How to submit returns for tax years 2013, 2014 and 2015 having property/rental income only?

Income Tax on Income from house property

How to calculate your tax liability while deriving income from house property

Prior to tax year 2014, special tax rates for persons having only income from property were defined. The tax was leviable on gross rent. The term “Gross Annual Rental Value” or GARV is defined in sections 15 and 16 of the Income Tax Ordinance 2001 as under:

  1. Rent received or receivable for a tax year.
  2. In case the owner of a building receives non-adjustable advance rent from a tenant, 1/10th of the said rent should be included in the amount of gross rent received or receivable for a tax year.

For tax years 2007 to 2013 the applicable tax rates in the cases of persons having property income only were as under:

  • Zero tax in the cases where income from property was upto Rs.150,000
  • 5% rates for the persons having property income between Rs.150,000 to Rs.400,000
  • Rs.12500 + 7.5% tax where the gross amount of rent exceeds Rs.400,000 but does not exceed Rs.1,000,000
  • Rs.57,500 plus 10 per cent of the gross amount exceeding Rs.1,000,00 where the gross amount of rent exceeds Rs.1,000,000

For tax year 2007 to tax year 2013 no deduction was allowable to calculate the taxable amount of gross rent. Certainly, the tax rates defined in the Ordinance were favorable for the taxpayers who were earning huge amounts of rent and very harsh for the taxpayers who were received very nominal amounts of rent. However, through Finance 2013 necessary amendment in the Income Tax Ordinance 2001 was made by inserting section 15A in the Ordinance.

By virtue of above amendments the taxpayers filing income tax returns for tax years 2014 and 2015 were allowed to claim deductions against income from property in respect of following heads of expenses:

  1. Deduction @ 20% of the gross amount is allowable for the taxpayers under the head “Repairs and maintenance” in respect of buildings.
  2. Insurance premium paid or payable against the risk of damage or destruction.
  3. Any rent rates or tax paid. Usually, property tax is deducted out of the rent.
  4. Any ground rent paid or payable.
  5. Interest paid on the loan obtained for acquisition, construction, renovation, extension or reconstruction the property
  6. Share in rent and share towards appreciation in the value of property from the property paid or payable by the person to the House Building Corporation or the bank in the year under that scheme of investment in property on the basis of sharing the rent.
  7. The amount of interest paid on such mortgage or any other borrowing
  8. Administrative/collection charges not exceeding 6% of the gross rent.
  9. Any legal/professional charges paid to defend the title of a property.

Rate of deduction of tax

For withholding agents the rates for deduction of tax on property income are given as under:

Rates of tax deduction for tax years 2007 to Tax year 2013
 
 
 
Income from Property
 
 
 
(a) The rate of tax to be deducted under section 155, in the case of individual and association of persons, shall be?
 
 
 
S.No.
Gross amount of rent
Rate of tax
 
-1
Where the gross amount of rent does not exceed Rs.150,000.
Nil
 
-2
Where the gross amount of rent exceeds Rs.150,000 but does not exceed Rs.400,000.
5 per cent of the gross amount exceeding Rs.150,000.
 
-3
Where the gross amount of rent exceeds Rs.400,000 but does not exceed Rs.1,000,000.
Rs.12,500 plus 7.5 per cent of the gross amount exceeding Rs.400,000.
 
-4
Where the gross amount of rent exceeds Rs.1,000,000.
Rs.57,500 plus 10 per cent of the gross amount exceeding Rs.1,000,000.
 
The rate of tax to be deducted under section 155, in the case of company, shall be?
 
 
 
S.No.
Gross amount of rent
Rate of tax
 
-1
Where the gross amount of rent does not exceed Rs.400,000.
5 per cent of the gross amount of rent.
 
-2
Where the gross amount of rent exceeds Rs.400,000 but does not exceed Rs.1,000,000.
Rs.20,000 plus 7.5 per cent of the gross amount of rent exceeding Rs.400,000.
 
-3
Where the gross amount of rent exceeds Rs.1,000,000.
Rs.65,000 plus 10 per cent of the gross amount of rent exceeding Rs.1,000,000.?
 
 
 
 
 
Tax year 2014 and Tax year 2015
 
 
 
S.No.
Gross amount of rent
Rate of tax
 
-1
-2
-3
 
1
Where the gross amount of rent does not exceed Rs.150,000
Nil
 
2
Where the gross amount of rent exceeds Rs.150,000 but does not exceed Rs.1,000,000
10 % of the gross amount exceeding Rs.150,000.
242500
3
Where the gross amount of rent exceeds Rs. 1,000,000
Rs. 85,000 + 15% of the gross amount exceeding Rs. 1,000,000.
 
 
 
 
 
Examples of calculation of net rental/property income is as under:
 
 
 
 
 
 
 
Gross income from property
 
 
500,000
Non-adjustable advance rent
 
100,000
 
Add: 1/10th of Advance rent paid
 
 
10,000
Total gross rental income
 
 
510,000
Less deductions:
 
 
 
 
 
 
 
1/5th for repairs
 
102,000
 
Property taxes paid
 
10,000
 
Administrative/collection charges @ 6%
 
30,600
 
Insurance premium paid
 
20,000
 
Interest on loan from Housing Building
 
30,000
192,600
Net taxable income from property
 
 
317,400
Tax payable on the said income
 
 
Nil
 
 
 
 
Tax colleced as per Income Tax law by withholding agent
 
 
 
Tax on Rs.150,000
 
0
 
Tax on remaining amount of Rs.360,000
 
36,000
 
Total tax payable/(Refundable)
 
 
(36,000)
 
 
 
 
EXAMPLE 2
 
 
 
Gross income from property
 
 
2,000,000
Non-adjustable advance rent
 
500,000
 
Add: 1/10th of Advance rent paid
 
 
50,000
Total gross rental income
 
 
2,050,000
Less deductions:
 
 
 
 
 
 
 
1/5th for repairs
 
410,000
 
Property taxes paid
 
200,000
 
Administrative/collection charges @ 6%
 
123,000
 
Insurance premium paid
 
100,000
 
Interest on loan from Housing Building
 
150,000
983,000
Net taxable income from property
 
 
1,067,000
Tax payable on the said income
 
 
82,550
Tax colleced as per Income Tax law by withholding agent
 
 
 
on gross rent of Rs.2,050,000
 
 
242,500
 
 
 
 
 
Refundable amount
 
(159,950)

Tax rates for income from property

It is quite evident that the tax deduction rates under section 155 of the Income Tax Ordinance 2001 are not in harmony with the ground reality and now there will be huge refunds of the persons who are deriving only property income. There is a need to make necessary amendments in the tax withholding rates to make them in consistent with the normal tax rates applicable on the rental income so as to prevent creation of any unnecessary refunds.

There is no need to tell that getting refund of income tax from the Department of Inland Revenue/FBR is not that easy and there are examples of pendency of refunds for years.


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