Introduction
Property rental tax rules define how income earned from renting out residential or commercial property is taxed. Whether you’re a landlord collecting rent or a tenant making payments, understanding these rules is crucial to staying compliant and avoiding penalties. In Pakistan, property rental income is taxable under the Income Tax Ordinance, 2001, and is monitored by the Federal Board of Revenue (FBR).
What Is Rental Income Tax?
Rental income tax applies to any income received from leasing, renting, or subletting property. This includes houses, apartments, offices, shops, warehouses, and other real estate assets.
For landlords, rental income is considered part of their total taxable income and must be declared in annual returns filed with the FBR.
Property Rental Tax Rates in Pakistan (2025 Overview)
The tax on rental income depends on the annual gross rent received:
| Annual Gross Rent (PKR) | Tax Rate |
|---|---|
| Up to 200,000 | 0% |
| 200,001 – 600,000 | 5% of the amount exceeding 200,000 |
| 600,001 – 1,000,000 | 20,000 + 10% of the amount exceeding 600,000 |
| 1,000,001 – 2,000,000 | 60,000 + 15% of the amount exceeding 1,000,000 |
| Above 2,000,000 | 210,000 + 25% of the amount exceeding 2,000,000 |
Note: Rates may change annually as per FBR’s Finance Act.
Allowable Deductions
The government allows certain deductions to calculate taxable rental income, helping property owners reduce their tax burden:
Repair and maintenance costs (up to 1/5th of gross rent)
Insurance premiums for the property
Local taxes and fees paid on the property
Interest on loans used for property purchase or construction
These deductions are meant to reflect genuine expenses landlords incur to maintain their rental properties.
Tenant’s Responsibility – Withholding Tax
Tenants, especially corporate or government entities, must deduct withholding tax (WHT) from rent payments before transferring money to the landlord.
The WHT rates are typically:
15% for individuals or AOPs (Association of Persons)
10% for companies
The deducted amount is then deposited with the FBR on behalf of the landlord.
How to Declare Rental Income
To remain compliant, landlords should:
Register with the FBR and obtain a National Tax Number (NTN).
Maintain a rental agreement that specifies rent, duration, and terms.
Declare rental income in the annual income tax return.
Pay tax according to the applicable tax slab.
Failure to declare rental income can lead to fines, audits, and potential legal action.
Exemptions and Special Cases
Certain properties or situations may qualify for tax exemptions, such as:
Self-occupied properties (not generating rental income)
Properties rented to registered charities or non-profits
Diplomatic residences (under specific conditions)
However, documentation and proof are required to claim these exemptions.
Property Rental Tax for Businesses
Companies that lease commercial spaces must report rental income as business income. Similarly, businesses paying rent can claim it as a deductible expense — provided valid rent agreements and tax withholding evidence are available.
Penalties for Non-Compliance
Late filing of returns: Penalties or additional taxes apply.
Failure to declare rent: Possible audits and fines.
Incorrect withholding: Tenants can also face legal action for non-deduction of WHT.
Staying compliant ensures peace of mind and protects both landlords and tenants from legal and financial complications.
