If you have given any property on rent then withholding Tax is applicable on that immovable property as per Federal Board of Revenue (FBR).
Details about tax on rental income are prescribed in Section 155 of Income Tax Ordinance, 2001. It defines the amount on which tax is exempted and then further divides property income in different slabs where tax rates increases with rental income.
The tax rates for different rental income for individual or Association of Person (AOP) are as follow:
- No tax if the gross amount of rent is Rs. 200,000 or below
- 5% tax if the gross rent income is up to 600,000. Tax will be applicable on the rental income above 200,000
- 10% tax if the gross rent income is between Rs. 600,000 to Rs. 1,000,000.
- Tax of Rs. 60,000+15% if the rent is greater than 1,000,000 but doesn’t exceed Rs. 2,000,000
- Tax of Rs. 210,000+20% if the rent is more than Rs. 2,000,000 till Rs. 4.000.000
- Tax of Rs. 610,000+25% if the rent exceeds Rs. 4,000,000 but doesn’t exceed 6,000,000.
- Tax of Rs. 1,110,000+30% if the annual rent is between Rs. 6,000,000 to Rs. 8,000,000
- Tax of Rs. 1,710,000+35% if the annual rental exceeds Rs. 8,000,000.
To understand this taxation policy consider a property which generates an income of Rs. 1,500,000. On such property a fixed tax of Rs. 60,000 will be applied because the income is greater than Rs. 1,000,000.
Then a 15% tax is further charged on Rs. 500,000 (Rs. 1,500,000 –Rs. 1,000,000) which is Rs. 75,000. This means a total tax of Rs. 135,000 on the rental income.
So before renting a property make sure you know the details of the tax on that rental income.