the strategic
location of the store, he also received adjustable and non-adjustable deposits of Rs.
600,000 and Rs. 500,000 respectively.
iv. On April 1, 20X4 he rented out the residential portion of the bungalow to a Commercial
Bank for their marketing executive. He received gross amount of Rs. 2,400,000 as two
year’s advance rent. The Bank deducted tax of Rs. 197,500 from such payment.
v. A donation of Rs. 500,000 was made to an un-approved trust for the construction of
mosque.
Required:
Compute the taxable income, tax liability and tax payable/ refundable, if any, to Mr. Khan for the
tax year 20X4. The average rate of tax of Mr. Khan for the last three years was 18%.
Q3
Mr. Creative is working as Director Human Resources at Artistic Technologies Limited (ATL).
Following are the details of his income/receipts during the latest tax year:
a) Monthly cash remuneration from ATL:
Basic salary Rs. 300,000
Utility allowance 15% of basic salary
Medical allowance 12% of basic salary
b) In addition to above, he was also provided the following benefits in accordance with his
terms of employment:
Rent-free furnished accommodation in a bungalow situated on a 500 square yard
plot of land. Rent for a comparable accommodation facility in the vicinity is
Rs.150,000 per month.

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An 1800cc company-maintained car. The car was purchased two years ago at a
cost of Rs.1,600,000 and is used both for official and personal purposes.
c) A house owned by Mr. Creative had been leased-out by him at a monthly rent of
Rs.50,000. The lease expired on 31 December. Mr. Creative refused to renew the lease in
spite of the tenant’s offer to renew the lease after increasing the rent by 10%. He returned
the non-adjustable deposit of Rs.300,000 to the tenant, which was received two years
ago.
The house was immediately leased to his cousin without any security deposit on a
monthly rent of Rs.48,000.
d) During the latest tax year, following investments were made:
Rupees
Approved voluntary pension fund 600,000
Open-end mutual fund 1,100,000
e) Donations of Rs.50,000 were paid to charitable institutions listed in the Second Schedule
of the Income Tax Ordinance, 2001.
f) Tax deducted at source from his salary was Rs.737,000.
Required:
Compute the taxable income, tax liability and tax payable for the latest tax year.

By Khalid Mehmood, FCA