Tax Applicable to Rent Income from Property
Today our topic is a tax applicable to rent income from property. Rent Income whether it is received or receivable considered as rent income from the property for the period to which it relates. Although there is rent income that is derived from rent in respect of building together with plant and machinery is charged under the head “income from others sources”.
If rent received or receivable is less than below fair market value, then such rent income is considered as received at the fair market value.
As per the following deductions/expenditure allowed on the income from the property while computing rent income chargeable to tax for a tax year:
- An allowance equal to 1/5 i.e. one-fifth of the rent chargeable to tax in respect of repair and maintenance to a
- Any local charge, cess, or tax in respect of property paid or payable to authority or government in the
- Any premium insurance paid or payable in order to insure the building against the risk arising due to damage or destruction.
- Interest or profit paid or payable on the money borrowed due to the purchase of the property as a mortgage, construction, renovation, extension, or reconstruction. Such money is borrowed from banks, house-building finance corporations, or any scheduled
- An expenditure incurred not exceeding four percent on gross rent before any deduction allowed exclusively in respect of administration and collection of the rent
- Any expenditure incurred due to a case against in order to vacate the place or to defend title to the property or the income from rent under such period is not chargeable to the tax year.
The following additions in income against the rent income in relation to a building:
- Any amount as a deposit or advance non-adjustable against the rent received by the owner of the building is considered income from the property 1/10 in equal proportion of each year till ten years. Any refund before the expiry of ten years, the remaining proportion will not be reported in
- Any amount received by the owner of the building as utilities or any local charge, or property tax, is considered income from the rent.
Chargeability
At the end of the year, the reporting income from rent is the responsibility of the owner or landlord under e-filling of tax return after such allowed deductions and adjustment of tax already withheld by the tenant at the time of payment made either monthly, quarterly or annually.
Withholding Tax
Responsibility for withholding tax as per section 155 mentioned below at the time of payment made to the landlord lies with the tenant and the tax payment withheld must be submitted to the government treasury within seven days, making sure that the rate will increase by 100% in case of the landlord is with inactive status.
Section 155 rent of immovable property for the period of 2022-2023.
| 155 Rent of Immovable Property | Individual and AOP | S.NO | Gross Amount of Rent | Rate of Tax | 100% Increase | Division V of Part III of First Schedule Read with R.I of the 10% schedule. |
| 1 | Where the gross amount of rent doesn’t exceed Rs.300,000. | Nil | ||||
| 2 | Where the gross amount of rent doesn’t exceed Rs.300,000 but doesn’t exceeds Rs.600,000. | 5 percent of the gross amount exceeding RS.300,000. | ||||
| 3 | Where the gross amount of rent doesn’t exceed Rs.600,000 but doesn’t exceeds Rs.2,000,000. | 15,000 plus 10 percent of the gross amount exceeding RS.600,000. | ||||
| 4 | Where the gross amount of rent exceeds Rs.2,000,000. | 155,000 plus 25 percent of the gross amount exceeding RS.2.000,000. | ||||
| Company | 15% | 30% | ||||
Conclusion
In conclusion, The tax to be charged at income from rent is adjustable with allowed deductions and withholding tax deducted at source and it is either tax payable or tax refundable, depending upon such deductions and withholding tax exceeding or not tax charge which is reported by the owner in his/her annual return with such above details.
The tenant has a responsibility as per income tax ordinance that at the time of making payments to the owner withhold tax from the gross rent as per the above slabs and the same deposited to the Government through a challans.
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