Reduction in rental income expense limit to encourage under-reporting

Reduction in rental income expense limit to encourage under-reporting

Presently, expenses incurred to the extent of 6 percent of rent chargeable wholly and exclusively for deriving rent are admissible as deduction against rental income.

The Bill proposed to reduce the limit from 6 percent to 2 percent.

The experts said that further reducing such limit would deprive a taxpayer for claiming a legitimate expense incurred solely for deriving taxable income and would ultimately lead to higher tax payable by the taxpayer. “It may encourage taxpayers to under-report their taxable income on the grounds that their legitimate expenses are disallowed,” experts at Deloitte Yousuf Adil Chartered Accountants said.

Presently, income from property derived by an individual or an Association of Persons is subject to tax at the specified slab rates and treated as a separate block of income.

However, individuals or AOPs whose income from property exceeds Rs 4 million per annum can opt to claim deductions under section 15A of the Ordinance and pay tax at normal rates specified in Division I of Part I of the First Schedule.

The Bill proposed to abolish such limit of Rs. 4 million and therefore an individual or AOP can now opt for claiming tax deductions and pay tax at normal rates irrespective of amount of income derived from property.

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