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Lecture 10 - 09102024

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Lecture 10 - 09102024

Uploaded by

Hira Shahzad
Copyright
© © All Rights Reserved
Available Formats
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FALL 2024

PRINCIPLE OF TAXATION

Faculty: Mr. Zeeshan Ul Haq

9th October 2024

1
1
INCOME FROM PROPERTY
Admissible Deductions
While computing the ‘ Income from Property’ the following
deductions shall be made out of the rent chargeable to tax:
1. In respect of repair of building, a repair allowance equal to one
fifth (1/5th) of the rent chargeable to tax (RCT).
2. Insurance premium paid or payable to insure the property
against risk of damage and destruction.
3. Any amount paid or payable to any local authority or Govt. on
account of: (i) Local rates; (ii) Tax; (iii) Charge; or (iv) Cess. In
this regard the following points should be noted:
(a) the payment is made in respect of the property;
(b) the amount is paid or payable by the owner;
(c) the payment should not be under any provision of the
Income Tax Ordinance.
4. Amount paid as ground rent, if any.
5. Amount paid or payable to any person or institution as cost of
borrowed capital if the amount has been borrowed for (i)
Acquisition of the property, (ii) Construction of the property (iii)
Renovation of the property; and (iv) reconstruction of the
property . 2
INCOME FROM PROPERTY
Admissible Deductions
6. Legal expenses incurred for defending the title or
any suit connected with the property.
7. Amount of irrecoverable rent.
8. Rent collection charges including administration
and collection charges shall be allowed as
deduction with the following conditions:
(a) it should not exceed 4% of RCT;
(b) RCT for this purpose shall be the amount of
rent before allowing any other deduction;
(c) It should have been actually incurred and paid
or payable by the person in the tax year wholly or
exclusively for the purpose of deriving taxable
3
rent.
INCOME FROM PROPERTY
Unrealized Rent

If the rent payable by a tenant cannot be recovered


by the owner of the property, such unrealized rent
is deductible subject to the following conditions:
1. The tenancy arrangement is bonafide
2. The defaulting tenant has vacated or steps have
been taken to compel him to vacate the property.
3. The defaulting tenant is not in occupation of any
other property of the owner.
4. The owner has taken all reasonable steps to
institute legal proceedings for the recovery of the
unpaid rent.
4
INCOME FROM PROPERTY
Recovery of Unpaid Rent

Where an unpaid rent allowed as a deduction and


subsequently during any tax year the owner has
recovered wholly or partially of such rent, the amount
so recovered shall be included in the RCT of the tax
year in which it is recovered.

Non Payment of an Allowable Deduction


Where a person has been allowed a deduction on accrual
basis and the same has not been paid within a period
of 3 yearsof the end of the tax year in which
deduction was allowed, the amount so unpaid shall be
treated as income. It shall be included in the RCT of
the tax year immediate after
5 expiry of three (3) years.
INCOME FROM PROPERTY
Illustration:
Mr. Ali has rented out a house at a monthly rent of Rs. 20,
000.
During the year he incurred the following expenses in
respect of the house:
Repair of house Rs. 15,000
Insurance premium Rs. 10,000
Property Tax Rs. 6,000
Municipal Tax Rs. 5,000
Interest on loan from HBFC Rs. 12,000
Salary to Mr. Ramzan whose sole duty is to collect rent
Rs. 15,000
Legal Expenses Rs. 2,000
In the previous year the tenant vacated the property without
paying the rent of two months (Rs. 15000 per month)
which could not be recovered.
Calculate amount chargeable to tax under the head “Income
from Property” 6
Thank You

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