Rental income tax is a tax imposed on income earned from renting out property. It applies to landlords or property owners who receive rental income from tenants. The tax is usually calculated based on the rental income earned during a specific period, after deducting allowable expenses related to the rental property. The tax rate and rules may vary depending on the country and local tax regulations.
Taxable Rental Income
- Rental income includes rent received, advances received, service charges, and any other payments received for the use or occupation of a property.
- It also includes any premium or similar consideration for the grant of a lease.
Deductible Expenses
- Expenses incurred wholly and exclusively for the rental income are deductible. These may include repairs and maintenance, property agent fees, insurance, and loan interest.
Tax Rates
- The tax rate for rental income is 10% for residential rental income.
- For commercial rental income, the tax rate is 30% for resident individuals and companies, and 37.5% for non-resident individuals and companies.
Filing and Payment
- Rental income tax is filed annually as part of the individual or corporate tax return.
- The tax year runs from 1st January to 31st December.
- Payment is due by 30th June of the following year.
Withholding Tax
- If the landlord is a non-resident, the tenant is required to withhold tax at a rate of 20% on the gross rental income.
Exemptions
- Rental income from residential properties where the rent is less than KES 144,000 per year is exempt from tax.
- Other exemptions may apply based on specific circumstances and the tax laws in force.
Penalties
- Penalties and interest are imposed for late filing or payment of rental income tax. It is important to comply with tax regulations to avoid these additional costs.
Example Calculation
Assume a resident individual earns KES 500,000 in rental income from a commercial property. The tax rate for commercial rental income for residents is 30%.
- Gross Rental Income: KES 500,000
- Tax Payable: 30% of KES 500,000 = KES 150,000
The individual would be required to pay KES 150,000 as rental income tax.