5% tax on rental income

[asad.ahmad]

hi can any one guide me about 5% tax on rentl inome in the budget 06-07

[Abdur.Rehman]

ok give me a day to update myself. But previously it was 5% tax on rental payments above Rs. 300,000 to be deducted by a person making payment. and it is not the final tax

[Abdur.Rehman]

ok,,,there is a huge change in this section. Now every person shall deduct tax on payment of rent irrespective of any threshhold and now it is final tax.
So my previous message stands deleted

[massoodakhter]

AoA,

this 5% tax is not mandatory if-
an individual or aop has income less than 150,000;
he has no other source of income;

[Abdur.Rehman]

But sir this is withholding tax and now also the final tax
as per the latest amendments every person making a payment of rent shall deduct that amount. Slab rates of income are not applicable to it.
As for example, if a company pays dividend amounting to Rs. 500 it will deduct tax irrespective of the income of the individual.
Now rent is also entered into the final tax regime and u r wrong in that case.

[asad.ahmad]

can i have a practical exemple as
1.i pay a rent of 100 per month what will i do?
2.i get a rent of 100 per month what will i do?

hoping for a good response

[Abdur.Rehman]

ok
1. U have to pay a rent of Rs. 100. U will pay Rs. 95 and book Rs. 5 as payable to tax authorities. the journal entry would be..
DR. Rent expense 100
CR. Cash 95
CR. Tax payable 5

2. and u have to do nothing if u r getting rent of something. The other person making u the payment will deduct the tax. and ur rental income will not be included in ur total income. and u also cannot claim any expenditure which was previously allowed under section 17.

u can ask if u have any further query.
and haan good response?????? wut do u mean by this

[insaan]

s-155
Every (words "Subject to sub-section (2), every" substituted by Finance Bill 2006) <b>prescribed person</b> making a payment in full or part (including a payment by way of advance) to any person on account of <b>rent of immovable property</b> (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 in Division V of Part III of the First Schedule.(5%)(3) In this section, “prescribed person” means –

(i) the Federal Government;

(ii) a Provincial Government;

(iii) local authority;

(iv) a company;

(v) a non-profit organization;

(vi) a diplomatic mission of a foreign state; or

(vii) any other person notified by the Central Board of Revenue for the purpose of this section

<u>so only the prescribed person are required to deduct tax
on rent of immovable property</u>

+

liablity for person receiving rent may arise in case of failure of tax deduction at source
refer section 160,161,162

updated income tax ordinance is available at
http//www.taxonline.com.pk/incometax/itaxord2001/sections/itord2001.html

[insaan]

now my question to seniors is..
in case of persons other than prescribed persons what would be treatment of tax on property
would it be included in computing income chargeable to tax??M I rite?

[asad.ahmad]

ok if get 150,001 rent and get it registered with cbr would i have to pay the tax and if i get 149999 what is the situation now

[insaan]

For person receiving rent

i will 1st quote abdur rehman's reply

2. and u have to do nothing if u r getting rent of something. The other person making u the payment will deduct the tax. and ur rental income will not be included in ur total income. and u also cannot claim any expenditure which was previously allowed under section 17.

now to go further here r sections 160,161,162

160. Payment of tax collected or deducted.-

Any tax that has been collected or purported to be collected under Division II of this Part or deducted or purported to be deducted under Division III of this Part or deducted or collected, or purported to be deducted or collected under Chapter XII shall be paid to the Commissioner by the person making the collection or deduction within the time and in the manner as may be prescribed.


161. Failure to pay tax collected or deducted.-



(1) Where a person –



(a) fails to collect tax as required under Division II of this Part or Chapter XII or deduct tax from a payment as required under Division III of this Part or Chapter XII or as required under section 50 of the repealed Ordinance; or



(b) having collected tax under Division II of this Part or Chapter XII or deducted tax under Division III of this Part or Chapter XII fails to pay the tax to the Commissioner as required under section 160 or having collected tax under section 50 of the repealed Ordinance pay to the credit of the Federal Government as required under sub-section (8) of section 50 of the repealed Ordinance,



the person shall be personally liable to pay the amount of tax to the Commissioner who may pass an order to that effect and proceed to recover the same.



(1A) No recovery under sub-section (1) shall be made unless the person referred to in sub-section (1) has been provided with an opportunity of being heard.



(1B) Where at the time of recovery of tax under sub-section (1) it is established that the tax that was to be deducted from the payment made to a person or collected from a person has meanwhile been paid by that person, no recovery shall be made from the person who had failed to collect or deduct the tax but the said person shall be liable to pay additional tax at the rate of eighteen per cent per annum from the date he failed to collect or deduct the tax to the date the tax was paid.



(2) A person personally liable for an amount of tax under sub-section (1) as a result of failing to collect or deduct the tax shall be entitled to recover the tax from the person from whom the tax should have been collected or deducted.



162. Recovery of tax from the person from whom tax was not collected or deducted.-



(1) <b> Where a person fails to collect tax as required under Division II of this Part or Chapter XII or deduct tax from a payment as required under Division III of this Part or Chapter XII, the Commissioner may pass an order to that effect and recover the amount not collected or deducted from the person from whom the tax should have been collected or to whom the payment was made.
</b>


(2) The recovery of tax under sub-section (1) does not absolve the person who failed to deduct tax as required under Division III of this Part or Chapter XII from any other legal action in relation to the failure, or from a charge of additional tax or the disallowance of a deduction for the expense to which the failure relates, as provided for under this Ordinance.



theek hai the person receiving rent from any property lent to a prescribed person would not be liable to pay tax except as under 162(1)
and in this case he owuld be liable for <u>the amount not collected or deducted</u>,which would be 5% of rent received/receivable by him..
irrespective of amount of rent , whether , the amount be 150,001 or 149999...
now there isnt any issue of rent slab....so dont get confused in numbers

[asad.ahmad]

thanks

[Abdur.Rehman]

Insaan u r right