INCOME TAX INCOME FORM PROPERTY Sir: FAHEEM TARIQ

INCOME FROM PROPERTY

[Section 15]
Income from Property:
The rent received or receivable by a person for a tax year is chargeable to tax under the head
"Income from Property". (Rent is chargeable on accrual basis).

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.

However, following rents are chargeable to tax under the head "income from Other Sources"

 The lease of a building together with plant and machinery.

 Ground rent.
 Any amount in rent for the provision of amenities, utilities or any other service connected
with the renting of the building.
 Mining right and royalty.

Actual rent or fair market rent (annual letting value) for the property whichever is higher is taxable.
However, if employee or his/her spouse lets out to the employer and the employer provides same to
him /her as free accommodation, then only actual rent will be considered as rent. (Means FMV or
actual rent whichever is higher, will not apply in this case).

Advance received in relation to buildings:

There are two types of advances the owner receives from the tenant.
1) Adjustable advance against rent: No extra treatment as it is adjustable against rent which is
taxable on accrual basis.
2) Non Adjustable advance against rent: The amount shall be treated as rent chargeable to tax
under the head "income from Property" in the tax year in which it was received and the
following nine tax years in equal proportion.
Where non-adjustable advance is refunded by the owner to the tenant, no portion of the amount
Shell be allocated to the tax year in which it is refunded or to any subsequent tax year. Where the
owner lets out the same building to another person and receives any non-adjustable advance then
already taxed amount shell be deducted first and the balance shall be taxable as rent chargeable in
ten years in equal proportion.

 Non-adjustable advance in respect of open plot is not treated as chargeable rent.

 If deposit is refunded in the same year then there will be no treatment of such deposit.

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INCOME TAX INCOME FORM PROPERTY Sir: FAHEEM TARIQ

Following is chargeable rent under the head "income from property"

1) Rent of land or building (actual rent or FMV whichever is higher).
2) Forfeited deposit under contract for the sale of land, or building.
3) 10% of non-adjustable advance (other than open plot of land)
4) Signing amount
5) Any expense incurred by tenant on behalf of owner of property

Deductions [Section 15A (1)]

In case rent of property is being received by a company it shall be entitled to certain allowances and
deductions. These deductions are not allowed in case of individuals and Association of persons.
Under this head following expenditures or allowances are allowed as deductions, namely:-
(Only for companies)
a) 1/5h Repair allowance of rent chargeable to tax irrespective of the actual repairs;
b) Insurance premium due to insure the building against the risk of damage or destruction;
c) Property related taxes including any local rate, tax, charge, cess to any local authority or
government;
d) Any ground rent in respect of the property;
e) Any profit, interest, mortgage on any money borrowed for the property:
f) Share of rent or share towards appreciation in value of property to House Building Finance
Corporation (HBFC) or a scheduled bank;
g) Any expenditure wholly and exclusively for the purpose of deriving chargeable rent including
administration and collection charges
Or
6% of the rent chargeable to tax whichever is lower is allowed as deduction.
h) Legal charges to defend the person's title to the property or any suit connected with the
property in a court; and
i) Unpaid rent in respect of the property if it is irrecoverable subject to following conditions;
I. The tenancy was bona fide;
II. The defaulting tenant has vacated the property or steps have been taken to
compel the tenant to vacate the property;
III. The defaulting tenant is not in occupation of any other property of the person;
IV. The person has taken all reasonable steps to institute legal proceedings for
V. The recovery of the unpaid rent or has reasonable grounds to believe that legal
proceedings would be useless, and
VI. The unpaid rent has been included in the head "Income from Property".
Where any unpaid rent allowed as a deduction under the head "Income from Property” is recovered,
the amount recovered shall be chargeable to tax in the tax year in which it is recovered.

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INCOME TAX INCOME FORM PROPERTY Sir: FAHEEM TARIQ

Where an allowed deduction has not paid within three years of the end of the tax year in which the
unpaid amount of the liability shall be chargeable to tax under the head “Income from Property" in
the first tax year following the end of the three years.

However, if the person pays it subsequently, the person shall be allowed a deduction for the amount
paid in the tax year in which the payment is made.

Apportionment of common expenses: Common expenses shall be apportioned if

a) Expenditure is partly used for some other purpose; or
b) The land or building is not available for rent for the whole year. e.g. building is used by owner
himself of 3 months or
c) It is partly rented out and partly used by himself

Income of Joint Owners:

Where any property is owned by two or more persons and their respective shares are definite and
ascertainable -
a) The person shall not be assessed as an association of persons in respect of the property:
b) The share of each parson in the income from the property for a tax year shall be taken into
account in the computation of the person's taxable income for that year.

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