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Tax on Incidental Income

Tax on Incidental Income


The cash or non-cash income that a real or legal person earns ex gratia or through favoritism or as an award or under any other similar titles shall be subject to the tax on incidental income (see Art. 119 of DTA).


Taxable persons


All persons earning incidental income are subject to taxation (see the same Art.). 


Taxable income


The taxable income subject to the tax on incidental income shall consist of 100% of the realized earnings. The non-cash income shall be valued at the current prices on the date of realization of income except for real properties in respect of which a taxable value is determined, in which case the same taxable value shall constitute the basis of tax computation (see Art. 120 of DTA).


In respect of compromise and gift against consideration, except for the cases subject to the Article (63) of the Direct Taxes Act [whereby the final transfer of a real estate which takes place under arrangements other than those of the sale contract shall be subject to the tax on final transfer of real estates], the taxable income will consist of the difference between the values of the objects of the relevant reciprocal transaction and the tax due shall be attributed to the party benefiting from the incidental income (see Note of Art. 120 of DTA).


In case of compromise on a property whereby the proceeds of such property are allocated, for any duration, to the compromising party or to a third party, the value of the property including the substance and proceeds thereof, at prices prevailing at the time of accrual of the proceeds of the property to the other party of the compromise, shall constitute the basis of that party s tax, which shall apply at the same date (see Art. 122 of DTA).

Personal deductions, allowances and credits


Compromises with the option of cancellation and also revocable gifts will be considered, for tax purposes, as final contracts, but if they are cancelled or dissolved as a result of mutual consent or revoked, within six months from the date of their conclusion, the funds collected as tax shall become refundable; then, if some proceeds are accrued to the transferee between the conclusion of the contract and cancellation, dissolution or revocation thereof, the transferee shall be subject to taxation with respect to such proceeds (see Art. 121 of DTA).


The tax on incidental income shall not apply in the following cases (see Art. 127 of DTA):


  1. Cash and non-cash gratuitous donations of charitable or public-service organizations, ministries, government enterprises and companies, municipalities or foundations of the Islamic Revolution to real persons, other than the payments subject to Salary Tax;
  2.  Funds or financial aids donated to individuals suffered from war, earthquake, flood, fire and other unexpected disasters; and
  3. Bonuses paid by the government to promote exports or to encourage the production and purchase of agricultural produces.




The tax on incidental income to be paid by individuals will be calculated at the rates stipulated in Article (131) of Direct Taxes Act ranging from 15 to 35 percent (see Art. 119 of DTA; for the rates in details, see Table 1 below) but as for legal persons, a flat rate of 25% shall apply (on the strength of the Directive No. 61/93/200 issued by INTA on 11/08/2014).


Table (1): General Individual Tax Rates


Annual Taxable Income (in IRR)


Up to 500,000,000


500,000,001 to 1,000,000,000


Over 1,000,000,000




Tax returns, assessment & payment


Where the proceeds of a property are provisionally or permanently transferred to a person ex gratia, the transferees shall be obligated, up to the end of Ordibehesht (20th day of May) of the subsequent year, to submit their tax returns to the respective Tax Affairs Office and to pay the tax on the proceeds of the previous year (see Art. 126 of DTA).


In cases where the incidental income is realized as “compromise and gift against consideration”, “compromise with option of cancellation”, “revocable gift“, or “disposition of properties under a will”, the deadline for the submission of the tax returns and payment of the applicable tax shall be the end of the next subsequent month following the date of acquisition of the income or accrual of the proceeds (see the same Art.).


Where the transaction is registered by a notary public and taxes are already paid, the obligation for filing a tax return shall be discarded (see the same Art.).


The taxable income of legal persons resulting from incidental earnings shall be assessed by reference to the books of accounts, and taxes withheld at source shall be considered as the advance payment of their taxes (see Art. 128 of DTA).


Related Pages
A Review of the Iranian Tax System
Corporate Income Tax
Employment Income Tax
Full-Text of VAT Act
Individual Business Income Tax
Letters of Circular
Property Taxes
Real Estate Income Tax
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