Withholding Tax on Property Income

Withholding Tax on Property Income Section 155

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Introduction

Withholding tax on property income under Section 155 of the Income Tax Ordinance, 2001 is collected on rent of immovable property.

Section 155 (1) states, “Every prescribed person making a payment in full or part (including a payment by way of advance) to any person on account of rent of immovable property (including rent of furniture and fixtures, and amounts for services relating to such property) shall deduct tax from the gross amount of rent paid at the rate specified in Division V of Part III of the First Schedule.”

  • The gross amount of rent includes an amount not adjustable against the rent.

Withholding Tax on Property Income

Prescribed Person for Withholding Tax on Property Income

According to Section 155 (3), the prescribed persons for withholding tax on property income include:

“(i) the Federal Government;
(ii) a Provincial Government;
(iii) Local Government;
(iv) a company;
(v)  a non-profit organisation or a charitable institution;
(vi) a diplomatic mission of a foreign state;
(via) a private educational institution, a boutique, a beauty parlour, a
hospital, a clinic or a maternity home;
(vib) individuals or association of persons paying gross rent of rupees one
and a half million and above in a year; or
(vii) any other person notified by the Board for the purpose of this section.”

The prescribed persons are for withholding tax on property under Section 155 of the Income Ordinance, 2001.

Rates for Withholding Tax on Property Income

Annual Gross Amount of Rent Tax Rate
Gross Rent<Rs.300,000 0
300,000<Gross Rent<600,000 5% of amount>300,000
600,000<Gross Rent<2,000,000 Rs.15,000+10% of gross rent>600,000
Gross Rent>2,000,000 Rs.155,000+25% of gross rent exceeding Rs.2,000,000

 

Conclusion

  • These tax rates are on annual gross rent.
  • For instance, if gross income from rent on immovable property is Rs.  400,000, the withholding tax will be calculated on the amount exceeding Rs.300,000 which comes to Rs. 100,000 at the rate of 5%. Hence, the prescribed person will withhold tax equal to Rs.5,000 (100,000*5%) for that year.
  • The prescribed person will withhold the tax while making the payment of rent. If rent is paid monthly. The tax will be calculated accordingly.  For example, if the monthly rent is Rs. 40,000, the annual rent will be Rs.480,000. The tax on amount exceeding Rs.300,000 i.e. Rs.180,000 at the rate of 5% will be Rs.9,000 for the whole year. The monthly tax comes to Rs.750 (9,000/12) which will be deducted while making payment of the rent.
  • If the rent is paid to a company, the tax rate under Section 155 will be 15% of the gross rent.
  • The withholding tax on property income under Section 155 is adjustable.

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