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FBR allowed adjustability of property expenses against income from rent on property for all individuals and AOP’s

FBR issued circular no. 03 of 2020, dated 3rd September, 2020. Whereby, FBR allowed adjustability of property expenses against income from rent on property for all individuals and AOP’s

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Amendment in Finance Act, 2016

In prior years, through Finance Act, 2016 adjustment of property related expenses was only available in the case of companies. Not available in the cases of individuals and Association of Persons (AOPs’). Dual tax treatments introduced by FBR in case of rental income from property. In case of individuals & AOPs’ rental income was under final tax regime. However, rental income of companies was under normal tax regime.

Amendment in Finance Act, 2019

Through finance act, 2019 facility provided to individuals and AOPs’ to opt the tax treatment of normal tax regime, if rental income exceeds Rs. 4 Million in a tax year.

Amendment in Finance Act, 2020

Finance Act, 2020 has amended the Income Tax Ordinance, 2001 by removing this particular condition. Now, it will be available to all individuals/A0Ps.

However, limit of the property related expenses (administration and collection charges) which are available as deductions, now reduced from 6% to 4%.

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Current Amendment Explained by FBR

FBR’s explanation given in the particular circular reproduced here:

“By the Finance Act, 2016, a dual tax treatment introduced for property income of individuals/A0Ps and companies. Individuals and AOPs had to pay fixed amount of tax on gross rentals at the rates specified in Division VIA of Part-I of First Schedule. However, certain deductions were allowable for computing property income in case of a company.

A new sub-section (7) added to Section 15A through Finance Act, 2019 to enable Individuals/A0Ps to opt for normal tax regime and claim deductions against gross rentals as provided in the law. But that option was available only to those individuals and AOPs who derived income from property in excess of Rs.4 (Million). Finance Act, 2020 has removed this condition by making amendment in sub-section 7 of section 15A. Now all individuals/A0Ps allowed to claim deductions against gross rental income if they opt to pay tax at rates given in Divisions I of Part-I of First schedule to the Ordinance. Furthermore, deduction in respect of administration and collection charges under clause (h) of Section 15A reduced from 6% to 4% of the rent chargeable to tax.”

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