INCOME FROM

PROPERTY
 MEANING
• The rent received or receivable by a person in a tax
year shall be chargeable to tax in that year under
the head Income from Property.

• Any rent which is exempted from tax under any

provisions of the income tax ordinance shall be
ignored while computing “Rent Chargeable to
Tax” (RCT) under this head [15(1)].

• Rent means any amount received or receivable by

the owner of land or a building for its use or
occupation by some other person.
 Rent Chargeable to Tax
• Rent Chargeable to Tax (RCT) shall include the following
amounts:
• Higher of the rent received/receivable or the fair market
rent (FMR) for the period for which the property was
actually rented out.
• Forfeited deposit received under a contract for the sale of
land or building
• Any obligation of the owner paid by the tenant (eg.
Propety tax)
• Any amount received by the owner from his tenant as
advance which is not adjustable against rent. Generally,
1/10th of such advance is charged to tax every year
(section 16)
Example 1
• Mr. Junaid is the owner of a property which is
rented out at a monthly rent of Rs.15,000.
During the month of June, he contracted with
Mr. Javed for the sale of the property and
received Rs. 50,000 as a token money.
Thereafter, Mr Javed breaches the contract
and as per terms of agreement token money is
forfeited by Mr. Junaid.
• Calculate RCT.
 Example 2:
• A person has rented out his house @Rs.
20,000/month. As per rent deed he has received
an amount of Rs.50,000 as advance, which is not
adjustable against rent. Further, the tenant has
agreed to pay the property tax of Rs. 10,000 per
anum. Compute the amount of Rent Chargeable
to Tax (RCT) under the following cases:
• A) where the FMR is Rs.200,000 ;
• B) where the FMR is Rs.300,000
Rent of Properties Not Taxable as “Income from Property”

Rental income is not chargeable to tax under the head of income from
property which has the following properties.
• Any rent which is let out together with the plant and machinery installed
therein shall not be taxable under this head. It shall be chargeable to tax
under the head Income from other sources. Ex. Buildings of cotton
ginning factories, rice mills etc. [15(3) &39(1)]

• Any agricultural building whose income is treated as agricultural

income.[4(12)]

• Any property sublet by the tenant. Only the rental income of the owner
is taxable under the head of RCT. The income of the tenant from
subletting the property is chargeable to tax as “Income from Other
Sources”
 Advances Against Rented Building [16]
The owner of the building receives two types of advances at the time of
letting out the property to a tenant.

1.The advance which is adjustable against rent. After the expiry of a certain
period, this amount will become zero as being fully adjusted against the rent
payable by the tenant. No tax treatment for the advance received from
tenant.

2. the advance which is not adjustable against rent. This may further fall into:
I. Security
II. Pugree
Both types of advances are treated separately under the Income Tax
Ordinance.
 Non Adjustable Advances Against Rent: Security

1.Any amount received as an advance not

adjustable against rent from the tenant by the
owner of a building is divided by 10 and the
resultant figure is added in the RCT of the
property in the tax year in which it is
received and nine (9) tax years next following
that year in equal proportion [16(1)].

2. If the tenant vacated the property and the

amount of advance has been refunded before
the expiry of ten(10) years, nothing shall be
added to RCT of the property in the year of
refund and subsequent tax years.[16(3)].
 Non Adjustable Advances Against
Rent: Security
3. Where the owner lets out the same building to
another tenant and receives from the following tenant
any amount which is not adjustable against the rent
payable, the succeeding amount as reduced by such
portion of the earlier amount as was charged to tax
shall be treated as rent chargeable to tax as specified
above.
• Portion of advance /security received deemed as rent
• A-B/10: new security – [old security * #of previous
tenant’s years/10]/10
 Computation of taxable income from
property.
• Rent Chargeable to tax:
• Rent received or receivable =XXXX
• 1/10th of unadjustable advance = XXXX
• Forfeited deposit against sale of property =XXXX
• Owner’s burden(i.e. tax) paid by the tenant=XXX
• Taxable income from property……………………____
 Example 1.
• Mr.A has rented out his house @ Rs.5,000 p.m. As
per rent deed he has received an amount of Rs.
50,000 as advance which is not adjustable against
rent. Further the tenant has agreed to pay the
property tax of Rs. 10,000 per annum. During the
year , the owner contracted with Mr. B for the sale
of the property and received a token money of Rs.
60,000 which is forfeited by Mr. B.
• Compute Taxable income from property or Rent
Chargeable to Tax and his Tax Liability.
 Solution 1
• Rent received or receivable(5,000*12)=60,000

• 1/10th of unadjustable advance(50,000/10) = 5000

• Forfeited deposit against sale of property =60,000
• Owner’s burden(i.e. tax) paid by the tenant=10,000
• Taxable income from property… = __135,000__

• TAX LIABILITY(135,000*
 EXAMPLE 2

• Mr. Ali rented an office to multinational

company @ Rs. 150,000 per month from
01.08.2007 to 30.06.2008.

Calculate the tax liability of Mr. Ali?

 SOLUTION EXAMPLE 2

Rent Chargeable to tax

(150,000X11) Rs. 1,650,000

Tax Liability
(1,650,000X5%) 82,500
 EXAMPLE 3
• Mr A had let out the property to Mr. B for a sum of
Rs. 15,000 per month in July 2017. Mr B has paid a
sum of Rs. 500,000 as non adjustable advance
against the rent. Compute the income and tax
liability for the year 2017.

• After the expiry of two years, Mr B vacated the

premises and Mr A returned the advance to Mr B.
Thereafter Mr C acquired the possession on the same
rental amount. However, the amount of non
adjustable advance was increased to Rs.600,000.
Compute the gross income and tax liability from the
said property for the year 2019.
 SOLUTION EXAMPLE 3
Income from property for the year 2017
Rent (15,000X12) Rs. 180,000
Un adjustable Advance (500,000/10) 50,000
Rent Chargeable to tax 230,000
Tax Liability (230,000x5%) 11,500

Income from property for the year 2019

Rent (15,000X12) Rs. 180,000
Un adjustable Advance
(600,000-100,000)/10) 50,000
Rent Chargeable to tax 230,000
Tax Liability (230,000x5%) 11,500
 EXAMPLE 4
• Mr Mobeen owns a property at Gulberg Lahore.
The said property was rented out to Mr Asad at a
rent of Rs.17,500 per month. Mr Asad left the
premises on 31st Jan 2017. Mr. Asad paid a sum
of Rs.300,000 as un-adjustable advance in July
2013.
• Mr. Mubeen returned the said advance on his
departure. The said property remained vacant in
the month of Feb 2007. Thereafter Mr Gulzar has
taken the possession of the said property at a
monthly rent of Rs.22,000. New tenant has paid
a sum of Rs.350,000 as un-adjustable advance.
COMPUTE THE TAXABLE INCOME AND
TAX LIABILITY OF Mr MOBEEN.
 SOLUTION EXAMPLE 4
Income from property for the year 2007
Rent from Mr Asad (17,500X7) Rs. 122,500
Rent from Mr Gulzar (22,000X4)
88,000
Un adjustable Advance
(350,000-90,000)/10 26,000
Rent Chargeable to tax 236,500

Tax Liability (236,500X5%) 11,825

 5-19

Non Adjustable Amounts - Pugree

• Any amount received by a person as consideration for

vacating the possession of a building or part thereof,
reduced by any amount paid by the person to acquire
possession of such building or part thereof.

• The amount shall be chargeable to tax under the head

“Income from Other Sources” in the tax year in which it was
received and the following nine tax years in equal
proportion.
Example

• Mr. Umar acquired a shop on rent and paid Rs.

80,000 as pugree. After 5 years he vacated the
shop and received 120,000 as a consideration
for vacating the shop. Compute the amount to
be included in his income on account of the
amount received by him.
 5-21

Admissible Deductions - Companies

• Repair Allowance - 1/5 of RCT

• Collection Charges - Lower of Actual collection charges or
6% of RCT is allowed as deduction.
• Insurance Premium
• Property Tax
• Municipal Tax
• Ground Rent
• Interest on Loan
• Legal Expenses
• Amount of irrecoverable rent
 Example
Mr. Hasan has rented out a house at a monthly rent of Rs. 20,000. during the
year the company incurred the following expenses in respect of the house:
1. Repair of house Rs. 15,000
2. Insurance premium 10,000
3. Property Tax 6,000
4. Muncipal Tax 5,000
5. Interest on loan from HBFC 12,000
6. Salary to Mr. Ramzan whose sole duty is to collect rent. 15,000
7. Legal expenses 2,000
In previous year, the tenant has vacated the property without paying the rent
of two months (Rs. 15,000/ month) which could not be recovered. Compute
the amount which is chageable to tax under the head “Income from Property”
• The end