CFAP 5 VOLUME 1
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CFAP 5 VOLUME 1
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”.
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CFAP 5 VOLUME 1
“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.
an amount treated as rent u/s 16 (i.e. non-adjustable
amount received in relation to building).
Rent is chargeable to tax on accrual basis i.e.
when rent is received or receivable for a tax
year. Similarly, deduction for an expenditure is
allowed on accrual basis i.e. when expenditure is
paid or payable for a tax year.
- The words ‘received’ or receivable’
when used with ‘for the tax year’ show that
income from property is chargeable to tax on
accrual basis. Thus ‘advance rent’ pertaining to
future year is not chargeable to tax in the year of
receipt but rather in the year in which it is
earned.
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CFAP 5 VOLUME 1
The following income are specifically excluded from Income from
property and would be taxable under the head Income from other
sources (Section 15 & 39):
i. Rent in respect of lease of building together with plant and
machinery.
ii. Amount included in rent for the provision of amenities, utilities
and any other service connected with renting of the building.
iii. Rent from sub-lease of land or a building.
iv. Amount received as consideration for vacating the possession of a building or a part thereof, reduced by
any amount paid by the person to acquire possession of such building or part thereof.
Where the owner of building receives from the tenants an
amount which is not adjustable against rent, the non-
adjustable amount shall be treated as rent chargeable to tax Where
under the head “Income from property”. one non-adjustable amount (earlier amount) is
refunded by the owner to an earlier tenant on
The non-adjustable amount shall be charged to tax termination of the tenancy before the expiry of 10
in the year of receipt and years and
following nine tax years in equal proportion.
the owner lets out the building or part thereof to
succeeding tenant and
receives from the succeeding tenant another non-
Where non-adjustable amount adjustable amount (succeeding amount),
is refunded by the owner to the tenant the succeeding amount as reduced by such portion of
on termination of the tenancy before the expiry of 10 years, the earlier amount as was charged to tax,
no portion of the amount shall be charged to tax, shall be treated as rent chargeable to tax under the
• in the tax year in which it is refunded and head “Income from Property”,
• in the subsequent tax year.
in the year in which it is received and following nine
tax years in equal proportion.
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CFAP 5 VOLUME 1
It is common practice that owner of building receives an amount not adjustable against rent, which,
being a security deposit, is refunded to the tenant after the termination of tenancy.
If the non-adjustable amount is refunded in the same tax year then there will be no tax treatment.
Non-adjustable amount is treated as income only in respect of a building and not in respect of land.
In case an amount is received by the owner of a building, which is adjustable against the rent, it shall be
charged to tax in normal manner. It is in the nature of ‘advance rent’, and is not chargeable to tax
separately in the way the non-adjustable amount is charged to tax.
Chargeable to tax in the year of receipt & following Chargeable to tax in the No separate tax No taxability, as capital
9 years in equal proportion unless refunded earlier year of receipt & implications, as rent is receipt of this nature in
following 9 years in equal chargeable to tax on relation to “Land” is not
proportion accrual basis specifically made taxable
No taxation in the year No further taxation
of refund & thereafter after 10 years
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CFAP 5 VOLUME 1
Amount to be taxed in subsequent 10 tax years = Subsequent amount – Previous amount already taxed
10
Previous amount already taxed = Previous amount x No of completed tax year amount held
10
Where rent received or receivable is less than fair market rent for the property, the
owner 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 principle shall not apply where fair market rent is already included in
the income of the lessee, chargeable to tax under the head “Salary”.
Fair market principle shall not apply where the employer owns a house
and provide it to his employee as perquisite and fair market rent (computed as per
Rule # 4 i.e. higher of alternative amount or 45% of MTS/basic salary) is included in
the employee’s income under the ‘salary’. In such case, there will no tax implication on
the employer.
Fair market value of any property or rent, asset, service, benefit or perquisite at a particular time shall be the price which the
property or rent, asset, service, benefit or perquisite would ordinarily fetch on sale or supply in the open market at that time.
Fair market value of any property or rent, asset, service, benefit or perquisite shall be determined without regard to any
restriction on transfer or to the fact that it is not otherwise convertible to cash.
Where the price is not ordinarily ascertainable, such price may be determined by the Commissioner.
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CFAP 5 VOLUME 1
Where an employee or his/her spouse is the owner of any building
that is given on rent to the employer and the employer has
provided the same building to the employee as a perquisite, then:
Rent of building is chargeable to tax under the head “income
from property” in the hands of employee or his/her spouse.
The building is provided by the employer to his employee as a
rent free accommodation. It will be a perquisite and added in
the salary income of the employee accordingly.
In computing income chargeable to tax under the head “Income from Property” for a tax year, a deduction shall be
allowed for following expenditures or allowances to
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 are allowed.
- Repair allowance up to 1/5th of gross rent is allowable as expense irrespective of the fact that owner
actually incurred such expenses or the actual expenses incurred by him are greater/lesser than 1/5th of the gross rent.
Further the said statutory allowance is calculated on rent chargeable to tax and not on the rent received. Rent
chargeable to tax also includes fortified deposit and non-adjustable deposit received in relation to a building.
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CFAP 5 VOLUME 1
Any premium
paid or payable by the person in the year
to insure the building against the risk of damage or destruction
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 income tax.
Any ground rent paid or payable by the person in the year in respect of the property.
– Ground rent is paid on commercial land by the owner of leasehold properties
to the local government authorities every year. It is generally fixed for long-lease commercial
properties, which are usually leased for 99 years, at the time of the agreement. Therefore,
ground rent is just like property tax.
Any profit or mark-up
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.
Any share in rent and share towards in appreciation in the value of property (excluding the return of capital)
paid or payable by the person
where the property has been acquired, constructed, renovated, extended, or reconstructed by the person
with capital contributed by the House Building Finance Corporation (HBFC) or a scheduled bank
under a scheme of investment in property
on the basis of sharing the rent made by the Corporation or bank,
Where the property is subject to a mortgage or other capital charge, any profit or interest
on such mortgage or charge.
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CFAP 5 VOLUME 1
Any expenditure,
not exceeding 4% of the rent chargeable to tax computed
before any deduction are allowed,
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
Any expenditures,
paid or payable by the person in the tax year
for legal services acquired to defend
o the person’s title to the property or
o any suit connected with the property in a court.
An allowance equal to the unpaid rent, where there are reasonable grounds to believe that
the unpaid rent is irrecoverable, subject to the 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 the
recovery of the unpaid rent or has reasonable grounds to believe that legal
proceedings would be useless; and
v. the unpaid rent has been included in the income of the person 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.
Where
any unpaid rent allowed as a deduction,
is wholly or partly recovered,
the amount recovered shall be chargeable to tax in the tax year in which it is recovered.
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CFAP 5 VOLUME 1
Any expenditure allowed as a deduction under “Income from property”
shall not be allowed as a deduction in computing the income under any
other head of income.
The provisions of section 21 (Deductions not allowed in computing
income from business) shall also apply
in determining the deductions allowed to a person under the head
“Income from property”,
in the same manner as they apply to “Income from business”.
Payment for an expenditure deductions shall be made within 3 years from the
end of the tax year in which the deduction was allowed.
Where
a person has been allowed a deduction for any expenditure incurred in
deriving rent chargeable to tax under the head “Income from Property” and
the person has not paid the liability or a part of the liability
within 3 years of the end of the tax year in which the deduction was allowed,
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 3 years.
If an unpaid liability which is charged to tax after 3 years (as above),
is subsequently paid in full or in part,
the person shall be allowed a deduction for the amount paid
in the tax year in which the payment is made.
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CFAP 5 VOLUME 1
Common expense shall be apportioned if:
The property is not available for rent for the whole year. For
example, the property is used by the owner itself for 3 months in a
tax year.
The property is partly rented out and partly used for some other
purpose. For example, half of the property is used by the owner
itself.
The expenditure is partly to derive income from property and
partly for some other purpose. For example, loan taken for
property is partly used for business purpose.
A person sustaining a loss under any head of
income can set off such loss against income
under the head “Income from property”.
However, the adjustment of business loss shall
not be allowed against income from property
for the tax year
Any loss under the head “Income from
property” can be set-off against income
chargeable to tax under any other head
except for salary.
Loss under the head "Income from Property"
cannot be carried forward.
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CFAP 5 VOLUME 1
Rental income shall be Pakistan-source income if it
is derived
from the lease of immovable property in
Pakistan whether improved or not, or
from any other interest in or over immovable
property, including a right to
explore for, or
exploit,
natural resources in Pakistan.
Any rent or revenue derived by a person from land
which is situated in Pakistan and is used for agricultural
purposes; or
Any rent or revenue of the building which is on or in the
immediate vicinity of the agricultural land and which is
used as dwelling-house, a store-house, or other out-
building.
In various case laws, it has been held that following incomes are not considered as agricultural
income, and would not be exempt from tax under section 41 of the ITO-2001:
Income from fishing;
Income from cattle farms, dairy farms, stud farms and poultry farms;
Income from sale of water through water canal etc.
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CFAP 5 VOLUME 1
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 association
of persons in respect of the property; and
b) the share of each person 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.
This provision shall not apply in computing income chargeable under the head “Income from Business”.
Co-ownership of property is not considered as an AOP in respect of rental income.
However, if an AOP buys any property from its own resources then the rental income from such property
will be taxable in the hands of AOP.
Yes No
Share of each owner in the Entire income from such
income from such property property would be taxed
would be taxable in the hand as income of AOPs of
of each owner separately. co-owners / joint owners
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CFAP 5 VOLUME 1
Every prescribed person making a payment in full or part (including a payment by way of advance) to any person on
account of rent of immovable property (including rent of furniture and fixtures, and amounts for services relating to
such property) shall deduct tax from the gross amount of rent paid at the rate specified.
For removal of doubt, it is clarified that the above provision shall apply when a payment is made on
account of rent of immoveable property irrespective of head of income”
Gross amount of rent includes treated rent u/s 16.
Prescribed person means
i. Federal Government; vii. Boutique;
ii. Provincial Government; viii. Beauty parlor;
iii. Local Government; ix. Hospital, clinic or a maternity home
iv. Company; x. Private educational institution
v. NPO or a charitable institution; xi. Individuals / AOP paying gross rent of Rs. 1.5 million & above in a year; or
vi. Diplomatic mission of a foreign state; xii. Any other person notified by the FBR.
If actual rent ≠ fair market rent, withholding tax shall be calculated on actual rent paid, not on fair market rent.
Slab rate for withholding of tax on payment of rent, shall apply w.r.t rent paid during a financial year.
The rate of tax to be deducted on payment of rent of immoveable property to
, shall be:
1. Where the gross amount of rent does not exceed Rs. 300,000. Nil
Where the gross amount of rent exceeds Rs. 300,000 but does
2. 5% of the gross amount exceeding Rs. 300,000.
not exceed Rs. 600,000.
Where the gross amount of rent exceeds Rs. 600,000 but does Rs. 15,000 plus 10% of the gross amount
3.
not exceed Rs. 2,000,000. exceeding Rs. 600,000.
Rs. 155,000 plus 25% of the gross amount
4. Where the gross amount of rent exceeds Rs. 2,000,000.
exceeding Rs. 2,000,000.
The rate of tax to be deducted on payment of rent of immoveable property to , shall be 15% of the gross
amount of rent.
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