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What are the two requirements for deducting housing expenses from income?
What are the two requirements for deducting housing expenses from income?
According to the Cabinet of Ministers' Decision No. 492, 50% of housing expenses (rental of residential premises and individual houses) incurred by employees during the tax year, but not exceeding 1% of the annual income, are deducted from income for taxation purposes. As seen from the requirements of the article, two limits have been set for housing expenses:
- 50% of housing expenses (rental of residential premises and individual houses);
- Not exceeding 1% of the annual income.
Example 1. The employer pays a monthly rental expense of 600 manat to an employee earning 3000 manat per month. Until January 1, 2024, the income tax was calculated based on the total amount of 3600 manat (3000 manat (salary) + 600 manat (rent)). According to the Cabinet of Ministers' decision, 50% of the rent paid to the employee in a non-cash form is included within the norm, so the employee's monthly income will be determined as 3300 manat (3000 manat (salary) + 600 manat x 50% (conditional norm)), not 3600 manat. Additionally, a deduction of 300 manat (600 manat (housing expense) x 50%) from income will be allowed.
Example 2. The taxpayer rents a property for an employee with a monthly payment of 10,000 manat. The taxpayer's annual income is 2,000,000 manat. The housing expenses paid by the employer for the employee over 12 months and allowed to be deducted from income total 60,000 manat (10,000 manat (monthly rent) x 12 months x 50%). 1% of the taxpayer's annual income is 20,000 manat: 2 million manat (annual income) x 1% (the percentage determined by the Cabinet of Ministers' decision). In this case, the taxpayer should record 20,000 manat, not 60,000 manat, as the expense deducted from income.
According to the Cabinet of Ministers' Decision No. 492, 50% of housing expenses (rental of residential premises and individual houses) incurred by employees during the tax year, but not exceeding 1% of the annual income, are deducted from income for taxation purposes. As seen from the requirements of the article, two limits have been set for housing expenses:
- 50% of housing expenses (rental of residential premises and individual houses);
- Not exceeding 1% of the annual income.
Example 1. The employer pays a monthly rental expense of 600 manat to an employee earning 3000 manat per month. Until January 1, 2024, the income tax was calculated based on the total amount of 3600 manat (3000 manat (salary) + 600 manat (rent)). According to the Cabinet of Ministers' decision, 50% of the rent paid to the employee in a non-cash form is included within the norm, so the employee's monthly income will be determined as 3300 manat (3000 manat (salary) + 600 manat x 50% (conditional norm)), not 3600 manat. Additionally, a deduction of 300 manat (600 manat (housing expense) x 50%) from income will be allowed.
Example 2. The taxpayer rents a property for an employee with a monthly payment of 10,000 manat. The taxpayer's annual income is 2,000,000 manat. The housing expenses paid by the employer for the employee over 12 months and allowed to be deducted from income total 60,000 manat (10,000 manat (monthly rent) x 12 months x 50%). 1% of the taxpayer's annual income is 20,000 manat: 2 million manat (annual income) x 1% (the percentage determined by the Cabinet of Ministers' decision). In this case, the taxpayer should record 20,000 manat, not 60,000 manat, as the expense deducted from income.