In Finance Bill 2020, the Rental income expense limit has been reduced to encourage under-reporting.

Presently, expenses incurred to the extent of 6 percent of rent chargeable wholly and exclusively for deriving rent are admissible as a deduction against rental income.

The proposal to reduce this limit from 6% to 2% has been made in the finance bill 2020.

As per the sayings of experts, further reduction in such a limit would deprive a taxpayer for claiming a legitimate expense incurred solely for deriving taxable income and would ultimately lead to higher tax payable by the taxpayer.  The taxpayers might be encouraged to under-report their taxable income on the grounds that the legitimate expenses are disallowed.

Currently, property income derived by an individual or AOP is treated as a separate block and the income is subject to tax at specified slab rates.

However, as per Division I of Part I of the First Schedule, the individuals or AOPs having income from property that exceeds Rs.4 million per annum can opt to claim deductions under section 15A of the Ordinance and pay tax at normal rates.

The proposal in the bill is made to abolish such a limit of Rs.4 million and therefore an individual or AOP can now opt for claiming tax deductions and pay tax at normal rates irrespective of the amount of income derived from the property.