Rental income tax in Pakistan: what you can deduct, and the table that no longer exists

The separate rental rate table that once taxed individuals and associations of persons on gross rent with no deductions has been abolished. Rental income is now charged under section 15 as Income from Property and taxed at the normal slab rates, with the deductions in section 15A available, including the one fifth repairs allowance under section 15A(a).

This page sets out how rental income is taxed now, what you can deduct, how deposits are handled, and how it connects to the taxes on buying and selling property. If you want the return prepared rather than the rules explained, that is our income tax filing service.

The separate rental rate table no longer exists

Take this first, because if you get it wrong nothing else on the page will help you.

Section 15 of the Income Tax Ordinance 2001 originally carried its own charging rate in subsection (6), and a small landlord exclusion in subsection (7). Both were omitted by the Finance Act 2013. The mechanism then moved into section 15A, whose subsection (6) made income under the head liable to tax at the rate specified in Division VIA of Part I of the First Schedule for individuals and associations of persons, with subsection (7) excluding those with rental income under two hundred thousand rupees and no other taxable income. Both of those were omitted by the Finance Act 2021, and Divisions VI and VIA of Part I of the First Schedule were omitted by the same Act.

The change cuts both ways and it is worth understanding why. Under the old regime the rate was applied to gross rent and deductions were largely unavailable to individuals. Under the current one you are taxed on net income at your ordinary marginal rate. For a landlord with a mortgage, repairs and management costs, that is usually a significantly better outcome. For a landlord with a low total income and no expenses, it can be worse.

What counts as rent, and what quietly does not

Section 15(1) charges the rent received or receivable by a person for a tax year under the head "Income from Property". Section 15(2) defines rent as any amount received or receivable by the owner of land or a building as consideration for the use or occupation of, or the right to use or occupy, the land or building. It expressly includes any forfeited deposit paid under a contract for the sale of land or a building, which catches people who assume a broken sale deposit is a capital matter.

Two carve outs then move money out of this head and into another, and both are easy to miss:

• Section 15(3): where a building is leased together with plant and machinery, the rent is chargeable under the head "Income from Other Sources" instead. A warehouse let with its racking and handling equipment, or a factory let with its plant, can fall here.
• Section 15(3A): where any amount included in the rent is for the provision of amenities, utilities or any other service connected with the renting of the building, that amount is chargeable under "Income from Other Sources".

Section 15(3A) is the one that bites in practice. If your tenancy agreement bundles maintenance, security, generator or utility charges into a single monthly figure, part of that figure is arguably not rent at all for tax purposes. Splitting the components out in the agreement itself is far easier than reconstructing the split later.

There is also an anti avoidance rule with real teeth. Under section 15(4), where the rent received or receivable is less than the fair market rent for the property, the person is treated as having derived the fair market rent for the period the property was let in the tax year. Letting to a relative at a nominal figure does not reduce the tax. The only exception, in section 15(4) read with section 15(5), is where the fair market rent is included in the lessee's income chargeable under the head "Salary", which covers genuine employer provided accommodation.

What you are allowed to deduct

Section 15A is headed "Deductions in computing income chargeable under the head Income from Property" and lists the allowable items. The two most valuable are the first and the eighth:

• (a) A repairs allowance equal to one fifth of the rent chargeable to tax in respect of the building for the year, computed before any deduction under the section. This is a flat statutory allowance. You do not need to have spent it, and you do not need receipts for it.
• (b) Any insurance premium paid or payable to insure the building against damage or destruction.
• (c) Any local rate, tax, charge or cess in respect of the property or the rent, paid to a local authority or government, not being tax payable under the Ordinance itself. Provincial property tax qualifies. Your own income tax does not.
• (d) Any ground rent.
• (e) Any profit paid on money borrowed, including by way of mortgage, to acquire, construct, renovate, extend or reconstruct the property. For a leveraged landlord this is normally the largest single deduction.
• (f) Where the property was acquired or built with capital from the House Building Finance Corporation or a scheduled bank under a rent sharing scheme, the share in rent and the share towards appreciation paid to that institution, excluding any return of capital.
• (g) Where the property is subject to a mortgage or other capital charge, the profit or interest paid on it.
• (h) Administration and collection charges and similar expenditure incurred wholly and exclusively for deriving rent, capped at four percent of the rent chargeable for the year computed before any deduction under the section.
• (i) Expenditure on legal services to defend title to the property or any suit connected with it.
• (j) Where there are reasonable grounds to believe unpaid rent is irrecoverable, an allowance equal to the unpaid rent, subject to the conditions in the clause.

Note the structure of (a) and (h) carefully. Both are percentages of rent computed before any deduction allowed under the section, so they are calculated off the same gross figure rather than cascading. And note that (a) is an allowance rather than a reimbursement: the one fifth is available whether or not you carried out repairs, which makes it the single most overlooked item on this list.

Deposits and advances that are not adjustable against rent

Section 16 deals with the lump sum that changes hands at the start of a tenancy and is not set against rent. Where the owner of a building receives from a tenant an amount not adjustable against the rent payable, that amount is treated as rent chargeable under the head, spread over the year of receipt and the following nine tax years in equal proportion. So a non adjustable deposit is taxed at one tenth a year over ten years, not all at once.

Section 16(2) handles early termination: where such an amount is refunded to the tenant on termination before the expiry of ten years, no portion is allocated to the year of refund or any subsequent year. Section 16(3) then handles the replacement tenant: where a succeeding tenant pays a similar non adjustable amount, the succeeding amount is reduced by so much of the earlier amount as was already charged to tax before being spread. That prevents the same economic sum being taxed twice across two tenancies, and it only works if you have kept a record of what was charged under the first one.

Tax your tenant is required to deduct

Section 155, headed "Rent of immoveable property", requires every prescribed person making a payment in full or in part, including a payment by way of advance, on account of rent of immovable property to deduct tax from the gross amount of rent at the rate specified in Division V of Part III of the First Schedule.

Three details determine whether this affects you:

• The gross amount expressly includes rent of furniture and fixtures, and amounts for services relating to the property. So the section 15(3A) split discussed above does not reduce the withholding base, even where it changes the head of income.
• An Explanation confirms that gross rent for this purpose includes the amounts referred to in section 16(1) or (3), that is, the non adjustable deposits.
• A further Explanation, added for the removal of doubt, states that the section applies when a payment is made on account of rent of immovable property irrespective of the head of income. That closes the argument that rent taxed under another head escapes the withholding.

Whether anyone deducts turns on the definition of prescribed person in section 155(3). The list runs: the Federal Government; a Provincial Government; a Local Government; a company; a non profit organisation or charitable institution; a diplomatic mission of a foreign state; a private educational institution, a boutique, a beauty parlour, a hospital, a clinic or a maternity home; individuals or associations of persons paying gross rent of rupees one and a half million and above in a year; and any other person notified by the Board.

The tax deducted is adjustable, not final. Section 155 used to contain a subsection (2) making it a final tax on income from property, and that subsection was omitted by the Finance Act 2010. Since then the deduction is credited against your liability under the general rule in section 168(2), which means you still compute your actual position in the return and the withholding is a payment on account.

The rates are in Division V of Part III of the First Schedule, and the table was substituted by the Finance Act 2021. For an individual or association of persons: nil where gross rent does not exceed three hundred thousand rupees; 5 percent of the amount exceeding three hundred thousand up to six hundred thousand; fifteen thousand rupees plus 10 percent of the amount exceeding six hundred thousand up to two million; and one hundred and fifty five thousand rupees plus 25 percent of the amount exceeding two million. For a company, a flat 15 percent of the gross amount of rent.

Treat any rent withholding table you find elsewhere with suspicion. At least three superseded versions of this table sit in the footnotes on the same pages of the consolidated Ordinance, formatted identically to the live one. The general mechanics of withholding, and which provisions are adjustable against your final liability, are in the withholding tax guide.

How this connects to buying and selling property

Rental income sits alongside two transaction taxes that landlords meet at either end of the holding period: advance tax on the seller under section 236C and on the purchaser under section 236K. Both are collected when the transfer is registered or recorded, and both are adjustable, with one exception: under the proviso to section 236C(2), where a property is acquired and disposed of within the same tax year, the tax collected is minimum tax rather than adjustable.

The Finance Act 2026 replaced the old value banded rates with flat ones. The rate under section 236C is now 2.75 percent of the gross amount of the consideration received, and the rate under section 236K is 1.25 percent of the fair market value of the property.

Both provisions are charged at sharply higher rates for a person not on the Active Taxpayer List, under Rule 1 of the Tenth Schedule: 11.5 percent under section 236C, and a scale of 10.5, 14.5 and 18.5 percent under section 236K depending on fair market value. For a landlord that is the strongest practical argument for filing, because property is precisely where non filer status is most expensive. See the Active Taxpayer List explained.

There is also a significant change this year. Section 7E, which deemed a resident person to have derived income equal to a percentage of the fair market value of capital assets in Pakistan, was omitted by the Finance Act 2026, and the Division setting its rate was omitted with it. Property owners have been dealing with 7E certificates at the point of sale since 2023, so this materially changes the paperwork. We cover what it means, and what remains open for earlier tax years, in the section 7E guide.

What to actually do

Split bundled charges out in the tenancy agreement so the section 15(3A) position is documented rather than argued. Claim the one fifth repairs allowance under section 15A(a), because it is available whether or not you spent it. Keep the loan documentation, since the profit deduction under section 15A(e) is usually the largest item. Record what portion of any non adjustable deposit has been charged to tax, because section 16(3) depends on that number when the tenant changes. And file, because the property transaction taxes at the other end are where being off the list actually hurts.

Last verified: 22 August 2026. Primary sources read directly for this page: the Income Tax Ordinance 2001 as consolidated by the Federal Board of Revenue and stated to be amended up to 30 June 2026, specifically section 15 including subsections (2), (3), (3A), (4) and (5) and the footnotes recording the omission of subsections (6) and (7) by the Finance Act 2013; section 15A clauses (a) to (j) and the footnotes recording the omission of its subsections (6) and (7) by the Finance Act 2021; section 16 subsections (1) to (3); section 155 including both Explanations, the prescribed person list in subsection (3) and the footnote recording the omission of its subsection (2) by the Finance Act 2010; section 168(2); Division V of Part III of the First Schedule as substituted by the Finance Act 2021; Part I of the First Schedule together with the footnote recording the omission of Divisions VI and VIA by the Finance Act 2021; section 236C including the proviso to subsection (2), with Division X of Part IV and Division XVIII of Part IV of the First Schedule as substituted by the Finance Act 2026; Rule 1 of the Tenth Schedule; and the footnote recording the omission of section 7E by the Finance Act 2026. FBR's Salient Features for Budget 2026 27 was also read, and is identified above as differing from the enacted rate for section 236K. General information, not tax advice. Confirm your own position with your tax consultant.