Tax on Rental Income in Pakistan — Complete Guide 2025
Rental income is a common source of income for property owners in Pakistan. Understanding how rental income is taxed — including the special rules for its calculation and the applicable deductions — is essential for proper tax compliance. This comprehensive guide covers everything property owners need to know.
How Rental Income is Taxed
Rental income from property is added to your total income and taxed at the applicable progressive slab rate. However, the Income Tax Ordinance specifies special rules for how rental income is calculated — you do not simply report the gross rent received.
Rental Income Tax Slabs (Section 155)
For withholding tax purposes, rent payments are subject to deduction under Section 155:
| Annual Rent (PKR) | Filer Rate | Non-Filer Rate |
|---|---|---|
| Up to 300,000 | Nil | Nil |
| 300,001 — 600,000 | 5% | 10% |
| 600,001 — 2,000,000 | 10% | 20% |
| Above 2,000,000 | 25% | 35% |
Allowable Deductions from Rental Income
When calculating your net rental income for tax purposes, you can deduct the following:
- Property tax paid: Full amount of annual property tax
- Repairs and maintenance: Up to 20% of gross rent (standard deduction)
- Insurance premium: Property insurance paid
- Legal expenses: Tenant-related legal costs
- Utilities: Water, electricity, gas (if paid by owner)
- Ground rent: Leasehold property ground rent
- Collection charges: Fees paid to property management companies
Important: If you choose the standard 20% deduction for repairs, you cannot claim actual repair expenses separately.
How to Report Rental Income in Your Tax Return
- Calculate gross rental income for the year
- Subtract allowable deductions to arrive at net rental income
- Add net rental income to your other income (salary, business, etc.)
- Calculate total tax on combined income using applicable slabs
- Claim credit for tax already deducted by tenant under Section 155
Rental Income Example
Scenario: Annual rent PKR 1,200,000
Deductions: Property tax PKR 50,000 + Standard repair deduction (20% of 1.2M = PKR 240,000)
Net Rental Income: 1,200,000 — 50,000 — 240,000 = PKR 910,000
Tax on PKR 910,000 (as salaried): 5% of 310,000 = PKR 15,500
Tenant’s Obligation to Deduct Tax
Tenants paying rent exceeding PKR 300,000 per year must deduct withholding tax under Section 155 at the prescribed rates and deposit it with FBR. Tenants should provide the landlord with a tax deduction certificate for claiming credit.
Frequently Asked Questions
Is rental income taxable if I have a mortgage on the property?
Yes. Rental income is taxable regardless of any mortgage or loan on the property. However, interest paid on the loan may be deductible in certain circumstances.
What if I rent to a family member at below-market rates?
The FBR may apply deemed rental income rules if the rent charged is significantly below market rates for similar properties. It is safer to charge fair market rent and report it properly.