TAXATION

Income from Property

Changes made through Last 2 Finance
Acts:

- Collection charges allowed upto 4%

instead of 6%
- Income from Property is now treated as
Normal Income, instead of separate
block of income for individuals and AoP
(which was option earlier)
RENT Section 15
RENT Section 15

Clause 6 and 7, now omitted. This means no separate block of income for
Individuals and AOP
NON-ADJUSTABLE Section 16
Ali, born on 30th May 1969, works at monthly basic salary of
Rs. 75,000 at a medical Laboratory.
Ali gave his flat on monthly rent of Rs. 25,000 to Zafar on
1.7.16 for 10 years and received Rs. 200,000 as non-
adjustable deposit. On 30th April 2020, Ali refunded Zafar
Rs. 200,000 and asked him to vacate the flat. From 1 st May
2020 gave the flat to Samad for 10 years on monthly rent of
Rs. 50,000. Samad paid Ali Rs. 300,000 as non-adjustable
deposit.
During the year, Ali spent Rs. 80,000 on repairs of the flat,
and paid property tax of Rs. 5,000.
Ali invested Rs. 360,000 in mutual fund during the tax year.
This investment is approved for tax credit. Calculate Income
Salary (Rs. 75,000 x 12 months) = 900,000
Salary Income 900,000

Rent (50,000 x 12) = 600,000

Non-adjustable rent (W1) = 24,000
Income from Property 624,000

Less: Expenses
Repairs (1/5th) of Gross rental income (124,800)
Property Tax (5,000)
Net Property income 494,200

Taxable Income 1,394,200

Since salary income is < 75%, non-salaried slab rate will apply
Tax 70000+15%*(1394200-1200000) 99130

Tax Credit on Mutual Fund… Not available anymore

W1 = (300,000 – 60,000) = 240,000 / 10 = 24,000
• 1/10 part of 200,000 for TY 2017, TY 2018, 2019 will be taxable.
• Amount refunded to Zafar on 30.4.20 therefore 1/10 part will not be added for TY2020.
EXCLUDED FROM PROPERTY INCOME
Income from other sources:
1. Rent in respect of lease of building together with
plant and machinery
2. Amount included in rent for the provision of
amenities, utilities and any other service connected
with renting of the building
3. Rent from sub-lease of land or a building
4. Amount received as consideration for vacating the
possession of a building
5. Ground rent
DEDUCTIONS

1/5th Repair Allowance

Property Insurance

Property Tax / Water Tax

Ground Rent

Interest on Loan
Marvel Limited, a small company for tax purposes, owns
an office building that is given to Hamid on monthly rent
of Rs. 500,000 since 1.7.22. Marvel paid property tax of
Rs. 15,000 for the year, water charges of Rs. 12,000 for
the year and insurance premium of Rs. 10,000 in respect
of the flat for the tax year. Marvel has hired an estate
agent who collects the rent and deposits it in Marvel’s
bank account. The estate agent charged a fee of Rs.
35,000 per month to provide the collection services.
During the year, Marvel gave donation to Shaukat
Khanum Hospital (listed in 2 nd schedule) of Rs. 403,000.
Rent (500,000 x 12) = 6,000,000
Repairs (1/5 of 6,000,000) = (1,200,000)
Property Tax & Water Chg (15 + 12) (27,000)
Insurance premium = (10,000)
Collection charges (max. 6% of 6,000,000)= (360,000)
Income from Property 4,403,000
Taxable Income 4,403,000
Tax @ 23% (small rate) = 1,012,690
Tax credit on donation ..
Net Tax ..
• Rent = Rent + forfeited deposit + Non-adjustable
Deposit (Rent not less than FMV – accrual basis).
• Repairs - allowance equal to one-fifth of the rent
• Local rate and taxes (property tax, water charges)
• Insurance premium
• Ground Rent
• Profit on debt (purchase, construction, renovation)
• Collection charges (not exceeding four percent of rent)
• Legal charges (defending title of property)
• GRILL PC
Irrecoverable Loans:
Where any unpaid rent in respect of the property is
irrecoverable, an allowance equal to the unpaid rent may
be deducted from income.
• the defaulting tenant has vacated the property or steps
have been taken to vacate the property and the
defaulting tenant is not in occupation of any other
property of the person;
• the person has taken all steps to institute legal
proceedings for recovery;
• the unpaid rent has been included in the income of the
person