Income Tax Ordinance, 2001 — Section 15: Income from property

15. Income from property.— (1) The rent received or receivable by a person 1[for] a tax year, other than rent exempt from tax under this Ordinance, shall be chargeable to tax in that year under the head “Income from Property”.

(2)Subject to sub-section (3), “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.

(3)This section shall not apply to any rent received or receivable by any person in respect of the lease of a building together with plant and machinery and such rent shall be chargeable to tax under the head “Income from Other Sources”. 2[(3A) Where any amount is included in rent received or receivable by any person for the provision of amenities, utilities or any other service connected with the renting of the building, such amount shall be chargeable to tax under the head “Income from Other Sources”.]

(4)Subject to sub-section (5), where the rent received or receivable by a person is less than the fair market rent for the property, the person shall be treated as having derived the fair market rent for the period the property is let on rent in the tax year.

(5)Sub-section (4) shall not apply where the fair market rent is included in the income of the lessee chargeable to tax under the head “Salary”. 3[ ] 4[ ] 5 [ ] 1 Substituted for the word “in” by the Finance Act, 2003. 2 Inserted by the Finance Act, 2003. 3 Sub-section (6) omitted by the Finance Act, 2013. The omitted sub-section (6) read as follows: “(6) Income under this section shall be liable to tax at the rate specified in Division VI of Part I of the First Schedule.” 4 Sub-section (7) omitted by the Finance Act, 2013. The omitted sub-section (6) read as follows: “(7) the provisions of sub-section (1), shall not apply in respect of a taxpayer who

(i)is an individual or association of persons;

(ii)derives income chargeable to tax under this section not exceeding Rs. 150,000 in a tax year; and

(iii)does not derive taxable income under any other head.” 5 Clause (6) inserted by the Finance Act, 2016. 56 Chapter III – Tax on Taxable Income 1 [ ] 2 [ ] 3 [ ] 4[15A. Deductions in computing income chargeable under the head “Income from Property”.— (1) In computing the income of a 5[ ] 6[person] chargeable to tax under the head “Income from Property” for a tax year, a deduction shall be allowed for the following expenditures or allowances, namely:

(a)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 allowed under this section;

(b)any premium paid or payable by the 7[ ] 8[person] in the year to insure the building against the risk of damage or destruction;

(c)any local rate, tax, charge or cess in respect of the property or the rent from the property paid or payable by the 9[ ] 10[person] to any local authority or government in the year, not being any tax payable under this Ordinance;

(d)any ground rent paid or payable by the 11[ ] 12[person] in the year in respect of the property;

(e)any profit paid or payable by the 13[ ] 14[person] in the year on any money borrowed including by way of mortgage, to acquire, construct, renovate, extend or reconstruct the property; 1 Clause (6) omitted by the Finance Act, 2021. The omitted clause read as follows: “(6) Income under this section derived by an individual or an association of persons shall be liable to tax at the rate specified in Division VIA of Part I of the First Schedule.” 2 Clause (7) inserted by the Finance Act, 2016. 3 Clause (7) omitted by the Finance Act, 2021. The omitted clause read as follows: “(7) The provisions of sub-section (1), shall not apply in respect of an individual or association of persons who derive income chargeable to tax under this section not exceeding two hundred thousand rupees in a tax year and does not derive taxable income under any other head.” 4 Inserted by the Finance Act, 2013. 5 The word “person” substituted by the Finance Act, 2016. 6 The word “company” substituted by the Finance Act, 2021. 7 The word “person” substituted by the Finance Act, 2016. 8 The word “company” substituted by the Finance Act, 2021. 9 The word “person” substituted by the Finance Act, 2016. 10 The word “company” substituted by the Finance Act, 2021. 11 The word “person” substituted by the Finance Act, 2016. 12 The word “company” substituted by the Finance Act, 2021. 13 The word “person” substituted by the Finance Act, 2016. 14 The word “company” substituted by the Finance Act, 2021. 57 Chapter III – Tax on Taxable Income

(f)where the property has been acquired, constructed, renovated, extended, or reconstructed by the 1[ ] 2[person] with capital contributed by the House Building Finance Corporation or a scheduled bank under a scheme of investment in property on the basis of sharing the rent made by the Corporation or bank, the share in rent and share towards appreciation in the value of property (excluding the return of capital, if any) from the property paid or payable by the 3[ ] 4[person] to the said Corporation or the bank in the year under that scheme;

(g)where the property is subject to mortgage or other capital charge, the amount of profit or interest paid on such mortgage or charge; 5[(h) any expenditure, not exceeding 6[four] per cent of the rent chargeable to tax in respect of the property for the year computed before any deduction allowed under this section, paid or payable by the 7[ ] 8[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;”]

(i)any expenditure paid or payable by the 9[ ] 10[person] in the tax year for legal services acquired to defend the 11[ ] 12[persons]’s title to the property or any suit connected with the property in a court; and

(j)where there are reasonable grounds for believing that any unpaid rent in respect of the property is irrecoverable, an allowance equal to the unpaid rent where

(i)the tenancy was bona fide, the defaulting tenant has vacated the property or steps have been taken to compel the tenant to vacate the property and the defaulting tenant is not in occupation of any other property of the 13[ ] 14[person]; 1 The word “person” substituted by the Finance Act, 2016. 2 The word “company” substituted by the Finance Act, 2021. 3 The word “person” substituted by the Finance Act, 2016. 4 The word “company” substituted by the Finance Act, 2021. 5 Clause (h) substituted by the Finance Act, 2015. The substituted (h) read as follows: “(h) any expenditure (not exceeding six per cent of the rent chargeable to tax in respect of the property for the year computed before any deduction allowed under this section) paid or payable by the person in the year for the purpose of collecting the rent due in respect of the property;” 6 The word “six” substituted by “four” through Finance Act, 2020 dated 30th June, 2020 7 The word “person” substituted by the Finance Act, 2016. 8 The word “company” substituted by the Finance Act, 2021. 9 The word “person” substituted by the Finance Act, 2016. 10 The word “company” substituted by the Finance Act, 2021. 11 The word “person” substituted by the Finance Act, 2016. 12 The word “company” substituted by the Finance Act, 2021. 13 The word “person” substituted by the Finance Act, 2016. 14 The word “company” substituted by the Finance Act, 2021. 58 Chapter III – Tax on Taxable Income

(ii)the 1[ ] 2[persons] 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

(iii)the unpaid rent has been included in the income of the 3[ ] 4[persons] 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.

(2)Where any unpaid rent allowed as a deduction under clause (j) of sub-section (1) is wholly or partly recovered, the amount recovered shall be chargeable to tax in the tax year in which it is recovered.

(3)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 to which the deduction relates within three 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 three years.

(4)Where an unpaid liability is chargeable to tax as a result of the application of sub-section (3) and the person subsequently pays the liability or a part of the liability, the person shall be allowed a deduction for the amount paid in the tax year in which the payment is made.

(5)Any expenditure allowed to a person under this section as a deduction shall not be allowed as a deduction in computing the income of the person chargeable to tax under any other head of income.

(6)The provisions of section 21 shall apply in determining the deductions allowed to a person under this section in the same manner as they apply in determining the deductions allowed in computing the income of a person chargeable to tax under the head “Income from Business”.] 5[ ] 6[ ] 1 The word “person” substituted by the Finance Act, 2016. 2 The word “company” substituted by the Finance Act, 2021. 3 The word “person” substituted by the Finance Act, 2016. 4 The word “company” substituted by the Finance Act, 2021. 5 New sub-section (7) added by Finance Act, 2019 6 Sub-section (7) omitted by the Finance Act, 2021. The omitted sub-section read as follows: 59 Chapter III – Tax on Taxable Income