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income from proporty

Taxation of Income From Proporty

 

Income from Property

Taxation model of Income from Proporty:

1)   Accrual Basis

2)  Revenue Model I.e. Rent -Expenditure= Net Income

3)  Part of NTR (Expense      Allowed)

Income Calculation

Income – Expenditure = Net Income Property (S.U.R.F)

1)      S= Signing Amount                                                                                                  (XXX)

2)      U= Non-adjustable amount                                                                                  (XXX)

3)      R= Rent Received                                                                                                    (XXX)

4)      F= Forfeited Deposit                                                                                               (XXX)

R.C.T/C. R (chargeable rent)                                                                                      (XXX)

 

1)  Signing Amount: Paid by the tenant to the Landlord, to enter him into the agreement of tenancy

[Totally Taxable]

2)  Forfeited Deposit: Deposit forfeit by the owner in respect of contract for sale of property [Totally Taxable]

3)  Rent: [Totally Taxable]

ü  Consideration received/ receivable

ü  By an owner of a land for a tax year

ü  For the use or occupation of land or building

ü  Also includes Forfeited Deposit

[Always takes higher of a) Rent Received / Receivable or b) Fair Market Value (A.L.V) 

4)  Non-Adjustable amount received:

v  Where the owner of a building receives any amount ( Deposit/ Pugree) not adjustable against rent is treated as chargeable rent in 10 years in equal proportion.

v  However, if before the expiry of 10 years the said amount is refunded by the owner then no portion of the said amount is taxable in the year in which it is refunded.

v  If the owner lets out the same building against another non-adjustable advance, new advance less the portion of previous advance already charged to tax shall be

chargeable equally in 10 tax years, commencing from the tax year in which the advance is received from the succeeding tenant.

v  Amount Received × 1/10 = Add in Property

 Taxation of Income from Property

[Expense will be Allowed and Income from Property treated under N.T.R]

Tax Will be calculated at Normal Rates

RS.

Signing Amount                                                                      X

Un-adjustable Amount(1/10)                                                 X

Rent Received                                                                        X

Forfeited Deposit                                                                  X

Chargeable Rent                                                                   XXX

Less Deductions*

Admissible Deductions

1)       Repairs Allowance [1/5 of R.C.T] This is Mandatory Allowance

This allowance is irrespective of actual expenses of repairs on building No repair allowance

Is allowed in respect of land

2)        Insurance in respect of building

3)      any local rate, tax, charge or cases in respect of the property or the rent from the property paid or payable by the company to any local authority or government in the year, not being any tax payable under this Ordinance;

4)      any ground rent paid or payable by the company in the year in respect of the property

5)      any profit paid or payable by the person in the year on any money borrowed including by way of mortgage, to acquire, construct, renovate, extend or reconstruct the property

6)      Share of Rental Income including share towards appreciation in the value of property to HBFC or Banks

7)      where the property is subject to mortgage or other capital charge, the amount of profit or interest paid on such mortgage or charge

8)      any expenditure, not exceeding 4% of the rent chargeable to tax in respect of the property for the year computed before any deduction allowed under this section, paid or payable by the company in the year wholly and exclusively for the purpose of deriving rent chargeable to tax under the head, “Income from Property” including administration and collection charges;

9)      any expenditure paid or payable by the person in the tax year for legal services acquired to defend the company’s title to the property or any suit connected with the property in a court;

10)   any unpaid rent in respect of the property is irrecoverable subject to following conditions

       the tenancy was bona fide

       the defaulting tenant has vacated the property

       or necessary steps have been taken to compel the tenant to vacate the property

       the defaulting tenant is not in occupation of any other property of the company;

       the company has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or has reasonable grounds to believe that legal proceedings would be useless; and

       the unpaid rent has been included in the income of the company chargeable to tax under the head “Income from Property” for the tax year in which the rent was due and tax has been duly paid on such income.

Co-ownership of property

Ø  Co-ownership of property is not an AOP for the purpose of rental income

Ø  Share of rental income is taxable under the hands of each co-owner

*This rule is applicable in each case other than Income from business. Like

       Rental Income under the head property

       Rental Income Under the head other Source

       Capital Gain on Disposal of Shares with joint ownership

Agriculture Income

Agricultural income pertains to revenue generated from land situated in Pakistan, which is either a product of agricultural endeavors or accrued as rent from such land. Tax Implication: Agricultural income accumulated within a fiscal year is granted exemption from taxation. Enumerated Sources of Agricultural Income: a. Direct proceeds from the sale of agricultural produce, without undergoing any subsequent processing. b. Revenue arising from essential processes, as executed by the cultivator or rent recipient, to make the produce market-ready. c. Revenues associated with a building can qualify as agricultural income provided: The property is under the ownership and occupation of the cultivator or the individual receiving rent-in-kind. The property’s location is in close proximity to the agricultural land. The edifice serves a purpose integral to agricultural activities, such as a dwelling, storage facility, or auxiliary structure.

Self-Hiring of Property

Where an employee or his spouse is the owner of any such building that is given on rent to the employer and the employer has provided the same building to the employee against his entitlement for a rent free accommodation, then it will have following effect

      Receipt of rent of building is chargeable to tax under the head income from property.

      Any rent received by the employee or his spouse shall be property income of the recipient and be treated accordingly.

      The building is provided by the employer to his employee as a rent free accommodation. It will be a perquisite and added in the salary income of the employee

Where rent received or receivable is less than fair market rent for the property, the person shall be treated as having received the fair market rent for the period the property is let on rent in the tax year. However, this shall not apply in the case of self-hiring where fair market rent is already included in the income of the lessee, chargeable to tax under the head

“Salary”.