ISLAMABAD: The Federal Board of Revenue (FBR) has explained the taxation of property income, salary income, and profit on debt. The FBR has issued a Circular No 15 of 2021 (Income Tax) to explain the certain amendments made to the Income Tax Ordinance, 2001 through the Finance Act 2021.
About the salary income, the FBR said that the provisions of clause (c) of sub-section (2) of Section 12 were prone to misuse regarding the exemption available to allowance solely expended in the performance of employee's duty in conjunction with clause (39) of Part-I of second schedule. The provisions were used to avoid tax.
In order to streamline, an explanation has been inserted in clause (c) of sub-section (2) of Section 12, whereby, the exempt allowance has been explained and consequently clause (39)of Part-I of second schedule has been omitted. Any allowance which is paid on a fixed basis or percentage of salary basis shall not constitute allowance for the performance of duties.
Explaining the property income, the FBR explained that 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.
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This distinction has been withdrawn and now property income shall be chargeable to tax under the head income from property under normal tax regime after admissible deductions.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. 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.
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 rationalised in Division V of Part-III of First schedule.
About the Profit on Debt, the FBR specified that scope of separate block taxation on interest income has been reduced.
Previously, interest income up to Rs36 million in case of individuals and association of persons (AoPs) was chargeable to tax at the rates ranging from 15 percent to 20 percent under final tax regime.
By virtue of new amendments, the interest income up to Rs5 million shall be taxed at the rate of 15 percent under final tax regime.
If the interest income is more than Rs5 million, it shall be taxed under normal tax regime.
Uniform rate of withholding tax under Section 151 of the Ordinance on interest income has been introduced at 15 percent.
Interest income earned by all taxpayers except banking and insurance companies from investment in federal government securities shall be taxed at the rate of 15 percent under final tax regime.
This has been provided in clause (20) of Part-III of the second schedule, the FBR added.
Copyright Business Recorder, 2021
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