Monday, 28 November 2022
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TAXATION

Updated tax provisions for property rental income in budget 2021-22

Finance Act, 2013 shifted the property income (Property rental income) from fixed tax regime to normal tax regime for Individuals, AOPs and Companies.

Finance Act, 2016 shifted it from normal tax regime to fixed tax regime for Individuals & AOPs. Simultaneously, the deductions in computing income chargeable under the head “Income from Property” for individuals and AOPs were withdrawn.

Through Finance Act, 2019 a new sub-section (7) was inserted in Section 15A which provides that Individuals & AOPs deriving property rental income above Rs. 4,000,000 per annum may opt for normal tax regime and the deductions available in section 15A in computing income chargeable under the head “Income from Property” shall be admissible.

Last year, through Finance Act 2020 the condition of 4 Million was omitted, means any individual or AOP having property rental income may opt normal tax regime and make the deductions allowed under Section 15A.

Now, the Act again withdrawn the option of fix tax from individual and AOP and converted the property income from fixed tax regime to normal tax regime for Individuals, AOPs and Companies. Meaning that tax on property rental income will be
computed at normal slab rates available for individual and AOPs and @ 29% for companies. The deductions available in Section 15A will be available to all persons while computing income from property.

The Act also substituted the marginal note (section heading) of section 155 (withholding of tax) from “Income from Property” to “Rent of immovable property”. The Act explained for removal of doubt, that withholding u/s 155 shall be made on account of rent of immovable property irrespective of the head of income.

Withholding Table u/s 155 (Rent of Property) is substituted with following new table:

S.NoGross Amount of RentRate of Tax
1Where the gross amount of rent does not exceed
Rs. 300,000
Nil
2Where the gross amount of rent exceeds Rs.
300,000 but does not exceed Rs. 600,000
5% of the gross amount exceeding Rs. 300,000.
3Where the gross amount of rent exceeds Rs.
600,000 but does not exceed Rs. 2,000,000
Rs. 15,000 plus 10% of the gross amount exceeding Rs.
600,000.
4Where the gross amount of rent exceeds Rs.
2,000,000
Rs. 155,000 plus 25% of the gross amount exceeding
Rs. 2,000,000.
Table: Rates of Tax on Property Income

Summaries the tax on Rental Income on Immovable Property:

The block taxation for property income available to non-corporate entities has been done away with. Following changes governing taxation of income chargeable to tax under the head income from property have been introduced;

a) Property income of companies was taxable as normally computable income. However, in case of individuals and AOPs there was an option for property income to be taxed on gross rental bases. This distinction has been withdrawn and now property income shall be chargeable to tax under the head income from property under normal tax regime after admissible deductions. Necessary changes have been introduced in sections 15 and 15A of the Ordinance. Subsequently, Division VIA of Part I of First Schedule has been omitted.

b) Current year’s loss under any head of income has been allowed to be set off against the person’s income chargeable to tax under the head “income from property” by amending section 56 of the Ordinance.

c) Withholding tax regime dealing with rental income from immoveable properties has been rationalized. The ambiguity regarding withholding of tax on rental income of immoveable property of sub-lessee has been removed. It has been explained that all persons making payment on account of immoveable property are required to withhold tax at the prescribed rates which have also been rationalized in Division V of Part III of First schedule.

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