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Tag: property tax

  • Decoding Pakistan’s Property Income Tax Landscape

    Decoding Pakistan’s Property Income Tax Landscape

    In the complex landscape of taxation, comprehending the nuances of income from property is crucial for individuals, businesses, and investors. To provide clarity on this topic, we delve into the intricacies of income taxation under the Income Tax Ordinance, 2001, shedding light on how rental income is taxed in Pakistan.

    Taxable Rental Income

    Rental income is a significant revenue source for many individuals, and it is vital to understand how it is taxed under the Income Tax Ordinance, 2001. Rental income is categorized as taxable income and must be reported in your annual tax return. The amount of tax you owe is determined by your total income for the year and the applicable tax bracket.

    It’s important to note that certain expenses related to your rental property, such as mortgage interest, property taxes, and repairs, can be deducted. These deductions can reduce your taxable rental income and lower your tax liability. However, it is essential to maintain accurate records of these expenses and only claim deductions permitted by the law.

    Defining Rent

    “Rent” refers to any payment received or receivable by the owner of land or a building for the use, occupation, or the right to use or occupy the property. This definition encompasses any forfeited deposit paid under a contract for the sale of land or a building, but it excludes leases of buildings together with plant and machinery.

    Taxable Rent

    Rent received or receivable by a person for a tax year, except for rent exempt from tax, falls under the category of “Income from Property” and is subject to taxation.

    Taxation of Utilities

    If any amount is included in the rent received or receivable for providing amenities, utilities, or other services associated with renting a building, it is taxed as “Income from Other Sources.”

    Below Fair Market Value Rent

    When the rent received is less than the fair market value (FMV) for the property, the individual is considered to have derived the FMV during the period the property is rented in that tax year. However, this rule does not apply if the fair market rent is included in the lessee’s income, which is chargeable to tax under the “Salary” category.

    Source of Rental Income

    Income from the lease of immovable property in Pakistan is considered Pakistan source rental income.

    Deductions Allowed

    Several deductions are allowed from income from property under Section 15A of the Income Tax Ordinance, 2001. These include expenses related to building repairs, insurance premiums, local taxes, ground rent, and more. These deductions can help lower the taxable rental income.

    Reversal of Deductions

    Any recovery of unpaid rent claimed as a deduction is taxable in the year it is recovered. If the company does not settle the liability within three years, the unpaid amount is subject to immediate taxation.

    Non-Adjustable Amounts

    Amounts received from tenants that are not adjustable against rent will be evenly taxed over ten years. If advance amounts are returned, they are not taxed in the year of return. When a new tenant replaces the old one and pays an advance, their amount is reduced by the advance repaid to the previous tenant.

    Taxation Rates

    Income from property is taxed at different rates:

    • For Companies: At the corporate rate of tax (currently 29%)

    • For Associations of Persons (AOPs) and Non-Salaried Individuals: Rates in clause a, Division I, Part-I

    • For Salaried Individuals: Rates in clause b, Division I, Part-I, 1st Schedule

    In conclusion, understanding the intricacies of income from property taxation is essential for both taxpayers and tax professionals to navigate the evolving world of taxation in Pakistan effectively. Accurate reporting, adherence to legal deductions, and compliance with the Income Tax Ordinance, 2001, are vital for a hassle-free tax experience.

  • Sindh Province Transfers Property Tax Collection to Local Councils

    Sindh Province Transfers Property Tax Collection to Local Councils

    Karachi – In a significant development towards decentralization and empowering local governance, the Government of Sindh has announced the transfer of property tax collection authority to local councils.

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  • Open file transactions facilitate tax evasion in property sector: report

    Open file transactions facilitate tax evasion in property sector: report

    A recent report published by the Pakistan Business Council (PBC) highlights the prevalence of tax evasion in property transactions facilitated by open files, which are often exchanged without official transfer of ownership or payment of associated taxes. These undocumented transactions have allowed individuals to evade tax obligations, according to the report.

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  • Determining Property Tax in Pakistan: Understanding Fair Market Value

    Determining Property Tax in Pakistan: Understanding Fair Market Value

    Property taxes are an important source of revenue for governments all over the world, and Pakistan is no exception.

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  • Karachi Chamber demands deferring date for payment under Section 7E

    Karachi Chamber demands deferring date for payment under Section 7E

    Karachi: The Karachi Chamber of Commerce and Industry (KCCI) has urged the authorities to extend the deadline for payment under Section 7E of the Income Tax Ordinance, 2001.

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  • FBR explains changes to tax on property income through Finance Act 2021

    FBR explains changes to tax on property income through Finance Act 2021

    ISLAMABAD: The Federal Board of Revenue (FBR) has explained changes brought in tax on property income through Finance Act, 2021.

    The FBR said that the block taxation for property income available to non-corporate entities has been done away with.

    Following changes governing taxation of income chargeable to tax under the head income from property have been introduced;

    a. Property income of companies was taxable as normally computable income. However, in case of individuals and AOPs there was an option for property income to be taxed on gross rental bases. This distinction has been withdrawn and now property income shall be chargeable to tax under the head income from property under normal tax regime after admissible deductions. Necessary changes have been introduced in sections 15 and 15A of the Income Tax Ordinance, 2001. Subsequently, Division VIA of Part I of First Schedule has been omitted.

    b. Current year’s loss under any head of income has been allowed to be set off against the person’s income chargeable to tax under the head “income from property” by amending section 56 of the Ordinance.

    c. Withholding tax regime dealing with rental income from immoveable properties has been rationalized. The ambiguity regarding withholding of tax on rental income of immoveable property of sub-lessee has been removed. It has been explained that all persons making payment on account of immoveable property are required to withhold tax at the prescribed rates which have also been rationalized in Division V of Part III of First schedule.

  • New tax slabs for property income proposed

    New tax slabs for property income proposed

    ISLAMABAD: The Finance Bill 2021 has proposed amendment to the withholding tax slab rates applicable in case of withholding agents other than company on account of payment of rent of immovable property under Section 155 of the Income Tax Ordinance, 2001.

    Following are the proposed rates are:

    Gross amount of rent:

    01. Where the gross amount of rent not exceeding Rs300,000: the tax rate shall be zero

    02. Where the gross amount of rent not exceeding Rs300,000 but does not exceed Rs600,000: 5 per cent of the gross amount exceeding Rs300,000

    03. Where the gross amount of rent not exceeding Rs600,000 but does not exceed Rs2,000,000: Rs15,000 + 10 per cent of the gross amount exceeding Rs600,000

    04. Where the gross amount of rent exceed Rs2,000,000: Rs155,000 + 25 per cent of the gross amount exceeding Rs2,000,000.

  • Punjab announces tax payment relaxation to property, motor vehicle

    Punjab announces tax payment relaxation to property, motor vehicle

    LAHORE: The Punjab government has announce special relaxation on payment of tax for immovable properties and motor vehicle for financial year 2020/2021.

    According to Punjab Finance Bill, 2020 following special relaxations have been offered for tax payment of immovable properties and motor vehicles:

    Special relaxations for financial year 2020-21.

    (1) Notwithstanding anything contained in sections 3 and 12 of the Punjab Urban Immovable Property Tax Act, 1958 (V of 1958), for the financial year 2020-21:

    (a) discount equal to five percent of the tax being paid shall be allowed on payment of tax through e-payment system;

    (b) a rebate equal to ten per cent of the amount of annual tax shall be allowed if the amount of annual tax is paid in lump sum on or before the 30th day of September 2020;

    (c) the tax shall be paid on yearly basis or half yearly basis as the assessee may choose or by such later day as the Government may by notification determine; and

    (d) the late payment surcharge shall not be imposed for the tax amount due.

    (2) Notwithstanding anything contained in sections 3 and 9 of the Punjab Motor Vehicles Taxation Act, 1958 (XXXII of 1958), for the financial year 2020-21:

    (a) discount equal to five percent of the tax being paid shall be allowed on payment of tax through e-payment system;

    (b) a rebate equal to 20 percent of the amount of annual tax shall be allowed if the amount of annual tax is paid in lump sum on or before the 30th day of September 2020; and

    (c) if a person fails to pay any amount of tax due within the period fixed for such payment, he shall not be liable to pay any penalty if he pays the same during the financial year 2020-21.

    (3) This section shall remain in force till 30th day of June 2021.

  • Sindh exempts property tax, motor vehicle tax to ease COVID-19 impact

    Sindh exempts property tax, motor vehicle tax to ease COVID-19 impact

    KARACHI: Sindh government has exempted property tax, motor vehicle tax and professional tax for three months of current fiscal year.

    The decision has been taken in order to provide relief to masses within the jurisdiction of Sindh considering outbreak of coronavirus (COVID-19).

    According to notifications issued on Thursday by Sindh Excise, Taxation and Narcotics Control Department, the provincial government has decided to remit 25 percent (i.e. for three months) of the payment of the property tax dues for the year 2019/2020, including surcharge as on March 31, 2020 from all classes of persons in respect of any category of property.

    The department said that the tax remission has been allowed for all the taxable property units. It further added that assesees who have already discharged their property tax liability for the year 2019/2020 will get an adjustment of 25 percent remission in their tax liability during next financial year i.e 2020-2021.

    Similarly, the provincial government has allowed exemption motor vehicle tax of 25 percent i.e. (for three months). The classes of vehicles have been granted tax exemption, included: loader; MCR (including rickshaw and Qingqi); mini bus; mini truck; pickup; coaster; delivery van; ST Wagon; taxi; and van.

    The provincial government said that the motor vehicle owners who have already discharged their motor vehicle tax liabilities for the year 2019/2020 of the above mentioned class of vehicle will get an adjustment in their motor vehicle tax liability during next financial year i.e. 2020/2021.

    Likewise, the provincial government is also exempted 25 percent (i.e. for three months) for the financial year 2019/2020 from the payment of the tax professions, trades, calling and employment.

    It said that the assessees who have discharged their professional tax liability for the year 2019/2020 will get 25 percent adjustment in their tax liability during the next financial year i.e. 2020/2021.

  • Property tax collection sharply rises by 214 percent

    Property tax collection sharply rises by 214 percent

    KARACHI: The collection of property tax witnessed unprecedented growth of 214 percent owing to back to back increase in valuation of immovable properties by Federal Board of Revenue (FBR), sources said.

    The quarterly data released by the finance ministry revealed that the provinces had collected property tax to the tune of Rs7.8 billion during first quarter (July – September) 2019/2020 as compared with Rs2.48 billion in the corresponding period of the last fiscal year.

    The sources attributed the significant rise in property tax to increase in FBR valuation which was introduced in August 2016 and increased by 20 percent in February 2019 and further increased with the same ratio in July 2019.

    The provinces have jurisdiction over the collection of property tax in the shape of rented properties in their respective localities.

    The sources said that with the increase of FBR valuation the provinces could able to increase their revenue because the rent agreements are being made on the basis of existing valuation.

    On the other hand the valuations of immovable properties notified by the provinces are very low comparing the open market values. However, under the proposed reform program funded by the World Bank the provinces may review their valuations of immovable properties.

    The major increase in property tax comes from Punjab as the province collected Rs6 billion during first quarter of the current fiscal year.

    It was followed by Sindh, which collected Rs1.5 billion, Khyber Pakhtoonkhwa collected Rs243 million and Balochistan collected Rs89 million.

    The sources said that digitalization of property record and effective measures of documentation would further help the provinces to increase the revenue collection under the head of property tax.