Karachi, August 23, 2023 – The Federal Board of Revenue (FBR) in Pakistan has recently issued an updated version of the Income Tax Ordinance, 2001, shedding light on how to determine income from property in the country.
This information is crucial for individuals and businesses seeking clarity on property-related taxation.
Section 15 of the Income Tax Ordinance, 2001:
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Income from Property and Taxation
The Income Tax Ordinance, 2001, outlines the rules and regulations governing income from property in Pakistan. Section 15 of this ordinance specifically addresses income from property and the subsequent taxation of such income. Below are the key provisions of this section:
Taxable Rent Income: Any rent received or receivable by a person during a tax year, except for rent that is exempt from tax under this ordinance, is liable to be taxed in that year under the category of “Income from Property.”
Definition of Rent: “Rent” is defined as any amount received or receivable by the owner of land or a building. This amount is received as consideration for the use or occupation of, or the right to use or occupy, the land or building. Additionally, rent includes any forfeited deposit paid under a contract for the sale of land or a building.
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Exceptions for Lease of Building with Plant and Machinery: The provisions of Section 15 do not apply to rent received or receivable for the lease of a building together with plant and machinery. In such cases, the rent is chargeable to tax under the category of “Income from Other Sources.”
3A. Amenities, Utilities, and Services: If any amount is included in the rent received or receivable for the provision of amenities, utilities, or any other service related to the rental of a building, this amount is chargeable to tax under the category of “Income from Other Sources.”
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Fair Market Rent: When the rent received or receivable by a person is less than the fair market rent for the property, the individual or entity will be treated as having derived the fair market rent for the period the property is rented in the tax year. This provision prevents individuals from underreporting rental income.
Exception for Fair Market Rent Included in Lessee’s Income: Subsection (4) does not apply when the fair market rent is already included in the income of the lessee, which is chargeable to tax under the category of “Salary.”
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Understanding these provisions of the Income Tax Ordinance, 2001, is essential for individuals and businesses involved in property transactions in Pakistan. Accurate reporting and taxation of rental income play a vital role in the country’s revenue collection and fiscal governance. It is advisable to consult with tax professionals or legal experts for precise guidance on complying with Pakistan’s tax laws related to income from property.
