Tax on Rental Income in Pakistan (TY 2025-26)
Rental income tax in Pakistan TY 2025-26 - Section 155 graduated slabs, allowable deductions, tenant WHT, property tax interaction, and IRIS filing tips.
Worked example: Rs 100,000 per month
Annual income Rs 1,200,000 - here's how it would be taxed both ways under Finance Act 2025.
| Taxable income band | Rate | Income in band | Tax in band |
|---|---|---|---|
| Up to Rs 600,000 | 0% | Rs 600,000 | Rs 0 |
| Rs 600,001 – Rs 1,200,000 | 15% | Rs 600,000 | Rs 90,000 |
| Total slab tax | Rs 90,000 | ||
Rental income falls under graduated slabs
Rental income from immovable property in Pakistan is taxed under Section 15 (heads of income - Income from Property). Individuals and AOPs pay graduated slabs starting at 5% above the PKR 300,000 annual exemption and climbing to 25% on rent above PKR 4 million. Companies pay a flat rate (currently 15% on gross rent). Withholding under Section 155 by tenants who are prescribed persons (companies, AOPs, government bodies) feeds advance tax credit against your final liability.
Allowable deductions against rental income
Unlike many income heads, Pakistan permits specific deductions against gross rent: repairs and maintenance (up to 1/6th of rent for owner of land/building, statutory), property tax paid, insurance premium on the property, ground rent, interest on loans taken to acquire/build the property, and collection charges (up to 6% of rent). For commercial property, depreciation under the Third Schedule is also available. Document each expense with bills and bank evidence - FBR audits commonly target rental property where deductions seem high vs gross.
Section 155 tenant withholding
If your tenant is a prescribed person (a company, an AOP, a government body, a charitable institution, or even a non-profit), they must withhold tax on the rent payment to you - 15% filer / 30% non-filer typically, though graduated rates apply for individuals. They issue you a deduction certificate and you claim it as advance tax in your return. Tenants who are pure individuals (residential rent to a household) generally don't withhold; you self-assess the tax on the gross.
Property tax and the wealth statement
Cantonment / municipal property tax paid is deductible against the rent. The property itself appears on your wealth statement (Form 116) under code 7022 (commercial) or 7021 (residential). Mismatch between declared property and reported rent is one of FBR's favourite audit signals - make sure your wealth statement and rental income line up consistently year over year.
Frequently asked questions
Is rental income taxable in Pakistan?
Yes. Rent from property is taxed under Section 15 - graduated slabs for individuals (5% → 25%) and a flat rate for companies. Below PKR 300,000 annual rent is exempt.
What deductions can I claim against rent?
Repairs (1/6th statutory), property tax, insurance, ground rent, loan interest, and collection charges up to 6%. Companies can also depreciate the building under the Third Schedule.
Does my tenant withhold tax on rent?
Only if they are a prescribed person - company, AOP, government, charity. Individual residential tenants don't withhold; the landlord self-assesses tax on the gross rent.
Do I declare commercial and residential rent the same way?
Both go under Income from Property in your IRIS return. Commercial property has the same slabs as residential, plus depreciation as an additional deduction. Wealth statement codes differ (7022 vs 7021).
Is rent from a property abroad taxable in Pakistan?
Yes for Pakistani residents - worldwide income is taxable. Foreign rental income hits the same slabs; foreign tax credit available under any applicable DTAA.