Rental Income Tax in Pakistan: A Complete 2026 Guide for Property Owners

Owning a shop, plaza, factory unit, or house and renting it out is one of the most common ways to earn in cities like Sialkot. However, that rent is not tax-free. Under the Income Tax Ordinance 2001, rental income tax in Pakistan is charged under a separate head called “Income from Property”. Therefore, every landlord — from a small homeowner to a large commercial property owner — needs to understand how this tax works.

In this guide, your trusted Sialkot tax consultant team at Trusty Consulting explains Sections 15, 15A, 16, and 155 in plain language. Furthermore, we cover allowable deductions, withholding tax, advance deposits, and a step-by-step filing process.

What Is Income from Property?
How Rental Income Tax in Pakistan Is Charged
Deductions You Can Claim Under Section 15A
Section 16: Non-Adjustable Deposits and Advances
Withholding Tax on Rent Under Section 155
Section 155 Withholding Tax Rates Table
Real Examples From Sialkot
Step-by-Step Guide to Declaring Rental Income
Frequently Asked Questions
Need Help? Talk to a Sialkot Tax Consultant

What Is Income from Property?

Under Section 15 of the Income Tax Ordinance 2001, any rent received or receivable by a person for a tax year is taxable under the head “Income from Property”. In simple words, if you let out land or a building and receive money for its use, that money is taxable.

Moreover, the law defines rent broadly. It means any amount received by the owner of land or a building as consideration for the use or occupation of that property. In addition, it includes any forfeited deposit paid under a contract for the sale of land or a building.

However, there are two important exceptions:

Building plus plant and machinery: If you lease a building together with plant and machinery, the rent is taxed under “Income from Other Sources”, not under property income.
Amenities and services: If part of the rent is charged for utilities, amenities, or other services connected to the building, that portion is also taxed under “Income from Other Sources”.

Furthermore, Section 15(4) introduces a fair market rent rule. If the rent you receive is less than the fair market rent, the Federal Board of Revenue (FBR) can treat you as having earned the fair market rent. Therefore, declaring an artificially low rent to save tax is risky — a common mistake we correct as a Sialkot tax consultant.

How Rental Income Tax in Pakistan Is Charged

This is where many landlords get confused. Earlier, property income was taxed under a separate block rate. However, that separate slab was removed years ago. Today, rental income tax in Pakistan works as follows:

For individuals and Associations of Persons (AOPs), rental income is added to total income and taxed at the normal income tax slab rates, after allowing the deductions under Section 15A.
For companies, rental income is taxed at the applicable corporate tax rate.

Therefore, your rent is no longer taxed in isolation. Instead, it is combined with your other income (such as business or salary) and taxed accordingly. This change makes it essential to plan correctly — especially for Sialkot business owners who run an export business and own rental property.

Deductions You Can Claim Under Section 15A

Here is the good news. You do not pay tax on the full gross rent. Section 15A allows several deductions before arriving at your taxable property income. Consequently, claiming them correctly can significantly reduce your rental income tax in Pakistan.

The main allowable deductions include:

Repair allowance — a flat one-fifth (20%) of the rent chargeable to tax, allowed automatically for building repairs.
Insurance premium paid to insure the building against damage or destruction.
Local rates, taxes, charges, or cess paid to a local authority or government on the property (excluding income tax itself).
Ground rent paid during the year.
Profit or interest on borrowed money used to acquire, construct, renovate, extend, or reconstruct the property — including a mortgage.
HBFC or bank share under a rent-sharing investment scheme, such as those offered by the House Building Finance Company (HBFC).
Administration and collection charges, capped at 4% of the rent chargeable to tax.
Legal expenses incurred to defend your title to the property.
Irrecoverable rent, where genuine, bona fide efforts to recover unpaid rent have failed.

However, remember a key rule: any expense claimed here cannot be claimed again under another head of income. As a professional Sialkot tax consultant, we always cross-check this to avoid an FBR notice.

Section 16: Non-Adjustable Deposits and Advances

In Pakistani property culture, landlords often take a large security deposit or pagri that is not adjusted against monthly rent. Many owners assume this lump sum is tax-free. However, that is incorrect.

Under Section 16, when you receive an amount from a tenant that is not adjustable against the rent, it is treated as rent chargeable to tax. Importantly, you do not pay tax on the whole amount in one year. Instead, the amount is spread equally over ten years — the year of receipt plus the following nine tax years.

Furthermore, the law handles refunds and re-letting carefully:

If you refund the deposit to the tenant before ten years end, no further portion is taxed after refund.
If you then take a new non-adjustable amount from a succeeding tenant, the new amount is reduced by the portion of the earlier amount already taxed, and the balance is again spread accordingly.

Therefore, large advances must be tracked over a full decade. This is exactly the kind of detail where good record-keeping protects you.

Withholding Tax on Rent Under Section 155

Now let us talk about Section 155, which deals with withholding tax on rent. Under this section, a prescribed person paying rent must deduct tax at source from the gross rent and deposit it with the FBR.

So, who is a prescribed person? The list includes:

The Federal Government, a Provincial Government, and Local Government;
A company;
A non-profit organization or charitable institution;
A diplomatic mission of a foreign state;
A private educational institution, boutique, beauty parlour, hospital, clinic, or maternity home; and
Individuals or AOPs paying gross rent of Rs. 1.5 million or more per year.

In other words, if a bank, company, or large tenant rents your Sialkot plaza, they will deduct tax from your rent before paying you. Importantly, this deducted tax is adjustable advance tax — it is not a final tax. Therefore, you can adjust it against your final liability when you file your return.

Section 155 Withholding Tax Rates Table

For individuals and AOPs, the rates of tax to be deducted under Section 155 (Division V, Part III of the First Schedule) are as follows:

Gross Annual Rent	Withholding Tax Rate
Up to Rs. 300,000	Nil
Rs. 300,001 – Rs. 600,000	5% of the amount exceeding Rs. 300,000
Rs. 600,001 – Rs. 2,000,000	Rs. 15,000 + 10% of the amount exceeding Rs. 600,000
Above Rs. 2,000,000	Rs. 155,000 + 25% of the amount exceeding Rs. 2,000,000

For a company, the rate is a flat 15% of the gross amount of rent.

Note: “Gross amount of rent” also includes any non-adjustable amount treated as rent under Section 16. Tax rates can change with each Finance Act, so always confirm the current year’s rates with a qualified Sialkot tax consultant before filing.

Real Examples From Sialkot

To make this practical, here are two real-world style examples from our city.

Example 1: The Surgical Exporter’s Plaza

Imran, a surgical instruments exporter in Sialkot, owns a commercial plaza near Kashmir Road. He rents the ground floor to a bank for Rs. 1,800,000 a year. The bank, being a company and a prescribed person, deducts withholding tax under Section 155 before paying him.

Initially, Imran assumed the deducted tax was final and ignored the rent in his return. However, when we reviewed his case, we explained two things. Firstly, the tax was adjustable, not final. Secondly, he had never claimed his Section 15A deductions — the 20% repair allowance, property tax, and bank loan interest on the plaza. After claiming these, his taxable property income dropped sharply, and a portion of the withheld tax became refundable. Consequently, his overall rental income tax in Pakistan liability fell.

Example 2: The Leather Trader’s Big Deposit

Ayesha, who runs a leather goods business in Sialkot, rented out her residential portion in Cantt and took a non-adjustable security deposit of Rs. 2,000,000. She believed this lump sum was simply a deposit and not income.

Therefore, she reported nothing. However, under Section 16, that deposit had to be treated as rent and spread over ten years — meaning Rs. 200,000 was taxable each year. By catching this early, we helped her declare it correctly and avoid penalties for under-reporting. This is a classic case where a Sialkot tax consultant saves a client from a future FBR notice.

Step-by-Step Guide to Declaring Rental Income

Follow these steps to handle your rental income tax in Pakistan correctly:

Gather your rent records. Collect tenancy agreements, rent receipts, and bank statements showing rent received during the tax year.
Calculate gross rent. Add all rent received or receivable. Include any non-adjustable deposit portion taxable under Section 16.
List your deductions. Note your 20% repair allowance, property tax, insurance, loan interest, and collection charges under Section 15A.
Compute net property income. Subtract allowable deductions from gross rent.
Check withholding tax. Obtain proof of any tax deducted by tenants under Section 155 (the deduction certificate).
Register on IRIS. Log in to the FBR IRIS portal using your NTN. If you are not registered, register first.
File your return. Enter property income under the correct head, claim deductions, and adjust the withheld tax.
Pay any balance or claim refund. Pay the remaining tax, or claim a refund if excess tax was deducted.
Stay on the Active Taxpayer List (ATL). File on time to remain on the Active Taxpayer List and avoid higher withholding rates.
Keep records for six years. Maintain all documents in case of an FBR audit.

If this feels overwhelming, our team at Trusty Consulting handles the entire process for you.

Frequently Asked Questions

Q1. Is rental income taxable if it is below Rs. 300,000 a year? For withholding purposes under Section 155, rent up to Rs. 300,000 has a Nil deduction rate. However, your total income may still require filing a return. Therefore, consult a Sialkot tax consultant to confirm.

Q2. Can I deduct my home loan interest from rental income? Yes. Under Section 15A, profit or interest paid on money borrowed to acquire, construct, or renovate the property is deductible.

Q3. Is the tax deducted by my tenant the final tax? No. Since the relevant provision was changed, withholding tax under Section 155 is adjustable advance tax, not a final tax.

Q4. Do I pay tax on a security deposit? If the deposit is non-adjustable against rent, yes — it is spread over ten years under Section 16.

Q5. What if I rent out a building along with machinery? Then the rent is taxed under “Income from Other Sources”, not under property income.

Need Help? Talk to a Sialkot Tax Consultant

Understanding rental income tax in Pakistan is one thing; filing it perfectly is another. From claiming every legal deduction to handling Section 155 withholding and Section 16 deposits, the details matter — and mistakes can be costly.

At Trusty Consulting, we help landlords, exporters, and business owners across Sialkot, Sambrial, Daska, and Pasrur file accurate returns and minimise their tax legally. As your dedicated Sialkot tax consultant, we make tax simple, compliant, and stress-free.

📞 WhatsApp us today at 03296325872 🌐 Visit tconsultingpk.com to book a consultation.

Let Trusty Consulting handle your rental income tax in Pakistan while you focus on growing your business.