ISLAMABAD, Sept 29: The Federal Board of Revenue (FBR) on Saturday notified the deduction of income tax on rental income or hiring claims.

The clarifications have been issued through an income tax circular no 3 of 2007 issued here with details about the chargeability and collection of the levy from the income on rent.

According to the circular, in case of an individual or AOP, no tax is chargeable on rental receipts up to Rs150,000 provided the taxpayer does not derive taxable income under any other head of income.

Tax is to be deducted at the rate of five per cent as the taxpayer is receiving payment as owner of the property. Salary income of Rs150,000 is taxable, however, it is chargeable to tax at 0 per cent rate. Since the taxpayer is deriving taxable income from salary, therefore, in the instant case rental income of Rs150,000 is chargeable to tax at the rate of five per cent.

Under section 155 of the Income Tax Ordinance, 2001, a prescribed person is required to deduct tax at the rate of five per cent at the time of making payment on account of rent of immoveable property.

For deduction of tax, no threshold has been given under the law and the payer is responsible to deduct tax from the rent paid for any amount.

Further, as explained vide paragraph 24 of CBR’s Circular No1 of 2007, an amendment has been made in section 155(2) by virtue of which tax deducted in the case of an individual or AOP having no other taxable income is refundable on filing of the return of income.

In such a case, the taxpayer may file an application for refund under section 170 of the Income Tax Ordinance, 2001.

Income from property is chargeable to tax at the rate of five per cent of the gross amount of the rent as a separate block of income, whereas business income is chargeable to tax at the rate of one per cent for current tax year.

It further says withholding tax at the rate of five per cent is liable in respect of property income in the case of self hiring and otherwise. Taxability on account of accommodation is on notional basis, according to Rule-4 of the Income Tax Rules, 2002. Valuation of fair market value of accommodation provided by the employer may invariably be higher than 45 per cent of the minimum of time scale. However, this measure has been adopted to simplify the valuation of accommodation, added the circular.