Tax rates on income from property during tax year 2022

Tax rates on income from property during tax year 2022

The Federal Board of Revenue (FBR) has recently released the updated Income Tax Ordinance, 2001, incorporating amendments made through the Finance Act, 2021.

The latest information, applicable for the tax year 2022, outlines the rates of tax on income from property under the First Schedule of the Income Tax Ordinance, 2001.

The tax rates, as outlined in section 155 of the Income Tax Ordinance, 2001, vary for individuals, associations of persons, and companies. Let’s break down the details of the new tax structure:

(a) Tax Rates for Individuals and Associations of Persons:

1. No Tax Up to Rs.300,000: Individuals and associations of persons whose gross amount of rent does not exceed Rs.300,000 will be exempt from income tax. This provision aims to ease the tax burden on those with relatively lower rental incomes.

2. 5% Tax on Excess Amount between Rs.300,000 and Rs.600,000: For those whose gross amount of rent exceeds Rs.300,000 but does not exceed Rs.600,000, a tax rate of 5% will be applied to the amount exceeding Rs.300,000. This moderate tax ensures a fair contribution from individuals with slightly higher rental incomes.

3. Rs.15,000 + 10% Tax on Excess Amount between Rs.600,000 and Rs.2,000,000: In cases where the gross amount of rent surpasses Rs.600,000 but does not exceed Rs.2,000,000, a tax rate of Rs.15,000 plus 10% of the gross amount exceeding Rs.600,000 will be applicable. This progressive taxation approach ensures that those with more substantial rental incomes contribute proportionally higher taxes.

4. Rs.155,000 + 25% Tax on Amount Exceeding Rs.2,000,000: Individuals and associations of persons earning rental income exceeding Rs.2,000,000 will face a tax rate of Rs.155,000 plus 25% of the gross amount exceeding Rs.2,000,000. This higher tax rate on significant rental incomes aims to address wealth disparity and generate revenue for public welfare initiatives.

(b) Tax Rate for Companies:

For companies, the tax rate to be deducted under section 155 is a flat 15% of the gross amount of rent. This simplification in the tax structure for companies aims to ensure clarity and ease of compliance.

The FBR’s decision to update and clarify the tax rates on income from property is expected to enhance transparency and fairness in the taxation system. These revisions also align with the government’s broader goal of promoting fiscal responsibility and ensuring that the tax burden is distributed equitably among different segments of the population.

It is essential for taxpayers to familiarize themselves with these updated tax rates to ensure compliance with the Income Tax Ordinance, 2001, and avoid any potential legal repercussions. As the fiscal year progresses, the FBR may release further updates or clarifications, and taxpayers are advised to stay informed about any changes in tax regulations.