3/30/2023

Scope of ▪ What is included.

1H ▪ What is excluded.
of Income
Heads of
▪ Allowed.
Income 2 Deductions ▪ Not allowed.
1. Salary
2. Income from property
3. Income from business Basis of ▪ Receipts basis.
3 ▪ Accrual basis.
4. Capital gains Chargeability
5. Income from other
sources
▪ NTR basis.
4 Taxability ▪ FTR basis.
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INCOME FROM PROPERTY

The rent received or receivable by a person for a tax year,
other than rent exempt from tax shall be chargeable to tax in
that year under the head “Income from Property”.

“rent” means any amount received or receivable by the owner

of land or a building as consideration for the use or
occupation of, or the right to use or occupy, the land or
building, and includes any forfeited deposit paid under a
contract for the sale of land or a building.

Can a person understate the amount of rent at the time of

making a contract to avoid heavy tax ?

Where rent received or receivable is less than fair market rent

for the property, the person shall be treated as having received
the fair market rent for the period the property is let on rent in
the tax year. However, this shall not apply in the case of
self-hiring where fair market rent is already included in the
income of the lessee, chargeable to tax under the head
“Salary”.

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Any rent received by a person against lease of a building together with plant
and machinery shall be chargeable under the head “Income from Other
Sources”.
On 1.7.2020, Fahim agreed to rent
out his factory building along with
machinery, due to COVID-19
crises, at a monthly rent of Rs.
350,000. If only building was let
out it could be rented for
Rs.200,000.
What amount should be
chargeable under
Whole amount is chargeable under
Income from property?
the head income from other sources
Income from other sources? 5

Where rent includes an amount received for the provision of amenities,

utilities or any other service connected with the renting of the building, it
shall be chargeable under the head “Income from Other Sources”.
Khan rented out his house to Kashif against a rent of Rs. 75,000 per month. As per the
terms Rs. 10,000 per month is charged against rendering of utility and other services.
This Rs. 10,000 is included in Rs. 75,000. The actual expenditures incurred by Mr. Khan
on utility Rs 60,000 per year
Services 30,000 per year
Calculate Income chargeable under the following heads
Income from property
Income from other sources

Income from property (75,000-10,000) x 12 780,000

Income from other sources 10,000 x 12- 90,000 30,000

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Advances

Non-adjustable Adjustable

If the advance is not If the advance is adjustable

adjustable against monthly against monthly rent than it
rent than it will be treated will be automatically
as income U/S 16 treated as income.

Non-adjustable advances
(Owner of building)
If tenancy continue more than
10 years

During 10 years After 10 years

1/10th of un-adjustable No amount will be added under

advance shall be included in the
income of the taxpayer under
the head “income from
property”
the head “income from
property” after 10 years.
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When Tenancy Vacated

During 10 years After 10 years

No amount will be added in the year of if the property is let out again
vacancy. against another non-
if the property is let out again against adjustable advance
another non-adjustable advance, new New advance less amount already
advance less the portion of previous taxed.
advance already charged to tax shall be shall be chargeable equally in
chargeable equally in 10 tax years, 10 tax years, commencing
commencing from the tax year in which the from the tax year in which
advance is received from the succeeding the advance is received from
tenant. the succeeding tenant.
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Non-adjustable advances
Where the owner of building receives an advance which is not adjustable
against rent, the whole of advance shall be treated as rent chargeable to tax
under the head income from property in the year of receipt and following
nine tax years in equal proportion i.e. 1/10th of such un-adjustable advance
shall be included in the income of the taxpayer under the head “income
from property” commencing from the tax year in which the advance is
received.
If advance is refunded in any year before the expiry of 10 years
such advance shall not be included in the income from the tax
year in which it is refunded or thereafter.
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Non-adjustable advances

After vacancy, if the property is let out again against another

non-adjustable advance, new advance less the portion of
previous advance already charged to tax shall be chargeable
equally in 10 tax years, commencing from the tax year in which
the advance is received from the succeeding tenant.

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Mr. Kamran rented out a house on July 1, 2020 at a monthly

rent of Rs. 100,000. As per agreement Rs. 500,000 was received
as nonadjustable advance on July 1, 2020. Payments of rent will
be paid at the end of each respective month. Calculate
property income for tax year 2021.

Tax Year 2021

Rent 100,000 x 12 1,200,000

Advance 1/10 x 500,000 50,000

Taxable Income 1,250,000

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Mr. Sultan rented out a house on July 1, 2020 at a monthly rent

of Rs. 150,000. As per agreement Rs. 500,000 was received as
nonadjustable advance on July 1, 2020. Payments of rent will
be paid at the end of each respective month . Monthly rent will
be increased 10% annually. Calculate property income for tax
year 2022.
Tax Year 2022
Rent 165,000 x 12 1,980,000

Advance 1/10 x 500,000 50,000

Taxable Income 2,030,000

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Mr. Imran rented out a house on July 1, 2020 at a monthly rent

of Rs. 100,000. As per agreement Rs. 1,000,000 was received as
nonadjustable advance on July 1, 2020. Payments of rent will
be paid at the end of each respective month. Tenant vacated
the house on 31 Dec 2022. Calculate property income for tax
year 2023.
Tax Year 2023
Rent 100,000 x 6 600,000

Advance No addition -

Taxable Income 600,000

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Mr. Imran rented out a house on July 1, 2020 at a monthly rent of Rs.
100,000. As per agreement Rs. 1,000,000 was received as nonadjustable
advance on July 1, 2020. Payments of rent will be paid at the end of each
respective month. Tenant vacated the house on 31 Dec 2022. House was
rented to new tenant from 1st Jan 2023 at a monthly rent of 150,000 and
nonadjustable mount of Rs 1,500,000. Calculate property income for tax
year 2023.
Tax Year 2023
Rent 100,000 x 6 600,000
New rent 150,000 x 6 900,000
Non Adjustable (1,500,000 – 130,000
200,000 ) x 1/10
Taxable Income 1,630,000
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Mr. Imran rented out a house on July 1, 2020 at a monthly rent

of Rs. 100,000. As per agreement Rs. 1,000,000 was received as
nonadjustable advance on July 1, 2020. Payments of rent will
be paid at the end of each respective month . Monthly rent will
be increased 10% annually. Tenant vacated the house on 31
Dec 2022. Calculate property income for tax year 2023.

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Mr. Imran rented out a house on July 1, 2010 at a monthly rent of Rs.
100,000. As per agreement Rs. 1,000,000 was received as nonadjustable
advance on July 1, 2010. Payments of rent will be paid at the end of each
respective month. Monthly rent will be increased 10% annually.
Calculate property income for tax year 2021.

Tax Year 2021

Rent 100,000 (1.1)10 3,112,491
X 12
Non Adjustable No
12 addition
after 10 years
Taxable Income 3,112,491
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Mr. Imran rented out a house on July 1, 2010 at a monthly rent of Rs.
100,000. As per agreement Rs. 1,000,000 was received as nonadjustable
advance on July 1, 2010. Payments of rent will be paid at the end of each
respective month. Tenant vacated the house on 31 Dec 2022. House was
rented to new tenant from 1st Jan 2023 at a monthly rent of 150,000 and
nonadjustable mount of Rs 1,500,000. Calculate property income for tax
year 2023.
Tax Year 2023
Rent 100,000 x 6 600,000
New rent 150,000 x 6 900,000
Non Adjustable (1,500,000-1,000,000) 50,000
1/10

Taxable Income 1,550,000

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Mr. Sarfraz let out his house at a rent of Rs.10,000 p.m. He received a
deposit of Rs. 200,000 not adjustable against rent, out of which he
refunded Rs.100,000 to previous tenant, who vacated the house after 3
years’ tenancy. Calculate rent chargeable to tax for the tax year 2021.

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Deductions in computing income chargeable under the head

income from property [Sec. 15A]
In computing the income of a person chargeable to tax under the head “Income from
Property” for a tax year, a deduction shall be allowed for the following expenditures or
allowances, namely:-
(a) In respect of repairs to a building, an allowance equal to one-fifth of the rent
chargeable to tax in respect of the building for the year, computed before any
deduction allowed under this section;
(b) any premium paid or payable by the person in the year to insure the building against
the risk of damage or destruction;
(c) any local rate, tax, charge or cess in respect of the property or the rent from the
property paid or payable by the person to any local authority or government in the
year, not being any tax payable under this Ordinance;
(d) any ground rent paid or payable by the person in the year in respect of the property;
(e) any profit paid or payable by the person in the year on any money borrowed including
by way of mortgage, to acquire, construct, renovate, extend or reconstruct the
property; 21

f) where the property has been acquired, constructed, renovated, extended, or

reconstructed by the person with capital contributed by the House Building Finance
Corporation or a scheduled bank under a scheme of investment in property on the
basis of sharing the rent made by the Corporation or bank, the share in rent and share
towards appreciation in the value of property (excluding the return of capital, if any)
from the property paid or payable by the person to the said Corporation or the bank in
the year under that scheme;
g) where the property is subject to mortgage or other capital charge, the amount of profit
or interest paid on such mortgage or charge;
h) any expenditure, not exceeding four per cent of the rent chargeable to tax in respect
of the property for the year computed before any deduction allowed under this
section, paid or payable by the person in the year wholly and exclusively for the
purpose of deriving rent chargeable to tax under the head, “Income from Property”
including administration and collection charges;”

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i) any expenditure paid or payable by the person in the tax year for legal
services acquired to defend the person’s title to the property or any suit
connected with the property in a court; and
j) where there are reasonable grounds for believing that any unpaid rent in
respect of the property is irrecoverable, an allowance equal to the unpaid
rent where—
I. the tenancy was bona fide, the defaulting tenant has vacated the property or steps
have been taken to compel the tenant to vacate the property and the defaulting
tenant is not in occupation of any other property of the person;
II. the persons has taken all reasonable steps to institute legal proceedings for the
recovery of the unpaid rent or has reasonable grounds to believe that legal
proceedings would be useless; and
III. the unpaid rent has been included in the income of the persons chargeable to tax
under the head “Income from Property” for the tax year in which the rent was due
and tax has been duly paid on such income.
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1. Where any unpaid rent allowed as a deduction is wholly or partly

recovered, the amount recovered shall be chargeable in the tax year of
receipt.
2. Where a deduction is allowed to a person for any expenditure in deriving
“Income from Property” and the person has not paid the related liability
within 3 years of the end of the tax year in which the deduction was
allowed, the unpaid liability shall be chargeable under the head “Income
from Property” in the first tax year following the end of the three years.
3. Where an unpaid liability is taken to income as above and the person
subsequently pays the liability, the person shall be allowed a deduction
for the amount paid in the year of payment.
4. Any expenditure allowed as a deduction under this head shall not be
allowed under any other head.
5. The deductions which are not allowed under the head income from
business will also not be allowed under the head Income from property. 24

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Unpaid Liability

Year Taxability
Year of Occurrence Allowed on accrual basis

1 Year No treatment

2nd Year No treatment

3rd Year No treatment

4th Year Unpaid amount will be added

Subsequent years Only paid amount will be allowed

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Unpaid Liability

Year Taxability
2019 Allowed on accrual basis

1 Year-2020 No treatment

2nd Year-2021 No treatment

3rd Year-2022 No treatment

4th Year-2023 Unpaid amount will be added

Subsequent years Only paid amount will be allowed

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Unpaid Liability

Year Taxability
150,000 Insurance Payable-2019 Allowed on accrual basis

1 Year-2020 No treatment

2nd Year-2021 No treatment

3rd Year-2022 No treatment

4th Year-2023 Unpaid amount will be added

Paid 50,000 in 2024 Only paid amount will be allowed

Paid 100,000 in 2030 Only paid amount will be allowed 27

Insurance Premium Tax Year

Rs
Payable 250,000 2021
Out standing 2022
2023
2024
Added in income 250,000 2025
from Property

Allowed in the year 250,000 2023

of payment

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Mr. Kamran has rented property for Rs 250,000 per month and received Rs 2,500,000 as
non-adjustable advance. Following expenses are incurred during the year ending 30th
June 2021 against property
1. Repair expenses Rs 300,000.
2. Insurance premium paid to insure the building Rs 75,000
3. Local rate and charges payable on property Rs 25,000
4. Interest accrued on money borrowed to construct the property Rs 125,000
5. Expenditure paid wholly and exclusively for deriving rent including administration and
collection charges Rs 150,000
6. Legal charges paid to defend the title of the property Rs 165,000
You are required to calculate the tax liability of Mr. Kamran for Tax Year 2021 if
Mr. Kamran wants to pay tax under separate block of income
Mr. Kamran opted to pay tax under Normal tax regime.
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Mr. Kamran
Calculation of Income prom property
Tax Year 2021

Rent 250,000 x 12 3,000,000

Non adjustable 2,500,000 x 1/10 250,000
advance
Rent chargeable to tax 3,250,000

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Rent chargeable to tax 3,250,000

Less Allowed Expenses
Repair allowance 3,250,000 x 1/5 650,000
Insurance premium 75,000
Local rate and charges 25,000
Interest accrued 125,000
administration and a. Actual 150,000
collection charges
Lower of a & b b. 4% of 3,250,000 130,000
Legal charges 165,000

Income from property 165,000

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Mr. Sohail, a resident individual, owns a building in Clifton area of Karachi. On

1.10.2021 he rented out the building to Mr. Baqir at an annual rent of Rs.
1,200,000. This amount include Rs. 15,000 per month for arranging two
security guards for the building. Following expenses were incurred by Mr.
Sohail on the building during the tax year 2022:
Rs.
Repairs and renovation 35,000
Property tax 20,000
Insurance premium 10,000
Rent collection charges 3,000
Mr. Sohail also paid a salary of Rs.4,000 per month to each of the two security
guards at building.
Required: Under the provision of Income Tax Ordinance, 2001 calculate the tax
liability of Mr. Sohail under the appropriate heads of income for the tax year
2022. (06)(Q.4(a) December 2012)
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Income of joint owners

(Section 66)

Shares individually Shares not individually

ascertainable ascertainable

Net rental income will be Property will be

proportionately allocated considered as being jointly
to each owner. Each owner owned by an association of
will pay tax on such persons (AOP) and taxable
income as per their income and tax payable
applicable rates. thereon will be computed
as per the principles of
taxation for AOP. 33

Income of joint owners [Sec 66]

Where any property is owned by two or more persons and their
respective shares are definite and ascertainable –
(a) the persons shall not be assessed as an AOP in respect of the
property; and
(b) The share of each person in the income from the property
for a tax year shall be taxable in their own hands respectively
and not as AOP.

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I. Explain the term 'Rent’ in context of ‘Income from property’. (02)

II. Specify the head of income under which the following amounts would
be chargeable to tax:
▪ rent from sub lease of a building.
▪ amount included in rent for the provision of amenities, utilities and any
other service connected with renting of the building. (02)
(Q.4(a) March 2015)

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Mr. Amir-ud-din has recently constructed an office complex for the

purposes of letting out. As per terms and conditions, Mr. Amir-ud-din is
also entitled to signing amount, which is non-adjustable .
For the tax year 2022 following information has been provided to you for
the computation of his income from property:
Rent for the year already received 1,150,000
Rent for the year though due but irrecoverable 50,000
Signing amount (non-adjustable) 100,000
Fire tax paid to the local authority 20,000
Lawyer's fee for suit to recover rent 50,000
Salary of the caretaker who collects monthly rent 46,000
Insurance premium being 1% of market value. 200,000
Repair maintenance expenditure 50,000
Calculate his income from property for TY 2022. (10) (Q.5 March 2003)
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