Section 39 of the Income Tax Ordinance covers dividends, royalties, profit on debt, certain rents, prizes, gifts and other income not taxable under another head.
ISLAMABAD: The Federal Board of Revenue (FBR) has explained the types of income chargeable under the head “Income from Other Sources” for Tax Year 2027 under Section 39 of the Income Tax Ordinance, 2001.
The provisions are contained in the Income Tax Ordinance, 2001, updated up to June 30, 2026, and specify the types of receipts that are taxable under this head, as well as the deductions available under Section 40.
Income chargeable under other sources
Under Section 39(1), income of every kind received by a person during a tax year is chargeable under “Income from Other Sources” if it is not included under another head of income and is not exempt from tax under the Ordinance.
The section specifically covers the following:
• Dividend
• Royalty
• Profit on debt
• Additional payment received on a delayed refund under any tax law
• Ground rent
• Rent from the sub-lease of land or a building
• Income from leasing a building together with plant or machinery
• Income from providing amenities, utilities or other services connected with renting a building
• Any annuity or pension
• Prize bonds and winnings from raffles, lotteries, quizzes, promotional prizes offered by companies for promoting sales and crossword puzzles
• Any other consideration received for the provision, use or exploitation of property, including the right to explore for or exploit natural resources
• The fair market value of any benefit, whether convertible into money or not, received in connection with the provision, use or exploitation of property
• Amount received for vacating possession of a building or part of a building, after deducting any amount paid to acquire possession
• Amount received under an Approved Income Payment Plan or Approved Annuity Plan under the Voluntary Pension System Rules, 2005
• Subject to the relevant provisions, any amount or fair market value of property received without consideration or as a gift, except a gift received from a relative as defined under Section 85(5)
• Income arising to a shareholder from the issuance of bonus shares
Tax treatment of compensation for vacating property
Where a person receives an amount for vacating possession of a building or part of a building under Section 39(1)(k), the amount is chargeable to tax in the tax year in which it is received.
However, the amount is spread equally over 10 tax years — the year of receipt and the following nine tax years.
This provision determines how such compensation is brought into taxable income over the specified period.
Loans, advances, deposits and gifts
Section 39(3) provides that certain amounts received as a loan, advance, deposit for issuance of shares or gift may be treated as taxable income under “Income from Other Sources”.
The provision applies where the amount is received during a tax year from a person other than a banking company or financial institution and is not received through:
• A crossed cheque drawn on a bank
• A banking channel
• Digital means as defined in Section 2
The transaction must be from a person holding a National Tax Number (NTN).
Where the relevant conditions are met, the amount is treated as income chargeable under “Income from Other Sources” for the tax year in which it is received.
However, this rule does not apply to advance payments for the sale of goods or supply of services.
Profit on debt received in arrears
Section 39(4A) provides special treatment where profit on debt from National Savings Deposit Certificates, including Defence Savings Certificates, is received in arrears.
If the receipt includes profit relating to an earlier tax year and taxing the entire amount in the year of receipt results in a higher tax rate, the taxpayer may elect to have the profit taxed at the rate that would have applied if it had been received in the relevant earlier tax year.
The election must be made through written notice to the Commissioner by the due date for filing the return for the tax year in which the amount was received.
The Commissioner may also allow a later date through a written order.
When Section 39 does not apply
Section 39 does not apply to income that is:
• Chargeable to tax under another head of income; or
• Subject to tax under Sections 5, 5AA, 6, 7 or 7B.
This prevents income from being taxed under “Income from Other Sources” where the Ordinance specifically provides for taxation under another provision.
Deductions against income from other sources
Section 40 sets out the deductions available when computing taxable income under the head “Income from Other Sources”.
A taxpayer may generally deduct expenditure paid during the year to the extent that it is incurred in deriving income chargeable under this head, provided the expenditure is not capital in nature.
A person receiving taxable profit on debt may also claim a deduction for Zakat paid under the Zakat and Ushr Ordinance, 1980, at the time the profit is paid.
Deductions for leased buildings
For income from leasing a building together with plant or machinery, allowable deductions may include:
• Depreciation of the plant, machinery or building used to derive the income under Section 22; and
• Initial allowance for plant or machinery under Section 23.
No deduction is allowed under Section 40 to the extent that the expenditure is already deductible when calculating income under another head.
The provisions of Section 21 also apply when determining allowable deductions under Section 40.
For this purpose, expenditure is considered capital in nature if it has a normal useful life of more than one year.
Income from Other Sources for Tax Year 2027
For Tax Year 2027, Section 39 broadly brings income that does not fall under another taxable head into “Income from Other Sources”.
The provision specifically covers items such as dividends, royalties, profit on debt, certain rents, annuities, prizes, property-related receipts, gifts in specified circumstances and bonus shares.
Meanwhile, Section 40 sets out the rules governing deductions that may be claimed against income taxable under this head.