Taxes are complicated. It’s hard to know what you can claim and how you can save on your taxes. If you’re an investor, you probably know that taxes can eat up a good portion of your profits. In this regard you can contact with Income Tax appeal in Lahore. But if you’re renting out property, you might be able to reduce your taxes. Here’s how to add rental income to taxes.
For the fiscal year 2021–2022, the Federal Board of Revenue (FBR) has released revised withholding tax rates on property income. Each specified individual must collect the withholding tax from those who receive the immovable property’s rent. Under Section 155 of the 2001 Income Tax Ordinance, the FBR collects withholding tax on income from the property. Retention of Tax Card (RTC) is one of the most important things that a taxpayer must do if he or she is seeking to formalize his or her tax compliance.
RETENTION OF TAX CARD FOR 2021/2022
It is required for a taxpayer to retain his or her Tax Card for a minimum of five years. Although, Failure to adhere to this requirement is a serious offense and can have dire implications for the taxpayer and his or her business. The withholding tax rates are as follows:
(A) When a person or Association of Person (AOP) is involved:
- There is no tax in cases when the gross rent does not exceed Rs. 300,000.
- The tax rate should be 5% of the gross amount exceeding Rs. 300,000 in cases where the gross amount of rent exceeds Rs. 300,000 but does not exceed Rs. 600,000.
- Where the gross rent exceeds Rs. 600,000 but falls below Rs. 2,000,000, the tax rate is Rs. 15,000 + 10% of the total gross rent greater than Rs. 600,000.
- The tax rate is Rs. 155,000 + 25% of the gross amount beyond Rs. 2,000,000. it applies when the total gross rent exceeds Rs. 2,000,000.
B) In the case of a firm, the tax rate is 15%
The 44 tax deduction allowed by Income Tax Ordinance, Section 155, is revocable.
Amounts over Rs. 25 million in the immovable property will be subject to a tax of either 20% of deemed rental income or 1% of the fair market value as decided by the FBR. However, personal residences and ownership of a single plot will be excluded from this tax.
The recommended tax rate on presumed rental income under the Finance Bill 2022 will be 20%. If you still face problems about income tax you may contact with CMA Law Associate for tax services.
Self-owned agricultural land:
Self-owned agricultural land will not be subject to the proposed tax on presumed income from underutilized property valued at more than Rs 25 million.
The self-owned agricultural land where agricultural activity is conducted would not be subject to the proposed tax on deemed revenue from the underused property beyond Rs. 25 million.
The proposed new section 7E of the law establishes the idea of considered rental revenue. Regardless of whether the qualified property has been rented out, moreover, the rental income will be deemed 5 percent of its fair market value, and a 20 percent tax will be applied to this assumed rental income. Although, It indicates that the property will have an effective tax rate of 1% on the fair market value. However, the FBR’s established rate will be used where the actual rental income exceeds it. The following are exempt from Section 7E:
a) self-owned commercial space where business is conducted;
b) self-owned agricultural land where the person conducts agriculture activity;
c) where the fair market value of the property or properties, when taken as a whole, excluding the properties mentioned in (a) and (b) above, does not exceed Rs. 25 million;
d) a Provincial Government, a Local Government, a local authority or a development authority; and
e) land development;
f) A property is subject to tax under Section 15 of the Ordinance (income from property), and the tax due is higher than the tax due under this section.
Finance Billing:
In his remark on the Finance Bill 2022, former FBR chairman Shabbar Zaidi claimed that wealth tax using an indirect technique on immovable property in Pakistan had been reintroduced for the fiscal year 2022. All immovable property over Rs. 25 million in value, except homes used for personal habitation, will be subject to considered tax under the proposed scheme.
The tax revenue will equal 5% of the property’s fair market value, and such income will be subject to a 20% tax rate.
It indicates that under the terms of the new section, a wealth tax of 1 percent has been imposed.
The federal government is not permitted to tax the capital worth of movable property under entry 50 of the Federal Legislative List of the Constitution.
If you’re in Pakistan and earn rental income from property, so, there are a few ways to add this money to your taxes. We’ve outlined the process for you here. Have you filed your rental income taxes in Pakistan? What was your experience like? Let us know in the comments below!
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