ISLAMABAD: The Federal Board of Revenue has decided to amend procedure for collection of income tax on rental income by declaring that no tax will be charged on rental receipts up to Rs 150,000 irrespective of whether taxpayer derives income from other sources or not.
Sources told Business Recorder here on Tuesday that the FBR is expected to announce this major relief to the taxpayers in coming days. The FBR is likely to clarify the issue regarding payment and collection of income tax on income liable to tax u/s 15 of the Income Tax Ordinance, 2001 ie, income from property.
The present decision is in line with the relevant provisions of section 15 of the Income Tax Ordinance, 2001 and earlier circular 03 of 2006 issued on 11/07/2006 to clarify the taxation of income from property through practical illustration. The circular 03 of 2007 dated 29/09/2007 is creating confusion and computing income tax liability on account of property income portion incorrectly.
Sources further stated the decision is a correct and lawful interpretation of provision of section 15 of the Income Tax Ordinance, 2001 specifically sub-section 7 of section 15 is quite unambiguous on the issue of taxability and basic exemption while Division III of Part I of the First Schedule to the Income Tax Ordinance, 2001 categorically excluded the first Rs 150,000 from the ambit of income tax and treat it as income not liable to tax.
According to the sources, in the online version of income tax return (IT-2) for Tax Year 2011, the formula for auto calculation the Income tax on Property Income is implemented in the light of Circular No 3 of 2007. According to circular 3 of 2007, "In the case of an individual or AOP, no tax is chargeable on rental receipts up to Rs 150,000 provided the taxpayer does not derive taxable income under any other head of income".
But if the taxpayer derives taxable income under any other head then the tax is also charged @ 5% on rental receipts up to Rs 150,000. It has been decided by the Board that no tax will be charged on rental receipts up to Rs 150,000 irrespective of whether taxpayer derives income from other sources or not, sources added.