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Advance Tax on security deposit of rent agreement
02-04-2010, 10:02 PM,
#1
Advance Tax on security deposit of rent agreement
Advance Tax on security deposit (non-adjustable amount) against the tenancy agreement of an immovable property.

<b>Section 16 of the Income Tax Ordinance 2001 states

<b>16. Non-adjustable amounts received in relation to buildings.-
(1) Where the owner of a building receives from a tenant an amount which is not adjustable against the rent payable by the tenant, the amount shall be treated as rent chargeable to tax under the head “Income from Property” in the tax year in which it was received and the following nine tax years in equal proportion.

(2) Where an amount (hereinafter referred to as the “earlier amount”) referred to in sub-section (1) is refunded by the owner to the tenant on termination of the tenancy before the expiry of ten years, no portion of the amount shall be allocated to the tax year in which it is refunded or to any subsequent tax year except as provided for in sub-section (3).

(3) Where the circumstances specified in sub-section (2) occur and the owner lets out the building or part thereof to another person (hereinafter referred to as the “succeeding tenant”) and receives from the succeeding tenant any amount (hereinafter referred to as the “succeeding amount”) which is not adjustable against the rent payable by the succeeding tenant, the succeeding amount as reduced by such portion of the earlier amount as was charged to tax shall be treated as rent chargeable to tax under the head “Income from Property” as specified in sub-section (1).</b></b>

We are the tenants & have to pay the security deposit to the Landlord.
From the above section, I conclude that for the calculation of advance income tax (i.e. deduction at source)

Gross Amount of Rent = Rent Payable in tax year + (10% X security deposit)

Please inform whether the above is correct or not. If not, please inform the correct treatment.

An early reply will be highly appreciated.

Thanks,
Umair Ahmed
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02-05-2010, 03:22 AM,
#2
 
Dear,

10% of the security deposit, which should be Non-adjustable deposit as per agreement, be added to the yearly rent and rate will be applied on the later amount.

Lets suppose yearly rent is Rs. 500,000 and non adjustable security deposit is Rs. 200,000, then 10% of 200,000 or Rs. 20,000 will be added to Rs. 500,000 and the rate will be applied at Rs. 520,000, that is to be considered as Rent Chargable to Tax, RCT.

Let me know if confusion still exist.

Regards,
Reply
02-06-2010, 05:20 PM,
#3
 
Dear Faisal,

Thanks for your reply & guidance

I am very clear now & adopting the treatment as advised

Thanks,
Umair
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