MAVEN MINDS

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Income Tax Ordinance, 2001
[Applicable in Pakistan]

INCOME FROM PROPERTY

AMOUNT CHARGEABLE UNDER THE HEAD “INCOME FROM PROPERTY”

RENT Rent taxable would higher of;

Actual Rent; or

Means Fair Market Rent or

However, this principle shall not apply where fair
Any amount received or receivable market rent is already included in the income of the
by the owner of land or a building lessee, chargeable to tax under the head “Salary”.
as consideration for
- use or occupation of, or Exclusion from Income from Property
- right to use or occupy, the land or
Following income would be taxable under the head
building
Income from other sources
Rent of building together with plant and machinery.
Includes Amount included in rent for amenities, utilities and
any other service connected with renting of the
1. Any forfeited deposit paid under a contract building.
for the sale of land or a building
Rent from sub-lease of land or a building.
2. An amount treated as rent u/s 16 (i.e. non- Consideration for vacating the possession of a
adjustable amount received in relation to building or part thereof, reduced by any amount
building) paid by the person to acquire possession of such
building or part thereof.

Lump sum amount received in relation to rent agreement of land or building

In relation to “building” In relation to “Land”

Not adjustable against Adjustable against Not adjustable against

future rent future rent future rent

No separate tax No taxability, as capital

Non-refundable Refundable implications, as rent receipt of this nature in
is chargeable to relation to “Land” is not
tax on accrual specifically made
basis taxable
Chargeable to tax Chargeable to tax
in the year of receipt in the year of
& following 9 years receipt & following Refunded after No further taxation
in equal proportion 9 years in expiry of 10 years after 10 years
equal proportion
unless refunded
Refunded before No taxation in the year
earlier expiry of 10 years of refund & thereafter

Receipt of similar amount from subsequent tenant

(Succeeding amount – portion of earlier amount already charged to tax) will be
chargeable to tax in the year of receipt and following 9 tax years in equal proportion.
For further info, please contact:
m.quaid@mavenminds.com.pk
 MAVEN MINDS
Assurance | Tax | Advisory | Outsourcing
Income Tax Ordinance, 2001
[Applicable in Pakistan]

INCOME FROM PROPERTY

BASIS OF TAXABILITY UNDER THE HEAD “INCOME FROM PROPERTY”

Rent is chargeable to tax on accrual basis i.e. Deduction for an expenditure is allowed on accrual basis
when rent is received or receivable for a tax year. i.e. when expenditure is paid or payable for a tax year.

ALLOWABLE DEDUCTION UNDER THE HEAD “INCOME FROM PROPERTY”

In computing income chargeable to tax under the head “Income from Property” for a tax year, a deduction shall be
allowed for following expenditures or allowances to

Repair Allowance
In respect of repairs to a building, an allowance equal to 1/5th of the rent

Insurance Premium
Any premium to insure the building against the risk of damage or destruction
TAX

Government Dues & Taxes

Any local rate, tax, charge or cess in respect of property or rent to any local authority or government in the year,
not being income tax.

Ground Rent FO
RR
EN
T

In respect of repairs to a building, an allowance equal to 1/5th of the rent

INTEREST

Profit or Markup on Money Borrowed

Any profit or mark-up on any money borrowed, (including mortgage) to acquire, construct, renovate, extend or
reconstruct the property.

Share in Rent & Share in Appreciation in Value of Property

Any share in rent & share in appreciation in the value of property (excluding return of capital), where property has
been acquired, constructed, renovated, extended, or reconstructed with capital contributed by HBFC or scheduled
bank under a scheme of investment in property

Profit or Interest on Mortgage or Charge

Where the property is subject to a mortgage or other capital charge, any profit or interest paid on such mortgage
or charge.

Administration & Rent Collection Charges

Any expenditure, wholly & exclusively for deriving rent (including administration & collection charges) not
exceeding 4% of the rent

Legal Services
Any expenditures for legal services acquired to defend the person’s title to the property or any suit connected with
the property in a court.

Unrecoverable Rent
Unrecoverable rent subject to following conditions:
Tenancy was bonafide
Defaulting tenant has vacated the property or steps have been taken to compel the tenant to vacate the property;
Defaulting tenant is not in occupation of any other property of the person;
The person has taken all reasonable steps to institute legal proceedings for recovery of unpaid rent or has
reasonable grounds to believe that legal proceedings would be useless; and
Unpaid rent was previously charged to tax & tax has been duly paid on such income.
If the unpaid rent allowed as deduction, is wholly or partly recovered, the amount recovered shall be chargeable to
tax in the tax year in which it is recovered.
For further info, please contact:
m.quaid@mavenminds.com.pk
 MAVEN MINDS
Assurance | Tax | Advisory | Outsourcing
Income Tax Ordinance, 2001
[Applicable in Pakistan]

INCOME FROM PROPERTY

ALLOWABLE DEDUCTION TREATMENT OF LOSS UNDER THE “IFP”

Loss under the head IFP can be setoff against

General points relating to deductions under
“Income from property”
Payment for an expenditure deductions shall be
made within 3 years from the end of the tax year in
which the deduction was allowed.
income of other heads except salary
Loss under the head IFP cannot be carried forward
IFP can adjust losses of other heads of income
GEOGRAPHICAL SOURCE

If the expenditure is not paid as above, the unpaid
expenditure shall be chargeable to tax in the 4th year.
However, if the said expenditure is subsequently
paid, it shall be allowed as deduction in the tax
year in which it is paid.
Rental income shall be PSI if it is derived
from lease of immovable property in Pakistan
whether improved or not, or
from any other interest in or over immovable
property, including a right to explore for, or exploit,
natural resources in Pakistan.

Section 21 (Deductions not allowed) shall also apply

in determining the deductions allowed under
“Income from property”, in the same manner as
they apply to “Income from business”
Any expenditure allowed as deduction under
“Income from property” shall not be allowed as
deduction under any other head of income.
EXEMPTIONS OF HEAD
Any rent or revenue derived from agricultural land
situated in Pakistan; or
Any rent or revenue of building which is on or in the
immediate vicinity of the agricultural land and which
is used as dwelling-house, a store-house, or other
out-building.

WITHHOLDING TAX IMPLICATIONS

Section 155 Prescribed Person i.e. Withholding Agent

Every prescribed person making a payment in full or in 01. Federal Government;

part (including advance) on account of rent of immovable
02. Provincial Government;
property (including rent of furniture & fixtures or amounts
03. Local Government;
for services relating to such property) shall deduct tax
from the gross amount of rent paid 04. Company;

Above provision shall apply when a payment is made on 05. Non-profit organization or a charitable institution;
account of rent of immoveable property irrespective of 06. Diplomatic mission of a foreign state;
head of income 07. Private educational institution:
Gross rent includes treated rent u/s 16. 08. Boutique;
09. Beauty parlor;
Taxpayer Withholding Tax Rates 10. Hospital, clinic or a maternity home;
If recipient of rent is Division V of Part III of 11. Individuals or AOP paying gross rent of Rs. 1.5M
individual / AOP 1st Schedule and above in a year; or
If recipient of rent is 15% of the gross amount 12. Any other person notified by the FBR.
company of rent

INCOME OF JOINT OWNERS

Joint ownership of property

Respective share of owners are definite & ascertainable Respective share of owners are not definite & ascertainable

Share of income from such property will be taxed in the SIncome from such property will be taxed in the hands of
hands of owners separately and not as AO owners as an AOP

This provision shall not apply in case of “Income from Business” For further info, please contact:
m.quaid@mavenminds.com.pk